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 April 30, 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 June 3, 1994, the number of shares outstanding of the registrant's
Common Stock was 49,983,835 and the Class B Common was 25,034,861.
PAGE 2
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income (Loss) --
Three Months and Six Months Ended April 30, 1994 and 1993 . 3
Statement of Financial Condition --
April 30, 1994, October 31, 1993 and April 30, 1993 ....... 5
Statement of Cash Flow --
Six Months Ended April 30, 1994 and 1993 .................. 7
Notes to Financial Statements ............................... 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ................... 14
Part II. Other Information:
Item 1. Legal Proceedings .................................... 20
Item 6. Exhibits and Reports on Form 8-K ..................... 21
Signature ..................................................... 22
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 April 30
-----------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note ---------------------- ----------------------
1994 1993 Reference 1994 1993 1994 1993
------ ------ ---------- ------ ------ ------ ------
Sales and revenues
Sales of manufactured products ............ $1,350 $1,189 $1,350 $1,189 $ - $ -
Finance and insurance income .............. 30 44 - - 43 54
Other income .............................. 10 8 7 3 3 5
------ ------ ------ ------ ------ ------
Total sales and revenues ................ 1,390 1,241 1,357 1,192 46 59
------ ------ ------ ------ ------ ------
Costs and expenses
Cost of products and services sold ........ 1,191 1,030 1,190 1,028 1 2
Postretirement benefits ................... 44 58 Note E 43 57 1 1
Engineering expense ....................... 22 23 22 23 - -
Marketing and administrative expense ...... 63 62 61 58 2 4
Interest expense .......................... 19 22 2 3 17 19
Financing charges on sold receivables ..... 3 2 16 12 - -
Insurance claims and underwriting expense . 13 18 - - 13 18
------ ------ ------ ------ ------ ------
Total costs and expenses ................ 1,355 1,215 1,334 1,181 34 44
------ ------ ------ ------ ------ ------
Income (loss) before income taxes
Manufacturing ........................... - - 23 11 - -
Financial Services ...................... - - 12 15 - -
------ ------ ------ ------ ------ ------
Income before income taxes ............ 35 26 35 26 12 15
Income tax expense .................... (12) (11) Note F (12) (11) (4) (5)
------ ------ ------ ------ ------ ------
Income before cumulative effect of changes
in accounting policy .................... 23 15 23 15 8 10
Cumulative effect of changes
in accounting policy .................... - - Note B - - - -
------ ------ ------ ------ ------ ------
Net income (loss) ......................... $ 23 $ 15 $ 23 $ 15 $ 8 $ 10
====== ====== ====== ====== ====== ======
Net income (loss) applicable to
common stock ............................ $ 16 $ 8 Note G
====== ======
Income (loss) per common share:
Before cumulative effect of changes
in accounting policy .................. $ .21 $ .32
Cumulative effect of changes in
accounting policy ..................... - -
------ ------
Net income (loss) per common share ........ $ .21 $ .32
====== ======
Average number of common and dilutive
common equivalent shares outstanding
(millions) .............................. 74.6 25.7 Note G
<FN>
See Notes to Financial Statements.
/TABLE
PAGE 4
Six Months Ended April 30
-------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ---------------------- ----------------------
1994 1993 1994 1993 1994 1993
------ ------ ------ ------ ------ ------
$2,437 $2,172 $2,437 $2,172 $ - $ -
71 90 - - 96 110
18 18 12 9 6 9
------ ------ ------ ------ ------ ------
2,526 2,280 2,449 2,181 102 119
------ ------ ------ ------ ------ ------
2,137 1,888 2,135 1,885 2 3
90 107 89 106 1 1
44 45 44 45 - -
122 122 117 113 5 9
39 47 5 6 34 41
6 7 31 27 - -
29 34 - - 29 34
------ ------ ------ ------ ------ ------
2,467 2,250 2,421 2,182 71 88
------ ------ ------ ------ ------ ------
- - 28 (1) - -
- - 31 31 - -
------ ------ ------ ------ ------ ------
59 30 59 30 31 31
(20) (13) (20) (13) (11) (11)
------ ------ ------ ------ ------ ------
39 17 39 17 20 20
- (228) - (228) - (9)
------ ------ ------ ------ ------ ------
$ 39 $ (211) $ 39 $ (211) $ 20 $ 11
====== ====== ====== ====== ====== ======
$ 25 $ (225)
====== ======
$ .33 $ .13
- (8.95)
------ ------
$ .33 $(8.82)
====== ======
74.7 25.6
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries 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 is shown in Note C.
PAGE 5
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- - -----------------------------------------------------------------------------------------------------------------------------
Millions of dollars
- - -----------------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
--------------------------------------
April 30 October 31 April 30 Note
1994 1993 1993 Reference
-------- ---------- -------- ---------
ASSETS
- - -----------------------------------
Cash and cash equivalents ...................................... $ 348 $ 421 $ 242
Marketable securities .......................................... 323 218 198
Receivables, net ............................................... 1,518 1,540 1,485
Inventories .................................................... 437 411 425 Note H
Prepaid pension assets ......................................... 96 82 125
Property, net of accumulated depreciation
and amortization of $666, $647 and $628 ...................... 543 636 611
Equity in Financial Services subsidiaries ...................... - - -
Investments and other assets ................................... 279 234 212
Intangible pension assets ...................................... 340 340 370
Deferred tax asset ............................................. 1,160 1,178 907 Note F
-------- -------- --------
Total assets ................................................... $ 5,044 $ 5,060 $ 4,575
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- - -----------------------------------
Liabilities
Accounts payable ............................................... $ 773 $ 739 $ 694
Accrued liabilities ............................................ 435 419 407
Short-term debt ................................................ 76 180 58
Long-term debt ................................................. 1,189 1,194 1,296
Other long-term liabilities .................................... 278 276 301
Loss reserves and unearned premiums ............................ 134 107 103
Postretirement benefits liabilities ............................ 1,371 1,370 1,585 Note E
-------- -------- --------
Total liabilities ............................................ 4,256 4,285 4,444
-------- -------- --------
Shareowners' equity
Series G convertible preferred stock
(liquidation preference $240 million) ....................... 240 240 240
Series D convertible junior preference stock
(liquidation preference $4 million) ......................... 4 5 4
Common Stock (50.0, 49.2 and 25.6 million shares
issued) and warrants ........................................ 1,628 1,615 1,123 Note G
Class B Common (25.0 million shares
issued after July 1, 1993) .................................. 501 513 - Note E
Retained earnings (deficit) - balance
accumulated after the deficit reclassification .............. (1,563) (1,588) (1,229) Note I
Accumulated foreign currency translation adjustments .......... (4) (4) (4)
Common stock held in treasury, at cost ........................ (18) (6) (3)
-------- -------- --------
Total shareowners' equity ................................... 788 775 131
-------- -------- --------
Total liabilities and shareowners' equity ..................... $ 5,044 $ 5,060 $ 4,575
======== ======== ========
<FN>
See Notes to Financial Statements.
PAGE 6
Manufacturing* Financial Services*
------------------------------------------ -------------------------------------------
April 30 October 31 April 30 April 30 October 31 April 30
1994 1993 1993 1994 1993 1993
-------- ---------- -------- -------- ---------- --------
$ 313 $ 377 $ 186 $ 35 $ 44 $ 56
183 85 51 140 133 147
219 123 125 1,400 1,433 1,365
437 411 425 - - -
95 81 124 1 1 1
527 608 585 16 28 26
250 241 243 - - -
200 201 170 79 33 42
340 340 370 - - -
1,160 1,178 903 - - 4
-------- -------- -------- -------- -------- --------
$ 3,724 $ 3,645 $ 3,182 $ 1,671 $ 1,672 $ 1,641
======== ======== ======== ======== ======== ========
$ 732 $ 670 $ 631 $ 142 $ 85 $ 66
406 395 375 29 24 34
21 25 12 55 155 46
144 150 166 1,045 1,044 1,130
269 267 291 9 9 10
- - - 134 107 103
1,364 1,363 1,576 7 7 9
-------- -------- -------- -------- -------- --------
2,936 2,870 3,051 1,421 1,431 1,398
-------- -------- -------- -------- -------- --------
240 240 240 - - -
4 5 4 - - -
1,628 1,615 1,123 178 178 178
501 513 - - - -
(1,563) (1,588) (1,229) 72 63 65
(4) (4) (4) - - -
(18) (6) (3) - - -
-------- -------- -------- -------- -------- --------
788 775 131 250 241 243
-------- -------- -------- -------- -------- --------
$ 3,724 $ 3,645 $ 3,182 $ 1,671 $ 1,672 $ 1,641
======== ======== ======== ======== ======== ========
<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 7
STATEMENT OF CASH FLOW (Unaudited)
- - ---------------------------------------------------------------------------------
Six Months Ended April 30 (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) .......................... $ 39 $ (211) $ 39 $ (211) $ 20 $ 11
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization ............ 40 37 38 35 2 2
Equity in earnings of Financial Services,
net of dividends received .............. - - (8) (12) - -
Allowance for losses on receivables and
dealer loans............................ 5 15 4 13 1 2
Increase in deferred income tax expense .. 18 - 18 - - -
Cumulative effect of changes
in accounting policy ................... - 228 - 228 - 9
Other, net ............................... (19) 3 (3) 4 (16) (1)
Change in operating assets and liabilities (141) (159) Note D (41) (4) 70 6
------ ------ ------ ------ ------ ------
Cash provided by (used in) operations ...... (58) (87) 47 53 77 29
------ ------ ------ ------ ------ ------
Cash flow from investment programs
Purchase of retail notes
and lease receivables .................... (431) (320) - - (431) (320)
Principal collections on retail notes
and lease receivables .................... 107 174 - - 107 174
Sale of retail notes receivables ........... 516 316 - - 516 316
Acquisitions over cash collections
of wholesale notes and accounts receivable - - Note D - - (170) (161)
Purchase of marketable securities .......... (378) (144) (332) (98) (46) (46)
Sales or maturities of marketable securities 274 118 234 75 40 43
Proceeds from property sold under
sale/leaseback ........................... 87 - 87 - - -
Capital expenditures ....................... (33) (53) (33) (53) - -
Net (increase) decrease in property
and equipment, leased to others .......... 10 (10) - - 10 (10)
Other investment programs, net ............. 2 (4) 2 (4) - -
------ ------ ------ ------ ------ ------
Cash provided by (used in)
investment programs ...................... 154 77 (42) (80) 26 (4)
------ ------ ------ ------ ------ ------
Cash flow from financing activities
Principal payments on long-term debt ....... (13) (73) (13) (9) - (64)
Net decrease in short-term debt............. (100) - - - (100) -
Dividends paid ............................. (43) - (43) - (12) (8)
Repurchase of Class B Common stock ......... (13) - (13) - - -
------ ------ ------ ------ ------ ------
Cash used in financing activities .......... (169) (73) (69) (9) (112) (72)
------ ------ ------ ------ ------ ------
Cash and cash equivalents ..................
Increase (decrease) during the period .... (73) (83) (64) (36) (9) (47)
At beginning of the year ................. 421 325 377 222 44 103
------ ------ ------ ------ ------ ------
Cash and cash equivalents
at end of the period ..................... $ 348 $ 242 $ 313 $ 186 $ 35 $ 56
====== ====== ====== ====== ====== ======
<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 8
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note A Summary of Accounting Policies
Navistar International Corporation is a holding company and its 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 April 30, 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 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 six
months 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 9
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note C Financial Statement Eliminations (Continued)
STATEMENT OF INCOME (LOSS)
Three Months Ended Six Months Ended
April 30 April 30
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- - -----------------------------------------------------------------------------
Sales and revenues,
Finance and insurance income ...... $ (13) $ (10) $ (25) $ (20)
======== ======== ======== ========
Costs and expenses
Financing charges
on sold receivables ............. $ (13) $ (10) $ (25) $ (20)
======== ======== ======== ========
Income before income taxes,
Financial Services ................ $ (12) $ (15) $ (31) $ (31)
======== ======== ======== ========
STATEMENT OF FINANCIAL CONDITION
April 30 October 31 April 30
Millions of dollars 1994 1993 1993
- - -----------------------------------------------------------------------------
Receivables, net .................... $ (101) $ (16) $ (5)
Equity in Financial Services
subsidiaries ...................... (250) (241) (243)
-------- -------- --------
Total assets ........................ $ (351) $ (257) $ (248)
======== ======== ========
Accounts payable .................... $ (101) $ (16) $ (3)
Accrued liabilities ................. - - (2)
Shareowner's equity,
Financial Services ................ (250) (241) (243)
-------- -------- --------
Total liabilities
and shareowners' equity ........... $ (351) $ (257) $ (248)
======== ======== ========
STATEMENT OF CASH FLOW
Six Months Ended
April 30
------------------
Millions of dollars 1994 1993
- - --------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ....................... $ (182) $ (169)
Investment programs .............. 170 161
Financing activities ............. 12 8
-------- --------
Increase (decrease) during
the period in cash and
cash equivalents .................. $ - $ -
======== ========
PAGE 10
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:
Six Months Ended
April 30
-------------------
Millions of dollars 1994 1993
- - ------------------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ................... $ (9) $ 8
(Increase) in inventories ............................ (28) (61)
Increase in accounts payable ......................... 68 53
Increase (decrease) in accrued liabilities/other ..... 19 (4)
(Increase) in advances to Navistar Financial ......... (91) -
-------- --------
Manufacturing change in operating assets
and liabilities .................................... (41) (4)
-------- --------
FINANCIAL SERVICES
(Increase) in receivables ............................ - (5)
Increase (decrease) in accounts payable .............. (26) 12
Increase (decrease) in accrued liabilities ........... 5 (1)
Increase in advances from Transportation ............. 91 -
-------- --------
Financial Services change in operating assets
and liabilities ................................... 70 6
-------- --------
Eliminations/reclassifications (a) .................... (170) (161)
-------- --------
Change in operating assets and liabilities ............ $ (141) $ (159)
======== ========
(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 six months of 1994 and
1993 were $36 million and $49 million, respectively.
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.
PAGE 11
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note E Postretirement Benefits (Continued)
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 Six Months Ended
April 30 April 30
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- - -----------------------------------------------------------------------------
Pension expense ................... $ 27 $ 28 $ 55 $ 54
Health care and life insurance .... 17 30 33 53
Supplemental Trust contribution ... - - 2 -
-------- -------- -------- --------
Total postretirement
benefits expense ................ $ 44 $ 58 $ 90 $ 107
======== ======== ======== ========
On the Statement of Financial Condition, the postretirement benefits
liabilities are composed of the following:
April 30 October 31 April 30
Millions of dollars 1994 1993 1993
- - -----------------------------------------------------------------------------
Pension ........................... $ 611 $ 600 $ 505
Health care and life insurance .... 760 770 1,080
-------- -------- --------
Postretirement benefits liabilities $ 1,371 $ 1,370 $ 1,585
======== ======== ========
The Company adopted SFAS 106 for its U.S. and Canadian plans in the third
quarter of 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.
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.
PAGE 12
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note F Income Taxes (Continued)
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 Six Months Ended
April 30 April 30
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- - -----------------------------------------------------------------------------
Income before cumulative
effect of changes
in accounting policy ............. $ 23 $ 15 $ 39 $ 17
Cumulative effect of changes
in accounting policy ............. - - - (228)
-------- -------- -------- --------
Net income (loss) .................. $ 23 $ 15 $ 39 $ (211)
Preferred dividend requirements
on Series G preferred stock ....... (7) (7) (14) (14)
-------- -------- -------- --------
Net income (loss) applicable
to common stock ................ $ 16 $ 8 $ 25 $ (225)
======== ======== ======== ========
Average common and dilutive common equivalent shares:
Three Months Ended Six Months Ended
April 30 April 30
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- - -----------------------------------------------------------------------------
Common shares outstanding
or unconditionally issuable ...... 74.5 25.6 74.6 25.6
Common share equivalents of:
Series B preference stocks ....... .1 .1 .1 -
Options and warrants ............. .2 .2 .2 -
Common stock assumed repurchased
with proceeds received upon
exercise of options and warrants (.2) (.2) (.2) -
-------- -------- -------- --------
Total average common and
dilutive common equivalent shares 74.6 25.7 74.7 25.6
======== ======== ======== ========
PAGE 13
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note G Earnings Applicable to Common Stock (Continued)
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.
Note H Inventories
Inventories are as follows:
April 30 October 31 April 30
Millions of dollars 1994 1993 1993
- - -----------------------------------------------------------------------------
Finished products .................. $ 185 $ 196 $ 232
Work in process .................... 91 73 76
Raw materials and supplies ......... 161 142 117
-------- -------- --------
Total inventories .................. $ 437 $ 411 $ 425
======== ======== ========
Note I Retained Earnings
Retained earnings (deficit) are as follows:
April 30 October 31 April 30
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) .................. 39 (501) (211)
Preferred dividends declared ....... (14) (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 ................. $ (1,563) $ (1,588) $ (1,229)
======== ======== ========
PAGE 14
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Consolidated
The Company reported net income of $23 million, or $.21 per common share,
for the second quarter ended April 30, 1994. Net income for the same period
last year was $15 million, or $.32 per common share. The decline in earnings
per share reflects the year-over-year increase in the weighted average number
of common shares outstanding at April 30, 1994 and 1993, respectively. See
Note G to the Financial Statements.
For the first six months of 1994, the Company reported income before
income taxes of $59 million, an increase from the $30 million in income
reported for the same period in 1993. Net income for the first half of 1994
was $39 million. In 1993, the Company reported a restated net loss of $211
million for the six month period which included an after-tax $228 million
charge for the cumulative effect of changes in accounting policy. These
changes were adopted in the third quarter of 1993, retroactive to November 1,
1992 and consist of a $729 million expense from adoption of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" offset by a $501 million benefit
from adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Consolidated sales and revenues for the second quarter of 1994 totalled
$1,390 million, 12% higher than the $1,241 million reported for the same
period in 1993. During the first six months of 1994, sales and revenues
increased to $2,526 million from $2,280 million in 1993 as a result of strong
demand for heavy trucks, diesel engines and service parts.
Manufacturing
Second Quarter Ended April 30, 1994
-----------------------------------
Manufacturing, excluding Financial Services, reported pretax income of
$23 million, an increase from the $11 million of income reported for the
second quarter of 1993. Sales of $1,350 million for the period were 14%
higher than the prior year reflecting increased demand in all of
Manufacturing's businesses.
As a result of improvements in the U.S. and Canadian economies, industry
retail sales of medium and heavy trucks in the U.S. and Canada totalled 83,000
units in the second quarter of fiscal 1994, an increase of 15% from last year.
The Company's retail deliveries of medium and heavy trucks and school bus
chassis totalled 22,300 units during the second quarter of fiscal 1994, an
improvement of 8% 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 26.9% market share during the second quarter of fiscal 1994, up
from the 25.4% reported for the fiscal 1994 first quarter, but lower than the
28.7% market share reported for the second quarter of fiscal 1993.
PAGE 15
Shipments of mid-range diesel engines to original equipment manufacturers
during the second quarter of 1994 totalled 34,000 units, an increase of 9%
from the same period of 1993. Higher shipments were made to a major
automotive manufacturer reflecting consumer demand for the light trucks and
vans which use this engine and acceptance of the Company's new T444E engine.
Shipments of the new engine began in February 1994.
Service parts sales in the second quarter of 1994 were 16% higher than
the prior year's level reflecting continued demand from dealers and national
accounts.
Manufacturing gross margin, which excludes postretirement benefits, was
11.9% of sales for the second quarter of 1994, a decrease from the 13.5% for
the same period in 1993. The decline in gross margin reflects the impact of
additional labor costs incurred to complete units delayed as a result of
component shortages, to hire and train new employees as well as recalled
workers, and for startup costs associated with the introduction of new truck
and engine product. The decline also reflects exchange losses resulting from
the weakening of the Canadian dollar.
Postretirement benefits, which include pension expense for employees,
retirees and surviving spouses and dependents totalled $43 million during the
second quarter of 1994, a decrease of $14 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 an increase in
the expected return on pension assets.
Six Months Ended April 30, 1994
-------------------------------
Pretax income, excluding Financial Services, for the first six months of
1994 was $28 million. A loss of $1 million was reported for the same period of
1993.
Manufacturing's sales during this period totalled $2,437 million, 12%
higher than the first two quarters of 1993. During the first six months of
1994, sales of trucks improved 9% while sales of diesel engines to original
equipment manufacturers increased 28%. Service parts sales increased 15% over
the same period in 1993.
Industry retail sales of medium and heavy trucks during the first half of
fiscal 1994 totalled 158,400 units, an increase of 21% from the 131,200 units
sold during this period in fiscal 1993. The Company's share of the North
American combined medium and heavy truck market for the first six months of
the fiscal year decreased to 26.2% from 28.6% for the same period last year.
Manufacturing gross margin, excluding postretirement benefits, for the
first six months of 1994 was 12.4% compared with 13.2% for the same period of
1993. The factors which influenced gross margin during the second quarter of
1994 also explain the change for the first half of the year.
Postretirement benefits totalled $89 million for the first six months of
1994,a decrease of $17 million from the same period last year. The factors
which influenced the expense for the second quarter of 1994 also explain the
change for the first half of the year.
PAGE 16
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended Six Months Ended
April 30 April 30
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- - -----------------------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation .. $ 12 $ 14 $ 30 $ 29
Foreign Subsidiaries ............ - 1 1 2
-------- -------- -------- --------
Total ......................... 12 15 31 31
Income tax expense .............. (4) (5) (11) (11)
-------- -------- -------- --------
Income before cumulative effect
of changes in accounting policy 8 10 20 20
Cumulative effect of changes
in accounting policy .......... - - - (9)
-------- -------- -------- --------
Total net income .............. $ 8 $ 10 $ 20 $ 11
======== ======== ======== ========
Navistar Financial's income before income taxes for the second quarter of
1994 decreased to $12 million from $14 million during the same period in 1993.
The decline in earnings was primarily the result of the absence of retail
notes receivable sales during the second quarter of 1994 partially offset by
higher earnings for Navistar Financial's insurance subsidiary, while the
results for 1993 reflect gains on $172 million of retail note sales.
Income before income taxes for the first six months of 1994 increased $1
million from the same period in 1993. The factors which influenced second
quarter pretax income generally apply to the changes for the first half of the
year.
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 $671 million at April 30,
1994, compared with $639 million at October 31, 1993, and $440 million at
April 30, 1993.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services operations.
PAGE 17
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents, and marketable securities totalled $496 million at April 30,
1994, $462 million at October 31, 1993 and $237 million at April 30, 1993.
The following is a summary of cash flow for the six months ended April 30,
1994.
Six Months Ended
Millions of dollars April 30
- - -----------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations .......................................... $ 47
Investment programs ................................. (42)
Financing activities ................................ (69)
------
Decrease in cash and cash equivalents ............... $ (64)
======
Operations provided $47 million in cash during the second quarter of 1994
as follows:
Six Months Ended
Millions of dollars April 30
- - -----------------------------------------------------------------------------
Net income ........................................... $ 39
Items not affecting cash, principally depreciation
and deferred taxes ................................. 49
Change in operating assets and liabilities:
(Increase) in receivables ......................... $ (9)
(Increase) in inventories ......................... (28)
Increase in accounts payable ...................... 68
Increase in accrued liabilities/other ............. 19
(Increase) in advances to Navistar Financial ...... (91) (41)
------- --------
Cash provided by operations .......................... $ 47
========
The $41 million net change in operating assets and liabilities is the
result primarily of a $28 million increase in inventories and an advance to
Navistar Financial of $91 million offset by an increase in accounts payable of
$68 million. The increases in inventories and accounts payable reflect the
impact of higher sales volume and production.
Investment programs used $42 million in cash during the first six months
of 1994 as a result of a net increase in marketable securities of $98 million
and capital expenditures of $33 million offset by $87 million in proceeds from
a sale/leaseback agreement.
Cash used for financing programs consisted of $13 million used for
principal payments on long-term debt, $43 million in cash dividends paid on
the Series G Preferred Stock and $13 million for the repurchase of Class B
Common shares. The Series G Preferred dividend included $29 million of
dividends in arrears paid in the first quarter of 1994.
PAGE 18
At April 30, 1994, the Company had outstanding capital commitments of $42
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 $175 million at April 30, 1994, $177 million at October 31, 1993
and $203 million at April 30, 1993. The cash flow for Financial Services for
the six months ended April 30, 1994, is summarized as follows:
Six Months Ended
Millions of dollars April 30
- - -----------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations .......................................... $ 77
Investment programs ................................. 26
Financing activities ................................ (112)
------
Decrease in cash and cash equivalents ............... $ (9)
======
Operations provided $77 million in cash primarily from a $70 million net
change in operating assets and liabilities consisting of $91 million in funds
advanced to Navistar Financial by Transportation offset by a $26 million
decrease in accounts payable as a result primarily of timing differences in
collections and payments related to sales of receivables.
The Financial Services' investment programs provided $26 million in cash
during the first half of 1994 as a result of net decreases of $22 million in
retail and wholesale notes receivable and $10 million in property and
equipment leased to others offset by a net increase of $6 million in
marketable securities.
Financial Services used $112 million during the first six months of 1994
for financing activities. Cash generated from operations and investment
programs was used to reduce short-term debt by $100 million and to pay cash
dividends of $12 million to Transportation.
During the first six months of 1994, Navistar Financial supplied 93% of
the wholesale financing of new trucks to Transportation's dealers compared
with 87% 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% in 1994 from 14% in 1993.
At April 30, 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 April 30, 1994, the unused commitment under the
receivable purchase facility was $118 million, of which $50 million provided
funding backup for short-term bank borrowings at April 30, 1994. The
remaining $68 million when combined with unrestricted cash and cash
equivalents, made $84 million available to fund the general business purposes
of Navistar Financial at April 30, 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.
PAGE 19
Management's discussion of the future liquidity of financial 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 fiscal 1994 North American
medium truck demand, including school bus chassis, to be 136,000 units, an 11%
increase from fiscal 1993. Heavy truck demand is projected at 195,000 units,
a 17% increase from fiscal 1993.
The Company has responded to the higher demand by increasing production
schedules at its Chatham, Ontario truck assembly facility with the addition of
a second shift of workers in March to boost production of premium conventional
and rugged heavy trucks. During the third quarter of 1994, the Company plans
to introduce its new "Pro Sleeper" premium conventional truck featuring an
integrated cab and sleeper design. The Company expects this new addition to
the product line to improve its market share of the premium conventional
segment of the heavy truck market.
Production has also been increased at the Company's engine facilities
while schedules at the Springfield, Ohio truck assembly facility have been
adjusted, effective June 1, based on customer preferences for certain truck
models and current employment levels. On May 18, the Company reached
agreement with the United Automobile, Aerospace and Agricultural Implement
Workers of America (UAW) to hire new employees who will earn full job security
after five years of employment as compared with the 52 weeks which were
previously required. This agreement requires the Company to make payments to
retirees and surviving spouses of retirees formerly represented by the UAW
totalling approximately $11 million over the term of the current contract,
which expires October 1, 1995. The Company intends to hire new employees at
its Springfield, Ohio and Indianapolis Engine operations as soon as possible
to meet demand current market demands.
The Company's diesel engine shipments to original equipment manufacturers
in 1994 are expected to be 17% higher in 1994 than in 1993. Sales of service
parts by the Company are expected to grow 12%.
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 source
will permit the Financial Services subsidiaries to meet the financing
requirements of the Company's dealers and customers.
PAGE 20
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 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareowners was held on March 16,
1994. The following four nominees were elected to the Board of
Directors for three year terms until the 1997 Annual Meeting of
Shareowners.
Shares Voted Shares
Nominees "FOR" "WITHHELD"
---------------- ------------ ----------
Jack R. Anderson 38,719,388 982,380
James C. Cotting 38,884,310 817,458
Jerry E. Dempsey 38,880,437 821,331
Robert C. Lannert 38,888,520 813,248
The results of the voting on the following additional items were as
follows:
- Ratification of the appointment of Deloitte & Touche as independent
accountants for the current fiscal year -
Shares Voted "FOR" 39,307,286
Shares Voted "AGAINST" 150,455
Shares "ABSTAINING" 244,025
- To approve the Navistar 1994 Performance Incentive Plan to provide
incentive compensation linked to performance and key employee
retention while promoting an alignment of interests between
shareowners and participants -
Shares Voted "FOR" 22,591,552
Shares Voted "AGAINST" 8,677,019
Shares "ABSTAINING" 343,298
- To approve amendments to the Navistar 1988 Non-Employee Director
Stock Option Plan to reduce the risk of an "ownership change"
and to increase the annual option grant from 250 to 500 shares
of Common Stock -
Shares Voted "FOR" 24,834,023
Shares Voted "AGAINST" 6,314,379
Shares "ABSTAINING" 401,807
PAGE 21
Navistar International Corporation and Subsidiaries
PART II - OTHER INFORMATION
---------------------------
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 April 30, 1994.
PAGE 22
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/ Robert I. Morrison
- - ----------------------------------
Robert I. Morrison
Vice President and Controller
June 10, 1994