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 July 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 September 2, 1994, the number of shares outstanding of the
registrant's Common Stock was 49,992,405 and the Class B Common was 25,034,861.
2
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income (Loss) --
Three Months and Nine Months Ended July 31, 1994 and 1993 . 3
Statement of Financial Condition --
July 31, 1994, October 31, 1993 and July 31, 1993 ......... 5
Statement of Cash Flow --
Nine Months Ended July 31, 1994 and 1993 .................. 7
Notes to Financial Statements ............................. 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition ...... 15
Part II. Other Information:
Item 1. Legal Proceedings ..................................... 21
Item 6. Exhibits and Reports on Form 8-K ...................... 21
Signature ...................................................... 22
Exhibit 11 ........................................................ E-1
3
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
STATEMENT OF INCOME (LOSS) (Unaudited)
- ---------------------------------------------------------------------------------
Millions of dollars, except per share data
- ---------------------------------------------------------------------------------
Three Months Ended July 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 ............. $1,211 $1,080 $1,211 $1,080 $ - $ -
Finance and insurance income ............... 33 41 - - 45 51
Other income ............................... 6 5 7 3 2 2
------ ------ ------ ------ ------ ------
Total sales and revenues ................. 1,250 1,126 1,218 1,083 47 53
------ ------ ------ ------ ------ ------
Costs and expenses
Cost of products and services sold ......... 1,059 948 1,057 946 2 2
Postretirement benefits .................... 40 49 Note E 40 49 - -
Supplemental Trust contribution ............ - 513 Note E - 509 - 4
Engineering expense ........................ 25 23 25 23 - -
Marketing and administrative expense ....... 60 59 59 56 1 3
Interest expense ........................... 17 22 3 3 17 19
Financing charges on sold receivables ...... 4 4 16 14 - -
Insurance claims and underwriting expense .. 13 10 - - 13 10
------ ------ ------ ------ ------ ------
Total costs and expenses ................. 1,218 1,628 1,200 1,600 33 38
------ ------ ------ ------ ------ ------
Income (loss) before income taxes
Manufacturing ............................ - - 18 (517) - -
Financial Services ....................... - - 14 15 - -
------ ------ ------ ------ ------ ------
Income (loss) before income taxes ...... 32 (502) 32 (502) 14 15
Income tax benefit (expense) ........... (12) 190 Note F (12) 190 (4) (4)
------ ------ ------ ------ ------ ------
Income (loss) before cumulative effect
of changes in accounting policy .......... 20 (312) 20 (312) 10 11
Cumulative effect of changes
in accounting policy ...................... - - Note B - - - -
------ ------ ------ ------ ------ ------
Net income (loss) .......................... $ 20 $ (312) $ 20 $ (312) $ 10 $ 11
====== ====== ====== ====== ====== ======
Net income (loss) applicable to
common stock ............................. $ 12 $ (320) Note G
====== ======
Income (loss) per common share:
Before cumulative effect of
changes in accounting policy ........... $ .17 $(9.99)
Cumulative effect of changes
in accounting policy ................... - -
------ ------
Net income (loss) per common share ......... $ .17 $(9.99)
====== ======
Average number of common and dilutive
common equivalent shares outstanding
(millions) ............................... 74.4 32.0 Note G
<FN>
See Notes to Financial Statements.
4
Nine Months Ended July 31
-------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ---------------------- ----------------------
1994 1993 1994 1993 1994 1993
------ ------ ------ ------ ------ ------
$3,648 $3,252 $3,648 $3,252 $ - $ -
104 131 - - 141 161
24 23 19 12 8 11
------ ------ ------ ------ ------ ------
3,776 3,406 3,667 3,264 149 172
------ ------ ------ ------ ------ ------
3,196 2,836 3,192 2,831 4 5
128 156 127 155 1 1
2 513 2 509 - 4
69 68 69 68 - -
182 181 176 169 6 12
56 69 8 9 51 60
10 11 47 41 - -
42 44 - - 42 44
------ ------ ------ ------ ------ ------
3,685 3,878 3,621 3,782 104 126
------ ------ ------ ------ ------ ------
- - 46 (518) - -
- - 45 46 - -
------ ------ ------ ------ ------ ------
91 (472) 91 (472) 45 46
(32) 177 (32) 177 (15) (15)
------ ------ ------ ------ ------ ------
59 (295) 59 (295) 30 31
- (228) - (228) - (9)
------ ------ ------ ------ ------ ------
$ 59 $ (523) $ 59 $ (523) $ 30 $ 22
====== ====== ====== ====== ====== ======
$ 37 $ (545)
====== ======
$ .50 $(11.24)
- (8.14)
------ ------
$ .50 $(19.38)
====== ======
74.6 28.1
<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.
5
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Millions of dollars
- -----------------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
--------------------------------------
July 31 October 31 July 31 Note
1994 1993 1993 Reference
-------- ---------- -------- ---------
ASSETS
- -----------------------------------
Cash and cash equivalents ..................................... $ 361 $ 421 $ 197
Marketable securities ......................................... 193 218 176
Receivables, net .............................................. 1,349 1,540 1,302
Inventories ................................................... 444 411 441 Note H
Prepaid pension assets ........................................ 95 82 129
Property, net of accumulated depreciation
and amortization of $683, $647 and $641 ..................... 549 636 628
Equity in Financial Services subsidiaries ..................... - - -
Investments and other assets .................................. 265 234 239
Intangible pension assets ..................................... 340 340 370
Deferred tax asset ............................................ 1,150 1,178 1,100 Note F
-------- -------- --------
Total assets .................................................. $ 4,746 $ 5,060 $ 4,582
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable .............................................. $ 690 $ 739 $ 670
Accrued liabilities ........................................... 418 419 360
Short-term debt ............................................... 80 180 36
Long-term debt ................................................ 958 1,194 1,192
Other long-term liabilities ................................... 281 276 298
Loss reserves and unearned premiums ........................... 138 107 102
Postretirement benefits liabilities ........................... 1,380 1,370 1,591 Note E
-------- -------- --------
Total liabilities ........................................... 3,945 4,285 4,249
-------- -------- --------
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, 25.5 and 25.6 million shares issued) .... 501 513 513 Note E
Retained earnings (deficit) - balance accumulated
after the deficit reclassification .......................... (1,551) (1,588) (1,541) Note I
Accumulated foreign currency translation adjustments .......... (3) (4) (3)
Common stock held in treasury, at cost ........................ (18) (6) (3)
-------- -------- --------
Total shareowners' equity ................................... 801 775 333
-------- -------- --------
Total liabilities and shareowners' equity ..................... $ 4,746 $ 5,060 $ 4,582
======== ======== ========
<FN>
See Notes to Financial Statements.
6
Manufacturing* Financial Services*
------------------------------------------ -------------------------------------------
July 31 October 31 July 31 July 31 October 31 July 31
1994 1993 1993 1994 1993 1993
-------- ---------- -------- -------- ---------- --------
$ 313 $ 377 $ 123 $ 48 $ 44 $ 74
46 85 38 147 133 138
209 123 103 1,191 1,433 1,224
444 411 441 - - -
94 81 128 1 1 1
529 608 599 20 28 29
250 241 240 - - -
207 201 199 58 33 40
340 340 370 - - -
1,150 1,178 1,095 - - 5
-------- -------- -------- -------- -------- --------
$ 3,582 $ 3,645 $ 3,336 $ 1,465 $ 1,672 $ 1,511
======== ======== ======== ======== ======== ========
$ 627 $ 670 $ 612 $ 114 $ 85 $ 81
381 395 338 37 24 24
3 25 26 77 155 10
125 150 158 833 1,044 1,034
273 267 287 8 9 11
- - - 138 107 102
1,372 1,363 1,582 8 7 9
-------- -------- -------- -------- -------- --------
2,781 2,870 3,003 1,215 1,431 1,271
-------- -------- -------- -------- -------- --------
240 240 240 - - -
4 5 4 - - -
1,628 1,615 1,123 178 178 178
501 513 513 - - -
(1,551) (1,588) (1,541) 72 63 62
(3) (4) (3) - - -
(18) (6) (3) - - -
-------- -------- -------- -------- -------- --------
801 775 333 250 241 240
-------- -------- -------- -------- -------- --------
$ 3,582 $ 3,645 $ 3,336 $ 1,465 $ 1,672 $ 1,511
======== ======== ======== ======== ======== ========
<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 on the
preceding page. The basis of consolidation is described in Note A while a summary of
eliminations is shown in Note C.
7
STATEMENT OF CASH FLOW (Unaudited)
- ---------------------------------------------------------------------------------
Nine Months Ended July 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) ............................ $ 59 $ (523) $ 59 $ (523) $ 30 $ 22
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization ............ 58 56 55 52 3 4
Supplemental Trust contribution .......... - 513 Note E - 509 - 4
Equity in earnings of Financial
Services, net of dividends received .... - - (8) (9) - -
Allowance for losses on receivables
and dealer loans ....................... - 17 (1) 15 1 2
Increase in deferred tax asset ........... 28 (179) 28 (179) - -
Cumulative effect of changes in
accounting policy ........................ - 228 - 228 - 9
Other, net ................................. (13) (13) 2 (7) (15) (6)
Change in operating assets and liabilities . (113) (124) Note D (172) (53) 46 14
------ ------ ------ ------ ------ ------
Cash provided by (used in) operations ...... 19 (25) (37) 33 65 49
------ ------ ------ ------ ------ ------
Cash flow from investment programs
Purchase of retail notes
and lease receivables ...................... (676) (531) - - (676) (531)
Principal collections on retail notes
and lease receivables ...................... 150 252 - - 150 252
Sale of retail notes receivables ............. 770 494 - - 770 494
Acquisitions (over) under cash collections
of wholesale notes and accounts receivable . - - Note D - - 13 (83)
Purchase of marketable securities ............ (545) (182) (489) (129) (56) (53)
Sales or maturities of marketable securities . 572 179 528 120 44 59
Proceeds from property sold under
sale/leaseback ............................. 87 - 87 - - -
Capital expenditures ......................... (53) (85) (53) (85) - -
Net (increase) decrease in property and
equipment, leased to others ................ 5 (13) - - 5 (13)
Other investment programs, net ............... 2 (35) 2 (35) - -
------ ------ ------ ------ ------ ------
Cash provided by (used in)
investment programs ...................... 312 79 75 (129) 250 125
------ ------ ------ ------ ------ ------
Cash flow from financing activities
Principal payments on long-term debt ......... (39) (92) (39) (3) - (89)
Net decrease in short-term debt .............. (78) - - - (78) -
Decrease in debt outstanding under
bank revolving credit facility ............. (211) (90) - - (211) (90)
Dividends paid ............................... (50) - (50) - (22) (24)
Repurchase of Class B Common stock ........... (13) - (13) - - -
------ ------ ------ ------ ------ ------
Cash provided by (used in)
financing activities ..................... (391) (182) (102) (3) (311) (203)
------ ------ ------ ------ ------ ------
Cash and cash equivalents
Increase (decrease) during the period ...... (60) (128) (64) (99) 4 (29)
At beginning of the year ................... 421 325 377 222 44 103
------ ------ ------ ------ ------ ------
Cash and cash equivalents at end of the period $ 361 $ 197 $ 313 $ 123 $ 48 $ 74
====== ====== ====== ====== ====== ======
<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
is shown in Note C.
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 July 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 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 nine
months of 1993 by $228 million or $8.14 per Common share. The cumulative
effect of adopting SFAS 106 reduced income by $729 million, net of income
taxes of $420 million or $25.94 per Common share. The cumulative effect of
adopting SFAS 109 resulted in an increase in income of $501 million or $17.80
per Common share.
9
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
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:
STATEMENT OF INCOME (LOSS)
Three Months Ended Nine Months Ended
July 31 July 31
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- --------------------------------------------------------------------------
Sales and revenues,
Financial Services
Finance and insurance income . $ (12) $ (10) $ (37) $ (30)
Other income ................. (3) - (3) -
------ ------ ------ ------
$ (15) $ (10) $ (40) $ (30)
====== ====== ====== ======
Costs and expenses,
Interest expense ............... $ (3) $ - $ (3) $ -
Financing charges
on sold receivables .......... (12) (10) (37) (30)
------ ------ ------ ------
$ (15) $ (10) $ (40) $ (30)
====== ====== ====== ======
Income before income taxes,
Financial Services ............. $ (14) $ (15) $ (45) $ (46)
====== ====== ====== ======
STATEMENT OF FINANCIAL CONDITION
July 31 October 31 July 31
Millions of dollars 1994 1993 1993
- --------------------------------------------------------------------------
Receivables, net ................. $ (51) $ (16) $ (25)
Equity in Financial
Services subsidiaries .......... (250) (241) (240)
------ ------ ------
Total assets ..................... $ (301) $ (257) $ (265)
====== ====== ======
Accounts payable ................. $ (51) $ (16) $ (23)
Accrued liabilities .............. - - (2)
Shareowner's equity,
Financial Services ............. (250) (241) (240)
------ ------ ------
Total liabilities
and shareowners' equity ........ $ (301) $ (257) $ (265)
====== ====== ======
10
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note C. Financial Statement Eliminations (Continued)
STATEMENT OF CASH FLOW Nine Months Ended
July 31
-----------------
Millions of dollars 1994 1993
- --------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ....................................... $ (9) $ (107)
Investment programs .............................. (13) 83
Financing activities ............................. 22 24
------ ------
Increase (decrease) during the period
in cash and cash equivalents ..................... $ - $ -
====== ======
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:
Nine Months Ended
July 31
-----------------
Millions of dollars 1994 1993
- --------------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ............... $ (37) $ 31
(Increase) in inventories ........................ (36) (78)
(Increase) in prepaid and other current assets ... (19) (15)
Increase (decrease) in accounts payable .......... (47) 38
Increase (decrease) in accrued liabilities ....... 16 (29)
(Increase) in advances to Navistar Financial ..... (49) -
------ ------
Manufacturing change in operating assets
and liabilities ................................ (172) (53)
------ ------
FINANCIAL SERVICES
Increase (decrease) in accounts payable .......... (6) 15
Increase (decrease) in accrued liabilities ....... 3 (1)
Increase in advances from Transportation ......... 49 -
------ ------
Financial Services change in operating assets
and liabilities ................................ 46 14
------ ------
Eliminations/reclassifications (a) ................. 13 (85)
------ ------
Change in operating assets and liabilities ......... $ (113) $ (124)
====== ======
11
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note D. Information Related to the Statement of Cash Flow (Continued)
(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 nine months of 1994 and
1993 were $60 million and $77 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.
During the third quarter of 1993, the Company contributed Class B Common
Stock, originally 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. The per
share value of the Class B Common Stock is determined by the closing price of
the Company's Common Stock on the New York Stock Exchange less a discount
factor of 20%. The discount factor was previously determined by the Company
following consultation with investment bankers and gives effect to
restrictions imposed by the Settlement Agreement.
The Settlement Agreement also 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 Nine Months Ended
July 31 July 31
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- --------------------------------------------------------------------------
Pension expense .................. $ 26 $ 23 $ 81 $ 79
Health care and life insurance ... 14 26 47 77
------ ------ ------ ------
Total postretirement
benefits expense ............... $ 40 $ 49 $ 128 $ 156
====== ====== ====== ======
12
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note E. Postretirement Benefits (Continued)
On the Statement of Financial Condition, the postretirement benefits
liabilities are composed of the following:
July 31 October 31 July 31
Millions of dollars 1994 1993 1993
- --------------------------------------------------------------------------
Pension .......................... $ 620 $ 600 $ 523
Health care and life insurance ... 760 770 1,068
------ ------ ------
Postretirement benefits
liabilities .................... $1,380 $1,370 $1,591
====== ====== ======
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.
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.
13
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note G. Earnings Applicable to Common Stock
Income (loss) applicable to common stock:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- --------------------------------------------------------------------------
Income (loss) before
cumulative effect of changes
in accounting policy ........... $ 20 $ (312) $ 59 $ (295)
Cumulative effect of changes
in accounting policy ........... - - - (228)
------ ------ ------ ------
Net income (loss) ................ $ 20 $ (312) $ 59 $ (523)
Preferred dividend requirements
on Series G preferred stock ..... 8 (8) 22 (22)
------ ------ ------ ------
Net income (loss) applicable
to common stock .............. $ 12 $ (320) $ 37 $ (545)
====== ====== ====== ======
Average common and dilutive common equivalent shares:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- --------------------------------------------------------------------------
Common shares outstanding
or unconditionally issuable .... 74.3 32.0 74.5 28.1
Common share equivalents of:
Series D preference stocks ..... .1 - .1 -
------ ------ ------ ------
Total average common
and dilutive common
equivalent shares .............. 74.4 32.0 74.6 28.1
====== ====== ====== ======
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 originally 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. Through July 31, 1994, the Company has repurchased
606,684 Class B Common shares for $15 million as provided by the Settlement
Agreement.
14
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note H. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1994 1993 1993
- ---------------------------------------------------------------------------
Finished products ............... $ 181 $ 196 $ 211
Work in process ................. 97 73 94
Raw materials and supplies ...... 166 142 136
------ ------ ------
Total inventories ............... $ 444 $ 411 $ 441
====== ====== ======
Note I. Retained Earnings
Retained earnings (deficit) are as follows:
July 31 October 31 July 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) ................ 59 (501) (523)
Preferred dividends declared ..... (22) (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 ............... $(1,551) $(1,588) $(1,541)
======= ======= =======
15
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Consolidated
The Company reported net income of $20 million, or $.17 per common share,
for the third quarter ended July 31, 1994. The net loss for the same period
last year was $312 million, or $9.99 per common share. The prior year loss
included a $513 million pretax charge for the original value of Class B Common
Stock contributed to a retiree Supplemental Trust according to the terms of a
Settlement Agreement which restructured postretirement health care and life
insurance benefits and a related income tax benefit of $195 million.
Excluding this non-cash charge, net income for the third quarter of 1993 would
have been $6 million.
Net income for the first three quarters of 1994 was $59 million. In
1993, the Company reported a net loss of $523 million which, in addition to
the Supplemental Trust contribution, included an after-tax $228 million charge
for the cumulative effect of changes in accounting policy. These accounting
changes were adopted in the third quarter of 1993, retroactive to November 1,
1992 and consisted of a $729 million expense from adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" offset by a $501 million benefit
from adoption of SFAS No. 109, "Accounting for Income Taxes." Excluding the
non-cash charges for the first nine months of 1993, net income would have been
$23 million.
Consolidated sales and revenues for the third quarter of 1994 totalled
$1,250 million, 11% higher than the $1,126 million reported for the same
period in 1993. During the first nine months of 1994, sales and revenues
increased to $3,776 million from $3,406 million in 1993 as a result of strong
demand for heavy trucks, diesel engines and service parts.
Manufacturing
Third Quarter Ended July 31, 1994
---------------------------------
Manufacturing, excluding Financial Services, reported pretax income of
$18 million during the third quarter of 1994. In 1993, Manufacturing reported
a pretax loss of $517 million which included the contribution to the
Supplemental Trust of Class B Common shares originally valued at $509 million.
Sales of $1,211 million for the period were 12% 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 88,300
units in the third quarter of fiscal 1994, an increase of 10% from last year.
The Company's retail deliveries of medium and heavy trucks and school bus
chassis totalled 23,800 units during the third quarter of fiscal 1994, an
improvement of 15% 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 27.0% market share during the third quarter of fiscal 1994, up
from the 25.8% market share reported for the third quarter of fiscal 1993.
16
Shipments of mid-range diesel engines to original equipment manufacturers
during the third quarter of 1994 totalled 35,100 units, an increase of 14%
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.
Service parts sales in the third quarter of 1994 were 11% higher than the
prior year's level reflecting continued demand from dealers and national
accounts.
Manufacturing gross margin, which excludes postretirement benefits, was
12.7% for the third quarter of 1994, an increase from the 12.4% reported for
the same quarter last year, primarily as a result of the higher sales volume.
Postretirement benefits, which includes pension expense for employees,
retirees and surviving spouses and postretirement health care and life
insurance coverage for employees, retirees, surviving spouses and dependents,
totalled $40 million for the third quarter of 1994, a decrease of $9 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.
Nine Months Ended July 31, 1994
-------------------------------
Pretax income, excluding Financial Services, for the first nine months of
1994 was $46 million. A loss of $518 million, which included the
contribution to the Supplemental Trust of common shares originally valued at
$509 million, was reported for the same period of 1993.
Manufacturing's sales during this period totalled $3,648 million, 12%
higher than the first three quarters of 1993. During the first nine months of
1994, sales of trucks improved 10% while sales of diesel engines to original
equipment manufacturers increased 23%. Service parts sales increased 13% over
the same period in 1993.
Industry retail sales of medium and heavy trucks during the first nine
months of 1994 totalled 246,700 units, an increase of 17% from the 211,600
units sold during this period in fiscal 1993.
Manufacturing gross margin, excluding postretirement benefits, for the
first nine months of 1994 was 12.5% approximately the same as in 1993.
Improvement in gross margin from higher sales volume was offset by additional
costs, principally in overtime payments, to meet customer delivery commitments
and to complete units affected by intermittent parts shortages.
Postretirement benefits totalled $127 million for the first nine months
of 1994, a decrease of $28 million from the same period last year. The
factors which influenced the expense for the third quarter of 1994 as well as
an increase in the expected return on pension assets explain the change for
the first three quarters of the year.
17
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ -----------------
Millions of dollars 1994 1993 1994 1993
- ----------------------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation ... $ 13 $ 8 $ 43 $ 37
Foreign Subsidiaries ............. 1 7 2 9
------ ------ ------ ------
Total .......................... 14 15 45 46
Income tax expense ............... (4) (4) (15) (15)
------ ------ ------ ------
Income before cumulative effect
of changes in accounting policy 10 11 30 31
Cumulative effect of changes
in accounting policy ........... - - - (9)
------ ------ ------ ------
Total net income ............... $ 10 $ 11 $ 30 $ 22
====== ====== ====== ======
Navistar Financial's income before income taxes for the third quarter of
1994 increased to $13 million from $8 million during the same period in 1993.
The change reflects improved loss experience from Navistar Financial's
insurance subsidiary. In addition, the 1993 results include a $4 million
charge for Navistar Financial's portion of the Supplemental Trust
contribution.
The change in pretax income from the foreign subsidiaries is the result
primarily of a one-time loss reserve adjustment in 1993.
Income before income taxes for Navistar Financial for the first nine
months of 1994 was $6 million higher than the same period in 1993. Factors
which influenced third quarter pretax income generally apply to the changes
for the first nine months of 1994 except for income from its insurance
subsidiary's investment portfolio which was slightly lower in 1994. In
addition, during the third quarter of 1993, Navistar Financial adopted SFAS
106 retroactive to November 1, 1992. The cumulative effect of adopting this
accounting policy resulted in a $9 million charge to income.
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 $554 million at July 31,
1994, $639 million at October 31, 1993 and $373 million at July 31, 1993.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services operations.
18
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents, and marketable securities totalled $359 million at July 31, 1994,
$462 million at October 31, 1993 and $161 million at July 31, 1993. The
following is a summary of cash flow for the nine months ended July 31, 1994.
Nine Months Ended
Millions of dollars July 31
- ---------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ....................................... $ (37)
Investment programs .............................. 75
Financing activities ............................. (102)
------
Decrease in cash and cash equivalents ............ $ (64)
======
Operations used $37 million in cash during the first nine months of 1994
as follows:
Nine Months Ended
Millions of dollars July 31
- --------------------------------------------------------------------------
Net income ......................................... $ 59
Items not affecting cash,
principally depreciation and deferred taxes ...... 76
Change in operating assets and liabilities:
(Increase) in receivables ........................ $ (37)
(Increase) in inventories ........................ (36)
(Decrease) in accounts payable ................... (47)
(Decrease) in accrued liabilities/other .......... (3)
(Increase) in advances to Navistar Financial ..... (49) (172)
------ ------
Cash used in operations ............................ $ (37)
======
The $172 million net change in operating assets and liabilities is the
result primarily of a $37 million increase in receivables, a $36 million
increase in inventories, a $47 million decrease in accounts payable and an
advance to Navistar Financial of $49 million. The increase in receivables is
a result of the cessation of the sale of certain receivables and the timing of
collections on outstanding balances. The changes in inventories and accounts
payable reflect the effect of third quarter manufacturing production
schedules.
Investment programs provided $75 million in cash during the first nine
months of the year reflecting primarily $87 million in proceeds from a
sale/leaseback agreement and a $39 million net decrease in marketable
securities partially offset by capital expenditures of $53 million.
Cash used for financing programs consisted of $39 million used for
principal payments on long-term debt, $50 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.
19
At July 31, 1994, the Company had outstanding capital commitments of $41
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 of Management's Discussion and
Analysis.
Financial Services
Total cash, cash equivalents and marketable securities of Financial
Services were $195 million at July 31, 1994, $177 million at October 31, 1993
and $212 million at July 31, 1993. The cash flow for Financial Services for
the nine months ended July 31, 1994 is summarized as follows:
Nine Months Ended
Millions of dollars July 31
- --------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ...................................... $ 65
Investment programs ............................. 250
Financing activities ............................ (311)
------
Increase in cash and cash equivalents ........... $ 4
======
Operations provided $65 million in cash primarily from net income of $30
million and a $46 million increase in operating assets and liabilities. This
increase includes $49 million in funds advanced to Navistar Financial by
Transportation.
The Financial Services' investment programs provided $250 million in cash
during the first nine months of 1994 as a result of a net decrease of $257
million in retail and wholesale notes receivable and $5 million in property
and equipment leased to others offset by a net increase of $12 million in
marketable securities. The decline in receivables reflects the sale of retail
notes through Navistar Financial Retail Receivables Corporation.
Financial Services used $311 million during the first nine months of 1994
for financing activities. Cash generated from operations and investment
programs was used to reduce short-term debt by $78 million, debt outstanding
under a bank revolving credit facility by $211 million and to pay cash
dividends of $22 million to Transportation.
During the first nine months of 1994, Navistar Financial supplied 93% of
the wholesale financing of new trucks to Transportation's dealers, an
improvement over the 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 16% in 1994 from 15% in 1993.
At July 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 July 31, 1994, the unused commitments under these
20
facilities were $385 million, of which $72 million provided funding backup for
short-term bank borrowings at July 31, 1994. The remaining $313 million when
combined with unrestricted cash and cash equivalents, made $331 million
available to fund the general business purposes of Navistar Financial at July
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 operations
is included in the Business Outlook section of Management's Discussion and
Analysis.
BUSINESS OUTLOOK
The North American economy remains healthy as evidenced by industrial
production which was up in July 1994 for the fourteenth consecutive month
contributing to continued strong demand for trucks and mid-range diesel
engines. As a result, the Company has raised its projections for North
American heavy truck industry demand to 204,000 units in 1994, 23% above the
166,400 units sold in 1993 and 5% above the Company's previous forecast of
195,000 units. The Company continues to project that North American industry
demand for medium trucks and school bus chassis will increase 11% over last
year to 136,000 units in 1994.
The Company has taken several measures to increase production in order to
take advantage of current demand. During the third quarter of 1994, the
Company hired additional production workers at its Springfield, Ohio Truck
Facilities and at the Indianapolis, Indiana and Melrose Park, Illinois Engine
Facilities to provide for increased production of the medium trucks and mid-
range diesel engines that are manufactured at those facilities. Earlier this
year, the Company added a second production shift at the Chatham, Ontario
Truck Assembly Facility to increase production of its premium conventional
heavy trucks.
To meet increased demand for the Company's mid-range diesel engines, the
Indianapolis Engine Facility added a third production shift on August 8 while
the Melrose Park Engine Facility added a second production shift on July 25.
The Company's diesel engine shipments to original equipment manufacturers
in 1994 are expected to be 16% higher in 1994 than in 1993. Sales of service
parts by the Company are expected to grow 12%.
The Company's focus during the remainder of 1994 will be to continue
programs to increase productivity and lower design and material costs. 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.
21
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
July 31, 1994.
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
September 9, 1994