UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9618
NAVISTAR INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-3359573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 28, 1999, the number of shares outstanding of the
registrant's common stock was 66,149,583.
- 1 -
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
--------------------------
INDEX
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Page
Reference
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Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months Ended January 31, 1999 and 1998........... 3
Statement of Financial Condition --
January 31, 1999, October 31, 1998 and January 31, 1998 4
Statement of Cash Flow --
Three Months Ended January 31, 1999 and 1998........... 5
Notes to Financial Statements.............................. 6
Supplemental Financial Information......................... 9
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition........... 10
Part II. Other Information:
Item 1. Legal Proceedings............................... 15
Item 6. Exhibits and Reports on Form 8-K................ 15
Signature ................................................ 16
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
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Millions of dollars, except per share data
- -------------------------------------------------------------------------------
Three Months Ended January 31
-----------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
1999 1998
------ ------
Sales and revenues
Sales of manufactured products ................ $1,837 $1,672
Finance and insurance revenue ................. 62 45
Other income .................................. 25 10
------ ------
Total sales and revenues .................... 1,924 1,727
------ ------
Costs and expenses
Cost of products and services sold ............ 1,544 1,454
Postretirement benefits ....................... 49 45
Engineering and research expense .............. 58 35
Marketing and administrative expense .......... 126 98
Interest expense .............................. 32 17
Other expenses ................................ 16 17
------ ------
Total costs and expenses .................... 1,825 1,666
------ ------
Income before income taxes ................ 99 61
Income tax expense ........................ 38 23
------ ------
Net income .................................... 61 38
Less dividends on Series G preferred stock .... - 7
------ ------
Net income applicable to common stock ......... $ 61 $ 31
====== ======
Earnings per share
Basic .................................... $ .92 $ .43
Diluted .................................. $ .91 $ .42
Average shares outstanding (millions)
Basic .................................... 66.4 71.6
Diluted .................................. 67.1 72.5
See Notes to Financial Statements.
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STATEMENT OF FINANCIAL CONDITION (Unaudited)
- -------------------------------------------------------------------------------
Millions of dollars
- -------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
-------------------------------------------
January 31 October 31 January 31
1999 1998 1998
---------- ---------- ----------
ASSETS
- -----------------------------------
Cash and cash equivalents ......... $ 477 $ 440 $ 188
Marketable securities ............. 270 624 361
------ ------ ------
747 1,064 549
Receivables, net .................. 2,051 2,146 1,543
Inventories ....................... 560 505 524
Property, net of accumulated
depreciation and amortization
of $1,024, $976 and $907 ........ 1,134 1,106 896
Investments and other assets ...... 253 246 294
Intangible pension assets ......... 199 199 212
Deferred tax asset, net .......... 876 912 911
------ ------ ------
Total assets ...................... $5,820 $6,178 $4,929
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable, principally trade $1,106 $1,273 $1,033
Debt: Manufacturing operations .... 472 450 125
Financial services operations 1,520 1,672 1,020
Postretirement benefits liability . 945 934 893
Other liabilities ................. 957 1,080 885
------ ------ ------
Total liabilities ............. 5,000 5,409 3,956
------ ------ ------
Commitments and contingencies
Shareowners' equity
Series G convertible preferred
Stock ........................... $ - $ - $ 240
Series D convertible junior
preference stock ................ 4 4 4
Common stock (75.3, 75.3 and
55.4 million shares issued) ..... 2,140 2,139 1,748
Class B Common stock (19.9 million
shares issued at January 31, 1998) - - 388
Common stock held in treasury,
at cost ......................... (214) (214) (136)
Retained earnings (deficit) ....... (770) (829) (1,077)
Accumulated other
comprehensive loss .............. (340) (331) (194)
------ ------ ------
Total shareowners' equity ..... 820 769 973
------ ------ ------
Total liabilities $5,820 $6,178 $4,929
and shareowners' equity ......... ====== ====== ======
See Notes to Financial Statements.
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STATEMENT OF CASH FLOW (Unaudited)
- ------------------------------------------------------------------------------
For the Three Months Ended January 31 (Millions of dollars)
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Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
1999 1998
------ ------
Cash flow from operations
Net income ................................. $ 61 $ 38
Adjustments to reconcile net income
to cash used in operations:
Depreciation and amortization ............ 49 39
Deferred income taxes .................... 39 23
Postretirement benefits funding in excess
of expense ............................. 7 (294)
Other, net ............................... (14) (35)
Change in operating assets and liabilities:
Receivables .............................. (116) (7)
Inventories .............................. (63) (31)
Prepaid and other current assets ......... (11) (4)
Accounts payable ......................... (166) (60)
Other liabilities ........................ (114) (1)
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Cash used in operations .................... (328) (332)
------ ------
Cash flow from investment programs
Purchase of retail notes and lease
receivables .............................. (316) (237)
Collections/sales of retail notes
and lease receivables ................... 518 485
Purchase of marketable securities .......... (127) (129)
Sales or maturities of marketable
securities ............................... 481 128
Capital expenditures ....................... (48) (60)
Property and equipment leased to others .... (23) (41)
Other investment programs, net ............. (10) 7
------ ------
Cash provided by investment programs ....... 475 153
------ ------
Cash flow from financing activities
Issuance of debt ........................... 48 48
Principal payments on debt ................. (92) (24)
Net decrease in notes and debt outstanding
under bank revolving credit facility
and asset-backed and other commercial
paper programs ........................... (86) (211)
Mexican credit facility .................... 20 35
Repurchase of common stock ................. - (83)
Dividends paid ............................. - (7)
------ ------
Cash used in financing activities .......... (110) (242)
------ ------
Cash and cash equivalents
Increase (decrease) during the period .... 37 (421)
At beginning of the year ................. 440 609
------ ------
Cash and cash equivalents
at end of the period ..................... $ 477 $ 188
====== ======
See Notes to Financial Statements.
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Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note A. Summary of Accounting Policies
Navistar International Corporation is a holding company whose principal
operating subsidiary is Navistar International Transportation Corp.
(Transportation). As used hereafter, "company" or "Navistar" refers to Navistar
International Corporation and its consolidated subsidiaries. The consolidated
financial statements include the results of the company's manufacturing
operations and its wholly owned financial services subsidiaries. The effects of
transactions between the manufacturing and financial services operations have
been eliminated to arrive at the consolidated totals.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1998 Annual Report on Form
10-K and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flow for the
periods presented. Interim results are not necessarily indicative of results for
the full year. Certain 1998 amounts have been reclassified to conform with the
presentation used in the 1999 financial statements.
Note B. Supplemental Cash Flow Information
Consolidated interest payments during the first three months of 1999 and
1998 were $31 million and $25 million, respectively. Consolidated tax payments
made during the first three months of both 1999 and 1998 were not material.
Note C. Income Taxes
The benefit of Net Operating Loss (NOL) carryforwards is recognized as a
deferred tax asset in the Statement of Financial Condition, while the Statement
of Income 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. Until the company has utilized
its significant NOL carryforwards, the cash payment of federal income taxes will
be minimal.
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Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note D. Inventories
Inventories are as follows:
January 31 October 31 January 31
Millions of dollars 1999 1998 1998
- -----------------------------------------------------------------------------
Finished products......... $ 278 $ 223 $ 271
Work in process........... 85 69 109
Raw materials and supplies 197 213 144
-------- -------- --------
Total inventories......... $ 560 $ 505 $ 524
======== ======== ========
Note E. Financial Instruments
The company purchases collateralized mortgage obligations (CMOs) that
have predetermined fixed-principal payment patterns which are relatively
certain. At January 31, 1999, these instruments totaled $86 million and the
unrecognized gain was not material. At quarter end, $37 million of a Mexican
subsidiary's receivables were pledged as collateral for bank borrowings.
In November 1998, Navistar Financial Corporation (NFC) sold fixed rate
retail receivables on a variable rate basis. For the protection of investors,
NFC issued an interest rate cap. Under the terms of the agreement, NFC will make
payments if interest rates exceed certain levels. The notional amount of the cap
amortizes based on the expected outstanding principal balance of the sold retail
receivables. As of January 31, 1999 the notional amount was $517 million and the
interest rate cap had a fair value of $1.8 million.
At January 31, 1999, NFC held forward treasury locks with notional
amounts of $100 million in anticipation of a May 1999 sale of retail
receivables. The unrealized gain on these forward treasury locks was not
material. In addition, the company held Canadian dollar forward contracts with
notional amounts of $95 million and other derivative contracts with notional
amounts of $11 million. The unrealized net loss on these contracts was not
material.
Note F. New Accounting Pronouncements
Effective November 1, 1998, Navistar adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which establishes
standards for reporting and display of comprehensive income and its components.
Financial statements for prior periods have been reclassified as required by
this statement. Navistar's total comprehensive income was as follows:
Three Months Ended
January 31
------------------------------
Millions of dollars 1999 1998
- -------------------------------------- -------- --------
Net income............................ $ 61 $ 38
Other comprehensive income (loss)..... (9) 1
-------- --------
Total comprehensive income....... $ 52 $ 39
======== ========
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Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note G. Earnings Per Share
Earnings per share was computed as follows:
For The Three Months Ended
January 31
-------------------------------
1999 1998
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Millions of dollars,
except share and per share data
- --------------------------------------
Net income............................ $ 61 $ 38
Less dividends
on Series G Preferred stock......... - 7
-------- --------
Net income applicable to common stock
(Basic and Diluted)................. $ 61 $ 31
======== ========
Average shares outstanding (millions)
Basic............................ 66.4 71.6
Dilutive effect of options
outstanding and other
dilutive securities......... .7 .9
-------- --------
Diluted.......................... 67.1 72.5
======== ========
Earnings per share
Basic............................ $ .92 $ .43
Diluted.......................... $ .91 $ .42
Unexercised employee stock options to purchase .3 million and .7 million
shares of Navistar common stock during the three months ended January 31, 1999
and 1998, respectively, were not included in the computation of diluted shares
outstanding because the exercise prices were greater than the average market
price of Navistar common stock. Additionally, the diluted calculation excludes
the effects of the conversion of the Series G preferred stock as such conversion
would produce anti-dilutive results.
Note H. Subsequent Events
Effective February 1, 1999, the functional currency for the company's
Mexican subsidiaries changed from the U.S. dollar to the Mexican peso because
Mexico is no longer considered a highly inflationary economy. While management
does not expect the change in functional currency to have a material impact on
the company's financial position, results of operations or cash flows, the
ultimate impact of this change is dependent upon the volume of U.S. dollar
denominated transactions, changes in exchange rates and the extent to which
currency risk may be hedged.
In March 1999, the company announced that it had finalized a joint venture
with a Brazilian diesel engine producer to manufacture diesel engines in South
America.
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Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Supplemental Financial Information
Navistar International Corporation (with financial services operations on an
equity basis) in millions of dollars:
Three Months Ended
January 31
-----------------------
Condensed Statement of Income 1999 1998
- ------------------------------------------------ -------- --------
Sales of manufactured products.................. $ 1,837 $ 1,672
Other income.................................... 19 10
-------- --------
Total sales and revenues........................ 1,856 1,682
-------- --------
Cost of products sold........................... 1,534 1,448
Postretirement benefits......................... 49 45
Engineering and research expense................ 58 35
Marketing and administrative expense............ 115 89
Other expenses.................................. 35 27
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Total costs and expenses........................ 1,791 1,644
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Income before income taxes
Manufacturing operations...................... 65 38
Financial services operations................. 34 23
-------- --------
Income before income taxes.................. 99 61
Income tax expense.......................... 38 23
-------- --------
Net income...................................... $ 61 $ 38
======== ========
January 31
-----------------------
1999 1998
-------- --------
Selected Statement of Financial Condition
and Cash Flow Data
- ------------------------------------------------
Cash, cash equivalents
and marketable securities..................... $ 593 $ 387
Total assets.................................... 4,132 3,742
Total liabilities............................... 3,312 2,769
Capital expenditures............................ (48) (60)
Depreciation and amortization................... 38 32
Change in operating assets and liabilities...... (301) (101)
Cash used in operations......................... (173) (308)
Cash provided by (used in) investment programs.. 191 (54)
Cash provided by (used in) financing activities. 22 (56)
- 9 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" under the Reform Act, which involve risks and uncertainties.
Navistar International Corporation's actual results may differ significantly
from the results discussed in such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
under the heading "Business Environment."
The company reported net income of $61 million, or $0.91 per diluted
common share, for the first quarter ended January 31, 1999 primarily reflecting
higher sales of manufactured products. Net income was $38 million, or $.42 per
diluted common share, for the same period last year.
The company's manufacturing operations reported income before income
taxes of $65 million compared with pretax income of $38 million in the first
quarter of 1998 reflecting higher sales of trucks and diesel engines. The
financial services operations' pretax income for the first three months of 1999
increased $11 million to $34 million primarily reflecting a legal settlement in
favor of the company's insurance subsidiary.
Sales and Revenues. First quarter 1999 industry retail sales of Class 5
through 8 trucks totaled 102,800 units, an increase of 20% from 1998. Class 8
heavy truck sales of 62,200 units during the first quarter of 1999 were 19%
higher than the 1998 level of 52,400 units. Industry sales of Class 5, 6 and 7
medium trucks, including school buses, increased 22% to 40,700 units. Industry
sales of school buses, which accounted for 14% of the medium truck market
increased 5%.
Sales and revenues for the first quarter of 1999 totaled $1,924 million,
11% higher than the $1,727 million reported for the comparable quarter in 1998.
Sales of trucks, mid-range diesel engines and service parts for the first
quarter of 1999 totaled $1,837 million compared with $1,672 million reported for
the same period in 1998.
Although the company's retail deliveries in the combined United States
and Canadian Class 5 through 8 truck market increased 5%, the company's market
share for the first quarter of 1999 decreased to 25.5% from the 29.1% market
share reported in 1998. (Sources: American Automobile Manufacturers Association,
Canadian Vehicle Manufacturers Association and R.L. Polk & Company.) The
company's market share was constrained by the fact that continued industry
demand for heavy trucks outstripped capacity as well as by timing of retail
shipments associated with school bus and medium truck orders.
Shipments of mid-range diesel engines by the company to other original
equipment manufacturers during the first quarter of 1999 totaled 58,100 units, a
36% increase from the same period of 1998. Higher shipments to Ford Motor
Company to meet consumer demand for the light trucks and vans which use this
engine was the primary reason for the increase. Service parts sales of $194
million in the first quarter of 1999 were 5% higher than the prior year's level.
- 10 -
Finance and insurance revenue increased $17 million to $62 million
primarily due to higher retail financing activity and a higher level of
wholesale financing activity.
The increase in other income is primarily due to a legal settlement in
favor of the company's insurance subsidiary.
Costs and expenses. Manufacturing gross margin was 16.5% of sales for the
first quarter of 1999 compared with 13.4% for the same period in 1998. The
increase in gross margin is primarily due to lower unit costs and improved
pricing.
Consolidated engineering and research expense increased $23 million from
first quarter 1999 to $58 million, reflecting the company's continuing
investment in its next generation vehicle (NGV) and next generation diesel (NGD)
programs.
Consolidated marketing and administrative expense increased to $126
million in 1999 from $98 million in the first quarter of 1998 principally
reflecting investment in the company's integrated truck strategy which includes
expanding internationally and improving operational excellence.
Liquidity and Capital Resources
Cash flow is generated from the manufacture and sale of trucks, mid-range
diesel engines and service parts as well as product financing and insurance
coverage provided to the company's dealers and retail customers by the financial
services operations. The company's current debt ratings have made bank
borrowings and sales of finance receivables the most economic sources of funding
for the company. Insurance operations are self-funded.
Cash used in operations during the first quarter of 1999 totaled $328
million, primarily from a change in operating assets and liabilities of $470
million. This change includes a $114 million decrease in other liabilities due
to the payment of the company's profit sharing and performance incentive awards
for fiscal 1998 and a $166 million decrease in accounts payable due to
cyclically lower production within the first quarter. This change also includes
an increase in accounts receivable of $116 million primarily due to the increase
in wholesale note and account acquisitions over liquidations of $74 million and
a repurchase of $60 million in notes from the 1990 Dealer Note Trust.
Investment programs provided $475 million in cash reflecting a net
decrease in retail notes and lease receivables of $202 million and a net
decrease in marketable securities of $354 million. Other investment activities
used $23 million for property and equipment leased to others and $48 million to
fund capital expenditures principally for the NGV and NGD programs, to increase
mid-range diesel engine capacity and for product improvements.
- 11 -
Financing activities used cash to reduce notes and debt outstanding under
the bank revolving credit facility and asset-backed and other commercial paper
programs by $86 million and to reduce long-term debt primarily at Navistar
Financial Corporation (NFC) by a net $44 million. These cash outflows were
offset by $20 million of additional borrowings under the Mexican credit
facility.
Through the asset-backed markets, NFC has been able to fund fixed rate
retail note receivables at rates offered to companies with investment grade
ratings. During the first quarter, NFC sold $545 million of retail notes through
Navistar Financial Retail Receivables Corporation (NFRRC) to a multi-seller
asset-backed commercial paper conduit sponsored by a major financial
institution. At January 31, 1999, the remaining shelf registration available to
NFRRC for the public issuance of asset-backed securities was $2,972 million.
At January 31, 1999, Navistar Financial Securities Corporation (NFSC), a
wholly-owned subsidiary of NFC, had a revolving wholesale note trust that
provides for the funding of $639 million of eligible wholesale notes. During the
next two months $39 million will amortize and the commitment will be $600
million.
At January 31, 1999, available funding under the bank revolving credit
facility and the asset-backed commercial paper program was $219 million, of
which $15 million provided funding backup for the outstanding short-term debt.
The remaining $204 million, when combined with unrestricted cash and cash
equivalents, made $214 million available to fund the general business purposes
of NFC.
The company purchases collateralized mortgage obligations (CMOs) that
have predetermined fixed-principal payment patterns which are relatively
certain. At January 31, 1999, these instruments totaled $86 million and the
unrecognized gain was not material. At quarter end, $37 million of a Mexican
subsidiary's receivables were pledged as collateral for bank borrowings.
In November 1998, NFC sold fixed rate retail receivables on a variable
rate basis. For the protection of investors, NFC issued an interest rate cap.
Under the terms of the agreement, NFC will make payments if interest rates
exceed certain levels. The notional amount of the cap amortizes based on the
expected outstanding principal balance of the sold retail receivables. As of
January 31, 1999 the notional amount was $517 million and the interest rate cap
had a fair value of $1.8 million.
At January 31, 1999, NFC held forward treasury locks with notional
amounts of $100 million in anticipation of a May 1999 sale of retail
receivables. The unrealized gain on these forward treasury locks was not
material. In addition, the company held Canadian dollar forward contracts with
notional amounts of $95 million and other derivative contracts with notional
amounts of $11 million. The unrealized net loss on these contracts was not
material.
- 12 -
Cash flow from the company's manufacturing and financial services
operations is currently sufficient to cover planned investment in the business.
The company had outstanding capital commitments of $166 million at January 31,
1999, primarily for the NGV and NGD programs, and for increased manufacturing
capacity at the Indianapolis engine plant.
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 and capital expenditures. Management
believes that collections on the outstanding receivables portfolios as well as
funds available from various funding sources will permit the financial services
operations to meet the financing requirements of the company's dealers and
customers.
Year 2000
As of February 28, 1999, the company estimates that it was approximately
83% complete with the conversion or compliance checking of its internal systems
including significant applications. The company performed integrated testing of
major systems in December 1998 with additional testing planned for July 1999.
Navistar currently anticipates that the modifications and testing process of all
significant applications will be substantially complete by August 1999, which is
prior to any anticipated impact on its operating systems.
With regard to the supplier portion of the project, the company is
currently assessing the Year 2000 readiness of production and service parts
suppliers through a supplier survey process designed by an automotive industry
trade association, the Automotive Industry Action Group (AIAG). Suppliers have
been asked to respond to a compliance questionnaire. Responses to these
questionnaires have been received from approximately 45% of these suppliers.
Based on these responses, the company believes that the majority of these
suppliers are making acceptable progress toward Year 2000 readiness. The
supplier assurance process is expected to be substantially complete by April
1999 and contingency plans will be developed for critical suppliers not assuring
compliance. Audits of select suppliers are planned to continue through July
1999.
The company's total cost of the Year 2000 project, which will be funded
through operating cash flows, is estimated to be $34 million, including $24
million of estimated expense and $10 million of capital expenditures.
Approximately $16 million has been expensed and approximately $5 million has
been capitalized through January 31, 1999. The remaining costs are estimated to
be incurred through fiscal year 2000.
As part of its continuous assessment process, the company will develop
contingency plans as necessary. These plans could include, but are not limited
to, material banking, use of alternate suppliers and development of alternate
means to process dealer orders. The company plans to identify all critical
processes by April 1999 and plans to complete detailed contingency planning by
December 1999.
- 13 -
The costs of the Year 2000 project and the dates on which the company
believes it will complete the Year 2000 modifications and testing are based on
management's best estimates, which have been derived utilizing numerous
assumptions regarding future events, including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved, and actual
results could differ materially from those currently anticipated. Examples of
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, and the ability
to locate and correct all relevant computer codes and embedded technology, as
well as other similar uncertainties. In addition, there can be no guarantee that
the systems or products of other entities, including the company's independent
dealers, on which the company relies will be converted on a timely basis, or
that a failure to convert by another company, or a conversion that is
incompatible with the company's systems, would not have a material adverse
effect on the company.
Navistar is using its best efforts to ensure that the Year 2000 impact on
its critical systems and processes will not affect its supply of product,
quality or service. However, in the event that the company is unable to complete
its remedial actions described above and is unable to implement adequate
contingency plans in the event problems arise, there could be a material adverse
effect on the company's business, financial position or results of operations.
Business Environment
Sales of Class 5 through 8 trucks have been cyclical, with demand
affected by such economic factors as industrial production, construction, demand
for consumer durable goods, interest rates and the earnings and cash flow of
dealers and customers. Reflecting the stability of the general economy, demand
for new trucks remained strong during the first quarter of 1999. Although truck
order receipts for the first quarter of 1999 decreased from the previous year's
first quarter, the company's order backlog increased to 65,700 units at January
31, 1999, from 60,500 units at January 31, 1998. Historically, retail deliveries
have been impacted by the rate at which new truck orders are received.
Therefore, the company continually evaluates order receipts and backlog
throughout the year and will balance production with demand as appropriate.
Effective February 1, 1999, the functional currency for the company's
Mexican subsidiaries changed from the U.S. dollar to the Mexican peso because
Mexico is no longer considered a highly inflationary economy. While management
does not expect the change in functional currency to have a material impact on
the company's financial position, results of operations or cash flows, the
ultimate impact of this change is dependent upon the volume of U.S. dollar
denominated transactions, changes in exchange rates and the extent to which
currency risk may be hedged.
In March 1999, the company announced that it had finalized a joint
venture with a Brazilian diesel engine producer to manufacture diesel engines in
South America.
- 14 -
Navistar International Corporation and Consolidated Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal Proceedings"
in the company's definitive Form 10-K dated December 22, 1998,
Commission File No. 1-9618.
Item 6. Exhibits and Reports on Form 8-K
10-Q Page
---------
(a) Exhibits:
3. Articles of Incorporation
and By-Laws. E-1
4. Instruments Defining the
Rights of Security Holders,
Including Indentures E-2
10. Material Contracts E-4
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the three months
ended January 31, 1999.
- 15 -
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NAVISTAR INTERNATIONAL CORPORATION
- ----------------------------------
(Registrant)
/s/ Mark T. Schwetschenau
- --------------------------
Mark T. Schwetschenau
Vice President and Controller
(Principal Accounting Officer)
March 12, 1999
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