UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
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
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
-------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 31, 2000, the number of shares outstanding of the registrant's
common stock was 59,221,914.
<PAGE>
PAGE 2
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements
Statement of Income
Three Months and Six Months Ended April 30, 2000 and 1999...... 3
Statement of Financial Condition
April 30, 2000, October 31, 1999 and April 30, 1999............ 4
Statement of Cash Flow
Six Months Ended April 30, 2000 and 1999....................... 5
Notes to Financial Statements........................................... 6
Supplemental Financial Information...................................... 11
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 4. Submission of Matters to a Vote of Security Holders...... 19
Item 6. Exhibits and Reports on Form 8-K......................... 19
Signature .............................................................. 20
<PAGE>
PAGE 3
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
-----------------------------------------------------------------------------------------------------------
Millions of dollars, except per share data
-----------------------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------------------------
Three Months Ended Six Months Ended
April 30 April 30
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products............. $ 2,313 $ 2,215 $ 4,399 $ 4,052
Finance and insurance revenue.............. 64 59 133 121
Other income............................... 11 13 22 38
---------- ---------- ---------- ----------
Total sales and revenues............... 2,388 2,287 4,554 4,211
---------- ---------- ---------- ----------
Costs and expenses
Cost of products and services sold......... 1,908 1,824 3,656 3,368
Postretirement benefits.................... 61 65 109 114
Engineering and research expense........... 76 66 147 124
Sales, general and administrative expense.. 126 123 250 249
Interest expense........................... 33 35 68 67
Other expense.............................. 26 20 53 36
---------- ---------- ---------- ----------
Total costs and expenses............... 2,230 2,133 4,283 3,958
---------- ---------- ---------- ----------
Income before income taxes......... 158 154 271 253
Income tax expense................. 60 58 103 96
---------- ---------- ---------- ----------
Net income................................. $ 98 $ 96 $ 168 $ 157
========== ========== ========== ==========
Earnings per share
Basic.................................. $ 1.61 $ 1.44 $ 2.72 $ 2.37
Diluted................................ $ 1.58 $ 1.42 $ 2.68 $ 2.33
Average shares outstanding (millions)
Basic.................................. 61.0 66.2 61.8 66.3
Diluted................................ 61.9 67.5 62.7 67.3
-----------------------------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
PAGE 4
<TABLE>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
------------------------------------------------------------------------------------------------
Millions of dollars
------------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------------
April 30 October 31 April 30
2000 1999 1999
----------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 480 $ 243 $ 181
Marketable securities................. 96 138 130
Receivables, net...................... 1,626 1,550 1,621
Inventories........................... 726 625 646
Deferred tax asset, net............... 221 229 179
Other assets.......................... 82 57 58
----------- ----------- -----------
Total current assets......................... 3,231 2,842 2,815
----------- ----------- -----------
Marketable securities........................ 99 195 276
Finance and other receivables, net........... 651 1,268 1,052
Property and equipment, net.................. 1,567 1,475 1,185
Investments and other assets................. 156 207 183
Prepaid and intangible pension assets........ 313 274 243
Deferred tax asset, net..................... 629 667 655
----------- ----------- -----------
Total assets .............................. $ 6,646 $ 6,928 $ 6,409
=========== =========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Current liabilities
Notes payable and current maturities
of long-term debt ................. $ 134 $ 192 $ 135
Accounts payable, principally trade... 1,250 1,399 1,294
Other liabilities..................... 770 911 861
----------- ----------- -----------
Total current liabilities.................... 2,154 2,502 2,290
----------- ----------- -----------
Debt: Manufacturing operations.............. 547 445 469
Financial services operations......... 1,541 1,630 1,575
Postretirement benefits liability............ 658 634 831
Other liabilities............................ 442 426 359
----------- ----------- -----------
Total liabilities..................... 5,342 5,637 5,524
----------- ----------- -----------
Commitments and contingencies
Shareowners' equity
Series D convertible junior preference stock. 4 4 4
Common stock (75.3 million shares issued).... 2,139 2,139 2,139
Retained earnings (deficit).................. (137) (297) (682)
Accumulated other comprehensive loss......... (193) (197) (340)
Common stock held in treasury, at cost
(16.1 million, 12.1 million
and 9.6 million shares held) ........ (509) (358) (236)
----------- ----------- -----------
Total shareowners' equity............. 1,304 1,291 885
----------- ----------- -----------
Total liabilities and shareowners' equity.... $ 6,646 $ 6,928 $ 6,409
=========== =========== ===========
------------------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
PAGE 5
<TABLE>
STATEMENT OF CASH FLOW (Unaudited)
------------------------------------------------------------------------------------------
For the Six Months Ended April 30 (Millions of dollars)
------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flow from operations
Net income............................................... $ 168 $ 157
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation and amortization..................... 106 97
Deferred income taxes............................. 61 87
Postretirement benefits funding
(in excess of) less than expense............... (18) 25
Other, net........................................ (9) (29)
Change in operating assets and liabilities:
Receivables....................................... 133 (308)
Inventories....................................... (102) (139)
Prepaid and other current assets.................. 4 (25)
Accounts payable.................................. (162) 10
Other liabilities................................. (128) (21)
----------- -----------
Cash provided by (used in) operations................ 53 (146)
----------- -----------
Cash flow from investment programs
Purchases of retail notes and lease receivables.......... (607) (670)
Collections/sales of retail notes and lease receivables.. 1,001 544
Purchases of marketable securities....................... (157) (142)
Sales or maturities of marketable securities............. 299 409
Capital expenditures..................................... (153) (113)
Property and equipment leased to others.................. (32) (39)
Investment in affiliates................................. 14 (46)
Capitalized interest and other........................... (17) (34)
----------- -----------
Cash provided by (used in) investment programs....... 348 (91)
----------- -----------
Cash flow from financing activities
Issuance of debt......................................... 182 97
Principal payments on debt............................... (43) (106)
Net (decrease) increase in notes and debt outstanding
under bank revolving credit facility and commercial
paper programs ...................................... (152) 60
Purchases of common stock................................ (151) (26)
Other, net............................................... - 3
----------- -----------
Cash (used in) provided by financing activities...... (164) 28
----------- -----------
Cash and cash equivalents
Increase (decrease) during the period................ 237 (209)
At beginning of the year............................. 243 390
----------- -----------
Cash and cash equivalents at end of the period........... $ 480 $ 181
=========== ===========
---------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
PAGE 6
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 International Truck and Engine Corporation
(International), formerly Navistar International Transportation Corp. As used
hereafter, "company" or "Navistar" refers to Navistar International Corporation
and its consolidated subsidiaries. Navistar operates in three principal industry
segments: truck, engine (collectively called "manufacturing operations"), and
financial services. 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 1999 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 1999 amounts have been reclassified to conform with the
presentation used in the 2000 financial statements.
Note B. Supplemental Cash Flow Information
Consolidated interest payments during the first six months of 2000 and
1999 were $65 million and $71 million, respectively. Consolidated tax payments
made during the first six months of 2000 and 1999 were $21 million and $10
million, respectively.
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 United States federal
income taxes will be minimal.
<PAGE>
PAGE 7
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note D. Inventories
Inventories are as follows:
April 30 October 31 April 30
Millions of dollars 2000 1999 1999
-----------------------------------------------------------------------------
Finished products............... $ 415 $ 285 $ 320
Work in process................. 44 95 114
Raw materials and supplies...... 267 245 212
----------- ----------- -----------
Total inventories........ $ 726 $ 625 $ 646
=========== =========== ===========
Note E. Financial Instruments
In November 1999, Navistar Financial Corporation (NFC) sold $533 million
of fixed rate retail notes, net of unearned finance income, through Navistar
Financial Retail Receivables Corporation (NFRRC), a wholly owned subsidiary of
NFC, on a variable rate basis to two multi-seller asset-backed commercial paper
conduits sponsored by a major financial institution. The gain on the sale was
not material. NFC entered into an interest rate swap agreement to hedge the
future cash flows of the amounts due from the sale of receivables. In March
2000, NFC transferred all of the rights and obligations of the swap to the
conduit. Under the terms of the agreement, NFC will make or receive payments
based on the differential between the transferred swap notional amount and the
securitization transaction net outstanding balance.
In January 2000, NFC sold $300 million of variable funding certificates,
through Navistar Financial Securities Corporation, a wholly owned subsidiary of
NFC, to a conduit sponsored by a major financial institution. The variable
funding certificates mature in 2001.
In March 2000, NFC sold $475 million of retail notes, net of unearned
finance income, through NFRRC to an owner trust which, in turn, sold notes to
investors. The gain on the sale was not material.
In the second quarter of 2000, NFC entered into a total of $250 million
of forward treasury locks and $50 million of forward starting swaps in
anticipation of a July 2000 sale of retail receivables. Any gain or loss will be
included in the gain or loss on the sale of receivables recognized in July 2000.
The unrealized gain on these forward contracts was not material.
In the second quarter of 2000, the company entered into a $41 million
treasury lock in anticipation of entering into a lease in June. Any gain or loss
on the lock will be offset by an adjustment in the rate on the lease. The
unrealized loss on this lock was not material.
In April 2000, the company entered into a $95 million forward contract
which expires in 2001 to purchase outstanding common shares.
As of April 30, 2000, the company held German mark and Japanese yen
forward contracts with respective notional amounts of $129 million and $9
million related to committed capital equipment purchases. The company held other
derivative contracts with notional amounts of $14 million. The unrealized net
loss on these forward contracts was $9 million.
<PAGE>
PAGE 8
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note E. Financial Instruments (continued)
At quarter end, $103 million of a Mexican finance subsidiary's
receivables were pledged as collateral for bank borrowings.
Note F. Earnings Per Share
Earnings per share was computed as follows:
<TABLE>
Three Months Ended Six Months Ended
April 30 April 30
Millions of dollars, ---------------------- ----------------------
except share and per share data 2000 1999 2000 1999
---------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income ......................................... $ 98 $ 96 $ 168 $ 157
======== ======== ======== ========
Average shares outstanding (millions)
Basic......................................... 61.0 66.2 61.8 66.3
Dilutive effect of options outstanding
and other dilutive securities............ .9 1.3 .9 1.0
-------- -------- -------- --------
Diluted....................................... 61.9 67.5 62.7 67.3
======== ======== ======== ========
Earnings per share
Basic......................................... $ 1.61 $ 1.44 $ 2.72 $ 2.37
Diluted....................................... $ 1.58 $ 1.42 $ 2.68 $ 2.33
</TABLE>
Unexercised employee stock options to purchase 1.4 million and .1 million
shares of Navistar common stock during the three months ended April 30, 2000 and
1999, respectively, and to purchase .8 million and .2 million shares of Navistar
common stock during the six months ended April 30, 2000 and 1999, respectively,
were excluded from the computation of diluted shares outstanding because the
exercise prices were greater than the average market price of Navistar common
stock.
Note G. Comprehensive Income
Navistar's total comprehensive income was as follows:
<TABLE>
Three Months Ended Six Months Ended
April 30 April 30
---------------------- ----------------------
Millions of dollars 2000 1999 2000 1999
---------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income ......................................... $ 98 $ 96 $ 168 $ 157
Other comprehensive income (loss)................... (1) - 4 (9)
-------- -------- -------- --------
Total comprehensive income.................... $ 97 $ 96 $ 172 $ 148
======== ======== ======== ========
</TABLE>
<PAGE>
PAGE 9
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note H. Segment Data
Reportable operating segment data is as follows:
<TABLE>
Financial
Millions of dollars Truck Engine Services Total
-------------------------------------------------------------------------------------------------
For the quarter ended April 30, 2000
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
External revenues............. $ 1,831 $ 482 $ 67 $ 2,380
Intersegment revenues......... - 191 24 215
--------- --------- -------- --------
Total revenues........... $ 1,831 $ 673 $ 91 $ 2,595
========= ========= ======== ========
Segment profit................ $ 88 $ 79 $ 20 $ 187
For the six months ended April 30, 2000
-----------------------------------------------------------------
External revenues............. $ 3,514 $ 885 $ 139 $ 4,538
Intersegment revenues......... - 360 45 405
--------- --------- -------- --------
Total revenues........... $ 3,514 $ 1,245 $ 184 $ 4,943
========= ========= ======== ========
Segment profit................ $ 138 $ 137 $ 45 $ 320
As of April 30, 2000
-----------------------------------------------------------------
Segment assets................ $ 1,923 $ 869 $ 2,416 $ 5,208
For the quarter ended April 30, 1999
-----------------------------------------------------------------
External revenues............. $ 1,789 $ 426 $ 62 $ 2,277
Intersegment revenues......... - 198 19 217
--------- --------- -------- --------
Total revenues........... $ 1,789 $ 624 $ 81 $ 2,494
========= ========= ======== ========
Segment profit................ $ 96 $ 70 $ 21 $ 187
For the six months ended April 30, 1999
-----------------------------------------------------------------
External revenues............. $ 3,266 $ 786 $ 133 $ 4,185
Intersegment revenues......... - 356 35 391
--------- --------- -------- --------
Total revenues........... $ 3,266 $ 1,142 $ 168 $ 4,576
========= ========= ======== ========
Segment profit................ $ 142 $ 119 $ 50 $ 311
As of April 30, 1999
-----------------------------------------------------------------
Segment assets................ $ 1,539 $ 662 $ 2,778 $ 4,979
</TABLE>
<PAGE>
PAGE 10
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note H. Segment Data (continued)
Reconciliation to the consolidated financial statements for the three
months and six months ended April 30 is as follows:
<TABLE>
Three Months Ended Six Months Ended
April 30 April 30
--------------------------- --------------------------
Millions of dollars 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment sales and revenues..................... $ 2,595 $ 2,494 $ 4,943 $ 4,576
Other income................................... 8 10 16 26
Intercompany................................... (215) (217) (405) (391)
-------- -------- -------- --------
Consolidated sales and revenues................ $ 2,388 $ 2,287 $ 4,554 $ 4,211
======== ======== ======== ========
Segment profit................................. $ 187 $ 187 $ 320 $ 311
Corporate items................................ (32) (30) (52) (61)
Manufacturing net interest income.............. 3 (3) 3 3
-------- -------- -------- --------
Consolidated pretax income..................... $ 158 $ 154 $ 271 $ 253
======== ======== ======== ========
As of April 30
----------------------------
2000 1999
----------------------------
<S> <C> <C>
Segment assets................................. $ 5,208 $ 4,979
Cash and marketable securities................. 436 406
Deferred taxes................................. 850 834
Corporate intangible pension assets............ 118 121
Other corporate and eliminations............... 34 69
-------- --------
Consolidated assets............................ $ 6,646 $ 6,409
======== ========
</TABLE>
<PAGE>
PAGE 11
Navistar International Corporation and Consolidated Subsidiaries
Supplemental Financial Information (Unaudited)
The following supplemental financial information is provided based upon the
continuing interest of certain shareholders and creditors.
Navistar International Corporation (with financial services operations on an
equity basis) in millions of dollars:
<TABLE>
Three Months Ended Six Months Ended
April 30 April 30
----------------------- ----------------------
Condensed Statement of Income 2000 1999 2000 1999
---------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales of manufactured products...................... $ 2,313 $ 2,215 $ 4,399 $ 4,052
Other income........................................ 8 9 16 28
-------- -------- -------- --------
Total sales and revenues...................... 2,321 2,224 4,415 4,080
-------- -------- -------- --------
Cost of products sold............................... 1,897 1,819 3,636 3,353
Postretirement benefits............................. 61 65 109 114
Engineering and research expense.................... 76 66 147 124
Sales, general and administrative expense........... 111 107 220 222
Other expense....................................... 42 39 85 74
-------- -------- -------- --------
Total costs and expenses...................... 2,187 2,096 4,197 3,887
-------- -------- -------- --------
Income before income taxes
Manufacturing operations...................... 134 128 218 193
Financial services operations................. 24 26 53 60
-------- -------- -------- --------
Income before income taxes............... 158 154 271 253
Income tax expense....................... 60 58 103 96
-------- -------- -------- --------
Net income ......................................... $ 98 $ 96 $ 168 $ 157
======== ======== ======== ========
April 30 October 31 April 30
Condensed Statement of Financial Condition 2000 1999 1999
---------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash, cash equivalents
and marketable securities...................... $ 489 $ 386 $ 432
Inventories......................................... 688 604 626
Property and equipment, net......................... 1,279 1,188 936
Equity in nonconsolidated subsidiaries.............. 377 377 344
Other assets........................................ 1,159 1,527 1,349
Deferred tax asset, net............................. 850 896 834
---------- ---------- ----------
Total assets................................ $ 4,842 $ 4,978 $ 4,521
========== ========== ==========
Accounts payable, principally trade................. $ 1,221 $ 1,386 $ 1,255
Postretirement benefits liability................... 799 776 959
Other liabilities................................... 1,518 1,525 1,422
Shareowners' equity................................. 1,304 1,291 885
---------- ---------- ----------
Total liabilities and shareowners' equity... $ 4,842 $ 4,978 $ 4,521
========== ========== ==========
</TABLE>
<PAGE>
PAGE 12
Navistar International Corporation and Consolidated Subsidiaries
Supplemental Financial Information (Unaudited)
Navistar International Corporation (with financial services operations on an
equity basis) in millions of dollars:
Six Months Ended
April 30
-----------------------
Condensed Statement of Cash Flow 2000 1999
---------------------------------------------------- -------- --------
Cash flow from operations
Net income ....................................... $ 168 $ 157
Adjustments to reconcile net income
to cash (used in) provided by operations:
Depreciation and amortization................ 78 75
Deferred income taxes........................ 61 87
Postretirements benefits funding
(in excess of) less than expense......... (18) 25
Equity in earnings of investees, net of
dividends received........................ (20) (16)
Other, net................................... (17) (25)
Change in operating assets and liabilities.......... (401) (147)
-------- --------
Cash (used in) provided by operations............... (149) 156
-------- --------
Cash flow from investment programs
Purchases of marketable securities.................. (130) (110)
Sales or maturities of marketable securities........ 276 375
Capital expenditures................................ (153) (113)
Receivable from financial services operations....... 452 (455)
Investment in affiliates............................ 14 (46)
Capitalized interest and other...................... (17) (19)
-------- --------
Cash provided by (used in) investment programs...... 442 (368)
-------- --------
Cash (used in) provided by financing activities..... (49) 5
-------- --------
Cash and cash equivalents
Increase (decrease) during the period............... 244 (207)
At beginning of the year............................ 167 351
-------- --------
Cash and cash equivalents at end of the period...... $ 411 $ 144
======== ========
<PAGE>
PAGE 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Certain statements under this caption that are not purely historical
constitute "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995 and involve risks and uncertainties. These forward-looking
statements are based on current management expectations as of the date made. The
company assumes no obligation to update any forward-looking statements. 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
caption "Business Environment."
Second Quarter Ended April 30, 2000
------------------------------------
The company reported net income of $98 million, or $1.58 per diluted
common share for the second quarter ended April 30, 2000, compared with net
income of $96 million or $1.42 per diluted common share for the comparable
quarter last year.
Consolidated income before income taxes was $158 million compared with
pretax income of $154 million in the second quarter of 1999. The truck segment's
profit decreased 8% to $88 million due to softening in the used truck market and
increases in material costs. The engine segment's profit increased 13% to $79
million as a result of increased shipments of mid-range diesel engines to other
original equipment manufacturers (OEMs) and improved manufacturing performance
measures. The combined engine and truck segments' profit contributed to higher
pretax income in the manufacturing operations of $6 million compared to the same
period last year. The financial services segment's profit for the second quarter
of 2000 was $20 million, which was $1 million lower than the same period last
year. The decrease in second quarter profit was primarily a result of lower
margins on sales of retail note receivables.
Sales and Revenues. Consolidated sales and revenues for the second quarter of
2000 totaled $2,388 million, 4% higher than the $2,287 million reported for the
comparable quarter in 1999. The truck segment's revenue increased slightly to
$1,831 million due to favorable changes in product mix. The engine segment's
revenue increased 8% to $673 million resulting from increased shipments of
mid-range diesel engines to OEMs. The combined truck and engine segments'
revenue resulted in a $98 million increase in sales of manufactured products
compared to the same period in 1999. The financial services segment's revenue
increased 12% to $91 million primarily as a result of increased retail and
wholesale account and lease financing activities.
United States (U.S.) and Canadian industry retail sales of Class 5
through 8 trucks totaled 121,700 units in the second quarter of 2000, which is
comparable to the 122,500 units sold during this period in 1999. Class 8 heavy
truck sales of 70,100 units during the second quarter of 2000 were 2% lower than
the 1999 level of 71,800 units. Industry sales of Class 5, 6 and 7 medium
trucks, including school buses, increased 2% to 51,600 units. Industry sales of
school buses, which accounted for 19% of the medium truck market, increased
slightly to 10,000 units.
<PAGE>
PAGE 14
The company's retail deliveries in the combined U.S. and Canadian Class 5
through 8 truck market decreased 6%, contributing to a decrease in market share
for the second quarter of 2000 to 26.9% from 28.6% for the same period last
year. (Sources: Ward's Communications and the Canadian Vehicle Manufacturers
Association.)
Shipments of mid-range diesel engines by the company to OEMs during the
second quarter of 2000 totaled 83,200 units, a 15% increase from the same period
of 1999. This increase resulted from higher shipments to Ford Motor Company to
meet consumer demand for the light trucks and vans which use this engine. The
engine segment's revenues increased at a lower rate than units shipped due to
changes in product mix compared to the same period last year.
Costs and Expenses. Manufacturing gross margin was 18.0% of sales for the second
quarter of 2000 compared with 17.9% for the same period in 1999. Engineering and
research expense increased $10 million from the second quarter of 1999 primarily
due to the company's continuing investment in its next generation vehicle (NGV)
and next generation diesel (NGD) programs. Other expense includes finance
charges, insurance claims and underwriting fees, and costs associated with the
company's investment in dealer operations.
Six Months Ended April 30, 2000
-------------------------------
The company reported net income of $168 million, or $2.68 per diluted
common share for the first six months ended April 30, 2000, compared with net
income of $157 million or $2.33 per diluted common share for the comparable
period last year.
Consolidated pretax income for the first six months of 2000 was $271
million compared with $253 million reported for the same period of 1999. The
truck segment's profit decreased 3% to $138 million due to revenue increases
which were more than offset by softening in the used truck market and increases
in material costs. The engine segment's profit increased by 15% to $137 million.
This increase was attributable to increased shipments of mid-range diesel
engines to OEMs and improved manufacturing performance measures. The combined
truck and engine segments' profit contributed to a $25 million increase in
pretax income in the manufacturing operations, compared to the same period last
year. The financial services segment's profit decreased $5 million primarily due
to a first quarter 1999 legal settlement in favor of an insurance subsidiary of
the company which is included in other income.
Sales and Revenues. Consolidated sales and revenues during the first six months
of 2000 totaled $4,554 million, an increase of 8% from 1999. The truck and
engine segments' revenue was higher by 8% and 9%, respectively. These increases
were attributable to increased shipments of trucks to customers and mid-range
diesel engines to other OEMs. The combined truck and engine segments' revenue
resulted in a $347 million increase in sales of manufactured products, compared
to the same period last year. The financial services segment's revenue increased
$16 million to $184 million primarily as a result of increased retail and
wholesale account and lease financing activities.
<PAGE>
PAGE 15
Industry retail sales of Class 5 through 8 trucks during the first six
months of 2000 totaled 234,500 units, an increase from the 227,600 units sold
during this period in 1999. Class 8 heavy truck sales of 139,200 units during
the first six months of 2000 were 4% higher than the 1999 level of 133,700
units. Industry sales of Class 5, 6 and 7 medium trucks, including school buses,
increased 2% to 95,300 units. Industry sales of school buses, which accounted
for 18% of the medium truck market, decreased 5% to 17,500 units.
The company's retail deliveries in the combined U.S. and Canadian Class 5
through 8 truck market decreased by 2%, contributing to a decrease in market
share for the first six months of 2000 to 26.7% from the 27.9% reported in 1999.
(Sources: Ward's Communications and the Canadian Vehicle Manufacturers
Association.)
Shipments of mid-range diesel engines by the company to OEMs during the
first six months of 2000 totaled 154,800 units, a 19% increase from the same
period of 1999 due to higher shipments to Ford Motor Company. The engine
segment's revenues increased at a lower rate than units shipped due to a shift
in warranty administration liability between International and its customers.
Costs and Expenses. Manufacturing gross margin for the first six months of 2000
was 17.3% compared with 17.2% in 1999. Engineering and research expense
increased $23 million from the first half of 1999 to $147 million primarily due
to the company's continuing investment in its NGV and NGD programs. Other
expense includes finance charges, insurance claims and underwriting fees, and
costs associated with the company's investment in dealer operations.
Liquidity and Capital Resources
Cash flow is generated from the manufacture and sale of trucks and
mid-range diesel engines and their associated service parts as well as from
product financing and insurance coverage provided to the company's dealers and
retail customers by the financial services segment. The company's current debt
ratings have made sales of finance receivables the most economic source of
funding for NFC. Insurance operations are self-funded.
The company had working capital of $1,077 million at April 30, 2000,
compared to $340 million at October 31, 1999. Cash provided by operations during
the first six months of 2000 totaled $53 million primarily from net income of
$168 million, $61 million of noncash deferred taxes and $79 million of other
noncash items, principally depreciation, partially offset by a net change in
operating assets and liabilities of $255 million.
The net use of cash resulting from the change in operating assets and
liabilities included a $128 million decrease in other liabilities primarily due
to the timing of the payments required by the company's profit sharing and
incentive programs, a $162 million decrease in accounts payable related to the
timing of NGD program payments, and an increase in inventories primarily related
to the timing of customer shipments and an increase in used truck inventory.
These were partially offset by a $133 million decrease in accounts receivable
primarily due to a net decrease in wholesale note and account balances.
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Investment programs provided $348 million in cash primarily reflecting a
net decrease in retail notes and lease receivables of $394 million and a net
decrease in marketable securities of $142 million. These were partially offset
by a $32 million net increase in property and equipment leased to others and
$153 million of capital expenditures primarily for the NGV and NGD programs.
Cash used in financing activities of $164 million resulted from a net
decrease of $152 million in notes and debt outstanding under the bank revolving
credit facility and other commercial paper programs, and purchases of $151
million of common stock during the first half of 2000. These decreases were
partially offset by a $139 million net increase in long-term debt including $6
million of borrowings under the Mexican credit facility.
NFC has traditionally obtained funds to provide financing to the
company's dealers and retail customers from sales of finance receivables,
commercial paper, short and long-term bank borrowings, medium and long-term debt
and equity capital. As of April 30, 2000, NFC's funding consisted of sold
finance receivables of $3,124 million, bank and other borrowings of $1,038
million, subordinated debt of $100 million, capital lease obligations of $360
million and equity of $298 million.
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 half of 2000, NFC sold $1,008 million of retail notes,
net of unearned finance income, through Navistar Financial Retail Receivables
Corporation (NFRRC), a wholly owned subsidiary of NFC. In November 1999, NFC
sold $533 million of fixed rate retail notes on a variable rate basis to two
multi-seller asset-backed commercial paper conduits sponsored by a major
financial institution. NFC entered into an interest rate swap agreement to hedge
the future cash flows of the amounts due from the sale of receivables. In March
2000, NFC transferred all of the rights and obligations of the swap to the
conduit. Under the terms of the agreement, NFC will make or receive payments
based on the differential between the transferred swap notional amount and the
securitization transaction net outstanding balance. As of April 30, 2000, the
remaining shelf registration available to NFRRC for the public issuance of
asset-backed securities was $1,783 million.
In January 2000, NFC sold $300 million of variable funding certificates,
through Navistar Financial Securities Corporation (NFSC), a wholly owned
subsidiary of NFC, to a conduit sponsored by a major financial institution. The
variable funding certificates mature in 2001.
In March 2000, NFC sold $475 million of retail notes, net of unearned
finance income, through NFRRC to an owner trust which, in turn, sold notes to
investors. The gain on the sale was not material.
In the second quarter of 2000, NFC entered into a total of $250 million
of forward treasury locks and $50 million of forward starting swaps in
anticipation of a July 2000 sale of retail receivables. Any gain or loss will be
included in the gain or loss on the sale of receivables recognized in July 2000.
The unrealized gain on these forward contracts was not material.
In April 2000, the company entered into a $95 million forward contract
which expires in 2001 to purchase outstanding common shares.
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PAGE 17
At April 30, 2000, available funding under NFC's bank revolving credit
facility and the asset-backed commercial paper facility was $302 million. When
combined with unrestricted cash and cash equivalents, $332 million was available
to fund the general business purposes of NFC. Also, as of April 30, 2000, NFSC
had a revolving wholesale note trust that provides for the funding of $900
million of eligible wholesale notes.
As of April 30, 2000, the company held German mark and Japanese yen
forward contracts with respective notional amounts of $129 million and $9
million related to committed capital equipment purchases. The company held other
derivative contracts with notional amounts of $14 million. The unrealized net
loss on these forward contracts was $9 million.
Cash flow from the company's manufacturing operations, financial services
operations and financing capacity is sufficient to cover planned investment in
the business. The company had outstanding capital commitments of $418 million at
April 30, 2000, primarily for the NGV and NGD programs.
In February 2000, Standard and Poor's raised the company's and NFC's
senior debt ratings from BB+ to BBB-, and raised the company's and NFC's
subordinated debt ratings from BB- to BB+.
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 sources will permit the financial services
operations to meet the financing requirements of the company's dealers and
customers.
Market Risk
There have been no material changes in the company's market risk exposure
since October 31, 1999, as reported in the 1999 Annual Report on Form 10-K.
Year 2000
As described in the 1999 Annual Report on Form 10-K, the company had
instituted a corporate-wide Year 2000 readiness project to identify all systems
which would require modification or replacement, and to establish appropriate
remediation and contingency plans to avoid an impact on the company's ability to
continue to provide its products and services. Through the date of this report,
the company has not experienced any significant Year 2000 problems but will
continue to monitor its critical systems over the next several months. In the
event that significant issues arise, the company's contingency plans remain in
place.
The company's total cost of the Year 2000 project, which is funded through
operating cash flows, is estimated to be $32 million including $26 million of
estimated expense and $6 million of capital expenditures. Approximately $25
million has been expensed and approximately $6 million has been capitalized
through April 30, 2000. The remaining costs are estimated to be incurred through
the remainder of fiscal year 2000.
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PAGE 18
Business Environment
Sales of Class 5 through 8 trucks have historically been cyclical, with
demand affected by such economic factors as industrial production, construction,
demand for consumer durable goods, interest rates, fuel prices, driver
availability and the earnings and cash flow of dealers and customers. The
decrease in the number of new truck orders is in line with the company's
expectations and has decreased the company's order backlog to a more normal
level of 31,100 units at April 30, 2000 from 55,400 units at April 30, 1999. The
company continually evaluates order receipts and backlog throughout the year and
balances production with demand as appropriate. An industry-wide slowdown in
orders for heavy trucks has resulted in a schedule change at the company's
Chatham Assembly Plant that resulted in the layoff of approximately 400
employees in March 2000. An additional layoff of approximately 400 employees is
expected to be fully implemented in July 2000 and is not expected to have a
material impact on the company's financial statements.
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PAGE 19
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, 1999,
Commission File No. 1-9618.
Item 4. Submission of Matters to a Vote of Security Holders
The company's Annual Meeting of Shareowners was held on February
22, 2000. The following four nominees were elected to the Board of
Directors to serve three year terms expiring at the 2003 Annual
Meeting of Shareowners. There were no broker nonvotes nor
abstentions for any of the nominees. The number of votes cast for,
or withheld, for each nominee for director was as follows:
Shares Voted Shares
Nominees "FOR" "WITHHELD"
-------- ------------ ----------
Y. Marc Belton 44,574,308 10,961,564
Jerry E. Dempsey 44,580,393 10,955,479
Dr. Abbie J. Griffin 44,576,946 10,958,926
Robert C. Lannert 44,606,093 10,929,779
The names of the remaining directors who did not stand for election at the
Annual Meeting and whose terms of office as directors continue after such
meeting are John R. Horne, Michael N. Hammes, William F. Patient, William F.
Andrews, John D. Correnti, Allen J. Krowe, and Paul C. Korman.
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
(b) Reports on Form 8-K:
No reports on Form 8-K were filed
for the three months ended April 30, 2000.
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PAGE 20
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)
June 13, 2000