<PAGE 1>
EXHIBIT 13
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED OCTOBER 31, 1994
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
<PAGE 2>
FINANCIAL SUMMARY
Millions of dollars, except per share data 1994 1993
- -------------------------------------------------------------------------
For the Years Ended October 31
Unit shipments
Trucks ........................................... 95,000 87,200
Engines to original equipment manufacturers (OEMs) 130,600 118,200
Sales and revenues:
Sales of manufactured products
In the United States ........................... $ 4,670 $ 4,149
In Canada ...................................... 483 361
-------- --------
Total Manufacturing .......................... 5,153 4,510
Finance and insurance revenue .................... 152 181
Other income ..................................... 32 30
-------- --------
Total sales and revenues ......................... $ 5,337 $ 4,721
======== ========
Net income (loss):
Income before Supplemental Trust
contribution and taxes ......................... $ 158 $ 72
Supplemental Trust contribution .................. - (513)
Income tax benefit (expense) ..................... (56) 168
-------- --------
Income (loss) of continuing operations ........... 102 (273)
Discontinued operations .......................... (20) -
Cumulative effect of accounting changes .......... - (228)
-------- --------
Net income (loss) ................................ $ 82 $ (501)
======== ========
Income (loss) per common share:
Continuing operations ............................ $ .99 $ (8.63)
Discontinued operations .......................... (.27) -
Cumulative effect of accounting changes .......... - (6.56)
-------- --------
Net income (loss) ................................ $ .72 $ (15.19)
======== ========
Average common and dilutive common
equivalent shares outstanding (millions) ....... 74.6 34.9
Capital expenditures ............................... $ 87 $ 110
Research and development expenditures .............. $ 95 $ 95
- -------------------------------------------------------------------------
As of October 31
Consolidated
Assets ........................................... $ 5,056 $ 5,060
Liabilities other than debt ...................... $ 3,021 $ 2,911
Debt ............................................. $ 1,218 $ 1,374
Shareowners' equity .............................. $ 817 $ 775
Manufacturing
Assets ........................................... $ 3,724 $ 3,645
Liabilities other than debt ...................... $ 2,780 $ 2,695
Short-term debt .................................. $ 3 $ 25
Long-term debt ................................... $ 124 $ 150
Shareowners' equity .............................. $ 817 $ 775
Capitalization (long-term debt
and shareowners' equity) ....................... $ 941 $ 925
Long-term debt as a percent
of total capitalization ........................ 13% 16%
Financial Services
Assets ........................................... $ 1,591 $ 1,672
Liabilities other than debt ...................... $ 251 $ 232
Debt ............................................. $ 1,091 $ 1,199
Shareowner's equity .............................. $ 249 $ 241
Number of employees worldwide ...................... 14,910 13,612
<PAGE 3>
FINANCIAL INFORMATION
Financial Summary ............................................. 2
Management's Discussion and Analysis of Results
of Operations and Financial Condition ....................... 4
Statement of Financial Reporting Responsibility ............... 17
Independent Auditors' Report .................................. 18
Financial Statements
Statement of Income (Loss) .................................. 19
Statement of Financial Condition ............................ 21
Statement of Cash Flow ...................................... 23
Statement of Non-Redeemable Preferred, Preference
and Common Shareowners' Equity ............................ 25
Notes to Financial Statements
1 Summary of accounting policies ..................... 27
2 Financial statement eliminations ................... 30
3 Information related to the Statement of Cash Flow 31
4 Postretirement benefits ............................ 32
5 Income taxes ....................................... 37
6 Discontinued operations ............................ 42
7 Earnings applicable to common stock ................ 42
8 Marketable securities .............................. 43
9 Receivables ........................................ 47
10 Inventories ........................................ 48
11 Property ........................................... 49
12 Leases ............................................. 50
13 Accounts payable ................................... 51
14 Accrued liabilities ................................ 51
15 Debt ............................................... 52
16 Other long-term liabilities ........................ 55
17 Financial instruments .............................. 55
18 Commitments, contingent liabilities
and restrictions on assets ....................... 56
19 Legal proceedings .................................. 57
20 Preferred and preference stocks .................... 58
21 Common stock and warrants .......................... 59
22 Stock compensation plans ........................... 60
23 Selected quarterly financial data (unaudited) ...... 61
Five-Year Summary of Selected Financial and Statistical Data .. 63
<PAGE 4>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). In this discussion and analysis, "Company" refers
to Navistar International Corporation and its consolidated subsidiaries.
The Company manufactures and markets Class 5 through 8 trucks, including
school bus chassis, mid-range diesel engines and service parts in the
United States and Canada. These products also are sold to distributors in
selected export markets. The financial services subsidiaries of the
Company provide wholesale, retail and lease financing, and commercial
physical damage and liability insurance coverage to the Company's dealers
and retail customers and to the general public through the independent
insurance agency system.
As discussed in Note 1 to the Financial Statements, finance and
insurance operations are materially different from the manufacturing and
marketing of trucks, diesel engines and service parts. Therefore, this
discussion and analysis reviews separately the operating and financial
results of "Manufacturing" and "Financial Services." Manufacturing
includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries included
on a one-line basis under the equity method of accounting. Financial
Services includes Navistar Financial Corporation (Navistar Financial) and
other foreign finance and insurance companies.
Management's discussion and analysis of results of operations should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements.
Results of Operations
Significant Events Affecting 1994 Results of Operations
In July 1993, the Company implemented a restructured retiree health
care and life insurance plan (the Plan) which provides retirees with
modified health care and life insurance benefits for life. As part of the
restructuring, 25.6 million Class B Common shares, originally valued at
$513 million, were contributed to an independent retiree Supplemental
Benefit Trust. In October 1993, the Company completed a public offering
of 23.6 million Common shares from which net proceeds of $492 million were
realized. Of the proceeds, $300 million was used to pre-fund a portion of
the $1,086 million postretirement health care and life insurance benefits
liability and the remainder used for working capital purposes.
Implementation of the Plan and the subsequent partial funding reduced 1993
and ongoing postretirement benefits expense.
The Company in 1993 recorded a $228 million charge for the cumulative
effect of changes in accounting policy with the adoption of 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). See Notes 4 and 5 to the Financial Statements for further
information.
<PAGE 5>
Consolidated
The components of net income (loss) for the three years ended October
31 are as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Income (loss) before Supplemental Trust
contribution and income taxes ......... $ 158 $ 72 $ (145)
Supplemental Trust contribution:
- Manufacturing ...................... - (509) -
- Financial Services .................. - (4) -
Income tax benefit (expense) ............ (56) 168 (2)
-------- -------- --------
Income (loss) of continuing operations .. 102 (273) (147)
Loss of discontinued operations ......... (20) - (65)
Cumulative effect of accounting changes . - (228) -
-------- -------- --------
Net income (loss) ....................... $ 82 $ (501) $ (212)
======== ======== ========
As a result of the strong demand for trucks, diesel engines and
service parts, consolidated sales and revenues of $5,337 million in 1994
were 13% higher than the $4,721 million reported in 1993 and 37% above the
$3,897 million reported in 1992.
A bar graph appears here entitled "CONSOLIDATED SALES AND
REVENUES (MILLIONS)." The X axis represents YEARS beginning
with 1990 to 1994. The Y axis represents DOLLARS in millions.
The values are listed in the following table:
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Consolidated Sales
and Revenues (millions) $3,903 $3,496 $3,897 $4,721 $5,337
Reflecting the sales and revenues increase and lower postretirement
benefits costs, the Company reported income before income taxes and
discontinued operations of $158 million for 1994, an increase from the $72
million reported in 1993 prior to the Supplemental Trust contribution, and
$303 million above the $145 million loss for 1992. Net income of $82
million in 1994 included a $20 million after-tax charge to discontinued
operations recorded in the fourth quarter for environmental liabilities at
production facilities of two formerly owned businesses. Further
discussion of this charge is provided in Note 6 to the Financial
Statements.
For 1993, the loss of continuing operations was $273 million after
the one-time charge of $513 million for the Supplemental Trust
contribution, net of an income tax benefit of $168 million. The net loss
for 1993 of $501 million included the $228 million charge for the
cumulative effect of adoption of SFAS 106 and SFAS 109. The net loss of
$212 million for 1992 included a $65 million charge to discontinued
operations for the settlement of suits brought by the Pension Benefit
Guaranty Corporation related to a previously owned business.
<PAGE 6>
Manufacturing
The components of Manufacturing income (loss), excluding Financial
Services and before income taxes, are as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Income before Supplemental Trust
contribution and income taxes ......... $ 98 $ 7 $ (197)
Supplemental Trust contribution ......... - (509) -
-------- -------- --------
Income (loss) before income taxes ....... $ 98 $ (502) $ (197)
======== ======== ========
Manufacturing, excluding Financial Services, reported income before
income taxes of $98 million, a $91 million increase from the $7 million
reported in 1993 before the one-time Supplemental Trust contribution. The
improvement in 1994 operating results over 1993 reflects record sales of
Class 8 heavy trucks and mid-range diesel engines. Sales of Class 5, 6
and 7 medium trucks and service parts also increased. The year-over-year
earnings improvement includes a $37 million reduction in postretirement
benefits expense to $171 million as a result of the restructured
postretirement health care and life insurance benefit plan and a $300
million pre-funding of a portion of the remaining postretirement liability
in the 1993 fourth quarter. The increase in operating income in 1993 over
1992 is attributable to the higher sales volume, improved selling prices
and programs implemented to reduce the Company's cost structure. The $197
million loss before income taxes in 1992 included a $47 million charge for
two voluntary product recalls.
Sales and Revenues. As a result of continued improvement in the
economies of the United States and Canada, 1994 industry retail sales of
Class 5 through 8 trucks totalled 339,600 units, an 18% growth from 1993
and 39% above the 243,500 units sold in 1992. Class 8 heavy truck
industry sales increased 24% from the 1993 level to 205,400 units as a
result of broad based demand from owner/operators and large fleet
customers. Industry sales of Class 5, 6 and 7 medium trucks, including
school bus chassis, were up 10% to 134,200 units reflecting increased
demand across a wide variety of vocations including maintenance leasing,
government and beverage. Industry sales of school bus chassis, which
accounted for about 22% of the medium truck market, increased 6% from 1993
and 9% from 1992.
A bar graph appears here entitled "INDUSTRY RETAIL TRUCK
SALES CLASS 5-8 IN THE UNITED STATES AND CANADA (UNITS)."
The X axis represente YEARS beginning with 1990 to 1994.
The Y axis represents truck UNITS. The values are listed
in the following table:
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Industry Retail Truck
Sales Class 5-8
in the United States
and Canada (Units) 288,800 229,100 243,500 288,900 339,600
<PAGE 7>
The Company's sales of trucks, diesel engines and service parts for
1994 totalled $5,153 million, 14% above the $4,510 million reported for
1993 and 40% higher than the $3,685 million recorded in 1992. Truck
shipments totalled 95,000 units in 1994, an increase of 9% and 30% from
1993 and 1992, respectively. The Company maintained its position as sales
leader in the combined United States and Canadian Class 5 through 8 truck
market in 1994 with a 27.0% market share.
To take advantage of current demand, the Company took several
measures to increase truck production during 1994. During the second
quarter of 1994, the Company added a second production shift at the
Chatham, Ontario truck assembly facility to increase production of its
premium conventional Class 8 heavy trucks. In the third quarter of 1994,
the Company employed additional production workers at its Springfield,
Ohio truck facilities to increase production of Class 5, 6 and 7 medium
trucks.
A bar graph appears here entitled "DIESEL ENGINE
SHIPMENTS TO OEMs (UNITS)." The X axis represents YEARS
beginning with 1990 to 1994. The Y axis represents engine UNITS.
The values are listed in the following table:
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Diesel Engine Shipments
to OEMs (Units) 100,900 74,800 97,400 118,200 130,600
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during 1994 were a record 130,600 units, an 11%
increase from 1993 and a 34% improvement over 1992. Higher shipments to a
major automotive manufacturer to meet consumer demand for the light trucks
and vans which use this engine was the primary reason for the increase.
To meet increased demand, additional production workers were employed at
both the Melrose Park, Illinois and Indianapolis, Indiana engine
facilities.
Service parts sales, following an 11% growth in 1993 to $632 million,
experienced a further increase of 13% to $714 million in 1994. The
improvement in sales during the two year period was principally driven by
higher sales to dealer and national retail accounts, export business
expansion and higher selling prices.
Other income increased to $25 million in 1994 from $16 million in
1993 and $17 million in 1992 as a result of increased earnings on higher
cash, cash equivalent and marketable securities balances.
Operating Costs and Expenses. Manufacturing gross margin (sales less
cost of sales) was 12.7% of sales in 1994 compared with 13.1% in 1993 and
13.2% in 1992, excluding one-time product recall expenses. The favorable
impact on gross margin from the higher 1994 sales volume was more than
offset by a $28 million increase in the provision for payment to employees
as required by the Company's profit sharing agreements, additional costs
to meet customer delivery commitments and excess costs incurred with the
introduction of new truck and engine products. Factors which led to the
change in gross margin between 1993 and 1992 included higher sales volume,
improved price realization and the impact of cost improvement programs
offset by increases in purchased material and labor costs and a higher
level of startup costs for new products.
<PAGE 8>
Postretirement benefits, which include pension expense for employees,
retirees and surviving spouses and postretirement health care and life
insurance coverage for employees, retirees, surviving spouses and
dependents totalled $171 million in 1994. Pension expense of $107 million
in 1994 was about level with 1993 and 1992. A 37% reduction in
postretirement health care and life insurance expense from $102 million in
1993 to $64 million in 1994 was primarily the result of pre-funding $300
million of the retiree health care benefit plan liability in October 1993.
A similar 30% reduction in such costs was achieved between 1993 and 1992
as a result of the implementation of the restructured retiree benefit plan
in 1993, partially offset by an increase in expense as a result of the
adoption of SFAS 106.
A bar graph appears here entitled "POSTRETIREMENT
HEALTH CARE/LIFE INSURANCE EXPENSE (IN MILLIONS)."
The X axis represents YEARS beginning with 1991 to 1994.
The Y axis represents DOLLARS in millions. The values
are listed in the following table:
1991 1992 1993 1994
------ ------ ------ ------
Postretirement Health Care/
Life Insurance Expense
(in millions) $ 138 $ 145 $ 102 $ 64
In 1994, the Company continued its commitment to allocate resources
for improvement of existing products and processes and the development of
new truck and diesel engine products. Engineering expense increased to
$97 million in 1994 from $94 million in 1993 and $92 million in 1992
reflecting the development and introduction of new heavy truck products, a
new series of diesel engines as well as continuing development of existing
products.
Marketing and administrative expense of $238 million was 3% higher
than in 1993 primarily as a result of higher sales and distribution
expense and the provision for payment to employees as provided by the
Company's management incentive program. Finance service charges on sold
receivables increased to $66 million, an 18% increase over 1993 and 27%
higher than 1992, as a result of higher truck sales and increased interest
rates.
<PAGE 9>
Financial Services
Income of the subsidiaries comprising Financial Services is as
follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Navistar Financial Corporation:
Finance Operations ................... $ 50 $ 52 $ 36
Insurance Operations ................. 5 1 10
Supplemental Trust contribution ...... - (4) -
-------- -------- --------
Total Navistar Financial ........... 55 49 46
Foreign Subsidiaries ................... 5 12 6
-------- -------- --------
Total income before income taxes ..... 60 61 52
Income tax expense ....................... (22) (22) (20)
-------- -------- --------
Income before cumulative effect
of accounting changes .................. 38 39 32
Cumulative effect of accounting changes .. - (9) -
-------- -------- --------
Net income ............................... $ 38 $ 30 $ 32
======== ======== ========
Navistar Financial's income before income taxes in 1994 was $55
million, a 12% increase from $49 million in 1993, which included a $4
million one-time charge for Navistar Financial's portion of the
Supplemental Trust contribution. Finance Operations' income in 1994 was
$2 million lower than 1993 as a result of lower margins on retail
financing as rising interest costs could not be offset fully by increased
retail note pricing. The decline in retail note income was offset in part
by an increased volume of wholesale financing to support the increased
demand for trucks. Navistar Financial's insurance subsidiary's income
increased $4 million over 1993 as a result of improved underwriting
results on truck liability insurance. The increase in Navistar
Financial's income before income taxes between 1993 and 1992 was primarily
the result of higher gains on sales of retail notes, partially offset by
higher loss experience in the insurance subsidiary and the Supplemental
Trust contribution.
Earnings from the foreign finance subsidiaries decreased to $5
million in 1994 from $12 million in 1993 as earnings in 1993 included a
one-time benefit of $6 million resulting from lower loss reserve
requirements.
Navistar Financial revenue for 1994 was $210 million, 9% below 1993
as a higher proportion of retail notes were financed through the sale of
receivables. When receivables are sold only the net gains on the sales,
rather than the individual components of revenue and expense, are reported
in the Statement of Income (Loss). The decrease in retail note and lease
revenue resulting from the receivable sales was partially offset by higher
average wholesale note and account balances, improved average yields as a
result of a higher prime interest rate and increased income from servicing
fees on sold notes. Navistar Financial's revenues were unchanged between
1993 and 1992.
<PAGE 10>
Interest expense for Navistar Financial declined to $63 million in
1994 from $75 million in 1993 and $82 million in 1992. The decrease
between 1994 and 1993 was the result of reduced debt required to finance
the lower level of owned retail receivables, offset in part by higher
interest rates. The decline in interest expense between 1993 and 1992 was
primarily the result of lower interest rates.
Liquidity and Capital Resources
Consolidated
Total cash, cash equivalents and marketable securities of the Company
amounted to $861 million and $639 million at October 31, 1994 and 1993,
respectively. At October 31, 1994 and 1993, approximately $138 million
and $133 million in marketable securities, respectively, were held by the
Company's insurance subsidiaries and not available for general corporate
purposes.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services
operations.
Manufacturing
Liquidity available to Manufacturing is summarized below.
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Cash and cash equivalents ................. $ 499 $ 377 $ 222
======== ======== ========
Cash, cash equivalents
and marketable securities ............... $ 665 $ 462 $ 250
======== ======== ========
The following is a summary of Manufacturing's cash flow for fiscal
1994.
Millions of dollars 1994
----------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ......................... $ 280
Investment programs ................ (46)
Financing activities ............... (112)
--------
Increase in cash and cash equivalents. $ 122
========
<PAGE 11>
Operations. In 1994, operations provided $280 million in cash as
follows:
Millions of dollars 1994
- -------------------------------------------------------------------------
Net income ............................... $ 82
Items not affecting cash:
Loss of discontinued operations,
net of tax benefit ................... 20
Non-cash income tax expense ............ 51
Depreciation and other items ........... 46
Change in operating assets and liabilities:
Increase in receivables ................ $ (49)
Increase in inventories ................ (19)
Increase in accounts payable ........... 103
Increase in accrued liabilities/other .. 46 81
-------- --------
Cash provided by operations .............. $ 280
========
The loss of discontinued operations reflects a charge to income taken
in the 1994 fourth quarter for environmental liabilities at production
facilities of two formerly owned businesses, with cash expenditures to
occur in future periods. Consolidated income tax expense was $56 million,
of which $5 million was cash payments to certain federal, state and local
governments. The remaining $51 million of federal and other taxes reduced
the deferred tax asset. Receivables are higher as a result of the
increase in the Company's sales and the cessation of the sale of certain
receivables. The changes in inventories and accounts payable reflect
higher truck and engine production schedules in 1994. The increase in
accrued liabilities is a result of the provision for payment to employees
as required by the Company's profit sharing agreements as well as the
timing of the payment of other liabilities.
Investment programs. Investment programs used $46 million in cash
during 1994 primarily reflecting an $82 million net increase in marketable
securities and capital expenditures of $87 million. These items were
offset by $87 million in proceeds from a sale/leaseback agreement and the
return of $30 million used to collateralize a bond related to a legal
proceeding.
Financing programs. Cash used for financing programs in 1994
consisted of $42 million used for principal payments on long-term debt,
$58 million in cash dividends paid on the Series G Preferred Stock and $12
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.
Management's discussion of the future liquidity of manufacturing
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
<PAGE 12>
Financial Services
The Financial Services subsidiaries provide product financing and
insurance coverage to Transportation's dealers and retail customers.
Historically, funds to finance Transportation's products come from a
combination of commercial paper, short and long-term bank borrowings,
medium and long-term debt issues, sales of receivables and equity capital.
Navistar Financial's current debt ratings have made commercial paper,
short-term bank borrowings and sales of finance receivables the most
economic sources of cash. During 1994, receivable sales were a
significant source of funding for Navistar Financial. Insurance
operations are funded from premiums and income from investments.
Liquidity available to Financial Services is summarized below.
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Cash and cash equivalents ................ $ 58 $ 44 $ 103
======== ======== ========
Cash, cash equivalents
and marketable securities .............. $ 196 $ 177 $ 246
======== ======== ========
The cash flow for Financial Services for 1994 is summarized as
follows:
Millions of dollars 1994
----------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ........................ $ 20
Investment programs ............... 130
Financing activities .............. (136)
--------
Increase in cash and cash equivalents . $ 14
========
Operations. Operations provided $20 million in cash in 1994
primarily from net income of $38 million, offset by other non-cash items,
principally $12 million in gains on sales of receivables. Navistar
Financial supplied 93% of the wholesale financing of new trucks to
Transportation's dealers compared with 90% in 1993 and 89% in 1992.
Navistar Financial's share of retail financing of new trucks sold to
customers in the United States was 15.3% in 1994 and 1993 up from 13.7% in
1992.
Investment programs. The Financial Services' investment programs
provided $130 million in cash principally as a result of the sale of
retail notes.
<PAGE 13>
Financing programs. Financial Services used $136 million in 1994 for
financing activities. Working capital needs are funded through a
combination of short-term bank borrowings, commercial paper and a bank
revolving credit facility. During 1994, there was a net decrease in debt
of $108 million and cash dividends of $28 million paid to Transportation.
At October 31, 1994, Navistar Financial had contractually committed
facilities of $1,327 million consisting of a bank revolving credit
facility of $727 million and a retail notes receivable purchase facility
of $600 million. Unused commitments under the credit and purchase
facilities were $595 million, $419 million of which was used to back
short-term debt at October 31, 1994. The remaining $176 million, when
combined with unrestricted cash and cash equivalents, made $204 million
available to fund the general business purposes of Navistar Financial at
October 31, 1994. In November 1994, Navistar Financial amended and
restated its $727 million bank revolving credit facility. See Note 15 to
the Financial Statements.
In addition to its committed credit facilities, Navistar Financial
also utilizes a $300 million revolving wholesale note sales trust
providing for the continuous sales of eligible wholesale notes on a daily
basis. The sales trust is composed of three $100 million pools of notes
maturing serially from 1997 to 1999.
Management's discussion of the future liquidity of Financial Services
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
Environmental Matters
As disclosed in Notes 6 and 19 to the Financial Statements, a $20
million after-tax charge was recorded as a loss of discontinued
operations. The charge was related to environmental liabilities at
production facilities of two formerly owned businesses, Wisconsin Steel in
Chicago, Illinois and Solar Turbines, Inc. in San Diego, California.
In November 1994, a settlement was reached with the United States
Environmental Protection Agency for both the administrative action and the
court action related to enforcement notices regarding emissions of
volatile organic compounds from painting activities at the Company's
Springfield, Ohio assembly and body facilities. The settlement included a
payment of $2.7 million which was accrued as of October 31, 1994.
In addition, the Company has been named a potentially responsible
party (PRP), in conjunction with other parties, in a number of cases
arising under an environmental protection law commonly known as the
Superfund law. These cases involve sites which allegedly have received
wastes from current or former Company locations. The Superfund law
requires environmental investigation and/or cleanup where waste products
from various manufacturing processes and operations have been stored,
treated or disposed.
<PAGE 14>
Based on information available to the Company which in most cases
consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRP's
and/or Federal or State regulatory agencies, for the investigation and
cleanup of these sites, a reasonable estimate is calculated of the
Company's share, if any, of the costs. The Company believes that, based
on these calculations, its share of the costs for each site, other than
the Wisconsin Steel and Solar sites, is not material. The anticipated
cleanup costs of current PRP actions at October 31, 1994, and the
environmental cleanup costs of the Wisconsin Steel and Solar Turbine
sites, are reflected in the Company's $31 million accrued liability. The
Company reviews its accruals as additional information becomes available.
Income Taxes
The Statement of Financial Condition at October 31, 1994 and 1993,
includes a deferred tax asset of $1,134 million and $1,178 million,
respectively, related to future tax benefits. These amounts are net of
valuation allowances since it is more-likely-than-not that some portion of
the deferred tax asset may not be realized in the future. The valuation
allowances at October 31, 1994 and 1993 were $297 million and $305
million, respectively.
The deferred tax asset includes the tax benefits associated with
cumulative tax losses of $2,301 million and temporary differences, which
represents cumulative income tax expense recorded in the Statement of
Income (Loss) that has not been deducted on the Company's tax returns, of
$1,454 million. The valuation allowances assume that it is more-likely-
than-not that approximately $780 million of cumulative tax losses will not
be realized before their expiration date. Realization of the net deferred
tax asset is dependent on the generation of approximately $3 billion of
future taxable income of which approximately $110 million would need to be
generated annually for the 14 year period 1995 through 2008. The
remaining taxable income, which represents the realization of tax benefits
associated with temporary differences, does not need to be generated until
subsequent to the year 2008. See Note 5 to the Financial Statements.
Extensive analysis is performed to determine the amount of the
deferred tax asset. Such analysis is based on the fundamental premise
that the Company is and will continue to be a going concern and that it is
more likely-than-not that deferred tax benefits will be realized through
the generation of future taxable income. This is supported by increases
in retail sales of Class 5 through 8 trucks in the United States and
Canada by both the industry and the Company between 1992 and 1994, the
continued growth of the United States and Canadian economies, the
Company's position as market share leader in the Class 5 through 8 truck
market in the United States and Canada and changes in the Company's cost
structure, including the restructured postretirement benefit plan
implemented in 1993. Further, shipments of the Company's mid-range diesel
engines to original equipment manufacturers reached record levels in 1994
and are projected to remain strong. Other available evidence, both
positive and negative, was reviewed by management. The following are
among the factors considered:
- An assessment of the long-term earnings potential of the Company using
a number of alternatives to evaluate financial results in economic
cycles of various industry volume conditions.
<PAGE 15>
- A comparison of earnings projections to the availability of net
operating loss carryforwards (NOLs) and reversing temporary
differences to assess the availability of taxable income prior to the
expiration of such benefits. The Company's assessment indicates that
although most NOLs will be utilized, certain NOLs may expire
resulting in a valuation allowance of $297 million at October 31,
1994.
- Annual savings related to the restructuring of health care and life
insurance benefits. The retiree benefit plan provisions have reduced
costs by approximately $125 million in 1994 including savings of $27
million from pre-funding $300 million of the retiree benefit
liability. Additional savings of approximately $18 million will come
from $200 million in additional funding which must be completed by
July 1, 1998. Implementation of managed care programs for active and
certain retired employees are projected to reduce costs by up to $15
million annually.
- The commitment to achieve operating cost reductions in future years
from the completion of a broad range of manufacturing and product
quality improvements, design and material cost programs as well as
administrative expense reductions.
- The underlying long-term strengths of the Company in the truck and
diesel engine business including a consistent 14 year leadership in
combined market share for Class 5 through 8 trucks, a long history of
successful competition in markets and customers served and
recognition as a worldwide leading producer of mid-range diesel
engines.
Management also considered other evidence and the risk and
uncertainty inherent in predicting future taxable income. Management
believes that with the combination of available tax planning strategies,
the implementation of a plan to further reduce its cost structure and the
maintenance of significant market share, earnings are achievable to
realize the net deferred tax asset of $1,134 million.
Reconciliation of the Company's United States income before taxes for
financial statement purposes to taxable income for the fiscal year ended
October 31, 1994 is as follows:
Millions of dollars 1994
----------------------------------------------------------
Income of continuing operations
before income taxes ......................... $ 158
Exclusion of income of foreign subsidiaries ... (13)
Loss of discontinued operations
before income tax benefit ................... (33)
State income taxes ............................ (2)
Temporary differences ......................... 18
Other ......................................... 2
--------
Taxable income ................................ $ 130
========
<PAGE 16>
As discussed above and in Notes 4 and 5 to the Financial Statements,
the Company undertook significant restructuring actions in 1993. Since
these actions were not in place in 1992 and resulted in substantial
taxable losses in 1993, management believes that the information which
would be presented in the above table for those years is not meaningful.
Business Outlook
Based on current record order backlogs, order receipt trends and key
market indicators, the Company currently projects 1995 United States and
Canadian Class 5, 6 and 7 medium truck demand, including school bus
chassis, to be 151,000 units, a 12% increase from 1994, while Class 8
heavy truck demand is forecast at 205,000 units, level with 1994. Diesel
engine shipments by the Company to original equipment manufacturers in
1995 are expected to be approximately 161,600 units, or 24% higher than
1994. Sales of service parts by the Company are forecast to grow 6% to
$755 million.
The Company's focus in 1995 will be to further improve product gross
margins through increased manufacturing productivity and lower design and
material costs.
It is the opinion of management that, in the absence of significant
unanticipated cash demands, current and forecasted cash flow will provide
a basis for financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. In addition, management
believes that collections on the outstanding receivables portfolios as
well as funds available from various funding sources will permit the
Financial Services subsidiaries to meet the financing requirements of the
Company's dealers and customers.
<PAGE 17>
STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY
Management of Navistar International Corporation and its subsidiaries
is responsible for the preparation and for the integrity and objectivity
of the accompanying financial statements and other financial information
in this report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include amounts that are
based on management's estimates and judgments.
The accompanying financial statements have been audited by Deloitte &
Touche LLP, independent auditors, whose appointment is ratified by
shareowner vote at the Annual Meeting. Management has made available to
Deloitte & Touche LLP all the Company's financial records and related data,
as well as the minutes of the Board of Directors' meetings. Management
believes that all representations made to Deloitte & Touche LLP during its
audit were valid and appropriate.
Management is responsible for establishing and maintaining a system
of internal controls throughout its operations that provides reasonable
assurance as to the integrity and reliability of the financial statements,
the protection of assets from unauthorized use and the execution and
recording of transactions in accordance with management's authorization.
The system of internal controls which provides for appropriate division of
responsibility is supported by written policies and procedures that are
updated by management as necessary. The system is tested and evaluated
regularly by the Company's internal auditors as well as by the independent
auditors in connection with their annual audit of the financial
statements. The independent auditors conduct their audit in accordance
with generally accepted auditing standards and perform such tests of
transactions and balances as they deem necessary. Management considers
the recommendations of its internal auditors and independent auditors
concerning the Company's system of internal controls and takes the
necessary actions that are cost-effective in the circumstances to respond
appropriately to the recommendations presented. Management believes that
the Company's system of internal controls accomplishes the objectives set
forth in the first sentence of this paragraph.
The Audit Committee of the Board of Directors, composed of seven non-
employee Directors, meets periodically with the independent auditors,
management, general counsel and internal auditors to satisfy itself that
such persons are properly discharging their responsibilities regarding
financial reporting and auditing. In carrying out these responsibilities,
the Committee has full access to the independent auditors, internal
auditors, general counsel and financial management in scheduled joint
sessions or private meetings as in the Committee's judgment seem
appropriate. Similarly, the Company's independent auditors, internal
auditors, general counsel and financial management have full access to the
Committee and to the Board of Directors and each is responsible for
bringing before the Committee or its Chairman, in a timely manner, any
matter deemed appropriate to the discharge of the Committee's
responsibility.
James C. Cotting
Chairman and
Chief Executive Officer
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
<PAGE 18>
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation,
Its Directors and Shareowners:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1994 and 1993, and the related Statement of Income (Loss), of Cash Flow,
and of Non-Redeemable Preferred, Preference and Common Shareowners' Equity
for each of the three years in the period ended October 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Navistar International Corporation and Consolidated Subsidiaries at
October 31, 1994 and 1993, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 4 to the Financial Statements, effective
November 1, 1992, the Company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
Deloitte & Touche LLP
December 12, 1994
Chicago, Illinois
<PAGE 19>
STATEMENT OF INCOME (LOSS)
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31 Note
(Millions of dollars, except per share data) 1994 1993 1992 Reference
- --------------------------------------------------------------------------------------------------
Sales and Revenues
Sales of manufactured product ................ $ 5,153 $ 4,510 $ 3,685
Finance and insurance revenue ................ 152 181 177
Other income ................................. 32 30 35
-------- -------- --------
Total sales and revenues ................... 5,337 4,721 3,897
-------- -------- --------
Costs and expenses
Cost of products and services sold ........... 4,500 3,925 3,248
Postretirement benefits ...................... 172 209 255 Note 4
Supplemental Trust contribution .............. - 513 - Note 21
Engineering expense .......................... 97 94 92
Marketing and administrative expense ......... 265 257 274
Interest expense ............................. 75 91 99
Financing charges on sold receivables ........ 16 14 12
Insurance claims and underwriting expense .... 54 59 62
-------- -------- --------
Total costs and expenses ................... 5,179 5,162 4,042
-------- -------- --------
Income (loss) before income taxes
Manufacturing .............................. - - -
Financial Services ......................... - - -
-------- -------- --------
Income (loss) before income taxes ........ 158 (441) (145)
Income tax benefit (expense) ............. (56) 168 (2) Note 5
-------- -------- --------
Income (loss) of continuing operations ....... 102 (273) (147)
Loss of discontinued operations .............. (20) - (65) Note 6
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy ............. 82 (273) (212)
Cumulative effect of changes
in accounting policy ....................... - (228) - Notes 4 & 5
-------- -------- --------
Net income (loss) ............................ 82 (501) (212)
Less dividends on Series G preferred stock ... 29 29 29 Note 7
-------- -------- --------
Net income (loss) applicable to common stock.. $ 53 $ (530) $ (241) Note 7
======== ======== ========
- --------------------------------------------------------------------------------------
Income (loss) per common share:
Continuing operations ...................... $ .99 $ (8.63) $ (6.97)
Discontinued operations .................... (.27) - (2.58)
Cumulative effect of changes
in accounting policy ..................... - (6.56) -
-------- -------- --------
Net income (loss) per common share ........... $ .72 $ (15.19) $ (9.55)
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding (millions) ... 74.6 34.9 25.3 Note 7
<FN>
- --------------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE 20>
Manufacturing* Financial Services*
---------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------------------------
$ 5,153 $ 4,510 $ 3,685 $ - $ - $ -
- - - 202 223 217
25 16 17 12 14 18
-------- -------- -------- -------- -------- --------
5,178 4,526 3,702 214 237 235
-------- -------- -------- -------- -------- --------
4,498 3,919 3,245 2 6 3
171 208 254 1 1 1
- 509 - - 4 -
97 94 92 - - -
238 230 244 27 27 30
10 12 12 70 79 87
66 56 52 - - -
- - - 54 59 62
-------- -------- -------- -------- -------- --------
5,080 5,028 3,899 154 176 183
-------- -------- -------- -------- -------- --------
98 (502) (197) - - -
60 61 52 - - -
-------- -------- -------- -------- -------- --------
158 (441) (145) 60 61 52
(56) 168 (2) (22) (22) (20)
-------- -------- -------- -------- -------- --------
102 (273) (147) 38 39 32
(20) - (65) - - -
-------- -------- -------- -------- -------- --------
82 (273) (212) 38 39 32
- (228) - - (9) -
-------- -------- -------- -------- -------- --------
$ 82 $ (501) $ (212) $ 38 $ 30 $ 32
======== ======== ======== ======== ======== ========
<FN>
----------------------------------------------------------------------------
* "Manufacturing" includes the consolidated financial results of the
Company's manufacturing operations with its wholly-owned financial
services subsidiaries included under the equity method of accounting.
"Financial Services" includes the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other wholly-owned finance and
insurance subsidiaries. Transactions between Manufacturing and
Financial Services have been eliminated from the "Navistar International
Corporation and Consolidated Subsidiaries" columns on the preceding page.
The basis of consolidation is described in Note 1 while a summary of
eliminations is shown in Note 2.
<PAGE 21>
STATEMENT OF FINANCIAL CONDITION
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
Note
As of October 31 (Millions of dollars) 1994 1993 Reference
- ----------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents .......................... $ 557 $ 421
Marketable securities .............................. 304 218 Note 8
Receivables, net ................................... 1,517 1,550 Note 9
Inventories ........................................ 429 411 Note 10
Prepaid pension assets ............................. 63 82 Note 4
Property and equipment, net ........................ 578 636 Note 11
Equity in Financial Services subsidiaries .......... - -
Investments and other assets ....................... 165 224
Intangible pension assets .......................... 309 340
Deferred tax asset ................................. 1,134 1,178 Note 5
-------- --------
Total assets ....................................... $ 5,056 $ 5,060
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable ................................... $ 836 $ 739 Note 13
Accrued liabilities ................................ 452 419 Note 14
Short-term debt .................................... 522 180 Note 15
Long-term debt ..................................... 696 1,194 Note 15
Other long-term liabilities ........................ 298 294 Note 16
Loss reserves and unearned premiums ................ 136 107
Postretirement benefits liability .................. 1,299 1,352 Note 4
-------- --------
Total liabilities .............................. 4,239 4,285
-------- --------
Shareowners' equity
Series G convertible preferred stock Notes 20
(liquidation preference $240 million) ............ 240 240 & 21
Series D convertible junior preference stock
(liquidation preference $4 million) .............. 4 5
Common stock (50.0 million and 49.2 million shares
issued) and warrants ............................. 1,628 1,615
Class B Common (25.0 and 25.6 million shares issued) 501 513
Retained earnings (deficit) - balance accumulated
after the deficit reclassification as of
October 31, 1987 ................................. (1,532) (1,588)
Accumulated foreign currency translation
adjustments and net unrealized holding
gains (losses) on marketable securities .......... (6) (4) Note 8
Common stock held in treasury, at cost ............. (18) (6)
-------- --------
Total shareowners' equity ...................... 817 775
-------- --------
Total liabilities and shareowners' equity .......... $ 5,056 $ 5,060
======== ========
<FN>
- ----------------------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE 22>
Manufacturing* Financial Services*
---------------------- ---------------------
1994 1993 1994 1993
----------------------------------------------------------------------------
$ 499 $ 377 $ 58 $ 44
166 85 138 133
176 123 1,351 1,443
429 411 - -
62 81 1 1
549 608 29 28
249 241 - -
151 201 14 23
309 340 - -
1,134 1,178 - -
-------- -------- -------- --------
$ 3,724 $ 3,645 $ 1,591 $ 1,672
======== ======== ======== ========
$ 779 $ 670 $ 70 $ 85
420 395 29 24
3 25 519 155
124 150 572 1,044
289 285 9 9
- - 136 107
1,292 1,345 7 7
-------- -------- -------- --------
2,907 2,870 1,342 1,431
-------- -------- -------- --------
240 240 - -
4 5 - -
1,628 1,615 178 178
501 513 - -
(1,532) (1,588) 73 63
(6) (4) (2) -
(18) (6) - -
-------- -------- -------- --------
817 775 249 241
-------- -------- -------- --------
$ 3,724 $ 3,645 $ 1,591 $ 1,672
======== ======== ======== ========
<FN>
----------------------------------------------------------------------------
* "Manufacturing" includes the consolidated financial results of the
Company's manufacturing operations with its wholly-owned financial
services subsidiaries included under the equity method of accounting.
"Financial Services" includes the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other wholly-owned finance and
insurance subsidiaries. Transactions between Manufacturing and
Financial Services have been eliminated from the "Navistar
International Corporation and Consolidated Subsidiaries" columns
on the preceding page. The basis of consolidation is described in
Note 1 while a summary of eliminations is shown in Note 2.
<PAGE 23>
STATEMENT OF CASH FLOW
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31 Note
(Millions of dollars) 1994 1993 1992 Reference
- -------------------------------------------------------------------------------------------------
Cash flow from operations
Net income (loss) ............................... $ 82 $ (501) $ (212)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization ................. 72 75 77
Supplemental Trust contribution ............... - 513 - Note 21
Equity in earnings of Financial Services,
net of dividends received ................... - - -
Allowance for losses on receivables
and dealer loans ............................ (2) 19 24
Non-cash income tax (benefit) expense ......... 51 (170) - Note 5
Provision for loss of discontinued operations . 20 - 65 Note 6
Cumulative effect of changes
in accounting policy ........................ - 228 - Notes 4 & 5
Other, net .................................... (24) (21) (55)
Change in operating assets and liabilities .... (45) (108) 74 Note 3
-------- -------- --------
Cash provided by (used in)
continuing operations ....................... 154 35 (27)
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (916) (770) (659)
Principal collections on retail notes
and lease receivables ......................... 181 337 409
Sale of retail notes receivables ................ 995 558 249 Note 9
Acquisitions (over) under cash collections
of wholesale notes and accounts receivable .... - - - Note 3
Purchase of marketable securities ............... (710) (371) (248)
Sales or maturities of marketable securities .... 621 326 283
Proceeds from property sold under sale/leaseback. 87 - -
Capital expenditures ............................ (87) (110) (55)
Net increase in property and equipment
leased to others .............................. (5) (14) (4)
Base Program Trust pre-funding .................. - (300) - Note 4
Other investment programs, net .................. 36 (43) (46)
-------- -------- --------
Cash provided by (used in) investment programs. 202 (387) (71)
-------- -------- --------
Cash flow from financing activities
Issuance of long-term debt ...................... 100 - -
Principal payments on long-term debt ............ (222) (117) (170)
Net increase (decrease) in short-term debt ...... 344 75 (176) Note 15
Increase (decrease) in debt outstanding under
bank revolving credit facility ................ (372) - 507
Net proceeds from issuance of Common Stock ...... - 492 - Note 21
Dividends paid .................................. (58) - (29)
Repurchase of Class B Common Stock .............. (12) (2) -
-------- -------- --------
Cash provided by (used in) financing activities (220) 448 132
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 136 96 34
At beginning of the year ...................... 421 325 291
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 557 $ 421 $ 325
======== ======== ========
<FN>
- --------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE 24>
Manufacturing* Financial Services*
---------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------------------------
$ 82 $ (501) $ (212) $ 38 $ 30 $ 32
68 69 74 4 6 3
- 509 - - 4 -
(10) (10) (15) - - -
(4) 17 19 2 2 5
51 (170) - 3 4 3
20 - 65 - - -
- 228 - - 9 -
(8) (14) (41) (19) (11) (15)
81 64 159 (8) 19 (17)
-------- -------- -------- -------- -------- --------
280 192 49 20 63 11
-------- -------- -------- -------- -------- --------
- - - (916) (770) (659)
- - - 181 337 409
- - - 995 558 249
- - - (118) (187) (66)
(651) (296) (120) (59) (75) (128)
569 240 162 52 86 121
87 - - - - -
(87) (110) (55) - - -
- - - (5) (14) (4)
- (300) - - - -
36 (43) (34) - - (13)
-------- -------- -------- -------- -------- --------
(46) (509) (47) 130 (65) (91)
-------- -------- -------- -------- -------- --------
- - - 100 - -
(42) (18) (11) (180) (99) (159)
- - 8 344 75 (184)
- - - (372) - 507
- 492 - - - -
(58) - (29) (28) (33) (20)
(12) (2) - - - -
-------- -------- -------- -------- -------- --------
(112) 472 (32) (136) (57) 144
-------- -------- -------- -------- -------- --------
122 155 (30) 14 (59) 64
377 222 252 44 103 39
-------- -------- -------- -------- -------- --------
$ 499 $ 377 $ 222 $ 58 $ 44 $ 103
======== ======== ======== ======== ======== ========
<FN>
-----------------------------------------------------------------------------
* "Manufacturing" includes the consolidated financial results of the
Company's manufacturing operations with its wholly-owned financial
services subsidiaries included under the equity method of accounting.
"Financial Services" includes the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other wholly-owned finance and
insurance subsidiaries. Transactions between Manufacturing and
Financial Services have been eliminated from the "Navistar
International Corporation and Consolidated Subsidiaries" columns
on the preceding page. The basis of consolidation is described in
Note 1 while a summary of eliminations is shown in Note 2.
<PAGE 25>
STATEMENT OF NON-REDEEMABLE PREFERRED,
PREFERENCE AND COMMON SHAREOWNERS' EQUITY
Shares Outstanding (In thousands)
-----------------------------------------------------------------
Non-Redeemable Convertible
--------------------------
Preferred Preference
For the Years Ended Stock Stock Common Class B
October 31, 1994, 1993 and 1992 Series G Series D Stock Common Warrants
- ----------------------------------------------------------------------------------------------------------------
Balance at October 31, 1991 ................. 4,800 196 25,012 - 14,834
Issuance of Common Stock
Conversion of Series D preference stock ... - (17) 5 - -
Restricted stock .......................... - - 13 - -
Exercise of stock options ................. - - 23 - -
PBGC settlement shares .................... - - 357 - -
Net loss .................................... - - - - -
Preferred dividends paid .................... - - - - -
Adjustment for excess additional pension
liability over intangible pension assets . - - - - -
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1992 ................. 4,800 179 25,410 - 14,834
Issuance of Common Stock
Public stock offering ..................... - - 23,600 - -
Conversion of Series D preference stock ... - (1) - - -
Restricted stock .......................... - - 10 - -
Exercise of stock options ................. - - 2 - -
Class B Common Stock ...................... - - - 25,642 -
Reclassification of NOL (a).................. - - - - -
Repurchase of common stock .................. - - (3) (96) -
Stock accumulation fund settlement .......... - - 136 - -
Net loss .................................... - - - - -
Preferred dividends declared ................ - - - - -
Adjustment for excess additional pension
liability over intangible pension
assets, net of tax benefit ............... - - - - -
Tax benefit on previously recognized
pension liability ......................... - - - - -
Expiration of warrants ...................... - - - - (4,000)
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1993 ................. 4,800 178 49,155 25,546 10,834
Issuance of Common Stock
Conversion of Series D preference stock ... - (1) - - -
Restricted stock .......................... - - 167 - -
Exercise of stock options ................. - - 1 - -
Conversion of Class B Common Stock ........ - - - - -
Repurchase of common stock .................. - - (4) (511) -
Net income .................................. - - - - -
Preferred dividends declared ................ - - - - -
Adjustment for excess additional pension
liability over intangible pension
assets, net of tax benefit ............... - - - - -
Expiration of warrants ...................... - - - - (10,834)
Translation adjustments ..................... - - - - -
Unrealized loss - marketable securities ..... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1994 ................. 4,800 177 49,319 25,035 -
======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements.
(a) Reclassification required as a result of the 1987 deficit reclassification and adoption of SFAS 109 in
fiscal 1993.
<PAGE 26>
Equity (Millions of dollars)
------------------------------------------------------------------------------------------------------------
Non-Redeemable Convertible Accumulated
-------------------------- Common Translation Common
Preferred Preference Stock Adjustment/ Stock
Stock Stock and Class B Retained Unrealized Held In
Series G Series D Warrants Common Earnings Gains (Losses) Treasury Total
- -------------------------------------------------------------------------------------------------------------
$ 240.0 $ 4.9 $ 522.0 $ - $ (157.8) $ - $ (31.6) $ 577.5
- (.4) .4 - - - - -
- - .3 - - - (.1) .2
- - 1.7 - - - (1.8) (.1)
- - (16.0) - - - 22.9 6.9
- - - - (212.4) - - (212.4)
- - - - (28.8) - - (28.8)
- - - - (.8) - - (.8)
- - - - - (4.2) - (4.2)
-------- -------- -------- -------- --------- -------- -------- --------
240.0 4.5 508.4 - (399.8) (4.2) (10.6) 338.3
- - 492.1 - - - - 492.1
- - - - - - - -
- - .3 - - - - .3
- - - - - - - -
- - - 512.8 - - - 512.8
- - 617.6 - (617.6) - - -
- - - - - - (2.5) (2.5)
- - (3.4) - - - 7.6 4.2
- - - - (501.0) - - (501.0)
- - - - (28.8) - - (28.8)
- - - - (79.4) - - (79.4)
- - - - 38.3 - - 38.3
- - - - - - - -
- - - - - .6 - .6
-------- -------- -------- -------- --------- -------- -------- --------
240.0 4.5 1,615.0 512.8 (1,588.3) (3.6) (5.5) 774.9
- (.1) .1 - - - - -
- - 1.2 - - - - 1.2
- - - - - - - -
- - 12.1 (12.1) - - - -
- - - - - - (12.6) (12.6)
- - - - 82.0 - - 82.0
- - - - (36.0) - - (36.0)
- - - - 10.0 - - 10.0
- - - - - - - -
- - - - - .1 - .1
- - - - - (2.7) - (2.7)
-------- -------- -------- -------- --------- -------- -------- --------
$ 240.0 $ 4.4 $1,628.4 $ 500.7 $(1,532.3) $ (6.2) $ (18.1) $ 816.9
======== ======== ======== ======== ========= ======== ======== ========
<PAGE 27>
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1994
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Consolidation
Navistar International Corporation is a holding company, whose
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). Transportation operates in one principal industry
segment, the manufacture and marketing of medium and heavy trucks,
including school bus chassis, mid-range diesel engines and service parts
in the United States and Canada and selected export markets. As used
hereafter, "Company" refers to Navistar International Corporation and its
consolidated subsidiaries.
In addition to the consolidated financial statements, the Company has
elected to provide financial information in a format that presents the
operating results, financial condition and cash flow from operations
designated as "Manufacturing" and "Financial Services." Manufacturing
includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries included
on a one-line basis under the equity method of accounting. Financial
Services includes Navistar Financial Corporation (Navistar Financial), and
other foreign finance and insurance companies. Navistar Financial's
primary business is the retail and wholesale financing of products sold by
Transportation and its dealers within the United States and the providing
of commercial physical damage and liability insurance to Transportation's
dealers and retail customers and to the general public through an
independent insurance agency system.
The effects of transactions between Manufacturing and Financial
Services have been eliminated to arrive at the consolidated totals. See
Note 2 to the Financial Statements. The distinction between current and
long-term assets and liabilities in the Statement of Financial Condition
is not meaningful when finance, insurance and manufacturing subsidiaries
are combined; therefore, the Company has adopted an unclassified
presentation. Certain 1993 and 1992 amounts have been reclassified to
conform with the presentation used in the 1994 financial statements.
Cash and Cash Equivalents
All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of bankers'
acceptances, commercial paper, U.S. government securities and floating
rate notes are classified as cash equivalents in the Statement of
Financial Condition and Statement of Cash Flow.
Marketable Securities
Marketable securities, which are classified as available-for-sale
securities, are reported at fair value in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities" which
the Company elected to apply as of October 31, 1994. Marketable
securities at October 31, 1993, are reported at cost or amortized cost
which approximates market value. See Note 8 to the Financial Statements.
<PAGE 28>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Inventory
Inventory is valued at the lower of average cost or market.
Property
Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally computed on the straight-line
basis; gains and losses on property disposal are included in other income
and expense.
Research and Development
Activities related to new product development and major improvements
to existing products and processes are expensed as incurred and were $95
million, $95 million and $90 million in 1994, 1993 and 1992, respectively.
Engineering expense, as shown in the Statement of Income (Loss), includes
certain research and development expenses and routine ongoing costs
associated with improving existing products and processes.
Income Taxes
The Company adopted SFAS 109, "Accounting for Income Taxes" in 1993.
Under SFAS 109, recognition of a net deferred tax asset is allowed if
future realization is more-likely-than-not. A valuation allowance has
been provided for those net operating loss carryforwards which are
estimated to expire before they are utilized.
The tax effect of each item of revenue or expense reported in the
Statement of Income (Loss) is recognized in the current period regardless
of when the related tax is paid. Because the benefit of net operating
loss carryforwards is recognized as a deferred tax asset in the Statement
of Financial Condition, the Statement of Income (Loss) includes income
taxes calculated at the statutory rate. The amount reported does not
represent cash payment of income taxes except for certain state income,
foreign withholding and federal alternative minimum taxes which are not
material. In the Statement of Financial Condition, the deferred tax asset
is reduced by the amount of deferred tax expense or increased by a
deferred tax benefit recorded during the year.
The Company files a consolidated federal income tax return which
includes all its U.S. subsidiaries. Federal income tax for each U.S.
subsidiary is computed separately and is payable to the Company. See Note
5 to the Financial Statements.
<PAGE 29>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue on Receivables
Finance charges on retail notes and finance leases are recognized as
income by Navistar Financial over the term of the receivables on the
accrual basis utilizing the actuarial method. Interest from interest-
bearing notes and accounts is recognized on the accrual basis. Gains or
losses on sales of receivables are credited or charged to revenue in the
period in which the sale occurs.
Losses on Receivables
The allowance for losses on receivables is maintained at an amount
management considers appropriate in relation to the outstanding
receivables portfolio. Receivables are charged to the allowance for
losses when they are determined to be uncollectible.
Receivable Sales
Navistar Financial sells and securitizes receivables to public and
private investors with limited recourse but continues to service the
receivables, for which a servicing fee is received from the investors.
Insurance Premiums and Loss Reserves
Premiums and underwriting costs of insurance operations are
recognized on a pro-rata basis over the terms of the policies.
Underwriting losses and outstanding loss reserve balances are based
on individual case estimates of the ultimate cost of settlement, including
actual losses, and determinations of amounts required for losses incurred
but not reported.
Changes in Accounting Policy
In 1994, the Company adopted SFAS 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" and SFAS 119,
"Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments". In addition, the Company has elected to apply
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" as of October 31, 1994. Implementation of these standards did
not have a material effect on the Company's financial results. See Notes
8, 9 and 17 to the Financial Statements.
<PAGE 30>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. FINANCIAL STATEMENT ELIMINATIONS
The consolidated columns of the financial statements represent the
summation of Manufacturing and Financial Services after intercompany
transactions between Manufacturing and Financial Services have been
eliminated. The following are the intercompany amounts which have been
eliminated to arrive at the consolidated financial statements. The
presence or absence of brackets indicates reductions or additions,
respectively, necessary to compute the consolidated amounts.
STATEMENT OF INCOME (LOSS)
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Sales and revenues
Finance and insurance income ............ $ (50) $ (42) $ (40)
Other income ............................ (5) - -
-------- -------- --------
$ (55) $ (42) $ (40)
======== ======== ========
Costs and expenses
Interest expense ........................ $ (5) $ - $ -
Financing charges on sold receivables ... (50) (42) (40)
-------- -------- --------
$ (55) $ (42) $ (40)
======== ======== ========
Income before income taxes,
Financial Services ...................... $ (60) $ (61) $ (52)
======== ======== ========
STATEMENT OF FINANCIAL CONDITION
Millions of dollars 1994 1993
- ---------------------------------------------------------------
Receivables, net .......................... $ (10) $ (16)
Equity in Financial Services subsidiaries . (249) (241)
-------- --------
Total assets .............................. $ (259) $ (257)
======== ========
Accounts payable .......................... $ (13) $ (16)
Accrued liabilities ....................... 3 -
Shareowner's equity, Financial Services ... (249) (241)
-------- --------
Total liabilities and shareowners' equity . $ (259) $ (257)
======== ========
<PAGE 31>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. FINANCIAL STATEMENT ELIMINATIONS (continued)
STATEMENT OF CASH FLOW
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ............................ $ (146) $ (220) $ (87)
Investment programs ................... 118 187 67
Financing activities .................. 28 33 20
-------- -------- --------
Increase (decrease) during the year
in cash and cash equivalents ............ $ - $ - $ -
======== ======== ========
3. INFORMATION RELATED TO THE STATEMENT OF CASH FLOW
The following provides information related to the change in operating
assets and liabilities included in cash and cash equivalents provided by
(used in) operations:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ...... $ (49) $ 7 $ (111)
(Increase) in inventories ............... (19) (51) (37)
(Increase) in prepaid and
other current assets .................. (4) (10) (9)
Increase in accounts payable ............ 103 106 190
Increase in accrued liabilities ......... 50 12 126
-------- -------- --------
Manufacturing change in operating assets
and liabilities ....................... 81 64 159
-------- -------- --------
FINANCIAL SERVICES
(Increase) decrease in receivables ...... (1) 2 8
Increase (decrease) in accounts payable
and accrued liabilities ............... (7) 17 (25)
-------- -------- --------
Financial Services change
in operating assets and liabilities ... (8) 19 (17)
-------- -------- --------
Eliminations/reclassifications (a) ........ (118) (191) (68)
-------- -------- --------
Change in operating assets and liabilities. $ (45) $ (108) $ 74
======== ======== ========
(a) Eliminations and reclassifications to the Statement of Cash Flow
primarily consist of "Acquisitions (over) under cash collections"
relating to Financial Services' 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.
<PAGE 32>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to substantially all of
its employees. Costs associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses, and
postretirement health care and life insurance expense for employees,
retirees, surviving spouses and dependents. These costs are segregated as
a separate component in the Statement of Income (Loss) and are as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Pension expense ........................... $ 108 $ 107 $ 109
Health/life insurance ..................... 64 102 146
-------- -------- --------
Total postretirement benefits expense ..... $ 172 $ 209 $ 255
======== ======== ========
In the Statement of Financial Condition, the postretirement benefits
liability of $1,299 million in 1994 and $1,352 million in 1993 includes
$549 million and $600 million, respectively, for pension and $750 million
and $752 million, respectively, for postretirement health care and life
insurance benefits.
Generally, the pension plans are non-contributory with benefits
related to an employee's length of service and compensation rate. The
Company's policy is to fund its pension plans in accordance with
applicable United States and Canadian government regulations and to make
additional payments as funds are available to achieve full funding of the
vested accumulated benefit obligation. The pension plans vary in the
extent to which they are funded, but for plan years which ended during the
current fiscal year, all legal funding requirements have been met. Plan
assets are invested primarily in dedicated portfolios of long-term fixed
income securities.
Legislation known as the "Retirement Protection Act," was passed by
the United States Congress amending the "Employee Retirement Income
Security Act," (ERISA) and the Internal Revenue Code. The measure will
require the accelerated funding of underfunded defined benefit pension
plans and will increase the premiums paid to the Pension Benefit Guaranty
Corporation. The Company intends to fund its defined benefit plans at, or
in excess of, the government requirements.
<PAGE 33>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
In addition to providing pension benefits, the Company provides
health care and life insurance for a majority of its retired employees,
spouses and certain dependents in the United States and Canada. For most
retirees in the United States, these benefits are defined by the terms of
an agreement between the Company and its employees, retirees and
collective bargaining organizations (the Settlement Agreement) which
provides such benefits (the Plan). The Plan, which was implemented on
July 1, 1993, eliminated certain benefits and provided for cost sharing
between the Company and participants in the form of premiums, co-payments
and deductibles. A Base Program Trust was established to provide a
vehicle for funding of the health care liability through Company
contributions and retiree premiums. A separate independent Retiree
Supplemental Benefit Program was also established, which included a
Company contribution of Class B Common Stock, originally valued at $513
million, to potentially reduce retiree premiums, co-payments and
deductibles and provide additional benefits in the future.
Pension Expense
Net pension expense included in the Statement of Income (Loss) is
composed of the following:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Service cost-benefits earned
during the period ....................... $ 34 $ 27 $ 25
Interest on projected benefit obligation .. 211 220 219
Other pension costs ....................... 50 43 54
Less expected return on assets ............ (187) (183) (189)
-------- -------- --------
Net pension expense ....................... $ 108 $ 107 $ 109
======== ======== ========
Actual return on assets ................... $ (127) $ 427 $ 218
"Other pension costs" in the above table include principally the
amortization of the net transition obligation and amortization of the cost
of plan amendments.
The determination of the projected benefit obligation is based on
actuarial assumptions and discount rates that reflect the current level of
interest rates. The return on assets is based on long-term expectations.
Annual differences between such expectations and actual experience are
deferred unless the cumulative amount exceeds a specified level. Since
the adoption of the standard on pension accounting in 1988, the cumulative
actual returns on plan assets exceeded cumulative expected returns by $117
million. As a result of accumulated reductions in the discount rate and
net actuarial losses, the actual projected benefit obligation exceeds the
expected liability by $359 million.
<PAGE 34>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities
Included in the Statement of Financial Condition is the minimum
pension liability for certain unfunded pension obligations. The unfunded
liability in excess of the unamortized prior service cost and net
transition obligation was recorded as a reduction in shareowners' equity
of $132 million, net of deferred income taxes of $81 million as of October
31, 1994 and $142 million, net of deferred income taxes of $87 million as
of October 31, 1993. The change in the minimum pension liability at
October 31, 1994 resulted from changes in actuarial assumptions,
experience losses and settlement rate changes.
The funded status of the Company's plans as of October 31, 1994 and
1993, and a reconciliation with amounts recognized in the Statement of
Financial Condition are provided below.
Plans in Which Plans in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------- ---------------------
Millions of dollars 1994 1993 1994 1993
- -------------------------------------------------------------------------
Actuarial present value of:
Vested benefits ........... $ (81) $ (87) $ (2,282) $ (2,618)
Non-vested benefits ....... (5) (4) (223) (213)
-------- -------- -------- --------
Accumulated benefit
obligation ............ (86) (91) (2,505) (2,831)
Effect of projected future
compensation levels ..... (2) (6) (21) (40)
-------- -------- -------- --------
Projected benefit obligation. (88) (97) (2,526) (2,871)
Plan assets at fair value ... 118 122 1,968 2,262
-------- -------- -------- --------
Funded status at October 31 . 30 25 (558) (609)
Unamortized pension costs:
Net losses ................ 7 26 235 260
Prior service costs ....... 14 1 43 49
(Asset) liability at
date of transition ...... (1) (1) 266 301
Adjustment for the
minimum liability ......... - - (522) (570)
-------- -------- -------- --------
Net asset (liability) ....... $ 50 $ 51 $ (536) $ (569)
======== ======== ======== ========
<PAGE 35>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
As shown above, in 1994 for all plans, the sum of the $50 million net
asset and the $536 million net liability was $486 million and is the
amount recognized in the Statement of Financial Condition at October 31,
1994. This total includes $63 million of prepaid pension assets
representing advance contributions to certain plans, and $549 million of
net pension liabilities included in the $1,299 million postretirement
benefits liability in the Statement of Financial Condition.
In 1993, for all plans, the sum of the $51 million net asset and the
$569 million net liability was $518 million and is the amount recognized
in the Statement of Financial Condition at October 31, 1993. This total
includes $82 million of prepaid pension assets representing advance
contributions to certain plans and $600 million of net pension liabilities
included in the $1,352 million postretirement benefits liability in the
Statement of Financial Condition.
The weighted average rate assumptions used in determining pension
costs and the projected benefit obligation were:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Discount rate used to determine present
value of projected benefit obligation ... 9.3% 7.3% 8.8%
Expected long-term rate of return on
plan assets ............................. 8.1% 8.8% 9.2%
Expected rate of increase in future
compensation levels ..................... 3.5% 3.5% 5.5%
The Company uses a weighted average discount rate based on the
internal rate of return on its dedicated portfolio of high-quality bonds
and an estimated yield available on high-quality fixed income securities
which could be purchased to effectively settle the remaining portion of
the obligation. The increase in the discount rate to 9.3% in 1994 from
7.3% in 1993 reflects higher long-term interest rates during the past
year.
Other Postretirement Benefits
The Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," for its United States and
Canadian plans in fiscal 1993 and recognized the transition obligation as
a one-time non-cash charge to earnings. The cumulative effect of this
change in accounting policy was $729 million, net of a deferred income tax
benefit of $420 million. The $228 million cumulative charge for the
changes in accounting policy reported in the Statement of Income (Loss)
for 1993 includes the $729 million charge from the adoption of SFAS 106
offset by the $501 million benefit from the adoption of SFAS 109, as
discussed in Note 5 to the Financial Statements.
<PAGE 36>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The components of expense for other postretirement benefits included
in the Statement of Income (Loss) are as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Service cost - benefits earned
during the year ......................... $ 10 $ 12
Interest cost on the accumulated
benefit obligation ...................... 81 91
Expected return on assets ................. (27) (1)
-------- --------
Net other postretirement
benefits expense ........................ $ 64 $ 102
======== ========
The funded status of other postretirement benefits as of October 31
is as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Accumulated other postretirement benefit
obligation (APBO):
Retirees and their dependents ............. $ (662) $ (753)
Active employees eligible to retire ....... (198) (160)
Other active participants ................. (178) (173)
-------- --------
Total APBO ................................ (1,038) (1,086)
Plan assets at fair value ................. 308 302
-------- --------
APBO in excess of plan assets ............. (730) (784)
Unrecognized net (gain) loss .............. (20) 32
-------- --------
Net liability ............................. $ (750) $ (752)
======== ========
In October 1993, the Company pre-funded $300 million of this
liability from the partial proceeds of a public offering of Common Stock.
The Company will be required to make additional pre-funding contributions
to the liability on or prior to July 1, 1998, such that the total of all
pre-funding contributions will equal the total net proceeds from all sales
of Common Stock through such date, but not to exceed $500 million.
Additionally, the Company is required to annually pre-fund an amount equal
to annual service cost. These funds will be used to pay a portion of
current benefits; the remainder to be invested with plan assets which
consist primarily of equity securities. The expected return on plan
assets was 9% at October 31, 1994 and 1993.
<PAGE 37>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The weighted average of discount rates used in the United States and
Canada to determine the accumulated postretirement benefit obligation was
9.0% and 7.5% at October 31, 1994 and 1993, respectively, based on the
estimated income of high-quality fixed income securities which could be
purchased to effectively settle the obligation. For 1995, the weighted
average rate of increase in the per capita cost of covered health care
benefits is projected to be 10.0%. The rate is projected to decrease to
5% by the year 2003 and remain at that level each year thereafter. If the
cost trend rate assumptions were increased by one percentage point for
each year, the accumulated postretirement benefit obligation would
increase by approximately $100 million and the associated expense
recognized for the year ended October 31, 1994 would increase by an
estimated $11 million. Conversely, a decrease in the cost trend rate
would lower the accumulated postretirement benefit obligation and the
associated expense.
5. INCOME TAXES
The Company adopted SFAS 109, "Accounting for Income Taxes" in fiscal
1993. Under SFAS 109, deferred tax assets and liabilities are generally
determined based on the difference between the financial statements and
the tax bases of assets and liabilities using enacted tax rates in effect
for the years in which the differences are expected to reverse.
Recognition of a deferred tax asset is allowed if future realization is
more-likely-than-not.
The Income Tax section of Management's Discussion and Analysis
includes disclosures related to the determination of the amount of the net
deferred tax asset included in the Statement of Financial Condition.
The income tax benefit (expense) for the years ended October 31 is as
follows:
Millions of dollars 1994 1993 1992
- ------------------------------------------------------------------------
Tax benefit (expense) on income (loss)
of continuing operations:
Manufacturing ........................... $ (34) $ 190 $ 18
Financial Services ...................... (22) (22) (20)
-------- -------- --------
Total income tax benefit (expense)
of continuing operations ................ $ (56) $ 168 $ (2)
======== ======== ========
<PAGE 38>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
Taxes on income (loss) of continuing operations are analyzed by
categories, as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Current:
Federal ................................. $ (3) $ - $ -
State and local ......................... (2) (2) (2)
-------- -------- --------
Total current (expense) ............... (5) (2) (2)
-------- -------- --------
Deferred:
Federal ................................. (44) 149 -
State and local ......................... (7) 21 -
-------- -------- --------
Total deferred benefit (expense) ...... (51) 170 -
-------- -------- --------
Total income tax benefit (expense)
of continuing operations ................ $ (56) $ 168 $ (2)
======== ======== ========
The deferred tax expense was primarily generated by the utilization
of NOL carryforwards and the reduction of temporary differences and will
not require future cash payments.
The relationship of the tax (expense) benefit to the income (loss) of
continuing operations for 1994 and 1993 differs from the U.S. statutory
rate (35%) because of state income taxes and benefit of NOLs in foreign
countries. The effective tax rates on the income (loss) of continuing
operations for the years 1994, 1993 and 1992 were 35.4%, 38.1% and 1.4%,
respectively. The effective income tax rate for 1992 differs from the
U.S. statutory rate because of the benefit of NOLs in the United States
and foreign countries.
Undistributed earnings of foreign subsidiaries were $16 million and
$15 million at October 31, 1994 and 1993, respectively. Taxes have not
been provided on these earnings because no withholding taxes are
applicable upon repatriation, and U.S. tax would be substantially offset
by utilization of NOL carryforwards.
<PAGE 39>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
The following is a summary of deferred tax assets and liabilities at
October 31:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Deferred tax assets:
Total deferred tax assets ............... $ 1,431 $ 1,483
Less valuation allowances ............... (297) (305)
-------- --------
Net deferred tax assets ............... $ 1,134 $ 1,178
======== ========
Deferred tax liabilities, included in
other long-term liabilities ............. $ 16 $ 16
======== ========
The components of the deferred tax asset (liability) at October 31
are as follows:
Millions of dollars 1994 1993
- ------------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss
carryforwards ......... $ 872 $ 916
Alternative
minimum tax ........... 3 -
Accrued liabilities:
Product liability ..... $ 63 $ 71
Warranty .............. 38 37
Employee related
costs 62 38
Other ................. 76 239 96 242
-------- --------
Postretirement benefits:
Health care and
life insurance ...... 266 271
Pensions .............. 81 347 87 358
-------- -------- -------- --------
Total deferred
tax assets ....... 1,461 1,516
-------- --------
Deferred tax liabilities:
Prepaid pension assets .. (10) (19)
Depreciation ............ (39) (41)
-------- --------
Total deferred
tax liabilities .. (49) (60)
-------- --------
Total ............... 1,412 1,456
Less valuation allowance .. (278) (278)
-------- --------
Net deferred tax asset $ 1,134 $ 1,178
======== ========
<PAGE 40>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
Millions of dollars 1994 1993
- ------------------------------------------------------------------------
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards ......... $ 3 $ 11
Postretirement benefits .................. 16 16
-------- --------
Total deferred tax assets ............ 19 27
-------- --------
Deferred tax liabilities:
Prepaid pension assets ................... (16) (16)
-------- --------
Total deferred tax liabilities ....... (16) (16)
-------- --------
Total ................................ 3 11
Less valuation allowance ................... (19) (27)
-------- --------
Net deferred tax liabilities ........ $ (16) $ (16)
======== ========
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which are estimated to expire
before they are utilized. Because the foreign tax carryforward period is
relatively short, a full allowance has been provided against the total
deferred tax assets. The valuation allowance decreased $8 million during
1994 resulting from recognizing tax benefits from the utilization of NOL
carryforwards attributable to 1994 foreign operating income and
fluctuations in foreign exchange rates.
Tax paying entities of the Company offset all deferred tax assets and
liabilities within each tax jurisdiction and present them in a single
amount in the Statement of Financial Condition. Amounts in different tax
jurisdictions cannot be offset against each other. Accordingly, the U.S.
deferred tax asset is shown in the Statement of Financial Condition as a
deferred tax asset, whereas the foreign deferred tax liability is included
in the amount shown for other long-term liabilities.
<PAGE 41>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
At October 31, 1994, the Company had $2,295 million of domestic and
$6 million of foreign NOL carryforwards available to offset future taxable
income. Such carryforwards reflect income tax losses incurred which will
expire as follows, in millions of dollars:
1997 ..................... $ 182
1998 ..................... 377
1999 ..................... 35
2000 ..................... 300
2001 ..................... 143
2002 ..................... 47
2004 ..................... 234
2005 ..................... 7
2006 ..................... 126
2007 ..................... 41
2008 ..................... 809
------
Total ............... $2,301
======
Additionally, the estimated reversal of net temporary differences of
$1,454 million as of October 31, 1994, will create net tax deductions
which, if not utilized previously, will expire subsequent to 2008, as
indicated, in millions of dollars:
Estimated Year Estimated Year
of Reversal Amount of Expiration
- -------------- ------ -------------------
United States:
1995 ................................... $ 326 2010
1996 ................................... 15 2011
1997 ................................... 27 2012
1998-2002 .............................. 236 2013-2017
2003 and thereafter .................... 807 2018 and thereafter
------
Total United States................. 1,411
------
Canada
2000 and thereafter .................... 43 2008 and thereafter
------
$1,454
======
<PAGE 42>
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. DISCONTINUED OPERATIONS
In the fourth quarter of 1994, Transportation recorded a $20 million
charge, net of $13 million of income taxes, as a loss of discontinued
operations for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. See
Note 19 to the Financial Statements.
Transportation reached a final agreement with the Economic
Development Administration (EDA), a division of the United States
Department of Commerce, in settlement of commercial and environmental
disputes related to the Wisconsin Steel site in Chicago, Illinois. The
terms of this agreement are described in Note 19 to the Financial
Statements. In addition, Transportation recorded a charge for potential
cleanup costs related to the former Solar Division located in San Diego,
California.
In 1992, a provision of $65 million was recorded as a loss of
discontinued operations for the settlement of litigation commonly referred
to as the Wisconsin Steel Pension Plan Cases. Since this provision pre-
dated the adoption of SFAS 109 in fiscal 1993, no income tax benefit was
recorded. The court held Transportation liable for pension liabilities to
former employees of the Wisconsin Steel Division prior to its sale to EDC
Holding Company in 1977. Under the terms of the settlement, the Company
paid the Pension Benefit Guaranty Corporation (PBGC) $20 million, issued
to the PBGC 357,000 shares of Navistar International Corporation Common
Stock and delivered to the PBGC an eight percent ten-year note with a face
amount of $36.6 million maturing August 15, 2002.
7. EARNINGS APPLICABLE TO COMMON STOCK
For computation of earnings per share, income (loss) applicable to
common stock is determined as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Income (loss) of continuing operations ... $ 102 $ (273) $ (147)
Preferred dividend requirements
on Series G preferred stock ............ (29) (29) (29)
-------- -------- --------
Income (loss) of continuing operations
applicable to common stock ............. 73 (302) (176)
Loss of discontinued operations .......... (20) - (65)
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy
applicable to common stock ............. 53 (302) (241)
Cumulative effect of changes
in accounting policy ................... - (228) -
-------- -------- --------
Net income (loss) applicable
to common stock ........................ $ 53 $ (530) $ (241)
======== ======== ========
<PAGE 43>
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. EARNINGS APPLICABLE TO COMMON STOCK (continued)
Average common and dilutive common equivalent shares:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Common shares outstanding
or unconditionally issuable ............ 74.5 34.9 25.3
Common share equivalents ................. .1 - -
-------- -------- --------
Total average common
and dilutive common equivalent shares .. 74.6 34.9 25.3
======== ======== ========
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 October 31,
1994, the Company has repurchased 606,684 Class B Common shares for $15
million as provided by the Settlement Agreement.
Income (loss) per common share assuming full dilution has not been
presented because the potential conversion of the Series G Preferred Stock
would not have a dilutive effect for the years presented.
8. MARKETABLE SECURITIES
The Company has elected to apply SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities" as of October 31, 1994. This
statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. In accordance with its provisions, the
statement is not retroactive to prior financial statements.
At October 31, 1994, all marketable securities are classified as
available-for-sale and reported at fair value in the Statement of
Financial Condition in accordance with SFAS 115. The fair value of
marketable securities is estimated based on quoted market prices, when
available. If a quoted price is not available, fair value is estimated
using quoted market prices for similar financial instruments. At October
31, 1993, marketable securities were reported at cost or amortized cost
which approximated market value.
<PAGE 44>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (continued)
Information related to the Company's marketable securities at October
31 is as follows:
1994
- -------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Millions of dollars Cost Gains Losses Value
- -------------------------------------------------------------------------
MANUFACTURING
Corporate and other
securities ............. $ 31 $ - $ - $ 31
U.S. government securities 125 - 1 124
Mortgage and
asset-backed securities . 11 - - 11
-------- -------- -------- --------
Manufacturing debt
securities ............. 167 - 1 166
-------- -------- -------- --------
FINANCIAL SERVICES
Corporate securities ...... 28 - - 28
U.S. government securities 67 - 2 65
Mortgage and
asset-backed securities.. 28 - 1 27
Foreign government
securities .............. 9 - - 9
-------- -------- -------- --------
Financial Services
debt securities ......... 132 - 3 129
Financial Services
equity securities ....... 9 1 1 9
-------- -------- -------- --------
Financial Services
marketable securities ... 141 1 4 138
-------- -------- -------- --------
Total marketable securities . $ 308 $ 1 $ 5 $ 304
======== ======== ======== ========
<PAGE 45>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (Continued)
1993
- -------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Millions of dollars Cost Gains Losses Value
- -------------------------------------------------------------------------
MANUFACTURING
Corporate and
other securities ........ $ 9 $ - $ - $ 9
U.S. government securities. 76 - - 76
-------- -------- -------- --------
Manufacturing debt
securities .............. 85 - - 85
-------- -------- -------- --------
FINANCIAL SERVICES
Corporate securities ..... 18 1 - 19
U.S. government securities. 70 5 - 75
Mortgage and
asset-backed securities . 36 1 - 37
Foreign government
securities .............. 9 - - 9
-------- -------- -------- --------
Financial Services debt
securities .............. 133 7 - 140
-------- -------- -------- --------
Total marketable securities . $ 218 $ 7 $ - $ 225
======== ======== ======== ========
<PAGE 46>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (Continued)
Contractual maturities of marketable debt securities at October 31
are as follows:
1994 1993
------------------ ------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- -------------------------------------------------------------------------
MANUFACTURING
Due in one year or less .... $ 32 $ 32 $ 61 $ 61
Due after one year
through five years ....... 135 134 24 24
-------- -------- -------- --------
Manufacturing debt
securities ........... 167 166 85 85
-------- -------- -------- --------
FINANCIAL SERVICES
Due in one year or less .... 17 17 6 6
Due after one year
through five years ....... 61 60 62 65
Due after five years
through ten years ........ 17 16 26 28
Due after ten years ........ 9 8 3 3
-------- -------- -------- --------
104 101 97 102
Mortgage and
asset-backed securities .. 28 28 36 38
-------- -------- -------- --------
Financial services
debt securities ...... 132 129 133 140
-------- -------- -------- --------
Total debt securities ...... $ 299 $ 295 $ 218 $ 225
======== ======== ======== ========
Proceeds from sales or maturities of investments in securities held
by Manufacturing and Financial Services were $621 million during 1994.
Gross gains and losses were not material. Shareowners' equity includes a
net unrealized holding loss of $3 million, net of income taxes, at October
31, 1994.
At October 31, 1994 and 1993, Financial Services had $30 million and
$27 million, respectively, of marketable securities on deposit with
various state departments of insurance or otherwise restricted as to use.
These securities are included in total marketable securities balances at
October 31, 1994 and 1993.
<PAGE 47>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES
Receivables at October 31 are summarized by major classification as
follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Customers .............................. $ 193 $ 147
Allowance for losses ................... (17) (24)
-------- --------
Manufacturing receivables, net ....... 176 123
-------- --------
FINANCIAL SERVICES
Retail notes and lease financing ....... 526 824
Wholesale notes ........................ 241 237
Accounts receivable .................... 370 251
Amounts due from sales of receivables .. 181 138
Reinsurance balance receivables ........ 41 5
-------- --------
Total accounts and notes receivables ... 1,359 1,455
Allowance for losses ................... (8) (12)
-------- --------
Financial Services receivables, net .. 1,351 1,443
-------- --------
Eliminations ......................... (10) (16)
-------- --------
Total receivables, net ................... $ 1,517 $ 1,550
======== ========
The allowance for losses of Manufacturing includes amounts associated
with receivables financed by the Financial Services' subsidiaries and
receivables on products sold to distributors in export markets.
Financial Services
During fiscal 1994, the Company's Financial Services' insurance
subsidiaries adopted SFAS 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts." This statement specifies
the accounting by insurance enterprises for the reinsurance (ceding) of
insurance contracts. It requires reinsurance receivables and prepaid
reinsurance premiums to be reported as assets. In accordance with the
standard, Financial Services' assets include $41 million of reinsurance
receivables at October 31, 1994. The restatement of the prior year's
Statement of Financial Condition is not required.
Navistar Financial purchases the majority of the wholesale notes
receivable and some retail notes and accounts receivable arising from
Transportation's operations in the United States.
<PAGE 48>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES (continued)
A portion of Navistar Financial's funding for retail and wholesale
notes comes from sales of receivables by Navistar Financial to third
parties with limited recourse. Proceeds from sales of retail notes
receivable were $995 million in 1994, $558 million in 1993 and $249
million in 1992. Uncollected sold retail and wholesale receivable
balances totalled $1,334 million and $839 million as of October 31, 1994
and 1993, respectively. Navistar Financial's maximum exposure under all
receivable sale recourse provisions at October 31, 1994 is $177 million
which includes holdback reserves of $64 million, subordinated retained
interest in securitized receivable sales of $61 million and $52 million of
certain cash deposits established as a result of the securitized
receivables recourse provisions.
Contractual maturities of notes and lease financing outstanding at
October 31, 1994, are summarized below. Prepayments may cause the average
actual life to be shorter.
Retail Notes and Wholesale Accounts
Millions of dollars Lease Financing Notes Receivable
- --------------------------------------------------------------------------
Gross finance receivables
due in:
1995 ................... $ 165 $ 136 $ 358
1996 ................... 145 105 -
1997 ................... 116 - -
1998 and thereafter .... 161 - -
-------- -------- --------
Gross finance receivables 587 241 358
Unearned finance charges ... 61 - -
-------- -------- --------
Total finance receivables .. $ 526 $ 241 $ 358
======== ======== ========
10. INVENTORIES
Inventories at October 31 are as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Finished products ........................ $ 169 $ 196
Work in process ......................... 103 73
Raw materials and supplies ............... 157 142
-------- --------
Total inventories ........................ $ 429 $ 411
======== ========
<PAGE 49>
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. PROPERTY
At October 31, property includes the following:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Land ................................... $ 8 $ 8
-------- --------
Buildings, machinery and equipment at cost:
Plants ............................... 1,070 1,087
Distribution ......................... 71 72
Other ................................ 78 82
-------- --------
Subtotal ........................... 1,219 1,241
-------- --------
Total property ......................... 1,227 1,249
Less accumulated depreciation
and amortization ..................... (678) (641)
-------- --------
Manufacturing property, net ........ 549 608
-------- --------
FINANCIAL SERVICES
Total property ......................... 35 34
Less accumulated depreciation
and amortization ..................... (6) (6)
-------- --------
Financial Services property, net ... 29 28
-------- --------
Total property and equipment, net ........ $ 578 $ 636
======== ========
Included in the gross property of Manufacturing is property under
capitalized lease obligations of $27 million at October 31, 1994, and $28
million at October 31, 1993.
<PAGE 50>
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. LEASES
The Company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for 5 to 25 years and
in many cases provide for renewal options. The Company is generally
obligated for the cost of property taxes, insurance and maintenance.
The Company leases office buildings, distribution centers, furniture
and equipment, machinery and equipment and computer equipment. Total
operating lease expense was $35 million in 1994, 1993 and 1992. Income
received from sublease rentals was $6 million in 1994, 1993 and 1992.
At October 31, 1994, consolidated future minimum lease payments
required under capital and noncancellable operating leases having lease
terms in excess of one year are as follows:
Capital Operating
Millions of dollars Leases Leases
- -------------------------------------------------------------------------
1995 ..................................... $ 4 $ 34
1996 ..................................... 3 33
1997 ..................................... 3 31
1998 ..................................... 3 29
Thereafter ............................... 11 135
-------- --------
Total minimum payments ................... 24 $ 262
========
Less imputed interest .................... (9)
--------
Present value of minimum lease payments. $ 15
========
Future income from subleases ........... $ 33
========
<PAGE 51>
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. ACCOUNTS PAYABLE
Major classifications of accounts payable at October 31 are as
follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Trade .................................. $ 776 $ 669
Other .................................. 3 1
-------- --------
Manufacturing accounts payable ....... 779 670
-------- --------
FINANCIAL SERVICES
Other .................................. 57 69
Manufacturing .......................... 13 16
-------- --------
Financial Services accounts payable .. 70 85
-------- --------
Eliminations ............................. (13) (16)
-------- --------
Total accounts payable ................... $ 836 $ 739
======== ========
14. ACCRUED LIABILITIES
Major classifications of accrued liabilities at October 31 are as
follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Product liability and warranty ......... $ 117 $ 108
Payroll and commissions ................ 65 59
Employee incentive programs ............ 35 -
Taxes .................................. 32 27
Employee related benefits .............. 29 35
Environmental .......................... 11 4
Dividends declared ..................... 7 29
Other .................................. 124 133
-------- --------
Manufacturing accrued liabilities .... 420 395
-------- --------
FINANCIAL SERVICES
Interest ............................... 11 14
Other .................................. 18 10
-------- --------
Financial Services accrued liabilities 29 24
-------- --------
Eliminations ............................. 3 -
-------- --------
Total accrued liabilities ................ $ 452 $ 419
======== ========
<PAGE 52>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT
Short-Term Debt
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Notes payable and current maturities
of long-term debt ...................... $ 3 $ 25
-------- --------
FINANCIAL SERVICES
Commercial paper ......................... 19 -
Bank borrowings .......................... 400 75
Current maturities of long-term debt ..... 100 80
-------- --------
Financial Services short-term debt ..... 519 155
-------- --------
Total short-term debt ...................... $ 522 $ 180
======== ========
Navistar Financial issues commercial paper with varying terms and has
short-term borrowings with various banks on a non-committed basis.
Compensating cash balances and commitment fees are not required under
these borrowings.
Long-Term Debt
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
8 5/8% Sinking Fund Debentures, due 1995 . $ - $ 9
6 1/4% Sinking Fund Debentures, due 1998 . 7 11
9% Sinking Fund Debentures, due 2004 ..... 65 75
8% Secured Note, due 2002 ................ 37 37
Capitalized leases ....................... 13 15
Other .................................... 2 3
-------- --------
Manufacturing long-term debt ........... 124 150
-------- --------
FINANCIAL SERVICES
Senior Debentures and Notes
9.35% to 9.75%, medium-term,
due 1995 to 1996 ..................... 117 217
Bank revolver, variable rate,
due November 1995 .................... 355 727
-------- --------
Total senior debt .................. 472 944
Subordinated Term Debt
Debentures, 11.95%, due December 1995 .. - 100
Senior notes, 8 7/8%, due November 1998. 100 -
-------- --------
Financial Services long-term debt ...... 572 1,044
-------- --------
Total long-term debt ....................... $ 696 $ 1,194
======== ========
<PAGE 53>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
The aggregate annual maturities and sinking fund requirements for
long-term debt for the years ended October 31 are as follows:
Financial
Millions of dollars Manufacturing Services Total
- -------------------------------------------------------------------------
1996 ....................... $ 15 $ 472 $ 487
1997 ...................... 18 - 18
1998 ....................... 18 - 18
1999 ....................... 15 100 115
Thereafter ................. 58 - 58
Weighted average interest
rate on total debt
including short-term debt
and the effect of discounts
and related amortization . 8.7% 7.1% 7.3%
Manufacturing's eight percent secured note, due 2002, is secured by
certain plant assets.
At October 31, 1994, Navistar Financial had contractually committed
facilities of $1,327 million consisting of a bank revolving credit
facility of $727 million and a retail notes receivable purchase facility
of $600 million. The bank revolving credit facility grants security
interests in substantially all of Navistar Financial's assets to the
debtholders. Unused commitments under the credit and purchase facilities
were $595 million, $419 million of which was used to back short-term debt
at October 31, 1994. The remaining $176 million, when combined with
unrestricted cash and cash equivalents, made $204 million available at
October 31, 1994 to fund the general business purposes of Navistar
Financial. At October 31, 1994, $377 million of sold notes were
outstanding under the retail notes purchase facility. Compensating cash
balances are not required under the revolving credit facility, but
commitment fees are paid on the unused portions of the bank revolving
credit and retail notes receivable purchase facilities. Navistar
Financial also pays a facility fee on the $600 million retail notes
receivable purchase facility.
In November 1994, Navistar Financial amended and restated its $727
million bank revolving credit agreement extending the scheduled maturities
for 1996 to October 31, 1998 and expanding the commitment to $900 million.
In addition, the commitments to sell retail notes under the $600 million
retail notes purchase facility agreement were terminated and Navistar
Financial established a $300 million asset-backed commercial paper program
backed by a $300 million bank liquidity facility which terminates October
31, 1998. The amended revolving credit facility removes dividend
restrictions, provides that Navistar Financial maintain certain covenant
requirements and grants security interests in substantially all of its
assets consistent with the previous credit agreement. Facility fees will
be paid quarterly regardless of usage.
<PAGE 54>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
Under the terms of the asset-backed commercial paper program, a
special purpose wholly-owned subsidiary of Navistar Financial will
purchase retail notes and lease receivables. All assets of the subsidiary
will be pledged or sold to a Trust that will fund the receivables with
investment grade commercial paper. Navistar Financial will pay a
commitment fee on the unused portion of the $300 million asset-backed
commercial paper liquidity facility.
Navistar Financial's wholly-owned subsidiaries, Navistar Financial
Retail Receivables Corporation (NFRRC) and Navistar Financial Securities
Corporation (NFSC), have a limited purpose of purchasing retail and
wholesale receivables, respectively, and transfer an undivided ownership
interest in such notes to investors in exchange for pass-through notes and
certificates. In addition, the subsidiaries have limited recourse on the
sold receivables and their assets are available to satisfy the claims of
their creditors prior to such assets becoming available to Navistar
Financial or affiliated companies.
At October 31, 1994, NFSC had in place a $300 million revolving
wholesale note sales trust providing for the continuous sale of wholesale
notes on a daily basis. The sales trust is comprised of three $100
million pools of notes maturing serially from 1997 to 1999.
On December 15, 1994, Navistar Financial sold $315 million of retail
notes, net of increased finance income, through NFRRC to an owner trust
which, in turn, sold $304 million of notes and $11 million of certificates
to investors. The net proceeds of $314 million were used by Navistar
Financial for general working capital purposes and to establish a $19
million reserve account with the trust.
During fiscal 1993, NFRRC filed a registration statement with the
Securities and Exchange Commission providing for the issuance from time to
time of $1,000 million of asset-backed securities. In fiscal 1994,
Navistar Financial sold $830 million of retail notes with net proceeds
from the sales of $828 million of which $57 million was established as a
cash reserve with the trusts as a credit enhancement. On October 7, 1994,
NFRRC filed an additional registration statement with the Securities and
Exchange Commission providing for the issuance from time to time of an
additional $2,000 million of asset-backed securities.
On November 16, 1993, Navistar Financial sold $100 million of 8 7/8%
Senior Subordinated Notes due 1998 and used the proceeds to redeem its
11.95% Subordinated Debentures due December 1995.
Consolidated interest payments were $76 million, $91 million and $92
million in 1994, 1993 and 1992, respectively.
<PAGE 55>
NOTES TO FINANCIAL STATEMENTS
(Continued)
16. OTHER LONG-TERM LIABILITIES
Major classifications of other long-term liabilities at October 31
are as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Product liability and warranty ......... $ 171 $ 170
Employee related disability ............ 46 50
Environmental .......................... 20 6
Other .................................. 52 59
-------- --------
Manufacturing other
long-term liabilities .............. 289 285
FINANCIAL SERVICES
Product liability ...................... 9 9
-------- --------
Total other long-term liabilities ........ $ 298 $ 294
======== ========
17. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts of financial instruments, as reported in the
Statement of Financial Condition and described in the various footnotes to
the Financial Statements and their fair values at October 31, are as
follows:
1994 1993
------------------ -------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- -------------------------------------------------------------------------
Marketable securities ...... $ 308 $ 304 $ 218 $ 225
Receivables, net ........... 1,517 1,513 1,550 1,557
Investments and other assets 165 187 224 269
Long-term debt ............. 696 693 1,194 1,208
Cash and cash equivalents approximate fair value. The method for
estimating the fair value of marketable securities is described in Note 8
to the Financial Statements.
Manufacturing's customer receivables and Navistar Financial's
wholesale notes and retail and wholesale accounts and other variable-rate
retail notes approximate fair value as a result of the short-term
maturities of the financial instruments. The fair value of Navistar
Financial's truck retail notes is estimated based on quoted market prices
of similar sold receivables. The fair value of amounts due from sales of
receivables is estimated using cash flow analyses based on interest rates
currently offered by Navistar Financial's finance operations.
<PAGE 56>
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments (continued)
The fair value of investments and other assets is estimated based on
quoted market prices or by discounting future cash flows.
The short-term debt and variable-rate borrowings under Navistar
Financial's bank revolving credit agreement, which is repriced frequently,
approximate fair value. The fair value of long-term debt is estimated
based on quoted market prices, when available. If a quoted market price
is not available, fair value is estimated using quoted market prices for
similar financial instruments or discounting future cash flows.
Derivatives Held or Issued for Purposes Other Than Trading
Derivatives are used by the Company to transfer or reduce risks in
foreign exchange and purchase transactions, reduce interest rate risks and
potentially increase the return on invested funds.
The use of derivatives by Manufacturing is generally not material.
Collateralized Mortgage Obligations (CMO's) are purchased that have
relatively stable cash flow patterns in relation to interest rate changes.
At October 31, 1994, Manufacturing had $11 million of CMO's in its
investment portfolio. Manufacturing, as conditions warrant, has hedged
its foreign exchange exposure on the purchase of parts and materials from
foreign countries and its exposure from non-U.S. dollar foreign sales.
Contracted purchases of commodities for manufacturing may be hedged up to
one year. At October 31, 1994, there were no hedging instruments in
effect.
Navistar Financial generally acquires floating rate wholesale
receivables and fixed rate retail receivables and funds floating rate
receivables with floating rate funding and fixed rate receivables with
fixed rate funding. Interest rate caps and swaps are used when needed to
convert floating rate funds to fixed and vice versa to match the asset
portfolio. In addition, Navistar Financial will use a variety of
contracts to lock in interest rates during the period in which retail
receivables are being sold. During fiscal 1994, Navistar Financial
entered into two short-term forward interest rate lock agreements related
to two sales of receivables. At October 31, 1994, there were no swap
agreements outstanding. One interest rate cap, purchased in 1985 for a
notional amount of $50 million, which serves to partially hedge the
interest cost of variable rate debt remains outstanding. The Financial
Services' insurance companies use CMO's and foreign exchange future
contracts to increase the yield on their investment portfolios. These
instruments totalled $24 million at October 31, 1994.
18. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
At October 31, 1994, commitments for capital expenditures in progress
were approximately $33 million.
<PAGE 57>
NOTES TO FINANCIAL STATEMENTS
(Continued)
18. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
(continued)
At October 31, 1994, the Canadian operating subsidiary was
contingently liable for retail customers' contracts and leases financed by
a third party. The Company is subject to maximum recourse of $135 million
on retail contracts and $14 million on retail leases. Based on historical
loss trends however, the Company's exposure to loss is not considered
material.
The Canadian operating subsidiary and certain subsidiaries included
in Financial Services are parties to agreements which restrict the amounts
which can be distributed to Transportation in the form of dividends or
loans and advances which can be made. As of October 31, 1994, these
subsidiaries had $340 million of net assets, of which $203 million was
restricted as to distribution.
The Company and Transportation are obligated under certain agreements
with public and private lenders of Navistar Financial to maintain the
subsidiary's income before interest expense and income taxes at not less
than 125% of its total interest expense. No income maintenance payments
were required for the three years ended October 31, 1994.
19. LEGAL PROCEEDINGS
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages. The Company
appealed the verdict and in order to do so was required to post a bond
collateralized with $30 million in cash. In November 1994, the Court of
Appeals of the State of Oklahoma reversed the verdict and entered judgment
in favor of Transportation on virtually all aspects of the case. The bond
and the related collateral will be released when the order of the Court of
Appeals is filed.
Transportation and the Economic Development Administration (EDA), a
division of the U.S. Department of Commerce, reached an agreement in the
fourth quarter of 1994 in settlement of commercial and environmental
disputes related to the Wisconsin Steel property. EDA and Transportation
became 90% and 10% beneficiaries, respectively, of a trust which was
created after the party that purchased Wisconsin Steel filed for
bankruptcy. At the time of bankruptcy, EDA had guaranteed repayment of
90% and Transportation of 10% of loans made to Wisconsin Steel. The
settlement provides that EDA transfer its interest in the trust to
Transportation, who in turn will assume responsibility for completing the
investigation of the environmental condition at the site and for any
cleanup work that may be necessary. Transportation has agreed to pay EDA
$11 million to settle various commercial issues as well as reimburse them
for a portion of environmental response costs spent by EDA. The
Department of Justice must approve the final settlement before the
interest in the trust, or the property, is transferred to Transportation.
<PAGE 58>
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. LEGAL PROCEEDINGS (continued)
The Company and its subsidiaries are subject to various other claims
arising in the ordinary course of business, and are parties to various
legal proceedings which constitute ordinary routine litigation incidental
to the business of the Company and its subsidiaries. In the opinion of
the Company's management, none of these proceedings or claims are material
to the business or the financial condition of the Company.
20. PREFERRED AND PREFERENCE STOCKS
In 1993, the Company's Certificate of Incorporation was amended and
restated and two new series of preference stock were created with a par
value of $1.00 per share. These stocks have been designated as
Nonconvertible Junior Preference Stock, Series A and Nonconvertible Junior
Preference Stock, Series B. The Series A Preference Stock is held for the
Retiree Supplemental Benefit Program by a Supplemental Trust which is
currently entitled to elect two members to the Company's Board of
Directors. The United Automobile, Aerospace and Agricultural Implement
Workers of America (UAW) holds the Series B Preference Stock and is
currently entitled to elect one member of the Company's Board of
Directors. At October 31, 1994, there was one share each of Series A and
Series B Preference stock authorized and outstanding. The value of the
preference shares is minimal.
Other information pertaining to preferred and preference stocks
outstanding is summarized as follows:
Series G, $6.00 Series D Convertible
Cumulative Preferred Junior Preference
- -------------------------------------------------------------------------
Number authorized ..... 4,800,000 3,000,000
Number issued ......... 4,799,979 3,000,000
Number outstanding
at October 31
1994 ................ 4,799,979 177,058
1993 ................ 4,799,979 178,129
Optional redemption
price and liquidation
preference .......... $50 per share plus $25 per share plus
accrued dividends accrued dividends
Conversion rate per
share into Common
Stock (subject
to adjustment
in certain
circumstances) ...... 0.133 shares 0.3125 shares
Ranking as to dividends
and upon liquidation. Senior to all other Senior to Common;
equity securities junior to Series G
Dividend rate ......... Annual rate of 120% of the cash
$6.00 per share, dividends on Common
payable quarterly Stock as declared
on a common
equivalent basis
Dividends may be paid out of surplus as
defined under Delaware corporation law.
At October 31, 1994, the Company had such
defined surplus of $802 million.
- -------------------------------------------------------------------------
<PAGE 59>
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS
In 1993, the Company's Certificate of Incorporation (Certificate) was
amended and restated and the Company effected a one-for-ten reverse split
of its common stock. All references to the number of shares of common
stock and all per share information were adjusted to reflect the reverse
split on a retroactive basis.
Common Stock
The amended and restated Certificate increased the number of
authorized shares of Common Stock to 110,000,000 shares with a par value
of $.10 per share.
On October 21, 1993, the Company completed an offering of 23,600,000
Common shares, from which the Company realized gross proceeds of
approximately $516 million. Net proceeds to the Company were $492 million
after deducting the underwriting discount and other expenses payable by
the Company.
At October 31, 1994 and 1993, there were 49,319,200 and 49,154,621
shares of Common Stock outstanding, respectively. Common shares
outstanding exclude common stock held in treasury in the amount of 667,241
and 56,457 shares at October 31, 1994 and 1993, respectively. Included in
the shares of Common Stock outstanding are 177,246 shares of restricted
stock which have been issued in accordance with the provisions of the 1988
and 1994 Performance Incentive Plans. The market value of the restricted
stock at the date of grant is recorded as unearned stock compensation in
Shareowners' Equity and amortized to expense over the minimum periods of
restriction. Unearned stock compensation was $2.9 million and $.3 million
at October 31, 1994 and 1993, respectively.
Class B Common Stock
The Certificate authorizes 26,000,000 shares of Class B Common Stock
of which 25,641,545 shares, originally valued at $513 million, were
contributed in 1993 to a separate independent retiree Supplemental Trust.
The Class B Stock has a par value of $.10 per share and also has
restricted voting rights and transfer provisions.
The per share value of the Class B Common Stock was determined by the
closing price of the Common Stock on the New York Stock Exchange on the
contribution date, less a discount factor of 20%. The discount factor was
determined by the Company, following consultation with investment bankers,
and gives effect to restrictions on voting and transfer rights imposed by
the terms of the Settlement Agreement and for a control premium to give
effect for the number of shares contributed to the Supplemental Trust.
The circumstances are limited under which the Supplemental Trust can
transfer or sell Class B Common Stock and any Class B Common Stock
transferred or sold will convert automatically into Common Stock. Any
remaining Class B Common Stock will convert into Common Stock no later
than fiscal 1998. During 1994, the Company repurchased 511,173 Class B
Common shares which were converted to Common Stock and are held in
Treasury.
At October 31, 1994 and 1993, there were 25,034,861 and 25,546,034
shares of Class B Common Stock outstanding, respectively.
<PAGE 60>
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS (continued)
Dividends on common stock
All shares of Common Stock and Class B Common Stock share equally in
dividends except that stock dividends are payable in shares of Common
Stock to holders of that class and in Class B Common Stock to holders of
that class. Upon liquidation, all shares of Common Stock and Class B
Common Stock are entitled to share equally in the assets of the Company
available for distribution to the holders of such shares. Dividends may
be paid out of surplus as defined under Delaware corporation law. At
October 31, 1994, the Company had such defined surplus of $802 million.
Warrants
At October 31, 1993, there were 10,833,890 Series A warrants
outstanding with 11,200,000 authorized and 10,846,480 issued. The Series
A warrants expired December 15, 1993. There were no warrants outstanding
at October 31, 1994.
22. STOCK COMPENSATION PLANS
The Navistar 1994 Performance Incentive Plan (Incentive Plan)
provides for the granting of stock options and restricted stock to key
employees as determined by the Committee on Organization of the Board of
Directors (Committee). Under the Incentive Plan, one percent of the
outstanding shares of Common Stock are authorized for use each year. Any
amount not used in one year may be used in the following year. Shares to
be used under the Incentive Plan will be either shares authorized, but
previously unissued, or shares reacquired by the Company.
The Incentive Plan includes the granting of two types of stock option
awards, non-qualified options and incentive options. Non-qualified and
incentive options, which may be granted by the Committee in amounts and at
times as it may determine, have a term of not more than ten years and one
day and ten years, respectively, and are exercisable at a price equal to
the fair market value of the stock on the day after the grant. Generally,
these options are not exercisable during the first year. There were
146,406 and 346,839 and 344,045 shares available for grant, and 554,374
and 636,984 and 675,519 options exercisable at October 31, 1994, 1993 and
1992, respectively. Payment for the exercise of any of the options may be
made by delivering, at fair market value, shares of Common Stock already
owned by the option-owner.
The following table summarizes changes in common stock under option
for the year ended October 31, 1994:
Number of Option Price
Shares Per Share
--------- -----------------
Outstanding options at beginning of year . 639,234 $21.88 to $ 91.25
Options - granted ........................ 614,560 13.00 to 24.81
- exercised ...................... (8,850) 21.88
- terminated ..................... (98,540) 21.88 to 91.25
---------
Outstanding options at end of year ....... 1,146,404 $13.00 to $ 91.25
=========
Options becoming exercisable
during the year ........................ 2,500
=========
<PAGE 61>
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
-------------- -------------- -------------- ---------------
(Millions of dollars,
except per share data) 1994 1993 1994 1993 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------
Consolidated Operations
Total sales and revenues .. $1,550 $1,307 $1,254 $1,129 $1,394 $1,244 $1,139 $1,041
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss):
Income (loss) before
Supplemental Trust
contribution ........ $ 67 $ 31 $ 32 $ 11 $ 35 $ 26 $ 24 $ 4
Supplemental Trust
contribution .......... - - - (513) - - - -
Income tax
benefit (expense) ..... (24) (9) (12) 190 (12) (11) (8) (2)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
Continuing operations.... 43 22 20 (312) 23 15 16 2
Discontinued operations,
net of income taxes
of $13 million ........ (20) - - - - - - -
Cumulative effect of
changes in accounting
policy (a):
SFAS 106, net of
income taxes of
$420 million ...... - - - - - - - (729)
SFAS 109 ............ - - - - - - - 501
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ......... $ 23 $ 22 $ 20 $ (312) $ 23 $ 15 $ 16 $ (226)
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) per
common share:
Continuing operations ... $ .49 $ .28 $ .17 $(9.99) $ .21 $ .32 $ .12 $ (.19)
Discontinued operations . (.27) - - - - - - -
Cumulative effect of
changes in accounting
policy (a):
SFAS 106, net of
income taxes of
$420 million ...... - - - - - - - (28.54)
SFAS 109 ............ - - - - - - - 19.59
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
per common share (b) .... $ .22 $ .28 $ .17 $(9.99) $ .21 $ .32 $ .12 $(9.14)
====== ====== ====== ====== ====== ====== ====== ======
Supplemental Data
Manufacturing
Sales and revenues ...... $1,511 $1,262 $1,218 $1,083 $1,357 $1,192 $1,092 $ 989
Gross margin ............ 201 170 154 134 160 161 140 126
Income (loss)
before taxes and
Financial Services .... 52 16 18 (517) 23 11 5 (12)
Financial Services
Revenues .............. 54 57 51 56 50 62 59 62
Interest expense ...... 19 19 17 19 17 19 17 22
Income before taxes ... 15 15 14 15 12 15 19 16
<FN>
Transactions between Manufacturing and Financial Services operations have
been eliminated from Consolidated Operations. See Notes 1 and 2.
- -------------------------------------------------------------------------------------------------
(a) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109
retroactive to November 1, 1992. As required, the previously reported
results for the first and second quarters of 1993 were restated.
(b) Earnings per share are calculated based on the weighted average number
of Common and Class B Common shares outstanding at the end of each
quarter. See Note 21 to the Financial Statements.
<PAGE 62>
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (continued)
FOURTH QUARTER 1994 RESULTS
Fourth quarter consolidated sales and revenues of $1,550 million were
19% higher than the same period a year ago. Company Class 5 through 8
truck retail deliveries increased 22%, reflecting a 20% improvement to
92,600 units in United States and Canadian industry retail sales. For the
fourth quarter, the Company maintained its leadership in the combined
Class 5 through 8 market in the United States and Canada with a market
share of 28.3%, an increase from the 27.9% reported last year. Shipments
of 34,000 mid-range diesel engines to original equipment manufacturers
were 4% higher than the same quarter of 1993 reflecting consumer demand
for the diesel-powered light trucks and vans which use this engine.
Service parts sales increased 11% from the fourth quarter of 1993.
Income from continuing operations was $43 million, an increase from
the $22 million reported for the same period in 1993. Net income of $23
million included a $20 million after-tax charge to discontinued operations
for environmental liabilities at production facilities of two formerly
owned businesses. See Note 6 to the Financial Statements.
Manufacturing gross margin for the period was 13.4%, slightly below
the 13.6% for the fourth quarter of 1993. The favorable effect of higher
sales volume and improved performance was more than offset by the
provision for payment to employees as required by the Company's profit
sharing agreements and the impact of additional costs incurred to meet
customer delivery commitments.
Financial Services income before taxes was $15 million, unchanged
from the same period in 1993.
<PAGE 63>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- -----------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Sales and revenues
Sales of manufactured products
by geographic area
United States .................... $ 4,670 $ 4,149 $ 3,392 $ 2,984 $ 3,300
Canada ........................... 483 361 293 275 343
------- ------- ------- ------- -------
Total .............................. 5,153 4,510 3,685 3,259 3,643
Revenues of Financial Services companies 202 223 217 232 245
Other income ........................... 37 30 35 47 57
Eliminations ........................... (55) (42) (40) (42) (42)
------- ------- ------- ------- -------
Total sales and revenues ............. $ 5,337 $ 4,721 $ 3,897 $ 3,496 $ 3,903
======= ======= ======= ======= =======
Net income (loss)
Income (loss) before
Supplemental Trust
contribution and taxes ............. $ 158 $ 72 $ (145) $ (162) $ (7)
Supplemental Trust
contribution (a) .................... - (513) - - -
Income tax benefit (expense) (b) ...... (56) 168 (2) (3) (4)
------- ------- ------- ------- -------
Income (loss)
Continuing operations ................. 102 (273) (147) (165) (11)
Discontinued operations (c) ........... (20) - (65) - -
Cumulative effect of
accounting changes (d) .............. - (228) - - -
------- ------- ------- ------- -------
Net income (loss) ..................... $ 82 $ (501) $ (212) $ (165) $ (11)
======= ======= ======= ======= =======
Income (loss) per common share
Continuing operations ................. $ .99 $ (8.63) $ (6.97) $ (7.71) $ (1.56)
Discontinued operations (c) ........... (.27) - (2.58) - -
Cumulative effect of
accounting changes (d) .............. - (6.56) - - -
------- ------- ------- ------- -------
Net income (loss) per common share (g). $ .72 $(15.19) $ (9.55) $ (7.71) $ (1.56)
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------
FINANCIAL DATA
Assets
Manufacturing ......................... $ 3,724 $ 3,645 $ 2,208 $ 2,149 $ 2,339
Financial Services .................... 1,591 1,672 1,659 1,540 1,774
Eliminations .......................... (259) (257) (240) (246) (318)
------- ------- ------- ------- -------
Total ............................... $ 5,056 $ 5,060 $ 3,627 $ 3,443 $ 3,795
======= ======= ======= ======= =======
Debt
Manufacturing ......................... $ 127 $ 175 $ 187 $ 154 $ 164
Financial Services .................... 1,091 1,199 1,218 1,052 1,248
Eliminations .......................... - - - - (31)
------- ------- ------- ------- -------
Total ............................... $ 1,218 $ 1,374 $ 1,405 $ 1,206 $ 1,381
======= ======= ======= ======= =======
Consolidated shareowners' equity ........ $ 817 $ 775 $ 338 $ 577 $ 815
Financial Services
shareowner's equity ................... $ 249 $ 241 $ 240 $ 237 $ 279
Manufacturing long-term debt
as a percent of long-term debt
and shareowners' equity ............... 13% 16% 34% 20% 16%
<PAGE 64>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- -----------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------
SHAREOWNER DATA
Market price range (by fiscal year)
High ................................. $27 5/8 $31 3/4 $41 1/4 $41 1/4 $48 3/4
Low .................................. 12 3/8 18 3/4 17 1/2 20 21 1/4
Average number of Common,
Class B Common and dilutive
common equivalent shares
outstanding (millions) (e) ........... 74.6 34.9 25.3 25.1 25.2
Number of Common and Class B Common
shares outstanding at October 31
(millions) (e) ....................... 74.4 74.7 25.4 25.0 25.0
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Capital expenditures ................... $ 87 $ 110 $ 55 $ 77 $ 182
Research and development
expenditures ......................... $ 95 $ 95 $ 90 $ 87 $ 84
Depreciation and amortization .......... $ 72 $ 75 $ 77 $ 73 $ 67
Number of employees
Worldwide ............................ 14,910 13,612 13,945 13,472 14,071
United States ........................ 12,792 11,934 12,390 12,336 12,899
- -----------------------------------------------------------------------------------------------
OPERATING DATA
North American market share (f) ........ 27.0% 27.6% 28.4% 29.3% 27.2%
Unit shipments
Trucks ............................... 95,000 87,200 73,200 70,200 80,200
OEM Engines .......................... 130,600 118,200 97,400 74,800 100,900
Service parts sales .................... $ 714 $ 632 $ 571 $ 530 $ 558
<FN>
(a) In July 1993, the Company issued approximately 25.6 million shares of
Class B Common Stock to the Supplemental Trust. See Note 21 to the
Financial Statements.
(b) Taxes for the year ended October 31, 1993 reflect the adoption of
SFAS 109. See Note 5 to the Financial Statements.
(c) The 1994 loss of discontinued operations resulted from a $20 million,
or $.27 per common share, charge for environmental liabilities at two
formerly owned production facilities. The charge is net of income
taxes of $13 million. The 1992 results include a $65 million, or
$2.58 per common share, charge on the settlement of litigation with
the Pension Benefit Guaranty Corporation. See Note 6 to the Financial
Statements.
(d) In the third quarter of 1993, the Company adopted SFAS 106 and
SFAS 109 retroactive to November 1, 1992.
(e) The common shares outstanding at October 31, 1993 include 25.6 million
Class B Common shares issued to the Supplemental Trust in July 1993
and 23.6 million Common shares sold through a public offering
completed on October 21, 1993.
(f) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school bus chassis, and heavy trucks (Class 8) in the
United States and Canada.
(g) Earnings per share are calculated based on the weighted average
number of Common and Class B Common shares outstanding at the
end of each fiscal year. See Notes 7 and 21 to the Financial
Statements.
<PAGE 65>
INFORMATION FOR OUR INVESTORS
Trademarks
Navistar logotype and Navistar are registered trademarks of Navistar
International Corporation. The Diamond Road symbol and International are
registered trademarks of Navistar International Transportation Corp.
Reports and Publications
This Annual Report includes a substantial portion of the financial
information and certain other data required to be filed with the
Securities and Exchange Commission.
A copy of the Company's 1994 Annual Report on Form 10-K to the
Securities and Exchange Commission will be provided, without charge, to
shareowners upon written request to the Corporate Secretary, Corporate
Headquarters, after January 31, 1995.
A Mid-Year Report containing financial information and other Company
news is mailed as soon as available after the second quarter end. A
summary of the annual meeting of shareowners is also available in the Mid-
Year Report.
Other publications, including news releases, are available by writing
Corporate Communications, Corporate Headquarters.
Annual Meeting
The 1995 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 15, 1995, at the Art Institute of Chicago in the
Arthur Rubloff Auditorium.
Shareowners are invited to attend this meeting, take part in
discussions of Company affairs and meet personally with the directors and
officers responsible for the operations of Navistar.
A Proxy Statement and Form of Proxy will be mailed to each shareowner
on or about January 27, 1995.
Corporate Headquarters
The corporate offices of Navistar International Corporation and its
principal subsidiary, Navistar International Transportation Corp., are
located at 455 North Cityfront Plaza Drive, Chicago, Illinois 60611;
Telephone: (312) 836-2000.
<PAGE 66>
About Your Stock
Navistar International Corporation Common Stock is listed on the New
York, Chicago and Pacific stock exchanges and is quoted as "Navistar" in
stock table listings in daily newspapers. The abbreviated stock symbol is
"NAV".
The stock transfer agent who can answer inquiries about your Navistar
International Corporation Common Stock is: Harris Trust and Savings Bank,
311 W. Monroe, 11th Floor, Chicago, Illinois 60606; Telephone: (312) 461-
3932.
There were approximately 70,394 owners of Common Stock at October 31,
1994.
Dividend and Price Range
The accompanying table shows the range of a composite of Common Stock
prices at close of trade for the past two fiscal years.
Price Range
-------------------------------------
1994 1993
Fiscal Quarter High Low High Low
- ------------------------------------------------------------------------
1st ......................... $27 5/8 $22 3/8 $31 3/4 $18 3/4
2nd ......................... 26 19 3/8 30 25
3rd ......................... 19 1/4 12 3/8 30 21 1/4
4th ......................... 16 5/8 12 1/2 27 7/8 19 3/4
The Company pays an annual dividend of $6.00 per share on its Series
G Cumulative Preferred Stock. Dividends currently are not paid on its
Common Stock.
Commitment to Equal Employment Opportunity
Navistar International Corporation has a long standing commitment to
equal employment opportunity dating back to 1919 when the Company issued
its first written statement against discrimination in the workplace.
Today, Navistar continues to provide equal opportunity to all
employees and applicants for employment and prohibits discrimination in
all employment practices because of age, race, color, sex, marital status,
religion, ancestry, national origin, disability, medical condition,
political affiliation or veteran status.
<PAGE 67>
Directors and Officers
- ----------------------------------------------------------------------------------------------------------------------------------
NAVISTAR INTERNATIONAL
NAVISTAR INTERNATIONAL CORPORATION TRANSPORTATION CORP.
- --------------------------------------------------------------------------------------------------- ----------------------------
Board of Directors Principal Officers Principal Officers
- ------------------------------------------------------------------ ---------------------------- ----------------------------
Jack R. Anderson William C. Craig James C. Cotting James C. Cotting
President Former Executive Vice President Chairman and Chairman and
Calver Corporation Mack Trucks Chief Executive Officer Chief Executive Officer
Health Care Consulting Manufacturer of Trucks John R. Horne John R. Horne
and Investments Jerry E. Dempsey President and President and
William F. Andrews Chairman and Chief Operating Officer Chief Operating Officer
Chairman and Chief Executive Officer Robert C. Lannert Robert C. Lannert
Chief Executive Officer PPG Industries Inc. Executive Vice President and Executive Vice President and
Amdura Corp. Diversified Global Manufacturer Chief Financial Officer Chief Financial Officer
Manufacturer of Waste of Glass, Protective Coatings Robert A. Boardman
Management Equipment and Chemicals Senior Vice President and
Wallace W. Booth Mary Garst General Counsel Group Vice Presidents
Retired Chairman and Manager, Cattle Division Thomas M. Hough
Chief Executive Officer Garst Company Vice President and John J. Bongiorno
Ducommun Incorporated Agri-Business Company Treasurer General Manager
Manufacturer of Dr. Arthur G. Hansen Robert I. Morrison Financial Services
Components and Assemblies Educational Consultant Vice President and David J. Johanneson
for the Aerospace Industry President Emeritus Controller Truck Businesses
Dr. Andrew F. Brimmer Purdue University Steven K. Covey James T. O'Dare, Jr.
President John R. Horne Corporate Secretary Sales and Distribution
Brimmer & Company, Inc. President and Daniel C. Ustian
Economic and Financial Chief Operating Officer General Manager
Consulting Navistar International Engine and Foundry
Bill Casstevens Corporation Dennis W. Webb
Secretary - Treasurer of the UAW Robert C. Lannert International Operations
Richard F. Celeste Executive Vice President
Managing General Partner and Chief Financial Officer Senior Vice Presidents
Celeste & Sabety, Ltd. Navistar International
Public Policy Consulting Firm Corporation Robert A. Boardman
John D. Correnti Donald D. Lennox General Counsel
President and Chairman of the Board John M. Sheahin
Chief Operating Officer International Imaging Employee Relations
and Director Materials Inc. and Administration
Nucor Corporation Manufacturer of Thermal
Steel Manufacturer Transfer Ribbons Vice Presidents
James C. Cotting Retired Chairman of the Board
Chairman and and Chief Executive Officer Kirk A. Gutmann
Chief Executive Officer Navistar International Truck Engineering
Navistar International Corporation Thomas M. Hough
Corporation Elmo R. Zumwalt, Jr. Treasurer
President Robert I. Morrison
Admiral Zumwalt & Controller
Consultants, Inc. Thomas E. Rigsby
Management Consultants Truck Manufacturing
James L. Simonton
Materials Management
Dean P. Stanley
Quality Management
and Technology
Brian B. Whalen
Public Affairs
Secretary
Gregory Lennes
Committees of the Board
- ----------------------------------------------------------------------------------------------
Executive Committee Finance Committee Public Policy Committee
James C. Cotting, Chairman Donald D. Lennox, Chairman Mary Garst, Chairwoman
William F. Andrews Wallace W. Booth Jack R. Anderson
Bill Casstevens Andrew F. Brimmer William F. Andrews
Jerry E. Dempsey Bill Casstevens Andrew F. Brimmer
Arthur G. Hansen James C. Cotting Bill Casstevens
John R. Horne William C. Craig Richard F. Celeste
Donald D. Lennox Jerry E. Dempsey Elmo R. Zumwalt, Jr.
Committee on Organization Audit Committee
Wallace W. Booth, Chairman Andrew F. Brimmer, Chairman
William F. Andrews Jack R. Anderson
John D. Correnti Richard F. Celeste
William C. Craig John D. Correnti
Jerry E. Dempsey Mary Garst
Arthur G. Hansen Arthur G. Hansen
Elmo R. Zumwalt, Jr. Donald D. Lennox