form10q013105
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, 2005 |
|
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 |
|
|
|
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|
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
|
|
|
4201
Winfield Road, P.O. Box 1488
Warrenville,
Illinois 60555 |
|
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|
|
|
(Address
of principal executive offices, Zip Code) |
|
|
Registrant's
telephone number, including area code (630) 753-5000 |
|
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
___ |
|
|
Indicate
by check mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act.) 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 31, 2005, the number of shares outstanding of the registrant's
common stock was 70,024,485. |
PAGE
2
NAVISTAR
INTERNATIONAL CORPORATION |
AND
CONSOLIDATED SUBSIDIARIES |
|
|
INDEX |
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Page
Reference |
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Part
I. Financial
Information: |
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3 |
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Item
1. Condensed
Consolidated Financial Statements |
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|
Statement
of Income |
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|
Three
Months Ended January 31, 2005 and 2004 (restated) |
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3 |
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Statement
of Financial Condition |
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January
31, 2005, October 31, 2004 and January 31, 2004 (restated) |
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4 |
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Statement
of Cash Flow |
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|
Three
Months Ended January 31, 2005 and 2004 (restated) |
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5 |
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Notes
to the Financial Statements |
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6 |
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Additional
Financial Information |
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24 |
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Item
2. Management's
Discussion and Analysis of Financial |
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Condition
and Results of Operations |
|
26 |
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Item
3. Quantitative
and Qualitative Disclosures |
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About
Market Risk |
|
36 |
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Item
4. Controls
and Procedures |
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36 |
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Part
II. Other
Information: |
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Item
1. Legal
Proceedings |
|
37 |
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Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds |
|
38 |
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Item
5. Other
Information |
|
39 |
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Item
6. Exhibits |
|
40 |
|
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|
|
|
|
Signature |
|
40 |
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PAGE
3
PART
I - FINANCIAL INFORMATION |
|
ITEM
1. Condensed Consolidated Financial Statements |
|
|
|
STATEMENT
OF INCOME (Unaudited) |
|
Millions
of dollars, except per share data |
|
|
|
|
|
|
|
|
|
Navistar
International Corporation
and
Consolidated Subsidiaries |
|
|
|
|
|
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
* As
Restated |
|
Sales
and revenues |
|
|
|
|
|
|
|
Sales
of manufactured products |
|
$ |
2,491 |
|
$ |
1,886 |
|
Finance
revenue |
|
|
62 |
|
|
56 |
|
Other
income |
|
|
5 |
|
|
3 |
|
|
|
|
|
|
|
Total
sales and revenues |
|
|
2,558 |
|
|
1,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
Cost
of products and services sold |
|
|
2,177 |
|
|
1,653 |
|
Restructuring
and other non-recurring charges |
|
|
- |
|
|
4 |
|
Postretirement
benefits expense |
|
|
59 |
|
|
61 |
|
Engineering
and research expense |
|
|
77 |
|
|
64 |
|
Selling,
general and administrative expense |
|
|
176 |
|
|
149 |
|
Interest
expense |
|
|
33 |
|
|
32 |
|
Other
expense |
|
|
9 |
|
|
7 |
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
2,531 |
|
|
1,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
27 |
|
|
(25 |
) |
Income
tax expense (benefit) |
|
|
9 |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share |
|
|
|
|
|
|
|
Basic |
|
$ |
0.25 |
|
$ |
(0.20 |
) |
Diluted |
|
$ |
0.24 |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
Average
shares outstanding (millions) |
|
|
|
|
|
|
|
Basic |
|
|
70.1 |
|
|
69.2 |
|
Diluted |
|
|
76.3 |
|
|
69.2 |
|
|
|
|
|
|
|
|
|
|
See
Notes to Financial Statements.
* See Note P to the Financial Statements.
|
|
|
|
|
|
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PAGE
4
STATEMENT
OF FINANCIAL CONDITION (Unaudited) |
|
Millions
of dollars |
|
|
|
|
Navistar
International Corporation
and
Consolidated Subsidiaries |
|
|
|
|
|
|
|
January
31 |
|
October
31 |
|
January
31 |
|
|
|
2005 |
|
2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
* As
Restated |
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
540 |
|
$ |
605 |
|
$ |
287 |
|
Marketable
securities |
|
|
78 |
|
|
182 |
|
|
42 |
|
Receivables,
net |
|
|
806 |
|
|
1,215 |
|
|
1,033 |
|
Inventories |
|
|
865 |
|
|
790 |
|
|
689 |
|
Deferred
tax asset, net |
|
|
189 |
|
|
207 |
|
|
161 |
|
Other
assets |
|
|
203 |
|
|
168 |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
2,681 |
|
|
3,167 |
|
|
2,387 |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities |
|
|
320 |
|
|
73 |
|
|
255 |
|
Finance
and other receivables, net |
|
|
1,363 |
|
|
1,222 |
|
|
989 |
|
Property
and equipment, net |
|
|
1,403 |
|
|
1,444 |
|
|
1,414 |
|
Investments
and other assets |
|
|
367 |
|
|
374 |
|
|
321 |
|
Prepaid
and intangible pension assets |
|
|
71 |
|
|
73 |
|
|
69 |
|
Deferred
tax asset, net |
|
|
1,288 |
|
|
1,239 |
|
|
1,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
7,493 |
|
$ |
7,592 |
|
$ |
6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREOWNERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
|
|
Notes
payable and current maturities of long-term debt |
|
$ |
1,434 |
|
$ |
823 |
|
$ |
415 |
|
Accounts
payable, principally trade |
|
|
1,286 |
|
|
1,462 |
|
|
1,006 |
|
Other
liabilities |
|
|
1,017 |
|
|
965 |
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
3,737 |
|
|
3,250 |
|
|
2,353 |
|
|
|
|
|
|
|
|
|
|
|
|
Debt: Manufacturing
operations |
|
|
1,246 |
|
|
1,258 |
|
|
898 |
|
Financial
services operations |
|
|
169 |
|
|
787 |
|
|
1,388 |
|
Postretirement
benefits liability |
|
|
1,399 |
|
|
1,382 |
|
|
1,435 |
|
Other
liabilities |
|
|
394 |
|
|
384 |
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
6,945 |
|
|
7,061 |
|
|
6,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners'
equity |
|
|
|
|
|
|
|
|
|
|
Series
D convertible junior preference stock |
|
|
4 |
|
|
4 |
|
|
4 |
|
Common
stock and additional paid in capital
(75.3
million shares issued) |
|
|
2,085 |
|
|
2,096 |
|
|
2,123 |
|
Retained
earnings (deficit) |
|
|
(585 |
) |
|
(604 |
) |
|
(848 |
) |
Accumulated
other comprehensive loss |
|
|
(784 |
) |
|
(789 |
) |
|
(775 |
) |
Common
stock held in treasury, at cost |
|
|
|
|
|
|
|
|
|
|
(5.3
million, 5.3 million and 5.7 million shares held) |
|
|
(172 |
) |
|
(176 |
) |
|
(194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareowners’ equity |
|
|
548 |
|
|
531 |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareowners’ equity |
|
$ |
7,493 |
|
$ |
7,592 |
|
$ |
6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Financial Statements.
* See Note P to the Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
PAGE
5
STATEMENT
OF CASH FLOW (Unaudited) |
|
Millions
of dollars |
|
|
|
|
|
|
Navistar
International Corporation
and
Consolidated Subsidiaries |
|
|
|
|
|
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Cash
flow from operations |
|
|
|
|
*
As Restated |
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(14 |
) |
Adjustments
to reconcile net income (loss) to cash used in operations: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
64 |
|
|
52 |
|
Deferred
income taxes |
|
|
(9 |
) |
|
(14 |
) |
Postretirement benefits funding less than expense |
|
|
8 |
|
|
1 |
|
Other,
net |
|
|
(10 |
) |
|
(42 |
) |
Change
in operating assets and liabilities: |
|
|
|
|
|
|
|
Receivables |
|
|
(120 |
) |
|
(110 |
) |
Inventories |
|
|
(81 |
) |
|
(92 |
) |
Prepaid
and other current assets |
|
|
(34 |
) |
|
(25 |
) |
Accounts
payable |
|
|
(199 |
) |
|
(96 |
) |
Other
liabilities |
|
|
20 |
|
|
17 |
|
|
|
|
|
|
|
Cash
used in operations |
|
|
(343 |
) |
|
(323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investment programs |
|
|
|
|
|
|
|
Purchases
of retail notes and lease receivables |
|
|
(445 |
) |
|
(346 |
) |
Collections/sales
of retail notes and lease receivables |
|
|
896 |
|
|
264 |
|
Purchases
of marketable securities |
|
|
(213 |
) |
|
(88 |
) |
Sales
or maturities of marketable securities |
|
|
70 |
|
|
386 |
|
Capital
expenditures |
|
|
(16 |
) |
|
(22 |
) |
Property
and equipment leased to others |
|
|
6 |
|
|
- |
|
Other
investment programs |
|
|
4 |
|
|
2 |
|
|
|
|
|
|
|
Cash
provided by investment programs |
|
|
302 |
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities |
|
|
|
|
|
|
|
Issuance
of debt |
|
|
11 |
|
|
93 |
|
Principal
payments on debt |
|
|
(48 |
) |
|
(94 |
) |
Net
(increase) decrease in notes and debt outstanding under bank revolving
credit facility
and commercial paper programs |
|
|
22 |
|
|
(78 |
) |
Other
financing activities |
|
|
(9 |
) |
|
26 |
|
|
|
|
|
|
|
Cash
used in financing activities |
|
|
(24 |
) |
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
|
|
|
|
Decrease
during the period |
|
|
(65 |
) |
|
(180 |
) |
At
beginning of the period |
|
|
605 |
|
|
467 |
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period |
|
$ |
540 |
|
$ |
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Financial Statements.
* See Note P to the Financial
Statements. |
PAGE
6
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
A. Summary of Accounting Policies
Navistar
International Corporation (NIC) is a holding company whose principal operating
subsidiary is International Truck and Engine Corporation (International). 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, majority owned
dealers and its wholly owned financial services subsidiaries. The effects of
transactions between the manufacturing, dealer 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 2004 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 2004 amounts have been reclassified to conform with the
presentation used in the 2005 financial statements.
Statement
of Financial Accounting Standards (SFAS) No. 123 (SFAS No. 123), “Accounting for
Stock-Based Compensation” and Statement of Financial Accounting Standards No.
148 (SFAS No. 148), “Accounting for Stock-Based Compensation - Transition and
Disclosure,” encourage, but do not require, companies to record compensation
cost for stock-based employee compensation plans at fair value. The company has
chosen to continue to account for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations. Accordingly, no compensation cost has
been recognized for fixed stock options because the exercise prices of the stock
options equal the market value of the company’s common stock at the date of
grant. The following table illustrates the effect on the company’s net income
(loss) and earnings (loss) per share if the company had applied the fair value
recognition provision of SFAS No. 123 in accordance with the disclosure
provisions of SFAS No. 148.
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
Millions
of dollars |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss), as reported |
|
$ |
18 |
|
$ |
(14 |
) |
Deduct:
Total stock-based employee
compensation
expense determined under
fair
value based method for all awards, net
of
related tax effects |
|
|
(4 |
) |
|
(5 |
) |
|
|
|
|
|
|
Pro
forma net income (loss) |
|
$ |
14 |
|
$ |
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share: |
|
|
|
|
|
|
|
Basic
- as reported |
|
$ |
0.25 |
|
$ |
(0.20 |
) |
Basic
- pro forma |
|
$ |
0.20 |
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
Diluted
- as reported |
|
$ |
0.24 |
|
$ |
(0.20 |
) |
Diluted
- pro forma |
|
$ |
0.19 |
|
$ |
(0.28 |
) |
Based on
recent clarifications that affect the company's previous interpretation of the
timing of expense recognition under SFAS No. 123 for certain "retirement
eligible" recipients of stock option awards, the company has revised the first
quarter 2004 pro-forma stock option expense amount of $3 million, as previously
included in its first quarter 2004 Form 10-Q, to $5 million, as reflected
above. The related pro-forma basic and diluted per share amounts have
similarly been adjusted to reflect this revision.
PAGE
7
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
B. New Accounting Pronouncements
In June
2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123
(revised 2004), “Share-Based Payment”. This Statement generally requires the
recognition of the cost of employee services received in exchange for an award
of equity instruments. This cost is based on the grant date fair value of the
equity award and will be recognized over the period during which the employee is
required to provide service in exchange for the award. The effective date
for the company is the beginning of the first fiscal quarter of 2006. The
company is still evaluating its share-based payment programs and the related
impact, if any, this Statement may have on its results of operations, financial
condition or cash flows.
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs”, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted material. The Statement clarifies that abnormal inventory costs
should be recognized in the period in which they occur. This Statement is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The company will adopt this Statement in fiscal 2006 and will
determine the effect, if any, this Statement may have on its results of
operations, financial condition and cash flows.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets”,
to amend Accounting Principles Board Opinion No. 29 (APB No. 29). The Statement
eliminates the exception from fair value measurement for nonmonetary exchanges
of similar products in APB No. 29 and replaces it with an exception for
exchanges that do not have commercial substance. This Statement will be applied
prospectively for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The company does not expect this statement will
have a material impact on its results of operations, financial condition and
cash flows.
In
December 2004, the FASB issued two FASB Staff Positions (FSP’s) that provide
accounting guidance on how companies should account for the effects of the
American Jobs Creation Act of 2004 (the Act) that was signed into law on October
22, 2004. The Act could affect how companies report their deferred income tax
balances. The first FSP is FSP FAS 109-1 (FSP 109-1); the second is FSP FAS
109-2 (FSP 109-2). In FSP 109-1, the FASB concludes that the tax relief (special
tax deduction for domestic manufacturing) from the Act should be accounted for
as a "special deduction" instead of a tax rate reduction. FSP 109-2 gives a
company additional time to evaluate the effects of the Act on any plan for
reinvestment or repatriation of foreign earnings for purposes of applying SFAS
No. 109, “Accounting for Income Taxes.” However, companies must provide certain
disclosures if it chooses to utilize the additional time granted by the FASB.
The company is evaluating the impact, if any, these FSP’s may have on its
results of operations, financial condition or cash flows.
Note
C. Supplemental Cash Flow Information
Consolidated
interest payments during the first three months of 2005 and 2004 were $45
million and $37 million, respectively. Consolidated tax payments made during the
first three months of 2005 and 2004 were $3 million and $1 million,
respectively.
PAGE
8
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
D. Postretirement Benefits
Postretirement
Benefits Expense
The
company provides postretirement benefits to a substantial portion of its
employees. Costs associated with postretirement benefits include pension and
postretirement health care expenses for employees, retirees and surviving
spouses and dependents. In addition, as part of the 1993 restructured health
care and life insurance plans, profit sharing payments to the Retiree
Supplemental Benefit Trust (Trust) are required.
The cost
of postretirement benefits is segregated as a separate component on the
Statement of Income and is as follows:
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
Millions
of dollars |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
expense |
|
$ |
17 |
|
$ |
20 |
|
Other
benefits |
|
|
42 |
|
|
41 |
|
|
|
|
|
|
|
Net
postretirement benefits expense |
|
$ |
59 |
|
$ |
61 |
|
|
|
|
|
|
|
Net
periodic postretirement benefits expense included on the Statement of Income is
composed of the following:
|
|
Pension
Expense for
Three
Months Ended
January
31 |
|
|
|
|
|
Millions
of dollars |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
costs for benefits earned during the period |
|
$ |
6 |
|
$ |
7 |
|
Interest
on obligation |
|
|
55 |
|
|
58 |
|
Amortization
of cumulative losses |
|
|
15 |
|
|
13 |
|
Amortization
of prior service cost |
|
|
2 |
|
|
2 |
|
Other |
|
|
6 |
|
|
6 |
|
Less
expected return on assets |
|
|
(67 |
) |
|
(66 |
) |
|
|
|
|
|
|
Net
pension expense |
|
$ |
17 |
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Benefits for
Three
Months Ended
January
31 |
|
|
|
|
|
Millions
of dollars |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
costs for benefits earned during the period |
|
$ |
4 |
|
$ |
4 |
|
Interest
on obligation |
|
|
36 |
|
|
36 |
|
Amortization
of cumulative losses |
|
|
15 |
|
|
12 |
|
Other |
|
|
- |
|
|
3 |
|
Less
expected return on assets |
|
|
(13 |
) |
|
(14 |
) |
|
|
|
|
|
|
Net
other benefits expense |
|
$ |
42 |
|
$ |
41 |
|
|
|
|
|
|
|
“Other”
includes the expense related to yearly lump-sum payments to retirees required by
negotiated labor contracts, expense related to defined contribution plans and
other postretirement benefit costs.
PAGE
9
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
D. Postretirement Benefits (continued)
Employer
Contributions
The
company previously disclosed in its financial statements for the year ended
October 31, 2004 that it expected to contribute approximately $20 million to its
pension plans in 2005. Current expectations regarding 2005 pension plan
contributions have not changed since that time. As of January 31, 2005, $6
million of contributions have been made to the company’s qualified pension
plans.
The
company also makes contributions to partially fund retiree health care benefits.
As of January 31, 2005, $2 million of contributions have been made to the
company’s retiree healthcare plans and the company anticipates contributing an
additional $4 million in 2005 for a total contribution of $6 million.
Note
E. Income Taxes
The tax
expense (benefit) on the Statement of Income reflects the tax benefit of current
Net Operating Losses (NOL), net of valuation reserves, while the cumulative
benefit of NOL carryforwards is recognized as a deferred tax asset in the
Statement of Financial Condition. Cash payment of income taxes may be required
for certain state income, foreign income and withholding and federal alternative
minimum taxes. Until the company has utilized its significant NOL carryforwards,
the cash payment of United States (U.S.) federal and state income taxes will be
minimal.
Note
F. Inventories
Inventories
are as follows:
|
|
January
31 |
|
October
31 |
|
January
31 |
|
Millions
of dollars |
|
2005 |
|
2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished
products |
|
$ |
544 |
|
$ |
505 |
|
$ |
417 |
|
Work
in process |
|
|
60 |
|
|
47 |
|
|
65 |
|
Raw
materials and supplies |
|
|
261 |
|
|
238 |
|
|
207 |
|
|
|
|
|
|
|
|
|
Total
inventories |
|
$ |
865 |
|
$ |
790 |
|
$ |
689 |
|
|
|
|
|
|
|
|
|
Note
G. Sales of Receivables
Navistar
Financial Corporation’s (NFC) primary business is to provide wholesale, retail
and lease financing for new and used trucks sold by International and
International’s dealers and, as a result, NFC’s finance receivables and leases
have a significant concentration in the trucking industry. NFC retains as
collateral an ownership interest in the equipment associated with leases and a
security interest in equipment associated with wholesale notes and retail
notes.
During
the first quarter of fiscal 2005, NFC sold $757 million of retail notes and
leases for a pre-tax gain of $11 million compared to the first quarter of fiscal
2004, when NFC sold $195 million of retail receivables for a pre-tax gain of $4
million.
PAGE
10
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
H. Restructuring and Other Non-recurring Charges
Restructuring
Charges
In 2000
and 2002, the company’s board of directors approved separate plans to
restructure its manufacturing and corporate operations. The company incurred
charges for severance and other benefits, curtailment losses, lease
terminations, asset and inventory write-downs and other exit costs relating to
these plans. The following are the major restructuring, integration and cost
reduction initiatives originally included in the 2000 and 2002 Plans of
Restructuring (Plans of Restructuring):
· |
Replacement
of steel cab trucks with a new line of High Performance Vehicles (HPV) and
a concurrent realignment of the company’s truck manufacturing facilities
|
· |
Launch
of the next generation technology diesel engines
(NGD) |
· |
Consolidation
of corporate operations |
· |
Realignment
of the bus and truck dealership network and termination of various
dealerships’ contracts |
· |
Closure
of certain facilities and operations and exit of certain activities
including the Chatham, Ontario heavy truck assembly facility, the
Springfield, Ohio body plant and a manufacturing production line within
one of the company’s plants |
· |
Offer
of early retirement and voluntary severance programs to certain union
represented employees |
The Plans
of Restructuring originally called for a reduction in workforce of approximately
5,400 employees, primarily in North America, resulting in charges totaling $169
million. The decision, in 2003, to keep open the Chatham facility along with
changes in staffing requirements at other manufacturing facilities lowered the
total number of employee reductions to 4,200. The change in expected employee
reductions along with an evaluation of the severance reserves related to the HPV
and NGD product programs resulted in a net reversal to the previously recorded
severance and other benefits reserves totaling $50 million.
A
curtailment loss of $157 million was recorded in 2002 relating to the company’s
postretirement plans. This loss was the result of an early retirement program
for represented employees at the company’s Springfield and Indianapolis plants
and the planned closure of the Chatham facility. Subsequently, the decision to
keep open the Chatham facility, the offer of an early retirement and voluntary
severance program to certain employees at the Chatham facility, and the
completion of the sign-up period for the early retirement window program offered
to certain eligible, long serviced UAW employees, resulted in a net reduction of
$3 million to the previously recorded curtailment loss. The curtailment
liability has been classified as a postretirement benefits liability on the
Statement of Financial Condition.
Lease
termination charges include estimated lease costs, net of probable sublease
income, under long-term non-cancelable lease agreements. These charges primarily
relate to the lease at the company’s previous corporate office in Chicago,
Illinois, which expires in 2010.
Dealer
termination costs include the termination of certain dealer contracts in
connection with the realignment of the company’s bus distribution network. Other
exit costs include contractually obligated exit and closure costs associated
with facility closures and an accrual for the loss on sale of Harco National
Insurance Company. As of January 31, 2005, $55 million of the total net charge
of $66 million has been incurred, of which $2 million was incurred during the
quarter.
PAGE
11
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
H. Restructuring and Other Non-recurring Charges
(continued)
Other
Non-Recurring Charges
In
October 2002, Ford advised the company that its current business case for a V-6
diesel engine in the specified vehicles was not viable and discontinued its
program for the use of these engines. Accordingly, the company recorded charges
of $170 million for the write-off of deferred pre-production costs, the
write-down of fixed assets that were abandoned, lease obligations under
non-cancelable operating leases and accruals for amounts contractually owed to
suppliers. In 2003, the company recorded an adjustment of $11 million for
additional amounts contractually owed to suppliers related to the V-6 diesel
engine program. In April 2003, the company reached a comprehensive agreement
with Ford concerning the termination of its V-6 diesel engine program. The terms
of the agreement included compensation to neutralize certain current and future
V-6 diesel engine program related costs not accrued for as part of the 2002
non-recurring charge, resolution of ongoing pricing related to the company’s V-8
diesel engine program and a release by the parties of all of their obligations
under the V-6 diesel engine contract. The company will continue as Ford’s
exclusive supplier of V-8 diesel engines through 2012. The agreement with Ford
does not have a material net impact on the Statement of Financial Condition or
the Statement of Income for the periods covered in this report.
Summary
Through
January 31, 2005, the company has recorded cumulative charges of $818 million
relating to the Plans of Restructuring and other non-recurring charges.
The
remaining components of the company’s Plans of Restructuring and other
non-recurring charges are shown in the following table.
(Millions
of dollars) |
|
Balance
October
31
2004 |
|
Amount
Incurred |
|
Balance
January
31
2005 |
|
|
|
|
|
|
|
|
|
Lease
terminations |
|
|
21 |
|
|
(2 |
) |
|
19 |
|
Dealer
terminations and other charges |
|
|
12 |
|
|
(1 |
) |
|
11 |
|
Other
non-recurring charges |
|
|
64 |
|
|
(2 |
) |
|
62 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
97 |
|
$ |
(5 |
) |
$ |
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
remaining liability of $92 million is expected to be funded from existing cash
balances and internally generated cash flows from operations. The total cash
outlay for the remainder of 2005 is expected to be $13 million with the
remaining obligation of $79 million, primarily related to non-recurring charges
and long-term non-cancelable lease agreements, to be settled in 2006 and beyond.
The
company is in the process of completing certain aspects of the Plans of
Restructuring and will continue to evaluate the remaining restructuring reserves
as the plans are executed. As a result, there may be additional adjustments to
the reserves noted above. Since the company-wide restructuring plans are an
aggregation of many individual components requiring judgments and estimates,
actual costs have differed from estimated amounts.
PAGE
12
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
I. Financial Instruments
The
company uses derivative financial instruments as part of its overall interest
rate and foreign currency risk management strategy.
The
financial services operations manage exposure to fluctuations in interest rates
by limiting the amount of fixed rate assets funded with variable rate debt. This
is accomplished by selling fixed rate receivables on a fixed rate basis and by
utilizing derivative financial instruments. These derivative financial
instruments may include interest rate swaps, interest rate caps and forward
contracts. The fair value of these instruments is estimated based on quoted
market prices and is subject to market risk as the instruments may become less
valuable due to changes in market conditions or interest rates. NFC manages
exposure to counter-party credit risk by entering into derivative financial
instruments with major financial institutions that can be expected to fully
perform under the terms of such agreements. NFC does not require collateral or
other security to support derivative financial instruments with credit risk.
NFC’s
counter-party credit exposure is limited to the positive fair value of contracts
at the reporting date. As of January 31, 2005, NFC’s derivative financial
instruments had a negative net fair value. Notional amounts of derivative
financial instruments do not represent exposure to credit loss.
At
January 31, 2005, the notional amounts and fair values of the company’s
derivatives are presented in the following table. The fair values of all these
derivatives are recorded in other assets or other liabilities on the Statement
of Financial Condition.
(Millions
of dollars)
Inception
Date |
|
Maturity
Date |
|
Derivative
Type |
|
Notional
Amount |
|
Fair
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
2002 -
July
2004 |
|
March
2007 -
September
2008 |
|
Interest
rate swaps* |
$ |
41 |
$ |
- |
|
|
|
|
|
|
|
|
|
July
2001 -
January
2005 |
|
June
2005 -
June
2011 |
|
Interest
rate swaps |
|
299 |
|
6 |
|
|
|
|
|
|
|
|
|
October
2000 -
December
2004 |
|
February
2005 -
November
2012 |
|
Interest
rate caps |
|
1,083 |
|
- |
|
|
|
|
|
|
|
|
|
January
2005 |
|
February
2005 |
|
Cross
Currency Swaps |
|
27 |
|
- |
|
|
|
|
|
|
|
|
|
*Accounted
for as non-hedging instruments.
PAGE
13
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
J. Guarantees
The
company and its subsidiaries occasionally provide guarantees that could obligate
them to make future payments if the primary entity fails to perform under its
contractual obligations. The company has not recorded a liability for these
guarantees. The company has no recourse as guarantor in case of
default.
International
provides a full and unconditional guarantee on the $400 million 9 3/8% Senior
Notes due 2006, the $250 million 7.5% Senior Notes due 2011 and the $190 million
2.5% Senior Convertible Notes due 2007. NIC also provides a guarantee on the $19
million 9.95% Senior Notes due 2011. As of January 31, 2005, the outstanding
balance on the 9.95% Senior Notes was $13 million.
NIC and
International are obligated under certain agreements with public and private
lenders of NFC to maintain the subsidiary’s income before interest expense and
income taxes at not less than 125% of its total interest expense. No income
maintenance payments were required for the three months ended January 31,
2005.
NIC
guarantees lines of credit made available to its Mexican finance subsidiaries by
third parties and NFC. NFC guarantees the borrowings of the Mexican finance
subsidiaries. The following table summarizes the borrowings as of January 31,
2005, in millions of dollars.
Entity |
|
Amount
of Guaranty |
|
Outstanding
Balance |
|
Maturity
dates extend to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIC |
|
$ 393 |
|
$ 99 |
|
2010 |
|
|
|
|
|
|
|
NFC |
|
$ 88 |
|
$ 75 |
|
2010 |
|
|
|
|
|
|
|
NIC
and NFC |
|
$ 100 |
|
$ 37 |
|
2005 |
The
company also guarantees many of the operating leases of its operating
subsidiaries. The leases have various expiration dates that extend through June
2014. The remaining maximum obligation under these leases as of January 31,
2005, totaled approximately $521 million.
The
company and International also guarantee real estate operating leases of
International and of the subsidiaries of the company. The leases have various
maturity dates extending through 2019. As of January 31, 2005, the total
remaining obligation under these leases is approximately $44
million.
The
company and NFC have issued residual value guarantees in connection with various
operating leases. The amount of the guarantees is undeterminable because in some
instances, neither the company nor NFC is responsible for the entire amount of
the guaranteed lease residual. The company’s and NFC’s guarantees are contingent
upon the fair value of the leased assets at the end of the lease term. The
difference between this fair value and the guaranteed lease residual represents
the amount of the company’s and NFC’s exposure.
PAGE
14
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
J. Guarantees (continued)
As of
January 31, 2005, NFC had guaranteed derivative contracts for foreign currency
forwards, interest rate swaps and cross currency swaps related to two of the
company’s Mexican finance subsidiaries. NFC is liable up to the fair market
value of these derivative contracts only in cases of default by the two Mexican
finance subsidiaries. As of January 31, 2005, there was an outstanding notional
balance of $58 million related to interest rate swaps and cross currency swaps,
and the fair market value of the outstanding balance was
immaterial.
At
January 31, 2005, the company’s Canadian operating subsidiary was contingently
liable for $409 million of retail customers’ contracts and $35 million of retail
leases that are financed by a third party. The Canadian operating subsidiary is
responsible for the residual values of these financing arrangements. These
contract amounts approximate the resale market value of the collateral
underlying the note liabilities.
In
addition, the company entered into various guarantees for purchase commitments,
insurance loss reserves, credit guarantees and buyback programs with various
expiration dates that total approximately $93 million. In the ordinary course of
business, the company also provides routine indemnifications and other
guarantees whose terms range in duration and often are not explicitly defined.
The company does not believe these will have a material impact on the results of
operations or financial condition of the company.
Product
Warranty
Provisions
for estimated expenses related to product warranty are made at the time products
are sold. These estimates are established using historical information about the
nature, frequency and average cost of warranty claims. Management actively
studies trends of warranty claims and takes action to improve vehicle quality
and minimize warranty claims. Management believes that the warranty reserve is
appropriate; however, actual claims incurred could differ from the original
estimates, requiring adjustments to the reserve.
Changes
in the product warranty accrual for the three months ended January 31, 2005,
were as follows:
Millions
of dollars |
|
|
|
|
|
|
|
Balance,
beginning of period |
|
$ |
286 |
|
Change
in liability for warranties issued during the period |
|
|
52 |
|
Change
in liability for preexisting warranties |
|
|
5 |
|
Payments
made |
|
|
(75 |
) |
|
|
|
|
Balance,
end of period |
|
$ |
268 |
|
|
|
|
|
Note
K. Legal Proceedings and Environmental Matters
The
company and its subsidiaries are subject to various claims arising in the
ordinary course of business, and are parties to various legal proceedings that
constitute ordinary routine litigation incidental to the business of the company
and its subsidiaries. The majority of these claims and proceedings relate to
commercial, product liability and warranty matters. In the opinion of the
company’s management, the disposition of these proceedings and claims, including
those discussed below, after taking into account established reserves and the
availability and limits of the company’s insurance coverage, will not have a
material adverse effect on the business or the financial condition of the
company.
PAGE
15
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
K. Legal Proceedings and Environmental Matters (continued)
The
company has been named a potentially responsible party (PRP), in conjunction
with other parties, in a number of cases arising under an environmental
protection law, the Comprehensive Environmental Response, Compensation and
Liability Act, popularly known as the Superfund law. These cases involve sites
that allegedly received wastes from current or former company locations. Based
on information available to the company which, in most cases, consists of data
related to quantities and characteristics of material generated at current or
former company locations, material allegedly shipped by the company to these
disposal sites, as well as cost estimates from PRPs and/or federal or state
regulatory agencies for the cleanup of these sites, a reasonable estimate is
calculated of the company's share, if any, of the probable costs and is provided
for in the financial statements. These obligations are generally recognized no
later than completion of the remedial feasibility study and are not discounted
to their present value. The company reviews all accruals on a regular basis and
believes that, based on these calculations, its share of the potential
additional costs for the cleanup of each site will not have a material effect on
the company's financial results.
Two sites
formerly owned by the company, Wisconsin Steel in Chicago, Illinois and Solar
Turbines in San Diego, California, were identified as having soil and
groundwater contamination. While investigations and cleanup activities continue
at both sites, the company anticipates that all necessary costs to complete the
cleanup have been adequately reserved.
In
December 2003, the United States Environmental Protection
Agency (US EPA) issued a Notice of Violation to the company in conjunction with
the operation of its engine casting facility in Indianapolis, Indiana.
Specifically, the US EPA alleged that the company violated applicable
environmental regulations
by failing to obtain the necessary permit in connection with the construction of
certain equipment and complying with the best available control technology for
emissions from such equipment. The company is currently in discussions with the
US EPA and believes that its discussions will result in capital improvements
together with monetary sanctions which will not be material.
Various
claims and controversies have arisen between the company and its former fuel
system supplier, Caterpillar Inc. (Caterpillar), regarding the ownership and
validity of certain patents covering fuel system technology used in the
company's new version of diesel engines that were introduced in February 2002.
In June 1999, in Federal Court in Peoria, Illinois, Caterpillar sued Sturman
Industries, Inc. (Sturman), the company’s joint venture partner in developing
fuel system technology, alleging that technology invented and patented by
Sturman and licensed to the company, belongs to Caterpillar. After a trial, on
July 18, 2002, the jury returned a verdict in favor of Caterpillar finding that
this technology belongs to Caterpillar under a prior contract between
Caterpillar and Sturman. Sturman appealed the adverse judgment, and the jury’s
verdict was reversed by the appellate court on October 28, 2004 and remanded to
the district court for retrial. The company is cooperating with Sturman in this
effort. In May 2003, in Federal Court in Columbia, South Carolina, Caterpillar
sued the company, its supplier of fuel injectors and joint venture, Siemens
Diesel Systems Technology, L.L.C., and Sturman for patent infringement alleging
that the Sturman fuel system technology patents and certain Caterpillar patents
are infringed in the company’s new engines. The company believes that it has
meritorious defenses to the claims of infringement of the Sturman patents as
well as the Caterpillar patents and will vigorously defend such claims. In
January 2002, Caterpillar sued the company in the Circuit Court in Peoria
County, Illinois, alleging the company breached the purchase agreement pursuant
to which Caterpillar supplied fuel systems for the company’s prior version of
diesel engines. Caterpillar’s claims involve a 1990 agreement to reimburse
Caterpillar for costs associated with the delayed launch of the company’s V-8
diesel engine program. Reimbursement of the delay costs was made by a surcharge
of $8.08 on each injector purchased and the purchase of certain minimum
quantities of spare parts. In 1999, the company concluded that, in accordance
with the 1990 agreement, it had fully reimbursed Caterpillar for its delay costs
and stopped paying the surcharge and purchasing the minimum quantities of spare
parts. Caterpillar is asserting that the surcharge and the spare parts purchase
requirements continue throughout the life of the contract and has sued the
company to recover these amounts, plus interest. Caterpillar also asserts that
the company failed to purchase all of its fuel injector requirements under the
contract and, in collusion with Sturman, failed to pursue a future fuel systems
supply relationship with Caterpillar. The company believes that it has
meritorious defenses to Caterpillar’s claims.
PAGE
16
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
K. Legal Proceedings and Environmental Matters (continued)
Along
with other vehicle manufacturers, the company and certain of its subsidiaries
have been subject to an increase in the number of asbestos-related claims in
recent years. Management believes that such claims will not have a material
adverse affect on the company’s financial condition or results of operations. In
general these claims relate to illnesses alleged to have resulted from asbestos
exposure from component parts found in older vehicles, although some cases
relate to the presence of asbestos in company facilities. In these claims the
company is not the sole defendant, and the claims name as defendants numerous
manufacturers and suppliers of a wide variety of products allegedly containing
asbestos. Management has strongly disputed these claims, and it has been the
company’s policy to defend against them vigorously. Historically, the actual
damages paid out to claimants have not been material to the company’s results of
operations and financial condition. However, management believes the company and
other vehicle manufacturers are being more aggressively targeted, largely as a
result of bankruptcies of manufacturers of asbestos and products containing
asbestos. It is possible that the number of these claims will continue to grow,
and that the costs for resolving asbestos related claims could become
significant in the future.
On
October 13, 2004, the company received a request from the staff of the
Securities and Exchange Commission (SEC) to voluntarily produce certain
documents and information related to the company’s accounting practices with
respect to defined benefit pension plans and other postretirement benefits. The
company is fully cooperating with this request. Based on the status of the
inquiry, the company is not able to predict the final outcome.
On
January 31, 2005, the company announced that it would restate its financial
results for fiscal years 2002 and 2003 and the first three quarters of fiscal
2004. The SEC notified the company on February 9, 2005, that it was conducting
an informal inquiry into the company’s restatement. On March 17, 2005, the
company was advised by the SEC that the status of the inquiry had been changed
to a formal investigation. The company is fully cooperating with the SEC on this
investigation. Based on the status of the investigation, the company is not able
to predict the final outcome.
Note
L. Segment Data
Reportable
operating segment data is as follows:
Millions
of dollars |
|
Truck |
|
Engine |
|
Financial
Services |
|
Total |
|
|
|
|
|
|
|
|
For
the quarter ended January 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
revenues |
|
$ |
1,918 |
|
$ |
573 |
|
$ |
64 |
|
$ |
2,555 |
|
Intersegment
revenues |
|
|
- |
|
|
149 |
|
|
13 |
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
$ |
1,918 |
|
$ |
722 |
|
$ |
77 |
|
$ |
2,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss) |
|
$ |
55 |
|
$ |
(19 |
) |
$ |
35 |
|
$ |
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of January 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets |
|
$ |
1,972 |
|
$ |
1,165 |
|
$ |
2,246 |
|
$ |
5,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the quarter ended January 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
revenues |
|
$ |
1,427 |
|
$ |
459 |
|
$ |
57 |
|
$ |
1,943 |
|
Intersegment
revenues |
|
|
- |
|
|
135 |
|
|
9 |
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
$ |
1,427 |
|
$ |
594 |
|
$ |
66 |
|
$ |
2,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit |
|
$ |
9 |
|
$ |
5 |
|
$ |
23 |
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of January 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets |
|
$ |
1,594 |
|
$ |
1,065 |
|
$ |
2,210 |
|
$ |
4,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAGE
17
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
L. Segment Data
(continued)
Reconciliation
to the consolidated financial statements as of and for the quarters ended
January 31 is as follows:
Millions
of dollars |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
sales and revenues |
|
$ |
2,717 |
|
$ |
2,087 |
|
Other
income |
|
|
3 |
|
|
2 |
|
Intercompany |
|
|
(162 |
) |
|
(144 |
) |
|
|
|
|
|
|
Consolidated
sales and revenues |
|
$ |
2,558 |
|
$ |
1,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit |
|
$ |
71 |
|
$ |
37 |
|
Restructuring
adjustment |
|
|
- |
|
|
(4 |
) |
Corporate
items |
|
|
(30 |
) |
|
(44 |
) |
Manufacturing
net interest expense |
|
|
(14 |
) |
|
(14 |
) |
|
|
|
|
|
|
Consolidated
pre-tax income (loss) from continuing operations |
|
$ |
27 |
|
$ |
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets |
|
$ |
5,383 |
|
$ |
4,869 |
|
Cash
and marketable securities |
|
|
433 |
|
|
224 |
|
Deferred
taxes |
|
|
1,477 |
|
|
1,486 |
|
Corporate
intangible pension assets |
|
|
1 |
|
|
3 |
|
Other
corporate and eliminations |
|
|
199 |
|
|
178 |
|
|
|
|
|
|
|
Consolidated
assets |
|
$ |
7,493 |
|
$ |
6,760 |
|
|
|
|
|
|
|
Note
M. Comprehensive Income
The
components of comprehensive income (loss) are as follows:
|
|
For
the Three Months Ended
January
31 |
|
|
|
|
|
Millions
of dollars |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(14 |
) |
Other
comprehensive income |
|
|
5 |
|
|
3 |
|
|
|
|
|
|
|
Total
comprehensive income (loss) |
|
$ |
23 |
|
$ |
(11 |
) |
|
|
|
|
|
|
PAGE
18
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
N. Earnings Per Share
Earnings
(loss) per share was computed as follows:
|
|
For
the Three Months Ended
January
31 |
|
|
|
|
|
Millions
of dollars, except share and per share data |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(14 |
) |
|
|
|
|
|
|
|
|
Average
shares outstanding (millions) |
|
|
|
|
|
|
|
Basic |
|
|
70.1 |
|
|
69.2 |
|
Diluted |
|
|
76.3 |
|
|
69.2 |
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share |
|
|
|
|
|
|
|
Basic |
|
$ |
0.25 |
|
$ |
(0.20 |
) |
Diluted |
|
$ |
0.24 |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
The
computation of diluted shares outstanding for the three months ended January 31,
2004, excludes incremental shares of 10.8 million, related to employee stock
options, convertible debt and other dilutive securities. These shares are
excluded due to their anti-dilutive effect as a result of the company’s losses
for the first three months of 2004.
Note
O. Condensed Consolidating Guarantor and Non-Guarantor Financial
Information
The
following tables set forth the condensed consolidating Statements of Financial
Condition as of January 31, 2005 and 2004, and the Statements of Income and Cash
Flow for the three months ended January 31, 2005 and 2004. The following
information is included as a result of International’s guarantees, exclusive of
its subsidiaries, of NIC’s indebtedness under its 9 3/8% Senior Notes due 2006,
2.5% Senior Convertible Notes due 2007 and 7.5% Senior Notes due 2011.
International is a direct wholly owned subsidiary of NIC. None of NIC’s other
subsidiaries guarantee any of these notes. Each of the guarantees is full and
unconditional. Separate financial statements and other disclosures concerning
International have not been presented because management believes that such
information is not material to investors. NIC includes the consolidated
financial results of the parent company only, with all of its wholly owned
subsidiaries accounted for under the equity method. International, for purposes
of this disclosure only, includes the consolidated financial results of its
wholly owned subsidiaries accounted for under the equity method. “Non-Guarantor
Companies and Eliminations” includes the consolidated financial results of all
other non-guarantor subsidiaries including the elimination entries for all
intercompany transactions. All applicable corporate expenses have been allocated
appropriately among the guarantor and non-guarantor subsidiaries.
NIC files
a consolidated U.S. federal income tax return that includes International and
its U.S. subsidiaries. International has a tax allocation agreement (Tax
Agreement) with NIC which requires International to compute its separate federal
income tax expense based on its adjusted book income. Any resulting tax
liability is paid to NIC. In addition, under the Tax Agreement, International is
required to pay to NIC any tax payments received from its subsidiaries. The
effect of the Tax Agreement is to allow the parent company, rather than
International, to utilize U.S. operating income/losses and NIC operating loss
carryforwards.
PAGE
19
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
O. Condensed Consolidating Guarantor and Non-Guarantor Financial Information
(continued)
Millions
of dollars |
|
NIC |
|
International |
|
Non-Guarantor
Companies and Eliminations |
|
Consolidated |
|
|
CONDENSED
CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JANUARY 31,
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues |
|
$ |
1 |
|
$ |
1,966 |
|
$ |
591 |
|
$ |
2,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products and services sold |
|
|
2 |
|
|
1,832 |
|
|
343 |
|
|
2,177 |
|
All
other operating expenses |
|
|
(9 |
) |
|
262 |
|
|
101 |
|
|
354 |
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
(7 |
) |
|
2,094 |
|
|
444 |
|
|
2,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in income (loss) of non-consolidated subsidiaries |
|
|
19 |
|
|
93 |
|
|
(112 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
27 |
|
|
(35 |
) |
|
35 |
|
|
27 |
|
Income
tax expense (benefit) |
|
|
9 |
|
|
12 |
|
|
(12 |
) |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(47 |
) |
$ |
47 |
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF FINANCIAL CONDITION AS OF JANUARY 31,
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and marketable securities |
|
$ |
340 |
|
$ |
8 |
|
$ |
590 |
|
$ |
938 |
|
Receivables,
net |
|
|
1 |
|
|
265 |
|
|
1,903 |
|
|
2,169 |
|
Inventories |
|
|
- |
|
|
431 |
|
|
434 |
|
|
865 |
|
Property
and equipment, net |
|
|
- |
|
|
744 |
|
|
659 |
|
|
1,403 |
|
Investment
in affiliates |
|
|
(2,665 |
) |
|
1,130 |
|
|
1,535 |
|
|
- |
|
Deferred
tax asset and other assets |
|
|
1,439 |
|
|
216 |
|
|
463 |
|
|
2,118 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
(885 |
) |
$ |
2,794 |
|
$ |
5,584 |
|
$ |
7,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareowners’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
$ |
1,058 |
|
$ |
14 |
|
$ |
1,777 |
|
$ |
2,849 |
|
Postretirement
benefits liability |
|
|
- |
|
|
4,408 |
|
|
(2,838 |
) |
|
1,570 |
|
Amounts
due to (from) affiliates |
|
|
(2,629 |
) |
|
85 |
|
|
2,544 |
|
|
- |
|
Other
liabilities |
|
|
138 |
|
|
1,513 |
|
|
875 |
|
|
2,526 |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
(1,433 |
) |
|
6,020 |
|
|
2,358 |
|
|
6,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners’
equity (deficit) |
|
|
548 |
|
|
(3,226 |
) |
|
3,226 |
|
|
548 |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareowners’ equity |
|
$ |
(885 |
) |
$ |
2,794 |
|
$ |
5,584 |
|
$ |
7,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED JANUARY
31, 2005 |
|
Cash
provided by (used in) operations |
|
$ |
(220 |
) |
$ |
(66 |
) |
$ |
(57 |
) |
$ |
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investment programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
net of collections, of finance receivables |
|
|
- |
|
|
- |
|
|
451 |
|
|
451 |
|
Net
increase in marketable securities |
|
|
115 |
|
|
- |
|
|
(258 |
) |
|
(143 |
) |
Capital
expenditures |
|
|
- |
|
|
(7 |
) |
|
(9 |
) |
|
(16 |
) |
Other
investing activities |
|
|
(3 |
) |
|
30 |
|
|
(17 |
) |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by investment programs |
|
|
112 |
|
|
23 |
|
|
167 |
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
repayments of debt |
|
|
- |
|
|
(1 |
) |
|
(14 |
) |
|
(15 |
) |
Other
financing activities |
|
|
(16 |
) |
|
28 |
|
|
(21 |
) |
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) financing activities |
|
|
(16 |
) |
|
27 |
|
|
(35 |
) |
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) during the period |
|
|
(124 |
) |
|
(16 |
) |
|
75 |
|
|
(65 |
) |
At
beginning of the period |
|
|
406 |
|
|
22 |
|
|
177 |
|
|
605 |
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period |
|
$ |
282 |
|
$ |
6 |
|
$ |
252 |
|
$ |
540 |
|
|
|
|
|
|
|
|
|
|
|
PAGE
20
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
O. Condensed Consolidating Guarantor and Non-Guarantor Financial Information
(continued)
Millions
of dollars |
|
NIC |
|
International |
|
Non-Guarantor
Companies and Eliminations |
|
Consolidated |
|
|
CONDENSED
CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JANUARY 31,
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues |
|
$ |
- |
|
$ |
1,478 |
|
$ |
467 |
|
$ |
1,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products and services sold |
|
|
11 |
|
|
1,377 |
|
|
265 |
|
|
1,653 |
|
Restructuring
and other non-recurring charges |
|
|
- |
|
|
- |
|
|
4 |
|
|
4 |
|
All
other operating expenses |
|
|
(4 |
) |
|
257 |
|
|
60 |
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
7 |
|
|
1,634 |
|
|
329 |
|
|
1,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in income (loss) of non-consolidated subsidiaries |
|
|
(18 |
) |
|
82 |
|
|
(64 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
(25 |
) |
|
(74 |
) |
|
74 |
|
|
(25 |
) |
Income
tax expense (benefit) |
|
|
(11 |
) |
|
2 |
|
|
(2 |
) |
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(14 |
) |
$ |
(76 |
) |
$ |
76 |
|
$ |
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF FINANCIAL CONDITION AS OF JANUARY 31,
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and marketable securities |
|
$ |
85 |
|
$ |
24 |
|
$ |
475 |
|
$ |
584 |
|
Receivables,
net |
|
|
1 |
|
|
170 |
|
|
1,851 |
|
|
2,022 |
|
Inventories |
|
|
- |
|
|
350 |
|
|
339 |
|
|
689 |
|
Property
and equipment, net |
|
|
- |
|
|
755 |
|
|
659 |
|
|
1,414 |
|
Investment
in affiliates |
|
|
(2,788 |
) |
|
890 |
|
|
1,898 |
|
|
- |
|
Deferred
tax asset and other assets |
|
|
1,490 |
|
|
203 |
|
|
358 |
|
|
2,051 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
(1,212 |
) |
$ |
2,392 |
|
$ |
5,580 |
|
$ |
6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareowners’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
$ |
840 |
|
$ |
16 |
|
$ |
1,845 |
|
$ |
2,701 |
|
Postretirement
benefits liability |
|
|
- |
|
|
3,122 |
|
|
(1,388 |
) |
|
1,734 |
|
Amounts
due to (from) affiliates |
|
|
(2,534 |
) |
|
1,156 |
|
|
1,378 |
|
|
- |
|
Other
liabilities |
|
|
172 |
|
|
1,316 |
|
|
527 |
|
|
2,015 |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
(1,522 |
) |
|
5,610 |
|
|
2,362 |
|
|
6,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners’
equity (deficit) |
|
|
310 |
|
|
(3,218 |
) |
|
3,218 |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareowners’ equity |
|
$ |
(1,212 |
) |
$ |
2,392 |
|
$ |
5,580 |
|
$ |
6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED JANUARY
31, 2004 |
|
Cash
provided by (used in) operations |
|
$ |
(174 |
) |
$ |
(59 |
) |
$ |
(90 |
) |
$ |
(323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investment programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
net of collections, of finance receivables |
|
|
- |
|
|
- |
|
|
(82 |
) |
|
(82 |
) |
Net
increase in marketable securities |
|
|
22 |
|
|
- |
|
|
276 |
|
|
298 |
|
Capital
expenditures |
|
|
- |
|
|
(12 |
) |
|
(10 |
) |
|
(22 |
) |
Other
investing activities |
|
|
(8 |
) |
|
59 |
|
|
(49 |
) |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by investment programs |
|
|
14 |
|
|
47 |
|
|
135 |
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
repayments of debt |
|
|
- |
|
|
(1 |
) |
|
(78 |
) |
|
(79 |
) |
Other
financing activities |
|
|
37 |
|
|
16 |
|
|
(27 |
) |
|
26 |
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) financing activities |
|
|
37 |
|
|
15 |
|
|
(105 |
) |
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) during the period |
|
|
(123 |
) |
|
3 |
|
|
(60 |
) |
|
(180 |
) |
At
beginning of the period |
|
|
218 |
|
|
21 |
|
|
228 |
|
|
467 |
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period |
|
$ |
85 |
|
$ |
24 |
|
$ |
168 |
|
$ |
287 |
|
|
|
|
|
|
|
|
|
|
|
PAGE
21
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
P: Restatement of Prior Period Financial
Statements
In
December 2004, NFC determined that it would restate its consolidated financial
statements for the first three quarters of fiscal 2004 and the fiscal years
ended October 31, 2003 and 2002 due to certain misapplications of GAAP. The
primary area where it was determined that GAAP was incorrectly applied was in
the accounting for retail note securitizations. As a result of NFC’s
restatement, the company concluded that it was necessary to restate its
financial statements for the same periods. In the course of preparing the
restatement of its consolidated financial statements, the company determined
that it was appropriate to make other adjustments as well. These adjustments
were primarily related to trade payables at the company’s Mexican truck assembly
facility, accruals relating to employee plans and the consolidation of majority
owned truck dealerships.
The
significant effects of the restatements on the consolidated financial statements
for the period ended January 31, 2004, primarily due to the consolidation of
majority owned truck dealerships and the accounting for retail note
securitizations at NFC, is included below. The amounts shown below have minor
differences to the unaudited Selected Quarterly Financial Data disclosed in Note
22 to the company’s Annual Report on Form 10-K. The changes represent timing
within the quarters and do not change year-end amounts.
|
|
Navistar
International Corporation
and
Consolidated Subsidiaries |
|
|
|
|
|
STATMENT
OF INCOME |
|
Three
Months Ended
January
31, 2004 |
|
|
|
|
|
Millions
of dollars |
|
As
Previously Reported [1] |
|
As
Restated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues |
|
|
|
|
|
|
|
Sales
of manufactured products |
|
$ |
1,806 |
|
$ |
1,886 |
|
Finance
revenue |
|
|
50 |
|
|
56 |
|
Other
income |
|
|
3 |
|
|
3 |
|
|
|
|
|
|
|
Total
sales and revenues |
|
|
1,859 |
|
|
1,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
Cost
of products and services sold |
|
|
1,603 |
|
|
1,653 |
|
Restructuring
and other non-recurring charges |
|
|
4 |
|
|
4 |
|
Postretirement
benefits expense |
|
|
61 |
|
|
61 |
|
Engineering
and research expense |
|
|
64 |
|
|
64 |
|
Selling,
general and administrative expense |
|
|
121 |
|
|
149 |
|
Interest
expense |
|
|
31 |
|
|
32 |
|
Other
expense |
|
|
7 |
|
|
7 |
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
1,891 |
|
|
1,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
(32 |
) |
|
(25 |
) |
Income
tax expense (benefit) |
|
|
(14 |
) |
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(18 |
) |
$ |
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share |
|
|
|
|
|
|
|
Basic |
|
$ |
(0.27 |
) |
$ |
(0.20 |
) |
Diluted |
|
$ |
(0.27 |
) |
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
Average
shares outstanding (millions) |
|
|
|
|
|
|
|
Basic |
|
|
69.2 |
|
|
69.2 |
|
Diluted |
|
|
69.2 |
|
|
69.2 |
|
|
|
|
|
|
|
|
|
|
[1] In
addition to the adjustments noted above, first quarter results for
2004 were
restated to reflect the retroactive impact of adopting FSP 106-2, regarding
accounting for the impact of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, in the third quarter of fiscal 2004.
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
P: Restatement of Prior Period Financial Statements
(continued)
|
|
Navistar
International Corporation |
|
|
|
and
Consolidated Subsidiaries |
|
|
|
|
|
STATEMENT
OF FINANCIAL CONDITION |
|
|
|
|
|
|
|
Three
Months Ended
January
31, 2004 |
|
|
|
|
|
Millions
of dollars |
|
As
Previously Reported |
|
As
Restated |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
274 |
|
$ |
287 |
|
Marketable
securities |
|
|
42 |
|
|
42 |
|
Receivables,
net |
|
|
1,008 |
|
|
1,033 |
|
Inventories |
|
|
575 |
|
|
689 |
|
Deferred
tax asset, net |
|
|
159 |
|
|
161 |
|
Other
assets |
|
|
166 |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
2,224 |
|
|
2,387 |
|
|
|
|
|
|
|
|
|
Marketable
securities |
|
|
255 |
|
|
255 |
|
Finance
and other receivables, net |
|
|
989 |
|
|
989 |
|
Property
and equipment, net |
|
|
1,318 |
|
|
1,414 |
|
Investments
and other assets |
|
|
364 |
|
|
321 |
|
Prepaid
and intangible pension assets |
|
|
70 |
|
|
69 |
|
Deferred
tax asset, net |
|
|
1,500 |
|
|
1,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
6,720 |
|
$ |
6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREOWNERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Notes
payable and current maturities of long-term debt |
|
$ |
277 |
|
$ |
415 |
|
Accounts
payable, principally trade |
|
|
979 |
|
|
1,006 |
|
Other
liabilities |
|
|
936 |
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
2,192 |
|
|
2,353 |
|
|
|
|
|
|
|
|
|
Debt: Manufacturing
operations |
|
|
854 |
|
|
898 |
|
Financial
services operations |
|
|
1,388 |
|
|
1,388 |
|
Postretirement
benefits liability |
|
|
1,440 |
|
|
1,435 |
|
Other
liabilities |
|
|
526 |
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
6,400 |
|
|
6,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners'
equity |
|
|
|
|
|
|
|
Series
D convertible junior preference stock |
|
|
4 |
|
|
4 |
|
Common
stock and additional paid in capital (75.3 million shares
issued) |
|
|
2,123 |
|
|
2,123 |
|
Retained
earnings (deficit) |
|
|
(860 |
) |
|
(848 |
) |
Accumulated
other comprehensive loss |
|
|
(782 |
) |
|
(775 |
) |
Common
stock held in treasury, at cost
(5.7
million shares held) |
|
|
(165 |
) |
|
(194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareowners' equity |
|
|
320 |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareowners' equity |
|
$ |
6,720 |
|
$ |
6,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAGE
23
Navistar
International Corporation and Consolidated Subsidiaries
Notes to
Financial Statements (Unaudited)
Note
Q: Subsequent Events
In March
2005, the company sold $400 million in Senior Notes due 2012. The notes were
sold in a Rule 144A private unregistered offering and priced to yield 6.25
percent. The Notes are guaranteed on a senior unsecured basis by International.
The Notes will rank behind in right of payment to all of the company’s future
secured debt and equally in right of payment to all of the company’s existing
and future senior unsecured debt. The company may redeem some or all of the
Notes at any time on or after March 1, 2009 at redemption prices set forth in
the offering memorandum. The company may also redeem up to 35 percent of the
aggregate principal amount of the Notes using the proceeds of certain equity
offerings completed before March 1, 2008. The proceeds will be used for general
corporate purposes.
The
failure of the company and its affiliates to timely complete their respective
Quarterly Reports on Form 10-Q and deliver those reports to their respective
lenders resulted in a default under such agreements. However, the company and
its affiliates did not receive a notice of default and no adverse action was
taken by those lenders or lessors against the company or its affiliates. NFC
obtained the necessary waivers from its various lenders to prevent a notice of
default.
On April
14, 2005, the company announced that its South American engine subsidiary,
International Engines South America, completed the acquisition of MWM Motores
Diesel Ltda, a major Brazilian diesel engine producer. Although the transaction
has been completed, the combination of the two companies will require review by
CADE, the Brazilian anti-trust regulatory authority.
PAGE
24
Navistar
International Corporation and Consolidated Subsidiaries
Additional
Financial Information (Unaudited)
The
following additional financial information is provided based upon the continuing
interest of certain shareholders and creditors to assist them in understanding
our core manufacturing business.
Navistar
International Corporation (with financial services operations on an equity
basis) |
|
|
Millions of dollars |
|
Three
Months Ended
January
31 |
|
|
|
Condensed
Statement of Income |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
As
Restated |
|
Sales
of manufactured products |
|
$ |
2,491 |
|
$ |
1,887 |
|
Other
income |
|
|
3 |
|
|
2 |
|
|
|
|
|
|
|
Total
sales and revenues |
|
|
2,494 |
|
|
1,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold |
|
|
2,168 |
|
|
1,641 |
|
Restructuring
and other non-recurring charges |
|
|
- |
|
|
4 |
|
Postretirement
benefits expense |
|
|
58 |
|
|
60 |
|
Engineering
and research expense |
|
|
77 |
|
|
65 |
|
Selling,
general and administrative expense |
|
|
162 |
|
|
134 |
|
Other
expense |
|
|
37 |
|
|
33 |
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
2,502 |
|
|
1,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income
taxes: |
|
|
|
|
|
|
|
Manufacturing
operations |
|
|
(8 |
) |
|
(48 |
) |
Financial
services operations |
|
|
35 |
|
|
23 |
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes |
|
|
27 |
|
|
(25 |
) |
Income
tax expense (benefit) |
|
|
9 |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(14 |
) |
|
|
|
|
|
|
|
|
January
31 |
|
October
31 |
|
January
31 |
|
Condensed
Statement of Financial Condition |
|
2005 |
|
2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Restated |
|
Cash,
cash equivalents and marketable securities |
|
$ |
518 |
|
$ |
737 |
|
$ |
291 |
|
Inventories |
|
|
859 |
|
|
779 |
|
|
678 |
|
Property
and equipment, net |
|
|
1,255 |
|
|
1,283 |
|
|
1,218 |
|
Equity
in non-consolidated subsidiaries |
|
|
564 |
|
|
549 |
|
|
481 |
|
Other
assets |
|
|
1,142 |
|
|
1,129 |
|
|
882 |
|
Deferred
tax asset, net |
|
|
1,466 |
|
|
1,445 |
|
|
1,484 |
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
5,804 |
|
$ |
5,922 |
|
$ |
5,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable, principally trade |
|
$ |
1,275 |
|
$ |
1,436 |
|
$ |
997 |
|
Postretirement
benefits liability |
|
|
1,548 |
|
|
1,544 |
|
|
1,714 |
|
Debt |
|
|
1,306 |
|
|
1,329 |
|
|
1,068 |
|
Other
liabilities |
|
|
1,127 |
|
|
1,082 |
|
|
945 |
|
Shareowners’
equity |
|
|
548 |
|
|
531 |
|
|
310 |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareowners’ equity |
|
$ |
5,804 |
|
$ |
5,922 |
|
$ |
5,034 |
|
|
|
|
|
|
|
|
|
PAGE
25
Navistar
International Corporation and Consolidated Subsidiaries
Additional
Financial Information (Unaudited)
Navistar
International Corporation (with financial services operations on an equity
basis) |
|
|
|
Millions
of dollars |
|
Three
Months Ended
January
31 |
|
|
|
|
|
Condensed
Statement of Cash Flow |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
As
Restated |
|
Cash
flow from operations |
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
18 |
|
$ |
(14 |
) |
Adjustments
to reconcile net income (loss) to cash used in operations: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
61 |
|
|
46 |
|
Deferred
income taxes |
|
|
(24 |
) |
|
(21 |
) |
Postretirement
benefits funding less than expense |
|
|
8 |
|
|
1 |
|
Equity
in earnings of investees, net of dividends received |
|
|
(23 |
) |
|
(20 |
) |
Other,
net |
|
|
- |
|
|
(32 |
) |
Change
in operating assets and liabilities |
|
|
(293 |
) |
|
(197 |
) |
|
|
|
|
|
|
Cash
used in operations |
|
|
(253 |
) |
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investment programs |
|
|
|
|
|
|
|
Purchases
of marketable securities |
|
|
(213 |
) |
|
(88 |
) |
Sales
or maturities of marketable securities |
|
|
323 |
|
|
133 |
|
Capital
expenditures |
|
|
(16 |
) |
|
(22 |
) |
Receivable
from financial services operations |
|
|
77 |
|
|
(2 |
) |
Investment
in affiliates |
|
|
- |
|
|
(8 |
) |
Other
investment programs |
|
|
4 |
|
|
10 |
|
|
|
|
|
|
|
Cash
provided by investment programs |
|
|
175 |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) financing activities |
|
|
(32 |
) |
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
|
|
|
|
|
Decrease
during the period |
|
|
(110 |
) |
|
(186 |
) |
At
beginning of the period |
|
|
556 |
|
|
444 |
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period |
|
$ |
446 |
|
$ |
258 |
|
|
|
|
|
|
|
PAGE
26
Navistar
International Corporation and Consolidated Subsidiaries
Item
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Overview
Navistar
International Corporation is a holding company and its principal operating
subsidiary is International Truck and Engine Corporation (International).
Navistar operates in three principal industry segments: truck, engine
(collectively called “manufacturing operations”) and financial services. The
company’s principal operations are located in the U.S., Canada, Mexico, and
Brazil. In this discussion and analysis, “company”, “Navistar”, “we” or “our”
refers to Navistar International Corporation and its consolidated
subsidiaries.
The
company is currently focused on four key areas: great products, delivering on
our commitments, cost and growth. The company will focus on offering new
products based on current product platforms while delivering on commitments to
our customers as well as our shareowners. The company anticipates growth in the
truck and engine segments through new products and new markets while continuing
to focus on ways to improve the cost structure to help the company succeed in a
competitive marketplace.
Historically,
the company experiences its lowest levels of sales and revenues during the first
quarter of its fiscal year due to lower manufacturing output as a result of the
holiday shutdown periods. Nevertheless, the company recorded a profit of $18
million or diluted earnings per share of $0.24 in the first quarter of 2005
compared to losses in the first quarter of previous years. In addition, in the
first quarter of fiscal 2005 the company signed a strategic agreement with
German engine producer, MAN Nutzfahrzeuge (MAN), to develop and produce
International engines in the 11- to 13-liter range to be offered in
International Class 8 highway tractors and severe service trucks starting in the
fall of 2007. This agreement should allow the company to grow the diesel engine
business while controlling costs by leveraging the investment that MAN has made
in the development of the base engines.
Restatement
of Prior Period Financial Statements
The
accompanying management’s discussion and analysis gives effect to the
restatement of the consolidated financial statements for the period ended
January 31, 2004, as discussed in Note P to the consolidated financial
statements.
Results
of Operations
On April
14, 2005, the company issued an earnings news release and filed a report on Form
8-K with preliminary financial information for the three months ended January
31, 2005. The Form 8-K and earnings news release indicated that the company
expected net income for the period to be $20 million or $0.27 per diluted share.
The company is now reporting in this Form 10-Q, net income for the period ended
January 31, 2005, of $18 million or $0.24 per diluted share. The decrease in net
income is the result of a review which resulted in certain one-time charges at
the company’s engine foundry operations. Based on the review, which was
completed subsequent to the press release, costs of products and services sold
increased by $4 million. The increase in total expenses was partially offset by
a favorable $2 million adjustment to tax expense.
PAGE
27
Navistar
International Corporation and Consolidated Subsidiaries
Results
of Operations (continued)
The
following table illustrates the key financial indicators that management uses to
assess the consolidated financial results for the three months ended January 31,
2005 and 2004.
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
Key
Financial Indicators: |
|
|
|
|
|
|
|
(Millions
of dollars, except per share data and margin) |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues |
|
$ |
2,558 |
|
$ |
1,945 |
|
|
|
|
|
|
|
|
|
Cost
of products and services sold |
|
|
2,177 |
|
|
1,653 |
|
Total
expenses |
|
|
354 |
|
|
317 |
|
|
|
|
|
|
|
Total
costs and expense |
|
|
2,531 |
|
|
1,970 |
|
|
|
|
|
|
|
|
|
Net
income/(loss) |
|
$ |
18 |
|
$ |
(14 |
) |
|
|
|
|
|
|
Diluted
earnings/(loss) per share |
|
$ |
0.24 |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
Manufacturing
gross margin |
|
|
13.0 |
% |
|
13.1 |
% |
|
|
|
|
|
|
|
|
The
company’s sales and revenues were up on strong sales volumes from the truck and
engine segments. Improvement in earnings, over the comparable period last year,
was a result of better operating results from the truck and financial services
segments. The events that impacted the performance of the company’s three
operating segments will be analyzed, in detail, later in this
discussion.
Gross
margin from manufacturing operations was essentially unchanged in the first
quarter of fiscal 2005 when compared to the first quarter of fiscal 2004.
Although manufacturing and design cost reductions were achieved in the first
quarter of 2005, these favorable impacts were offset by higher commodity costs,
including steel. Higher than expected steel costs are expected to have an impact
of approximately $100 million on our cost structure in fiscal 2005. The company
will continue to look for ways to offset the negative impact of commodity cost
increases, particularly through surcharges in the pricing of the company’s
products.
Total
expenses increased over the comparable period last year as a result of higher
engineering and selling, general and administrative expenses. Engineering
expenses were impacted by costs associated with 2007 emissions compliance within
the company’s engine segment. Selling, general and administrative expenses were
impacted by the addition of several new wholly owned dealers and incremental
spending within our truck segment.
The
following sections analyze the company’s first quarter operating results as they
relate to its three principal segments: truck, engine and financial
services.
Truck
The truck
segment manufactures and distributes a full line of Class 6 through 8
diesel-powered trucks and school buses in the common carrier, private carrier,
government/service, leasing, construction, energy/petroleum and student
transportation markets. The truck segment also provides customers with
proprietary products needed to support the Internationalâ truck
and the IC™ bus
lines, together with a wide selection of other standard truck and trailer
aftermarket parts. Sales of Class 6 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 as
well as the earnings and cash flow of dealers and customers. In addition, the
Class 6 through 8 truck markets in the U.S. and Canada are highly competitive.
The intensity of this competition results in price discounting and margin
pressures throughout the industry. Even though sales volume has improved, the
company is still experiencing competitive pricing pressure on its new truck
sales. In addition to the influence of price, market position is driven by
product quality, engineering, styling, utility and distribution.
PAGE
28
Navistar
International Corporation and Consolidated Subsidiaries
Results
of Operations (continued)
Truck
(continued)
The
following table highlights the truck segment’s financial and industry results
for the three months ended January 31, 2005 and 2004.
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Results
(Millions of dollars): |
|
|
|
|
|
|
|
Sales |
|
$ |
1,918 |
|
$ |
1,427 |
|
Segment
profit |
|
|
55 |
|
|
9 |
|
|
|
|
|
|
|
|
|
Industry
data (in units) [1]: |
|
|
|
|
|
|
|
U.S.
and Canadian sales (Class 6 through 8) n |
|
|
95,500 |
|
|
73,700 |
|
Class
8 heavy truck |
|
|
64,400 |
|
|
44,200 |
|
Class
6 and 7 medium truck [2] |
|
|
25,400 |
|
|
22,700 |
|
School
buses |
|
|
5,700 |
|
|
6,800 |
|
|
|
|
|
|
|
|
|
Company
data (in units): |
|
|
|
|
|
|
|
U.S.
and Canadian sales (Class 6 through 8) |
|
|
26,200 |
|
|
20,700 |
|
Class
8 heavy truck |
|
|
12,300 |
|
|
6,900 |
|
Class
6 and 7 medium truck [2] |
|
|
10,300 |
|
|
9,700 |
|
School
buses |
|
|
3,600 |
|
|
4,100 |
|
|
|
|
|
|
|
|
|
Order
backlog (in units) |
|
|
29,100 |
|
|
21,700 |
|
|
|
|
|
|
|
|
|
Overall
U.S. and Canada market share
(Class
6 through 8 and bus) |
|
|
27.5 |
% |
|
28.0 |
% |
|
|
|
|
|
|
|
|
[1]
Industry data derived from materials produced by Ward’s
Communications.
[2] The
company does not meaningfully participate in the Class 5 medium truck
market.
The truck
segment’s improved performance is the result of increased sales volume within
medium and heavy truck and increased cost reductions within its manufacturing
processes. The company’s U.S. and Canadian order backlog increased significantly
due to strong orders for Class 8 trucks. The company’s overall market share
decreased slightly over the comparable period last year. Market share was
adversely impacted by the industry growth within the Class 8 heavy truck market,
a market in which the company has its smallest market share. However, the
company’s Class 8 heavy truck market share continued to hold at 19%, a level it
achieved at the end of 2004, which was an increase of three percentage points
over its Class 8 heavy market share of 16% in the first quarter of 2004.
The
company’s growth within the Class 8 heavy truck market is a direct result of the
company’s recommitment to the market and our dealer distribution
strategy. The
market share decrease within medium truck is due to increased pricing
competition in a very competitive marketplace. The company’s bus market share
was up slightly over the comparable period last year.
The
company currently projects fiscal 2005 U.S. and Canadian Class 8 heavy truck
demand to be 262,000 units, up 19% from 2004. Class 6 and 7 medium truck demand,
excluding school buses, is forecast to be essentially unchanged from the 100,000
units in 2004. Demand for school buses is expected to be 27,500 units, up 5%
from 2004.
PAGE
29
Navistar
International Corporation and Consolidated Subsidiaries
Results
of Operations (continued)
Engine
The
engine segment designs and manufactures diesel engines in the 160-325 horsepower
range for use in the company’s Class 6 and 7 medium trucks, school buses and
selected Class 8 heavy truck models. The company’s diesel engines are also
produced for original equipment manufacturers (OEMs), principally Ford Motor
Company (Ford). This segment also sells engines for industrial and agricultural
applications. In addition, the engine segment provides customers with
proprietary products needed to support the Internationalâ engine
lines, together with a wide selection of other standard engine and aftermarket
parts.
The
following table highlights the engine segment’s financial and industry results
for the three months ended January 31, 2005 and 2004.
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Results
(Millions of dollars): |
|
|
|
|
|
|
|
Sales |
|
$ |
722 |
|
$ |
594 |
|
Segment
profit/(loss) |
|
|
(19 |
) |
|
5 |
|
|
|
|
|
|
|
|
|
Sales
data (in units): |
|
|
|
|
|
|
|
Total
engine sales |
|
|
105,700 |
|
|
91,500 |
|
OEM
sales |
|
|
88,800 |
|
|
74,500 |
|
|
|
|
|
|
|
|
|
The
engine segment’s revenues improved 22% over the comparable period in 2004,
primarily due to higher sales volumes, but reported a net loss for the current
period. The increase in engine sales, period over period, was across all product
lines. The engine segment’s loss for the first quarter of 2005 is the result of
a lower profit margin on the segment’s new I-6 engine which was launched in the
second quarter of 2004; however, further cost and design reductions should
continue to improve margins on the new I-6 engine. The results from the first
quarter of 2004 included the previous I-6 engine which had a long life-cycle and
a higher margin. In addition, the engine segment experienced one-time costs of
approximately $12 million from one of its foundry operations and engineering
costs associated with 2007 emission compliance. The company’s V-8 shipments to
Ford accounted for 84% of all OEM engine sales in the current period as compared
to 89% in the comparable period.
The
company continues to forecast that OEM shipments of mid-range diesel engines in
2005 are expected to be 365,400 units, 2% higher than 2004.
Financial
Services
Financial
services provides wholesale, retail and lease financing for sales of new and
used trucks sold by the company and its dealers in the U.S. and Mexico.
Financial services also finances the company’s wholesale accounts and selected
retail accounts receivable. Sales of new products (including trailers) of other
manufacturers are also financed regardless of whether designed or customarily
sold for use with the company's truck products.
PAGE
30
Navistar
International Corporation and Consolidated Subsidiaries
Results
of Operations (continued)
Financial
Services (continued)
The
following table highlights the financial services segment’s financial results
for the three months ended January 31, 2005 and 2004.
|
|
Three
Months Ended
January
31 |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Results
(Millions of dollars): |
|
|
|
|
|
|
|
Revenue |
|
$ |
77 |
|
$ |
66 |
|
Segment
profit |
|
|
35 |
|
|
23 |
|
|
|
|
|
|
|
|
|
Sales
of retail receivables |
|
$ |
757 |
|
$ |
195 |
|
Gain
on sales of retail receivables |
|
|
11 |
|
|
4 |
|
|
|
|
|
|
|
|
|
The
increase in net income is due to higher sales of receivables and an increased
level of wholesale balances. Higher receivables sales volume reflects a timing
difference between quarters.
Restructuring
and Other Non-recurring Charges
Restructuring
In 2000
and 2002, the company’s board of directors approved two separate plans to
restructure its manufacturing and corporate operations (Plans of Restructuring).
The company incurred charges for severance and other benefits, curtailment
losses, lease terminations, asset and inventory write-downs and other exit costs
relating to the major restructuring, integration and cost reduction initiatives
originally included in the Plans of Restructuring. A detailed discussion of the
charges and initiatives can be found in Note H to the financial
statements.
Other
Non-Recurring Charges
The
company entered into an agreement with Ford to develop and manufacture a V-6
diesel engine to be used in specific Ford vehicles. In October 2002, Ford
advised the company that its current business case for a V-6 diesel engine in
the specified vehicles was not viable and discontinued its program for the use
of these engines. Accordingly, in 2002, the company recorded charges for the
write-off of deferred pre-production costs, the write-down of fixed assets that
were abandoned, lease obligations under non-cancelable operating leases and
accruals for amounts contractually owed to suppliers. In April 2003, the company
reached a comprehensive agreement with Ford concerning termination of its V-6
diesel engine program. The terms of the agreement include compensation to
neutralize certain current and future V-6 diesel engine program related costs
not accrued for as part of the 2002 non-recurring charge, resolution of ongoing
pricing related to the company’s V-8 diesel engine program and a release by the
parties of all of their obligations under the V-6 diesel engine contract. The
company will continue as Ford’s exclusive supplier of V-8 diesel engines through
2012.
PAGE
31
Navistar
International Corporation and Consolidated Subsidiaries
Restructuring
and Other Non-recurring Charges (continued)
Status
Through
January 31, 2005, the company has recorded cumulative charges of $818 million
relating to the Plans of Restructuring and non-recurring charges. The
initiatives for the Plans of Restructuring are expected to generate at least $70
million of annualized savings for the company, primarily from lower salary and
benefit costs and plant operating costs. The company will continue to realize
these benefits in 2005 and beyond.
The
remaining components of the company’s Plans of Restructuring and other
non-recurring charges are shown in the following table.
(Millions
of dollars) |
|
Balance
October
31
2004 |
|
Amount
Incurred |
|
Balance
January
31
2005 |
|
|
|
|
|
|
|
|
|
Lease
terminations |
|
|
21 |
|
|
(2 |
) |
|
19 |
|
Dealer
terminations and other charges |
|
|
12 |
|
|
(1 |
) |
|
11 |
|
Other
non-recurring charges |
|
|
64 |
|
|
(2 |
) |
|
62 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
97 |
|
$ |
(5 |
) |
$ |
92 |
|
|
|
|
|
|
|
|
|
The
remaining liability of $92 million is expected to be funded from existing cash
balances and internally generated cash flows from operations. The total cash
outlay for the remainder of 2005 is expected to be $13 million with the
remaining obligation of $79 million, primarily related to non-recurring charges
and long-term non-cancelable lease agreements, to be settled in 2006 and beyond.
The
company is in the process of completing certain aspects of the Plans of
Restructuring and will continue to evaluate the remaining restructuring reserves
as the plans are executed. As a result, there may be additional adjustments to
the reserves noted above. Since the company-wide restructuring plans are an
aggregation of many individual components requiring judgments and estimates,
actual costs have differed from estimated amounts.
Liquidity
and Capital Resources
Cash
Requirements
The
company generates cash flow from the manufacture and sale of trucks, mid-range
diesel engines and service parts. In addition, cash flow is generated from
product financing provided to the company’s dealers and retail customers by the
financial services segment. It is the opinion of management that, in the absence
of significant unanticipated cash demands, current and forecasted cash flow from
the company’s manufacturing operations, financial services operations and
financing capacity will provide sufficient funds to meet operating requirements
and capital expenditures. Management of the company’s financial services
operations 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
International’s dealers and retail customers.
PAGE
32
Navistar
International Corporation and Consolidated Subsidiaries
Liquidity
and Capital Resources (continued)
Sources
and Uses of Cash
(Millions
of dollars) |
Three
Months Ended
|
|
Cash
flow from operations |
|
$ |
(343 |
) |
Cash
flow from investment programs |
|
|
302 |
|
Cash
flow from financing activities |
|
|
(24 |
) |
|
|
|
|
Total
cash flow |
|
$ |
(65 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents-beginning balance |
|
$ |
605 |
|
Cash
and cash equivalents-ending balance |
|
$ |
540 |
|
|
|
|
|
|
Outstanding
capital commitments |
|
$ |
91 |
|
The
company had negative working capital of $1,056 million at January 31, 2005,
primarily attributable to a shift in outstanding debt from long-term to
short-term since the various funding facilities of NFC and its affiliates mature
in 2005, compared to working capital of $34 million at January 31, 2004. NFC and
its affiliates intend to refinance these facilities prior to their respective
maturities. Cash used in operations during the first quarter of 2005 totaled
$343 million, including a $120 million increase in receivables due to a net
increase in wholesale notes and account balances, an $81 million increase in
inventory due to higher truck and engine production volume and a $199 million
decrease in accounts payable primarily due to the number of shutdown days in the
quarter. Cash provided by investment programs of $302 million includes a net
decrease in retail notes and lease receivables of $451 million related to the
timing of the sale of finance receivables. This was offset by net purchases of
marketable securities of $143 million. Cash used in financing activities
primarily resulted from principal payments on debt of $48 million, partially
offset by a net decrease in notes and debt outstanding under the bank revolving
credit facility and other commercial paper programs of $22 million.
There
have been no material changes in the company’s hedging strategies or derivative
positions since October 31, 2004. Further disclosure may be found in Note I to
the Financial Statements.
Financial
Services
The
financial services segment, mainly Navistar Financial Corporation (NFC), has
traditionally obtained the 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 and medium and long-term debt. As of January 31,
2005, NFC’s funding consisted of sold finance receivables of $2,714 million,
bank and other borrowings of $1,158 million and secured borrowings of $139
million. NFC securitizes and sells receivables through Navistar Financial Retail
Receivables Corporation (NFRRC), Navistar Financial Securities Corporation
(NFSC), Truck Retail Accounts Corporation (TRAC), Truck Engine Receivables
Financing Corporation (TERFCO) and Truck Retail Installment Paper Corporation
(TRIP), all special purpose corporations and wholly owned subsidiaries of NFC.
The sales of finance receivables in each securitization constitute sales under
accounting principles generally accepted in the United States of America, with
the result that the sold receivables are removed from NFC’s balance sheet and
the investors’ interests in the related trust or conduit are not reflected as
liabilities.
PAGE
33
Navistar
International Corporation and Consolidated Subsidiaries
Liquidity
and Capital Resources (continued)
Financial
Services (continued)
Through
the asset-backed public market and private placement sales, NFC has been able to
fund fixed rate retail notes and finance leases at rates which are more
economical than those available to NFC in the unsecured public bond market.
During the first quarter of 2005, NFC sold $757 million of retail notes and
finance leases, net of unearned finance income, for a pre-tax gain of $11
million. The receivables were sold through NFRRC to an owner trust which, in
turn, issued asset-backed securities that were sold to investors. At January 31,
2005, the remaining shelf registration available to NFRRC for the public
issuance of asset-backed securities was $3,250 million.
The
following are the funding facilities, in millions, that NFC and its related
affiliates have in place as of January 31, 2005.
Company |
Instrument
type |
Total
Amount |
Purpose
of funding |
Amount
utilized |
Matures
or expires |
|
|
|
|
|
|
|
|
|
|
|
|
TERFCO |
Trust |
$
100 |
Unsecured
Ford trade receivables |
$
100 |
2005 |
|
|
|
|
|
|
NFSC |
Revolving
wholesale
note
trust |
$
1,423 |
Eligible
wholesale notes |
$
1,094 |
various |
|
|
|
|
|
|
TRAC |
Revolving
retail
account
conduit |
$
100 |
Eligible
retail accounts |
$
100 |
2005 |
|
|
|
|
|
|
TRIP |
Revolving
retail
facility |
$
500 |
Retail
notes and leases |
$
247 |
2005 |
|
|
|
|
|
|
NFC |
Revolving
credit
facilities |
$
820 |
Retail
notes and leases |
$
695 |
2005 |
As of
January 31, 2005, the
aggregate available to fund finance receivables under the various facilities was
$707 million.
Pension
and Other Postretirement Benefits
Generally,
the company’s pension plans are non-contributory. The company’s policy is to
fund its pension plans in accordance with applicable U.S. and Canadian
government regulations and to make additional payments as funds are available to
achieve full funding of the accumulated benefit obligation. Other benefits
obligations are primarily funded in accordance with the legal agreement, which
governs the Voluntary Employees Beneficiary Association (VEBA).
PAGE
34
Navistar
International Corporation and Consolidated Subsidiaries
Critical
Accounting Policies
The
company has identified critical accounting policies that, as a result of the
judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or results of operations under different conditions
or using different assumptions. The company’s most critical accounting policies
are related to sales allowances, sales of receivables, product warranty, product
liability, pension and other postretirement benefits, allowance for losses and
impairment of long-lived assets. Details regarding the company’s use of these
policies are described in the 2004 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. There have been no material changes to these
policies since October 31, 2004.
Off-Balance
Sheet Arrangements
The
company enters into various arrangements not reflected on its balance sheet that
have or could have an effect on our financial condition, results of operations,
liquidity, capital expenditures or capital resources. The principal off-balance
sheet arrangements that the company enters into are guarantees, sales of
receivables and postretirement benefits. Details regarding the company’s use of
these arrangements are described in the 2004 Annual Report on Form 10-K filed
with the Securities and Exchange Commission. There have been no material changes
to these policies since October 31, 2004.
Income
Taxes
The
Statement of Financial Condition at January 31, 2005, includes a deferred tax
asset of $1,477 million, net of valuation allowances of $76 million. The company
performs extensive analysis to determine the amount of the deferred tax asset.
Such analysis is based on the premise that the company is, and will continue to
be, a going concern and that it is more likely than not that deferred tax
benefits will be realized through the generation of future taxable income.
New
Accounting Pronouncements
In June
2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”. This
Statement generally requires the recognition of the cost of employee services
received in exchange for an award of equity instruments. This cost is based on
the grant date fair value of the equity award and will be recognized over the
period during which the employee is required to provide service in exchange for
the award. The effective date for the company is the beginning of the
first fiscal quarter of 2006. The company is still evaluating its
share-based payment programs and the related impact, if any, this Statement may
have on its results of operations, financial condition or cash
flows.
In
November 2004, the FASB issued SFAS No. 151, Inventory Costs, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted material. The Statement clarifies that abnormal inventory costs
should be recognized in the period in which they occur. This Statement is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The company will adopt this Statement in fiscal 2006 and will
determine the effect, if any, this Statement may have on its results of
operations, financial condition and cash flows.
In
December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, to
amend Accounting Principles Board (APB) Opinion No. 29. The Statement eliminates
the exception from fair value measurement for nonmonetary exchanges of similar
products in APB No. 29 and replaces it with an exception for exchanges that do
not have commercial substance. This Statement shall be applied prospectively for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Beginning in fiscal 2006, the company does not expect this statement will
have a material impact on its results of operations, financial condition and
cash flows.
PAGE
35
Navistar
International Corporation and Consolidated Subsidiaries
New
Accounting Pronouncements (continued)
In
December 2004, the FASB issued two FASB Staff Positions (FSP’s) that provide
accounting guidance on how companies should account for the effects of the
American Jobs Creation Act of 2004 (the Act) that was signed into law on October
22, 2004. The Act could affect how companies report their deferred income tax
balances. The first FSP is FSP FAS 109-1 (FSP 109-1); the second is FSP FAS
109-2 (FSP 109-2). In FSP 109-1, the FASB concludes that the tax relief (special
tax deduction for domestic manufacturing) from the Act should be accounted for
as a "special deduction" instead of a tax rate reduction. FSP 109-2 gives a
company additional time to evaluate the effects of the Act on any plan for
reinvestment or repatriation of foreign earnings for purposes of applying SFAS
No. 109, “Accounting for Income Taxes.” However, companies must provide certain
disclosures if it chooses to utilize the additional time granted by the FASB.
The company is evaluating the impact, if any, these FSP’s may have on its
results of operations, financial condition or cash flows.
Forward
Looking Statements
This Form
10-Q contains forward-looking statements within the meaning of Section 27A of
the Securities Act, Section 21E of the Exchange Act and the Private Securities
Litigation Reform Act of 1995 that are subject to risks and uncertainties. You
should not place undue reliance on those statements because they are subject to
numerous uncertainties and factors relating to our operations and business
environment, all of which are difficult to predict and many of which are beyond
our control, and such forward-looking statements only speak as of the date of
this Form 10-Q. Forward-looking statements include information concerning our
possible or assumed future results of operations, including descriptions of our
business strategy. These statements often include words such as "believe,"
"expect," "anticipate," "intend," "plan," "estimate" or similar expressions.
These statements are based on assumptions that we have made in light of our
experience in the industry as well as our perceptions of historical trends,
current conditions, expected future developments and other factors we believe
are appropriate under the circumstances. As you read and consider this Form
10-Q, you should understand that these statements are not guarantees of
performance or results. They involve risks, uncertainties and assumptions.
Although we believe that these forward-looking statements are based on
reasonable assumptions, you should be aware that many factors could affect our
actual financial results or results of operations and could cause actual results
to differ materially from those in the forward-looking statements. For a further
description of these factors, see Exhibit 99.1 to Form 10-K for the year ended
October 31, 2004, filed with the SEC on February 15, 2005.
PAGE
36
Navistar
International Corporation and Consolidated Subsidiaries
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk |
|
|
|
The
company’s primary market risks include fluctuations in interest rates and
currency exchange rates as further described in Item 7A of the 2004 Annual
Report on Form 10-K.
Interest
rate risk is the risk that the company will incur economic losses due to
adverse changes in interest rates. The company measures its interest rate
risk by estimating the net amount by which the fair value of all of its
interest rate sensitive assets and liabilities would be impacted by
selected hypothetical changes in market interest rates. Fair value is
estimated using a discounted cash flow analysis. Assuming a hypothetical
instantaneous 10% adverse change in interest rates as of January 31, 2005,
the net fair value of these instruments would decrease by approximately
$22 million. The company’s interest rate sensitivity analysis assumes a
parallel shift in interest rate yield curves. The model, therefore, does
not reflect the potential impact of changes in the relationship between
short-term and long-term interest rates.
The
company is exposed to changes in the price of commodities used in its
manufacturing operations. Due to the amount of steel used in its
production of truck cabs, buses and engines, the company is exposed to
steel price fluctuations. In the first quarter of 2005, steel prices are
higher than 2004, but the company expects prices to level off during the
year. The company estimates the cost of steel will have an impact of
approximately $100 million on its cost structure in 2005.
Foreign
currency risk is the risk that the company will incur economic losses due
to adverse changes in foreign currency exchange rates. The company’s
primary exposures to foreign currency exchange fluctuations are the
Canadian dollar/U.S. dollar, Mexican peso/U.S. dollar and Brazilian
real/U.S. dollar. The potential reduction in future earnings from a
hypothetical instantaneous 10% adverse change in quoted foreign currency
spot rates applied to foreign currency sensitive instruments would be
approximately $1 million at January 31, 2005. |
|
|
|
|
Item
4. |
Controls
and Procedures |
|
|
|
Evaluation
of disclosure controls and procedures
The
company’s principal executive officer and principal financial officer,
along with other management of the company, evaluated the effectiveness of
the company’s disclosure controls and procedures (as defined in rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) as of January 31, 2005. Based on that
evaluation, the principal executive officer and principal financial
officer of the company concluded that, as of January 31, 2005, there were
weaknesses in the disclosure controls and procedures within the company’s
finance subsidiary related to the lack of a sufficient quantity of
specialized accounting personnel. Because of the weakness noted within the
finance subsidiary, the principal executive officer and principal
financial officer of the company concluded that the disclosure controls
and procedures in place at the company were not effective. Management of
the company’s finance subsidiary is in the process of adding additional
specialized accounting personnel.
Changes
in internal controls over financial reporting
The
company has not made any significant changes to its internal control over
financial reporting (as defined in rule 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter ended January 31, 2005 that have
materially affected, or are reasonably likely to materially affect, the
company’s internal control over financial reporting. |
|
|
|
PAGE
37
Navistar
International Corporation and Consolidated Subsidiaries
PART
II - OTHER INFORMATION |
Item
1. |
Legal
Proceedings |
|
|
|
The
company and its subsidiaries are subject to various claims arising in the
ordinary course of business, and are parties to various legal proceedings
that constitute ordinary routine litigation incidental to the business of
the company and its subsidiaries. The majority of these claims and
proceedings relate to commercial, product liability and warranty matters.
In the opinion of the company’s management, the disposition of these
proceedings and claims, including those discussed below, after taking into
account established reserves and the availability and limits of the
company’s insurance coverage, will not have a material adverse affect on
the business or the financial condition of the company.
In
December 2003, the United States Environmental Protection
Agency (US EPA) issued a Notice of Violation to the company in conjunction
with the operation of its engine casting facility in Indianapolis,
Indiana. Specifically, the US EPA alleged that the company violated
applicable environmental regulations
by failing to obtain the necessary permit in connection with the
construction of certain equipment and complying with the best available
control technology for emissions from such equipment. The company is
currently in discussions with the US EPA and believes that its discussions
will result in capital improvements together with monetary sanctions which
will not be material.
Various
claims and controversies have arisen between the company and its former
fuel system supplier, Caterpillar Inc. (Caterpillar), regarding the
ownership and validity of certain patents covering fuel system technology
used in the company's new version of diesel engines that were introduced
in February 2002. In June 1999, in Federal Court in Peoria, Illinois,
Caterpillar sued Sturman Industries, Inc. (Sturman), the company’s joint
venture partner in developing fuel system technology, alleging that
technology invented and patented by Sturman and licensed to the company,
belongs to Caterpillar. After a trial, on July 18, 2002, the jury returned
a verdict in favor of Caterpillar finding that this technology belongs to
Caterpillar under a prior contract between Caterpillar and Sturman.
Sturman appealed the adverse judgment, and the jury’s verdict was reversed
by the appellate court on October 28, 2004 and remanded to the district
court for retrial. The company is cooperating with Sturman in this effort.
In May 2003, in Federal Court in Columbia, South Carolina, Caterpillar
sued the company, its supplier of fuel injectors and joint venture,
Siemens Diesel Systems Technology, L.L.C., and Sturman for patent
infringement alleging that the Sturman fuel system technology patents and
certain Caterpillar patents are infringed in the company’s new engines.
The company believes that it has meritorious defenses to the claims of
infringement of the Sturman patents as well as the Caterpillar patents and
will vigorously defend such claims. In January 2002, Caterpillar sued the
company in the Circuit Court in Peoria County, Illinois, alleging the
company breached the purchase agreement pursuant to which Caterpillar
supplied fuel systems for the company’s prior version of diesel engines.
Caterpillar’s claims involve a 1990 agreement to reimburse Caterpillar for
costs associated with the delayed launch of the company’s V-8 diesel
engine program. Reimbursement of the delay costs was made by a surcharge
of $8.08 on each injector purchased and the purchase of certain minimum
quantities of spare parts. In 1999, the company concluded that, in
accordance with the 1990 agreement, it had fully reimbursed Caterpillar
for its delay costs and stopped paying the surcharge and purchasing the
minimum quantities of spare parts. Caterpillar is asserting that the
surcharge and the spare parts purchase requirements continue throughout
the life of the contract and has sued the company to recover these
amounts, plus interest. Caterpillar also asserts that the company failed
to purchase all of its fuel injector requirements under the contract and,
in collusion with Sturman, failed to pursue a future fuel systems supply
relationship with Caterpillar. The company believes that it has
meritorious defenses to Caterpillar’s claims.
|
|
|
PAGE
38
Navistar
International Corporation and Consolidated Subsidiaries
PART
II - OTHER INFORMATION (continued) |
Item
1. |
Legal
Proceedings (continued) |
|
Along
with other vehicle manufacturers, the company and certain of its
subsidiaries have been subject to an increase in the number of
asbestos-related claims in recent years. Management believes that such
claims will not have a material adverse affect on the company’s financial
condition or results of operations. In general these claims relate to
illnesses alleged to have resulted from asbestos exposure from component
parts found in older vehicles, although some cases relate to the presence
of asbestos in company facilities. In these claims the company is not the
sole defendant, and the claims name as defendants numerous manufacturers
and suppliers of a wide variety of products allegedly containing asbestos.
Management has strongly disputed these claims, and it has been the
company’s policy to defend against them vigorously. Historically, the
actual damages paid out to claimants have not been material to the
company’s results of operations and financial condition. However,
management believes the company and other vehicle manufacturers are being
more aggressively targeted, largely as a result of bankruptcies of
manufacturers of asbestos and
products containing asbestos. It is possible that the number of these
claims will continue to grow, and that the costs for resolving asbestos
related claims could become significant in the future.
On
October 13, 2004, the company received a request from the staff of the SEC
to voluntarily produce certain documents and information related to the
company’s accounting practices with respect to defined benefit pension
plans and other postretirement benefits. The company is fully cooperating
with this request. Based on the status of the inquiry, the company is not
able to predict the
final outcome of the inquiry.
On
January
31, 2005, the company announced that it would restate its financial
results for fiscal years 2002 and 2003 and the first three quarters of
fiscal 2004. The SEC notified the company on February 9, 2005, that it was
conducting an informal inquiry into the company’s restatement. On March
17, 2005, the company was advised by the SEC that the status of the
inquiry had been changed to a formal investigation. The company is fully
cooperating with the SEC on this investigation. Based on the status of the
investigation, the company is not able to predict the final
outcome. |
|
|
|
Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
|
|
|
Directors
of the company who are not employees receive an annual retainer and
meeting fees payable at their election in shares of common stock of the
company or in cash. Currently the board of directors mandates that at
least one-fourth of the annual retainer be paid in the form of common
stock of the company. For the period covered by this report, receipt of
approximately 1,846 shares were deferred as payment for the fiscal year
2005 annual retainer and meeting fees. In each case, the shares were
acquired at prices ranging from $39.655 to $44.115 per share, which
represented the fair market value of such shares on the date of
acquisition. Exemption from registration of the shares is claimed by the
company under Section 4(2) of the Securities Act of 1933, as
amended.
Payments
of cash dividends and the repurchase of common stock are currently limited
due to restrictions contained in the company’s $400 million Senior Notes
due 2006, $400 million Senior Notes due 2012 and $19 million Senior Notes.
The company has not paid dividends on the common stock since 1980 and does
not expect to pay cash dividends on the common stock in the foreseeable
future. |
PAGE
39
Navistar
International Corporation and Consolidated Subsidiaries
PART II -
OTHER INFORMATION (continued)
Item
2. |
Unregistered
Sales of Equity Securities and Use of
Proceeds |
Issuer
Purchase of Equity Securities
Period |
(a)
Total Number of Shares (or Units) Purchased |
(b)
Average Price Paid per Share
(or Unit) |
(c
) Total Number
of
Shares (or Units) Purchased as Part of Publicly Announced Plans
or Programs |
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be Purchased Under
the
Plans or Programs |
|
|
|
|
|
11/1/04
- 11/30/04 |
- |
- |
- |
- |
12/1/04
- 12/31/04 |
31,421
(1) |
$
43.634 |
132
(2) |
492,867 |
1/1/05
- 1/31/05 |
- |
- |
- |
- |
(1) 294
shares were purchased from an employee in connection with the payment of
statutory withholding taxes in connection with the vesting of restricted stock.
30,995 shares were purchased from employees in connection with paying for the
cost of stock option exercises and the applicable withholding
taxes.
(2) The
company announced a repurchase program in October 1999. Up to 4.5 million shares
were approved for repurchase under the plan. The plan does not have an
expiration date.
Item
5. |
Other
Information |
The
unaudited restated Selected Quarterly Financial Data for fiscal 2004 presented
in Note 22 to the Financial Statements in the company’s 2004 Annual Report on
Form 10-K has been modified to reflect minor differences. The differences
represent timing within the quarters and do not impact total fiscal year
amounts. The effect of the adjustments is reflected in this Form 10-Q and
Exhibit 99.1 to the company’s Form 8-K filed on April 12, 2005.
Selected
Quarterly Financial Data (unaudited) - Fiscal 2004
|
|
1st
Quarter |
|
2nd
Quarter |
|
3rd
Quarter |
|
4th
Quarter |
|
|
|
|
|
|
|
|
|
|
|
Millions
of dollars,
except
per share data |
|
As
Reported
(a) |
|
As
Adjusted
(b) |
|
As
Reported
(a) |
|
As
Adjusted
(b) |
|
As
Reported
(a) |
|
As
Adjusted
(b) |
|
As
Reported
(a) |
|
As
Adjusted
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues |
|
$ |
1,943 |
|
$ |
1,945 |
|
$ |
2,354 |
|
$ |
2,353 |
|
$ |
2,348 |
|
$ |
2,349 |
|
$ |
3,079 |
|
$ |
3,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(15 |
) |
$ |
(14 |
) |
$ |
54 |
|
$ |
52 |
|
$ |
49 |
|
$ |
50 |
|
$ |
159 |
|
$ |
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.22 |
) |
$ |
(0.20 |
) |
$ |
0.77 |
|
$ |
0.74 |
|
$ |
0.70 |
|
$ |
0.72 |
|
$ |
2.27 |
|
$ |
2.27 |
|
Diluted |
|
$ |
(0.22 |
) |
$ |
(0.20 |
) |
$ |
0.70 |
|
$ |
0.67 |
|
$ |
0.64 |
|
$ |
0.66 |
|
$ |
2.02 |
|
$ |
2.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Restated
amounts and earnings per share as reported in the 2004 Annual Report on
Form 10-K. |
(b) |
Restated
amounts and earnings per share reported herein and amounts reported in
Form 8-K. |
PAGE
40
Navistar
International Corporation and Consolidated Subsidiaries
PART II -
OTHER INFORMATION (continued)
|
|
Item
6. |
Exhibits
|
|
|
Page |
|
|
|
|
|
|
|
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-163 |
|
|
|
|
11. Computation
of Earnings per Share (incorporated by reference from Note N to the
Financial Statements) |
18 |
|
|
|
|
31.1 CEO
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
E-164 |
|
|
|
|
31.2
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
E-165 |
|
|
|
|
32.1 CEO
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
E-166 |
|
|
|
|
32.2 CFO
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
E-167 |
|
|
|
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)
Date:
April 25, 2005 |
|
|
|
/s/
Mark T. Schwetschenau |
|
|
|
Mark
T. Schwetschenau |
|
Senior
Vice President and Controller |
|
(Principal
Accounting Officer) |
|