PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5236
NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1264810
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
- -------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 4, 1994, the number of shares outstanding of the
registrant's common stock was 1,000.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
H(1)(a) AND (b) OF THE FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
<PAGE>
PAGE 2
NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
-------------------------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income (Loss) --
Three Months Ended January 31, 1994 and 1993 .............. 3
Statement of Financial Condition --
January 31, 1994, October 31, 1993 and January 31, 1993 . 4
Statement of Cash Flow --
Three Months Ended January 31, 1994 and 1993 ............ 6
Notes to Financial Statements .............................. 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . 13
Part II. Other Information:
Item 1. Legal Proceedings .................................. 19
Item 6. Exhibits and Reports on Form 8-K ................... 19
Signature ................................................... 20
<PAGE>
PAGE 3
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements
STATEMENT OF INCOME (LOSS) (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Millions of dollars
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended January 31
-------------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note ---------------------- ---------------------
1994 1993 Reference 1994 1993 1994 1993
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products ...... $ 1,087 $ 983 $ 1,087 $ 983 $ - $ -
Finance and insurance income ........ 41 46 - - 53 56
Other income ........................ 8 9 5 5 3 4
-------- -------- -------- -------- -------- --------
Total sales and revenues .......... 1,136 1,038 1,092 988 56 60
-------- -------- -------- -------- -------- --------
Costs and expenses
Cost of products and services sold .. 946 858 945 857 1 1
Postretirement benefits ............. 46 49 Note E 46 49 - -
Engineering expense ................. 22 22 22 22 - -
Marketing and administrative expense. 59 60 56 55 3 5
Interest expense .................... 43 25 26 3 17 22
Financing charges on sold receivables 3 4 15 14 - -
Insurance claims
and underwriting expense .......... 16 16 - - 16 16
-------- -------- -------- -------- -------- --------
Total costs and expenses ........... 1,135 1,034 1,110 1,000 37 44
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
Manufacturing ..................... - - (18) (12) - -
Financial Services ................ - - 19 16 - -
-------- -------- -------- -------- -------- --------
Income before income taxes 1 4 1 4 19 16
Notes B
Income tax expense .............. (7) (6) & F (7) (6) (7) (6)
-------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of changes in accounting
policy ............................ (6) (2) (6) (2) 12 10
Cumulative effect of changes in
accounting policy ................. - (1,144) - (1,144) - (9)
-------- -------- -------- -------- -------- --------
Net income (loss) ................... $ (6) $ (1,146) $ (6) $ (1,146) $ 12 $ 1
======== ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of the Company's
manufacturing operations with its wholly-
owned financial services subsidiaries
included under the equity method of
accounting. "Financial Services" includes
the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other
wholly-owned finance and insurance subsidiaries.
Transactions between Manufacturing and Financial
Services have been eliminated from the "Navistar
International Transportation Corp. and
Consolidated Subsidiaries" columns. The basis
of consolidation is described in Note A while
a summary of eliminations and reclassifications
is shown in Note C.
/TABLE
<PAGE>
PAGE 4
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ------------------------------------------------------------------------------------------------
Millions of dollars
- ------------------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries
--------------------------
January 31 October 31 January 31 Note
1994 1993 1993 Reference
---------- ---------- ---------- ---------
<S> <C> <C> <C> <S>
ASSETS
- -----------------------------------
Cash and cash equivalents ..................... $ 194 $ 306 $ 210
Marketable securities ......................... 176 187 150
Receivables, net .............................. 1,229 1,542 1,394
Inventories ................................... 462 411 407 Note G
Prepaid pension assets ........................ 84 82 118
Property, net of accumulated depreciation
and amortization of $649, $647 and $610 ..... 546 636 596
Equity in Financial Services subsidiaries ..... - - -
Investments and other assets .................. 306 234 226
Intangible pension assets ..................... 340 340 370
-------- -------- --------
Total assets .................................. $ 3,337 $ 3,738 $ 3,471
======== ======== ========
LIABILITIES AND SHAREOWNER'S EQUITY
- -----------------------------------
Liabilities
Accounts payable .............................. $ 700 $ 754 $ 586
Accrued liabilities ........................... 379 383 405
Short-term debt ............................... 64 213 134
Long-term debt due Parent Company ............. 960 971 -
Long-term debt ................................ 970 1,194 1,289
Other long-term liabilities ................... 270 264 289
Loss reserves and unearned premiums ........... 141 107 101
Postretirement benefits liabilities ........... 1,378 1,370 1,580
-------- -------- --------
Total liabilities ........................... 4,862 5,256 4,384
-------- -------- --------
Shareowner's equity
Capital stock (1,000 shares issued) ........... 785 785 785
Retained earnings (deficit) ................... (2,317) (2,311) (1,704) Note H
Accumulated foreign currency translation
adjustments ................................. 7 8 6
-------- -------- --------
Total shareowner's equity ................... (1,525) (1,518) (913)
-------- -------- --------
Total liabilities and shareowner's equity .... $ 3,337 $ 3,738 $ 3,471
======== ======== ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
PAGE 5
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
- ------------------------------------ ------------------------------------
January 31 October 31 January 31 January 31 October 31 January 31
1994 1993 1993 1994 1993 1993
- ---------- ---------- ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$ 150 $ 262 $ 24 $ 44 $ 44 $ 186
32 54 5 144 133 145
204 125 109 1,130 1,433 1,314
462 411 407 - - -
83 81 117 1 1 1
526 608 574 20 28 22
246 241 242 - - -
209 201 180 97 33 46
340 340 370 - - -
-------- -------- -------- -------- -------- --------
$ 2,252 $ 2,323 $ 2,028 $ 1,436 $ 1,672 $ 1,714
======== ======== ======== ======== ======== ========
$ 629 $ 685 $ 532 $ 173 $ 85 $ 79
353 359 376 29 24 33
59 58 14 5 155 120
960 971 - - - -
146 150 170 824 1,044 1,119
259 255 278 11 9 11
- - - 141 107 101
1,371 1,363 1,571 7 7 9
-------- -------- -------- -------- -------- --------
3,777 3,841 2,941 1,190 1,431 1,472
-------- -------- -------- -------- -------- --------
785 785 785 178 178 178
(2,317) (2,311) (1,704) 68 63 64
7 8 6 - - -
-------- -------- -------- -------- -------- --------
(1,525) (1,518) (913) 246 241 242
-------- -------- -------- -------- -------- --------
$ 2,252 $ 2,323 $ 2,028 $ 1,436 $ 1,672 $ 1,714
======== ======== ======== ======== ======== ========
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's
manufacturing operations with its wholly-owned financial services subsidiaries
included under the equity method of accounting. "Financial Services" includes
the Company's wholly-owned subsidiary, Navistar Financial Corporation, and other
wholly-owned finance and insurance subsidiaries. Transactions between
Manufacturing and Financial Services have been eliminated from the "Navistar
International Transportation Corp. and Consolidated Subsidiaries" columns on
the preceding page. The basis of consolidation is described in Note A while
a summary of eliminations and reclassifications is shown in Note C.
</TABLE>
<PAGE>
PAGE 6
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended January 31 (Millions of dollars)
- --------------------------------------------------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note --------------------- ---------------------
1994 1993 Reference 1994 1993 1994 1993
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Cash flow from operations
Net income (loss) ..................... $ (6) $ (1,146) $ (6) $ (1,146) $ 12 $ 1
Adjustments to reconcile
net income (loss) to cash provided by
(used in) operations:
Depreciation and amortization ....... 20 19 19 17 1 2
Equity in earnings of Financial
Services, net of dividends received - - (5) (10) - -
Cumulative effect of changes
in accounting policy .............. - 1,144 - 1,144 - 9
Other, net .......................... (13) (14) (1) (8) (12) (6)
Change in operating assets
and liabilities ................... (147) (106) Note D (201) (73) 100 25
-------- -------- -------- -------- -------- --------
Cash provided by (used in) operations (146) (103) (194) (76) 101 31
-------- -------- -------- -------- -------- --------
Cash flow from investment programs
Purchase of retail notes
and lease receivables ............... (220) (142) - - (220) (142)
Principal collections on retail notes
and lease receivables ............... 50 90 - - 50 90
Sale of retail notes receivable ...... 494 167 - - 494 167
Acquisitions over cash collections of
wholesale notes and accounts receivable - - Note D - - (46) (58)
Purchase of marketable securities ..... (173) (47) (146) (19) (27) (28)
Sales or maturities
of marketable securities ............ 185 47 168 21 17 26
Proceeds from property sold
under sale/leaseback ................ 87 - 87 - - -
Capital expenditures .................. (12) (23) (12) (23) - -
Other investment programs, net ........ 7 (4) - (1) 7 (3)
-------- -------- -------- -------- -------- --------
Cash provided by (used in)
investment programs ............... 418 88 97 (22) 275 52
-------- -------- -------- -------- -------- --------
Cash flow from financing activities
Principal payments on long-term debt .. (226) (3) (7) (3) (219) -
Net decrease in short-term debt ....... (150) - - - (150) -
Decrease in loan from
Navistar International Corporation .. (8) - (8) - - -
Dividends paid ........................ - - - - (7) -
-------- -------- -------- -------- -------- --------
Cash used in financing activities ... (384) (3) (15) (3) (376) -
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
Increase (decrease) during the period. (112) (18) Note C (112) (101) - 83
At beginning of the year ............. 306 228 262 125 44 103
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
at end of the period ................. $ 194 $ 210 $ 150 $ 24 $ 44 $ 186
======== ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of the Company's
manufacturing operations with its wholly-
owned financial services subsidiaries
included under the equity method of
accounting. "Financial Services" includes
the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other
wholly-owned finance and insurance subsidiaries.
Transactions between Manufacturing and Financial
Services have been eliminated from the "Navistar
International Transportation Corp. and
Consolidated Subsidiaries" columns. The basis
of consolidation is described in Note A while
a summary of eliminations and reclassifications
is shown in Note C.
</TABLE>
<PAGE>
PAGE 7
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note A Summary of Accounting Policies
Navistar International Transportation Corp., hereafter referred to as
"the Company" and "Transportation" is the wholly-owned subsidiary of
Navistar International Corporation, hereafter referred to as "Parent
Company." See Note 1 to the Consolidated Financial Statements in the 1993
Annual Report on Form 10-K.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1993 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In addition to the consolidated financial statements, the Company has
elected to provide financial information in a format that presents the
operating results, financial condition and cash flow from operations
designated as "Manufacturing" and "Financial Services." As used herein
and in the 1993 Annual Report on Form 10-K, Manufacturing includes the
consolidated financial results of Transportation'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 Transportation's wholly-owned subsidiary, Navistar
Financial Corporation (Navistar Financial), and other wholly-owned foreign
finance and insurance companies.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations
and cash flow for the periods presented. Interim results are not
necessarily indicative of results for the full year. At January 31, 1994,
certain changes have been made in the presentation of amounts in the
Statement of Income (Loss). Prior year amounts have been reclassified to
conform with the presentation used in the 1994 financial statements.
Note B Changes in Accounting Policy
In the third quarter of fiscal 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109) retroactive to November 1, 1992. As required, previously
reported first and second quarter results for 1993 were restated for the
effects of the changes in accounting policy. The $1,144 million
cumulative charge for the changes in accounting policy reported on the
Statement of Income (Loss) includes the $1,149 million charge from the
adoption of SFAS 106 which was partially offset by the $5 million benefit
from the adoption of SFAS 109.
Note C Financial Statement Eliminations
The consolidated columns of the financial statements represent the
summation of Manufacturing and Financial Services after intercompany
transactions between Manufacturing and Financial Services have been
eliminated. The following are the intercompany amounts which have been
eliminated to arrive at the consolidated financial statements:
<PAGE>
PAGE 8
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note C Financial Statement Eliminations (Continued)
STATEMENT OF INCOME (LOSS)
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- -------------------------------------------------------------
Sales and revenues
Finance and insurance income ........ $ (12) $ (10)
======== ========
Costs and expenses
Financing charges on sold receivables $ (12) $ (10)
======== ========
Income before income taxes,
Financial Services .................. $ (19) $ (16)
======== ========
STATEMENT OF FINANCIAL CONDITION
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- -------------------------------------------------------------------------
Receivables, net ...................... $ (105) $ (16) $ (29)
Equity in Financial Services
subsidiaries ........................ (246) (241) (242)
-------- -------- --------
Total assets .......................... $ (351) $ (257) $ (271)
======== ======== ========
Accounts payable ...................... $ (102) $ (16) $ (25)
Accrued liabilities ................... (3) - (4)
Shareowner's equity, Financial Services (246) (241) (242)
-------- -------- --------
Total liabilities
and shareowners' equity ............. $ (351) $ (257) $ (271)
======== ======== ========
STATEMENT OF CASH FLOW
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- -------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ........................ $ (53) $ (58)
Investment programs ............... 46 58
Financing activities .............. 7 -
-------- --------
Change in cash and cash equivalents ... $ - $ -
======== ========
<PAGE>
PAGE 9
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note D Information Related to the Statement of Cash Flow
The following provides information related to the change in operating
assets and liabilities included in cash and cash equivalents provided by
(used in) operations:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- -------------------------------------------------------------
MANUFACTURING
Decrease in receivables ............. $ 21 $ 14
Increase in inventories ............. (52) (43)
Increase in prepaid
and other current assets .......... (15) (14)
Decrease in accounts payable ........ (53) (47)
Increase (decrease) in accrued
liabilities ....................... (2) 17
Increase in advances
to Navistar Financial ............. (100) -
-------- --------
Manufacturing change
in operating assets and liabilities (201) (73)
-------- --------
FINANCIAL SERVICES
(Increase) decrease in receivables .. (24) 1
Increase in accounts payable ........ 20 26
Increase (decrease)
in accrued liabilities ............ 4 (2)
Increase in advances
from Transportation ............... 100 -
-------- --------
Financial Services change
in operating assets and liabilities 100 25
-------- --------
Eliminations/reclassifications (a) .... (46) (58)
-------- --------
Change in operating assets
and liabilities ..................... $ (147) $ (106)
======== ========
(a) Eliminations and reclassifications to the Statement of Cash Flow
primarily consist of "Acquisitions (over) under cash collections" relating
to Navistar Financial's wholesale notes and accounts. These amounts are
included on a consolidated basis as a change in operating assets and
liabilities under cash flow from operations which differs from the
Financial Services classification in which net changes in wholesale notes
and accounts are classified as cash flow from investment programs.
Consolidated interest payments during the first three months of 1994
and 1993 were $63 million and $30 million, respectively.
<PAGE>
PAGE 10
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note E Postretirement Benefits
The Company provides other postretirement benefits to substantially
all of its employees. Expenses associated with postretirement benefits
include pension expense for employees, retirees and surviving spouses and
postretirement health care and life insurance coverage for employees,
retirees, surviving spouses and dependents.
During the third quarter of 1993, Transportation contributed the
Parent Company's Class B Common Stock, valued at $513 million, to a
separate independent retiree Supplemental Trust according to the terms of
a Settlement Agreement which restructured postretirement health care and
life insurance benefits. In addition, the Settlement Agreement requires
contributions to the Supplemental Trust in the form of cash profit sharing
payments from 1% to 16% of qualifying profits above a certain threshold
level. The assets held in the Supplemental Trust can be used to
potentially reduce retiree premiums, co-payments and deductibles and
provide additional benefits in the future.
The costs of postretirement benefits are segregated as a separate
component in the Statement of Income (Loss) and are as follows:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- -------------------------------------------------------------
Pension expense ..................... $ 28 $ 26
Health care and life insurance ....... 16 23
Supplemental Trust contribution ...... 2 -
-------- --------
Total postretirement benefits expense. $ 46 $ 49
======== ========
On the Statement of Financial Condition, the postretirement benefits
liabilities are composed of the following:
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- -------------------------------------------------------------------------
Pension ............................. $ 608 $ 600 $ 483
Health care and life insurance ....... 770 770 1,097
-------- -------- --------
Postretirement benefits liabilities .. $ 1,378 $ 1,370 $ 1,580
======== ======== ========
The Company adopted SFAS 106 for its U.S. and Canadian plans in the
third quarter of fiscal 1993, retroactive to November 1, 1992. The
transition obligation was recognized as a one-time non-cash charge to
earnings. In October 1993, Transportation pre-funded $300 million of this
liability from proceeds lent to Transportation by the Parent Company as a
result of a public offering of Common Stock.
<PAGE>
PAGE 11
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note F Income Taxes
During the third quarter of 1993, the Company adopted SFAS 109 with
retroactive application to November 1, 1992. Under SFAS 109, deferred tax
assets and liabilities are generally determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse. SFAS 109 allows recognition of deferred tax
assets if future realization is more likely than not.
The Parent Company files a consolidated U.S. federal income tax
return which includes Transportation and its U.S. subsidiaries.
Transportation has a tax allocation agreement (Tax Agreement) with the
Parent Company which requires Transportation to compute its separate
federal income tax expense based on its adjusted book income. Any
resulting tax liability is paid to the Parent Company. In addition, under
the Tax Agreement, Transportation is required to pay to the Parent Company
any tax payments received from its subsidiaries. The effect of the Tax
agreement is to allow the Parent Company rather than Transportation to
utilize U.S. operating losses and net operating loss carryforwards (NOL's)
generated in earlier years.
The adoption of SFAS 109 does not have a material impact on
Transportation as a result of the Tax Agreement. Substantially all of the
deferred tax asset and corresponding income tax benefit resulting from the
adoption of SFAS 109 is reflected on the financial statements of the
Parent Company.
Note G Inventories
Inventories are as follows:
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- -------------------------------------------------------------------------
Finished products ................... $ 215 $ 196 $ 220
Work in process ..................... 98 73 70
Raw materials and supplies .......... 149 142 117
-------- -------- --------
Total inventories ................... $ 462 $ 411 $ 407
======== ======== ========
<PAGE>
PAGE 12
Note H Retained Earnings
Retained earnings (deficit) are as follows:
January 31 October 31 January 31
Millions of dollars 1994 1993 1993
- -------------------------------------------------------------------------
Retained earnings (deficit)
at beginning of year .............. $ (2,311) $ (558) $ (558)
Net loss ........................... (6) (1,625) (1,146)
Adjustment for excess additional
pension liability over intangible
pension assets, net of tax benefit. - (128) -
-------- -------- --------
Retained earnings (deficit)
at end of period .................. $ (2,317) $ (2,311) $ (1,704)
======== ======== ========
<PAGE>
PAGE 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated
The Company reported income before income taxes of $1 million for the
first quarter ended January 31, 1994, compared with pretax income of $4
million for the same period last year. The net loss for the first quarter
was $6 million compared with a restated net loss of $1,146 million. The
restated net loss in 1993 included a $1,144 million charge for the
cumulative effect of the changes in accounting policy, consisting of a
$1,149 million charge from adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" which was partially offset by the $5 million benefit
from adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Consolidated sales and revenues for the first quarter of 1994
totalled $1,136 million, an increase of 9% from the $1,038 million
reported for the comparable quarter in 1993 as a result of strong demand
for heavy trucks, diesel engines and service parts.
Manufacturing
Manufacturing, excluding Financial Services, reported a pretax loss
of $18 million compared with a loss of $12 million in the first quarter of
1993. The increase in the year-over-year loss is primarily the result of
higher interest payments on obligations to the Parent Company partially
offset by higher sales volume.
The Company's sales of trucks, diesel engines and service parts
totalled $1,087 million, $104 million higher than the $983 million
reported for the first quarter of 1993. The Company's sales and revenues
for the first quarter of 1994 reflect improvements in the U.S. and
Canadian economies. Industry retail sales of medium and heavy trucks in
the U.S. and Canada totalled 75,800 units in the first quarter of 1994, an
increase of 29% from last year. The Company's retail deliveries of medium
and heavy trucks totalled 19,200 units during the first quarter of 1994,
an increase of 14% from the same period last year. The Company maintained
its position as sales leader in the North American combined medium and
heavy truck market with a 25.3% market share.
Shipments of mid-range diesel engines to original equipment
manufacturers during the first quarter of fiscal 1994 totalled 27,400
units, an increase of 17% from the same period of fiscal 1993. Higher
shipments to a major automotive manufacturer to meet consumer demand for
the light trucks and vans which use this engine was the primary reason for
the increase.
Service parts sales in the first quarter of fiscal 1994 increased 14%
from the prior year's level.
<PAGE>
PAGE 14
Manufacturing gross margin, which excludes postretirement benefits,
was 13.1% of sales for the first quarter of fiscal 1994, an improvement
from the 12.8% for the same period in fiscal 1993. The increase in gross
margin can be attributed primarily to the higher sales volume.
Postretirement benefits, which include pension expense for employees,
retirees and surviving spouses and postretirement health care and life
insurance coverage for employees, retirees, surviving spouses and
dependents totalled $46 million during the first quarter of 1994, a
decrease of $3 million from the same period last year. The decline is
primarily the result of pre-funding $300 million of the retiree health
care benefit plan liability in October 1993 and a revised projection of
future health care cost trend rates used in determining the liability.
Interest expense of $26 million during the first quarter of 1994 was
$23 million higher than in 1993. The increase is the result of higher
interest payments on obligations to the Parent Company.
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended
January 31
--------------------
Millions of dollars 1994 1993
- --------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation .. $ 18 $ 15
Foreign Subsidiaries ............ 1 1
-------- --------
Total ...................... 19 16
Income tax expense .............. (7) (6)
-------- --------
Income before cumulative effect
of changes in accounting policy 12 10
Cumulative effect of changes
in accounting policy .......... - (9)
-------- --------
Total net income ........... $ 12 $ 1
======== ========
Navistar Financial's income before income taxes for the first quarter
of fiscal 1994 was $18 million compared with $15 million in 1993. The
increase was primarily the result of higher income from sales of retail
notes.
<PAGE>
PAGE 15
LIQUIDITY AND CAPITAL RESOURCES
Consolidated
Consolidated cash flow is generated from the manufacture, sale and
financing of trucks, diesel engines and service parts. Total cash, cash
equivalents and marketable securities amounted to $370 million at January
31, 1994, compared with $493 million at October 31, 1993 and $360 million
at January 31, 1993.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services
operations.
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $182 million at January 31,
1994, $316 million at October 31, 1993 and $29 million at January 31,
1993. The following is a summary of cash flow for the three months ended
January 31, 1994.
Three Months Ended
Millions of dollars January 31, 1994
- -------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ..................................... $ (194)
Investment programs ............................ 97
Financing activities ........................... (15)
------
Decrease in cash and cash equivalents ............. $ (112)
======
Operations used $194 million in cash during the first quarter of 1994
as follows:
Three Months Ended
Millions of dollars January 31, 1994
- -------------------------------------------------------------------------
Net loss ......................................... $ (6)
Items not affecting cash, principally depreciation 13
Change in operating assets and liabilities:
Decrease in receivables ........................ $ 21
Increase in inventories ........................ (52)
Decrease in accounts payable ................... (53)
Increase in advances to Navistar Financial ..... (100)
Increase in prepaid
and other current assets/other ............... (17) (201)
------ ------
Cash provided by operations ...................... $ (194)
======
<PAGE>
PAGE 16
The $201 million net change in operating assets and liabilities
consists of a $52 million increase in inventories reflecting the impact of
higher sales volume and production. In addition, there was a $53 million
decrease in accounts payable consisting of a $37 million decline in
payables between October 31, 1993 and January 31, 1994 reflecting a normal
seasonal pattern from a scheduled Christmas plant shutdown and a $16
million decrease in amounts due the Parent company and an advance to
Navistar Financial of $100 million.
Investment programs provided $97 million in cash during the first
three months of fiscal 1994 consisting of $87 million in proceeds from a
sale/leaseback agreement and a net decrease of $22 million in marketable
securities offset by capital expenditures of $12 million.
Cash used for financing programs consisted of $7 million used for
principal payments on long-term debt and an $8 million payment on long-
term debt due the Parent Company.
At January 31, 1994, the Company had outstanding capital commitments
of $39 million. The commitments include new truck product development and
ongoing facility maintenance programs. The Company finances capital
expenditures principally through internally generated cash. Capital
leasing is used to fund selected projects based on economic and operating
factors.
Management's discussion of the future liquidity of manufacturing's
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
Financial Services
Total cash, cash equivalents and marketable securities of Financial
Services were $188 million at January 31, 1994, $177 million at October
31, 1993 and $331 million at January 31, 1993. The cash flow for
Financial Services for the three months ended January 31, 1994, is
summarized as follows:
Three Months Ended
Millions of dollars January 31, 1994
- -------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ..................................... $ 101
Investment programs ............................ 275
Financing activities ........................... (376)
------
Increase (decrease) in cash
and cash equivalents ....................... $ -
======
Operations provided $101 million in cash in the first quarter of 1994
primarily from $100 in funds advanced to Navistar Financial by
Transportation.
<PAGE>
PAGE 17
The Financial Services' investment programs provided $275 million in
cash during the first quarter of 1994 principally as a result of a net
decrease of $278 million in retail and wholesale notes receivable.
Financial Services used $376 million during the first quarter of 1994
for financing activities. Cash generated from operations and investment
programs was used to reduce long-term debt by $219 million, short-term
debt by $150 million and to pay cash dividends of $7 million to
Transportation during the quarter.
During the first three months of fiscal 1994, Navistar Financial
supplied 92% of the wholesale financing of new trucks to Transportation's
dealers compared with 88% for the same period last year. Navistar
Financial's share of retail financing of new trucks sold to customers in
the United States increased to 15.0% in 1994 from 14.3% in 1993.
At January 31, 1994, Navistar Financial had $1,327 million of
committed credit facilities. The facilities consisted of a contractually
committed bank revolving credit facility of $727 million and a
contractually committed retail notes receivable purchase facility of $600
million. Both facilities mature on November 15, 1995. At January 31,
1994, unused commitments under these facilities were $273 million which,
when combined with unrestricted cash and cash equivalents, made $309
million available to fund the general business purposes of Navistar
Financial at January 31, 1994. In addition to the committed credit
facilities, Navistar Financial also utilizes a $300 million revolving
wholesale notes trust providing for the continuous sale of eligible
wholesale notes on a daily basis. The trust is composed of three $100
million pools of notes maturing serially from 1997 to 1999.
Management's discussion of the future liquidity of financial services
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
BUSINESS OUTLOOK
Current economic trends indicate continued moderate growth in the
North American economy, resulting in improved market conditions for the
truck industry. Based on current order backlogs, order receipt trends and
key market indicators, the Company currently projects 1994 North American
medium truck demand, including school bus chassis, to be 136,000 units, an
11% increase from 1993. Heavy truck demand is projected at 185,000 units,
an 11% increase from 1993. The Company anticipates meeting the higher
demand for its heavy premium conventional trucks by adding a second shift
of workers at its Chatham, Ontario truck assembly facility during the
second quarter of 1994. The Company's diesel engine sales to original
equipment manufacturers in 1994 are expected to be 9% higher in 1994 than
in 1993. Sales of service parts by the Company are forecast to grow 8%.
<PAGE>
PAGE 18
In 1994, the introduction of new truck and engine products, focused
marketing programs and implementation of programs to streamline marketing,
engineering and manufacturing processes are expected to further improve
the Company's competitiveness. It is management's opinion that current
and forecasted cash flow will provide a basis for financing operating
requirements and capital expenditures.
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>
PAGE 19
Navistar International Transportation Corp. and Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal
Proceedings" in the Company's definitive Form 10-K dated January
28, 1993 Commission File No. 1-5236.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
January 31, 1994.
<PAGE>
PAGE 20
SIGNATURE
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
- -------------------------------------------
(Registrant)
/s/ R. I. Morrison
-----------------------------------
R. I. Morrison
Vice President and Controller
March 11, 1994
