Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Organization and Description of the Business
Navistar International Corporation ("NIC"), incorporated under the laws of the State of Delaware in 1993, is a holding company whose principal operating entities are Navistar, Inc. ("NI") and Navistar Financial Corporation ("NFC"). References herein to the "Company," "we," "our," or "us" refer collectively to NIC and its consolidated subsidiaries, including certain variable interest entities ("VIEs") of which we are the primary beneficiary. We operate in
four
principal industry segments: Truck, Parts, Global Operations (collectively called "Manufacturing operations"), and Financial Services, which consists of NFC and our foreign finance operations (collectively called "Financial Services operations"). These segments are discussed in Note 11,
Segment Reporting
.
Our fiscal year ends on October 31. As such, all references to
2017
and
2016
contained within this Quarterly Report on Form
10-Q
relate to the fiscal year, unless otherwise indicated.
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations, which include majority-owned dealers ("Dealcors"), and our Financial Services operations, including VIEs of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.
We prepared the accompanying unaudited consolidated financial statements in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for comprehensive annual financial statements.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended
October 31, 2016
, which should be read in conjunction with the disclosures therein. In our opinion, these interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.
Variable Interest Entities
We have an interest in several VIEs, primarily joint ventures, established to manufacture or distribute products and enhance our operational capabilities. We have determined for certain of our VIEs that we are the primary beneficiary because we have the power to direct the activities of the VIE that most significantly impact its economic performance and we have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Accordingly, we include in our consolidated financial statements the assets and liabilities and results of operations of those entities, even though we may not own a majority voting interest. The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather they represent claims against the specific assets of these VIEs. Assets of these entities are not readily available to satisfy claims against our general assets.
We are the primary beneficiary of our Blue Diamond Parts, LLC ("BDP") joint venture with Ford Motor Company ("Ford"). As a result, our
Consolidated Balance Sheets
include assets of
$43 million
and
$51 million
and liabilities of
$17 million
and
$16 million
as of
April 30, 2017
and
October 31, 2016
, respectively, including
$12 million
and
$6 million
of cash and cash equivalents, at the respective dates, which are not readily available to satisfy claims against our general assets. The creditors of BDP do not have recourse to our general credit.
Our Financial Services segment consolidates several VIEs. As a result, our
Consolidated Balance Sheets
include secured assets of
$943 million
and
$865 million
as of
April 30, 2017
and
October 31, 2016
, respectively, and liabilities of
$703 million
and
$722 million
as of
April 30, 2017
and
October 31, 2016
, respectively, all of which are involved in securitizations that are treated as asset-backed debt. In addition, our
Consolidated Balance Sheets
include secured assets of
$254 million
and
$249 million
as of
April 30, 2017
and
October 31, 2016
, respectively, and corresponding liabilities of
$123 million
and
$136 million
, at the respective dates, which are related to other secured transactions that do not qualify for sale accounting treatment, and therefore, are treated as borrowings secured by operating and finance leases. Investors that hold securitization debt have a priority claim on the cash flows generated by their respective securitized assets to the extent that the related VIEs are required to make principal and interest payments. Investors in securitizations of these entities have no recourse to our general credit.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
We also have an interest in other VIEs, which we do not consolidate because we are not the primary beneficiary. Our financial support and maximum loss exposure relating to these non-consolidated VIEs are not material to our financial condition, results of operations, or cash flows.
We use the equity method to account for our investments in entities that we do not control under the voting interest or variable interest models, but where we have the ability to exercise significant influence over operating and financial policies.
Equity in income of non-consolidated affiliates
includes our share of the net income of these entities.
Inventories
Inventories are valued at the lower of cost or market. Cost is principally determined using the first-in, first-out method. Our gross used truck inventory decreased to
$342 million
at
April 30, 2017
from
$410 million
at
October 31, 2016
, offset by reserves of
$216 million
and
$208 million
, respectively.
In valuing our used truck inventory, we are required to make assumptions regarding the level of reserves required to value inventories at their net realizable value ("NRV"). Our judgments and estimates for used truck inventory are based on an analysis of current and forecasted sales prices, aging of and demand for used trucks, and the mix of sales through various market channels. The NRV is subject to change based on numerous conditions, including age, specifications, mileage, timing of sales, market mix and current and forecasted pricing. While calculations are made after taking these factors into account, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence our judgment and related estimates include general economic conditions in markets where our products are sold, actions of our competitors, and the ability to sell used trucks in a timely manner.
The following table presents our used truck reserve:
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
(in millions)
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
208
|
|
|
$
|
110
|
|
Additions charged to expense
(A)
|
88
|
|
|
84
|
|
Deductions/Other adjustments
(B)
|
(80
|
)
|
|
(26
|
)
|
Balance at end of period
|
$
|
216
|
|
|
$
|
168
|
|
_________________________
|
|
(A)
|
Additions charged to expense reflect the increase of the reserve for inventory on hand. During the second quarter of 2017, we implemented a shift in market mix to include an increase in volume to certain export markets, which have a lower price point as compared to sales through our domestic channels, and lower domestic pricing to enable higher sales velocity. In the second quarter of 2017 and 2016, we recorded a charge of
$60 million
and
$38 million
, respectively, in
Costs of Products Sold
in our
Consolidated Statements of Operations.
|
|
|
(B)
|
Deductions/Other adjustments reflect reductions of the reserve primarily related to the sale of units to certain export markets and our Mexican subsidiary currency translation adjustments.
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Product Warranty Liability
The following table presents accrued product warranty and deferred warranty revenue activity:
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30,
|
(in millions)
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
818
|
|
|
$
|
994
|
|
Costs accrued and revenues deferred
(A)
|
87
|
|
|
94
|
|
Currency translation adjustment
|
(1
|
)
|
|
1
|
|
Adjustments to pre-existing warranties
(B)
|
(10
|
)
|
|
51
|
|
Payments and revenues recognized
(A)
|
(206
|
)
|
|
(233
|
)
|
Balance at end of period
|
688
|
|
|
907
|
|
Less: Current portion
|
352
|
|
|
429
|
|
Noncurrent accrued product warranty and deferred warranty revenue
|
$
|
336
|
|
|
$
|
478
|
|
_________________________
|
|
(A)
|
During the third quarter of 2016, we determined that the amortization of loss reserves for Big Bore extended service contracts, which were included within Costs accrued and revenues deferred, should be applied to Payments and revenues recognized. As a result, for the six months ended April 30, 2016, we have reclassified
$25 million
of amortization of loss reserves in order to conform to our current presentation. The reclassification did not impact our
Consolidated Statements of Operations
or our
Consolidated Balance Sheets
.
|
|
|
(B)
|
Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.
|
In the second quarter of 2016, we recorded a charge for adjustments to pre-existing warranties of
$46 million
or
$0.56
per diluted share. The pre-existing charges primarily related to increases in both claim frequency and cost of repair across both the Medium Duty and Big Bore engine families. These charges increase the reserve for Navistar's standard warranty obligations as well as the loss positions related to our Big Bore extended service contract.
Extended Warranty Programs
The amount of deferred revenue related to extended warranty programs was
$287 million
and
$325 million
at
April 30, 2017
and
October 31, 2016
, respectively. Revenue recognized under our extended warranty programs was
$47 million
and
$81 million
for the
three and six months ended April 30, 2017
, respectively, and
$38 million
and
$76 million
for the
three and six months ended April 30, 2016
, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, pension and other postretirement benefits, allowance for doubtful accounts, income tax contingency accruals and valuation allowances, product warranty accruals, used truck inventory valuations, asbestos and other product liability accruals, asset impairment charges, restructuring charges and litigation-related accruals. Actual results could differ from our estimates.
Concentration Risks
Our financial condition, results of operations, and cash flows are subject to concentration risks related to our significant unionized workforce. As of
April 30, 2017
, approximately
6,300
, or
95%
, of our hourly workers and approximately
900
, or
17%
, of our salaried workers, are represented by labor unions and are covered by collective bargaining agreements. Our future operations may be affected by changes in governmental procurement policies, tax policies, budget considerations, changing national defense requirements, and political, regulatory and economic developments in the U.S. and certain foreign countries (primarily Canada, Mexico, and Brazil).
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Recently Issued Accounting Standards
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-01, "Business Combinations" (Topic 805). This ASU provides a new framework for determining whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This ASU creates an initial screening test (Step 1) that reduces the population of transactions that an entity needs to analyze to determine whether there is an input and substantive processes in the acquisition or disposal (Step 2). Fewer transactions are expected to involve acquiring or selling a business. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Our effective date for this ASU is November 1, 2018. Adoption will require a prospective transition. We do not expect the impact of this ASU to have a material effect on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows" (Topic 230). This ASU requires that a statement of cash flows explain the change during the period in the total of cash, and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Our effective date for this ASU is November 1, 2018. Adoption will require a retrospective transition. We do not expect the impact of this ASU to have a material effect on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes” (Topic 740). This ASU update requires entities to recognize the income tax consequences of many intercompany asset transfers at the transaction date. The seller and buyer will immediately recognize the current and deferred income tax consequences of an intercompany transfer of an asset other than inventory. The tax consequences were previously deferred. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Our effective date for this ASU is November 1, 2018. Adoption will require a modified retrospective transition. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses” (Topic 326). The ASU sets forth an expected credit loss model which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, and certain off-balance sheet credit exposures. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Adoption will require a modified retrospective transition. Our effective date is November 1, 2020. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). This ASU requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. The accounting by lessors will remain largely unchanged. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Our effective date for this ASU is November 1, 2019. Adoption will require a modified retrospective transition. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which supersedes the revenue recognition requirements in ASC 605, "Revenue Recognition." This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which postponed the effective date of ASU No. 2014-09 to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted on the original effective date for fiscal years beginning after December 15, 2016. Our effective date for this ASU is November 1, 2018. We are in the process of completing our initial assessment of the potential impact on our consolidated financial statements and have not concluded on our adoption methodology.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
2. Restructurings and Impairments
Restructuring charges are recorded based on restructuring plans that have been committed to by management and are, in part, based upon management's best estimates of future events. Changes to the estimates may require future adjustments to the restructuring liabilities.
Restructuring Liability
The following tables summarize the activity in the restructuring liability, which excludes pension and other postretirement contractual termination benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Balance at October 31, 2016
|
|
Additions
|
|
Payments
|
|
Adjustments
|
|
Balance at April 30, 2017
|
Employee termination charges
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
(3
|
)
|
|
$
|
(1
|
)
|
|
$
|
9
|
|
Lease vacancy
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Other
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Restructuring liability
|
$
|
7
|
|
|
$
|
8
|
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Balance at
October 31, 2015
|
|
Additions
|
|
Payments
|
|
Adjustments
|
|
Balance at April 30, 2016
|
Employee termination charges
|
$
|
62
|
|
|
$
|
6
|
|
|
$
|
(49
|
)
|
|
$
|
—
|
|
|
$
|
19
|
|
Lease vacancy
|
5
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
2
|
|
Other
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Restructuring liability
|
$
|
68
|
|
|
$
|
6
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
22
|
|
North American Manufacturing Restructuring Activities
We continue to focus on our core Truck and Parts businesses and evaluate our portfolio of assets to validate their strategic and financial fit. This allows us to close or divest non-strategic businesses, and identify opportunities to restructure our business and rationalize our Manufacturing operations in an effort to optimize our cost structure. For those areas that fall outside our strategic businesses, we are evaluating alternatives which could result in additional restructuring and other related charges in the future, including but not limited to: (i) impairments, (ii) costs for employee and contractor termination and other related benefits, and (iii) charges for pension and other postretirement contractual benefits and curtailments. These charges could be significant.
Chatham restructuring activities
In the third quarter of 2011, we committed to close our Chatham, Ontario heavy truck plant, which had been idled since June 2009. At that time, we recognized curtailment and contractual termination charges related to postretirement plans. Based on a ruling regarding pension benefits received from the Financial Services Tribunal in Ontario, Canada, in the third quarter of 2014, we recognized additional charges of
$14 million
related to the 2011 closure of the Chatham, Ontario plant. Unsuccessful efforts to appeal the ruling in the Ontario court system ended in December 2015. On April 25, 2016, we filed a qualified partial wind-up report for approval by the Financial Services Commission of Ontario ("FSCO"). On January 12, 2017, FSCO issued its approval of the partial wind-up report. On February 27, 2017, we finalized the resolution of statutory severance pay for former employees related to the closure of our Chatham, Ontario plant, resulting in a charge of
$6 million
in the first quarter of 2017. The charge is reported within
Restructuring charges
in our
Consolidated Statements of Operation
s. Once the wind-up is complete, severance has been paid, and pension elections have been made by participants, there may be adjustments made to pension and post-retirement accruals which could be material. See Note 7,
Postretirement benefits
for further discussion.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Asset Impairments
In the
six months ended April 30, 2017
, we concluded that we had triggering events related to certain assets under operating leases. As a result, charges of
$7 million
were recorded in our Truck segment.
In the
six months ended April 30, 2016
, we concluded that we had a triggering event in connection with the potential sale of Pure Power Technologies, LLC ("PPT"), a components business focused on air and fuel systems, requiring the impairment of certain assets. As a result, charges of
$3 million
were recorded in our Truck segment. In February 2016, we completed the sale of PPT. In the six months ended April 30, 2016, we also concluded that we had a triggering event related to certain long-lived assets. As a result, charges of
$2 million
were recorded in our Truck segment.
These charges were recorded in
Asset impairment charges
in our
Consolidated Statements of Operations.
See Note 9,
Fair Value Measurements
, for information on the valuation of impaired operating leases and other assets.
3. Finance Receivables
Finance receivables are receivables of our Financial Services operations. Finance receivables generally consist of wholesale notes and accounts, as well as retail notes, finance leases and accounts. Total finance receivables reported on the
Consolidated Balance Sheets
are net of an allowance for doubtful accounts. Total assets of our Financial Services operations net of intercompany balances are
$2.1 billion
as of both
April 30, 2017
and
October 31, 2016
. Included in total assets of our Financial Services operations are finance receivables of
$1.7 billion
as of both
April 30, 2017
and
October 31, 2016
. We have
two
portfolio segments of finance receivables that we distinguish based on the type of customer and nature of the financing inherent to each portfolio. The retail portfolio segment represents loans or leases to end-users for the purchase or lease of vehicles. The wholesale portfolio segment represents loans to dealers to finance their inventory.
Our
Finance receivables, net
in our
Consolidated Balance Sheets
consist of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
April 30, 2017
|
|
October 31, 2016
|
Retail portfolio
|
$
|
545
|
|
|
$
|
499
|
|
Wholesale portfolio
|
1,169
|
|
|
1,199
|
|
Total finance receivables
|
1,714
|
|
|
1,698
|
|
Less: Allowance for doubtful accounts
|
23
|
|
|
21
|
|
Total finance receivables, net
|
1,691
|
|
|
1,677
|
|
Less: Current portion, net
(A)
|
1,459
|
|
|
1,457
|
|
Noncurrent portion, net
|
$
|
232
|
|
|
$
|
220
|
|
_________________________
|
|
(A)
|
The current portion of finance receivables is computed based on contractual maturities. Actual cash collections typically vary from the contractual cash flows because of prepayments, extensions, delinquencies, credit losses, and renewals.
|
Securitizations
Our Financial Services operations transfer wholesale notes, retail accounts receivable, finance leases, and operating leases to special purpose entities ("SPEs"), which generally are only permitted to purchase these assets, issue asset-backed securities, and make payments on the securities issued. In addition to servicing receivables, our continued involvement in the SPEs may include an economic interest in the transferred receivables and, in some cases, managing exposure to interest rate changes on the securities using interest rate swaps or interest rate caps. There were
no
transfers of finance receivables that qualified for sale accounting treatment as of
April 30, 2017
and
October 31, 2016
, and as a result, the transferred finance receivables are included in our
Consolidated Balance Sheets
and the related interest earned is included in
Finance revenues
.
We transfer eligible finance receivables into wholesale note owner trusts in order to issue asset-backed securities. These trusts are VIEs of which we are determined to be the primary beneficiary and, therefore, the assets and liabilities of the trusts are included in our
Consolidated Balance Sheets
. The outstanding balance of finance receivables transferred into these VIEs was
$854 million
and
$829 million
as of
April 30, 2017
and
October 31, 2016
, respectively. Other finance receivables related to secured transactions that do not qualify for sale accounting treatment were
$126 million
and
$108 million
as of
April 30, 2017
and
October 31, 2016
, respectively. For more information on assets and liabilities of consolidated VIEs and other securitizations accounted for as secured borrowings by our Financial Services segment, see Note 1,
Summary of Significant Accounting Policies.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Finance Revenues
The following table presents the components of our
Finance revenues
in our
Consolidated Statements of Operations
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
Six Months Ended April 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Retail notes and finance leases revenue
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
19
|
|
|
$
|
19
|
|
Wholesale notes interest
|
24
|
|
|
26
|
|
|
47
|
|
|
52
|
|
Operating lease revenue
|
16
|
|
|
16
|
|
|
33
|
|
|
32
|
|
Retail and wholesale accounts interest
|
6
|
|
|
7
|
|
|
11
|
|
|
14
|
|
Gross finance revenues
|
56
|
|
|
58
|
|
|
110
|
|
|
117
|
|
Less: Intercompany revenues
|
23
|
|
|
25
|
|
|
43
|
|
|
49
|
|
Finance revenues
|
$
|
33
|
|
|
$
|
33
|
|
|
$
|
67
|
|
|
$
|
68
|
|
4. Allowance for Doubtful Accounts
Our
two
finance receivables portfolio segments, retail and wholesale, each consist of
one
class of receivable based on: (i) initial measurement attributes of the receivables, and (ii) the assessment and monitoring of risk and performance of the receivables. For more information, see Note 3,
Finance Receivables
.
The following tables present the activity related to our allowance for doubtful accounts for our retail portfolio segment, wholesale portfolio segment, and trade and other receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2017
|
|
Three Months Ended April 30, 2016
|
(in millions)
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Trade and
Other
Receivables
|
|
Total
|
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Trade and
Other
Receivables
|
|
Total
|
Allowance for doubtful accounts, at beginning of period
|
$
|
19
|
|
|
$
|
2
|
|
|
$
|
28
|
|
|
$
|
49
|
|
|
$
|
19
|
|
|
$
|
4
|
|
|
$
|
23
|
|
|
$
|
46
|
|
Provision for doubtful accounts, net of recoveries
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
2
|
|
Charge-off of accounts
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Other
(A)
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
4
|
|
Allowance for doubtful accounts, at end of period
|
$
|
21
|
|
|
$
|
2
|
|
|
$
|
28
|
|
|
$
|
51
|
|
|
$
|
21
|
|
|
$
|
4
|
|
|
$
|
26
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, 2017
|
|
Six Months Ended April 30, 2016
|
(in millions)
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Trade and
Other
Receivables
|
|
Total
|
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Trade and
Other
Receivables
|
|
Total
|
Allowance for doubtful accounts, at beginning of period
|
$
|
19
|
|
|
$
|
2
|
|
|
$
|
28
|
|
|
$
|
49
|
|
|
$
|
22
|
|
|
$
|
4
|
|
|
$
|
22
|
|
|
$
|
48
|
|
Provision for doubtful accounts, net of recoveries
|
6
|
|
|
—
|
|
|
1
|
|
|
7
|
|
|
3
|
|
|
—
|
|
|
4
|
|
|
7
|
|
Charge-off of accounts
|
(4
|
)
|
|
—
|
|
|
(1
|
)
|
|
(5
|
)
|
|
(4
|
)
|
|
—
|
|
|
(1
|
)
|
|
(5
|
)
|
Other
(A)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Allowance for doubtful accounts, at end of period
|
$
|
21
|
|
|
$
|
2
|
|
|
$
|
28
|
|
|
$
|
51
|
|
|
$
|
21
|
|
|
$
|
4
|
|
|
$
|
26
|
|
|
$
|
51
|
|
____________________
|
|
(A)
|
Amounts include impact from currency translation.
|
The accrual of interest income is discontinued on certain impaired finance receivables. Impaired finance receivables include accounts with specific loss reserves and certain accounts that are on non-accrual status. In certain cases, we continue to collect payments on our impaired finance receivables.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
The following table presents information regarding impaired finance receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
October 31, 2016
|
(in millions)
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Total
|
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Total
|
Impaired finance receivables with specific loss reserves
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
Impaired finance receivables without specific loss reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Specific loss reserves on impaired finance receivables
|
10
|
|
|
—
|
|
|
10
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Finance receivables on non-accrual status
|
23
|
|
|
—
|
|
|
23
|
|
|
15
|
|
|
—
|
|
|
15
|
|
The average balances of the impaired finance receivables in the retail portfolio were
$17 million
and
$21 million
during the
six months ended April 30, 2017
and
2016
, respectively. See Note 9,
Fair Value Measurements
, for information on the valuation of impaired finance receivables.
We use the aging of our receivables as well as other inputs when assessing credit quality. The following table presents the aging analysis for finance receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
October 31, 2016
|
(in millions)
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Total
|
|
Retail
Portfolio
|
|
Wholesale
Portfolio
|
|
Total
|
Current, and up to 30 days past due
|
$
|
505
|
|
|
$
|
1,166
|
|
|
$
|
1,671
|
|
|
$
|
449
|
|
|
$
|
1,198
|
|
|
$
|
1,647
|
|
30-90 days past due
|
24
|
|
|
1
|
|
|
25
|
|
|
37
|
|
|
—
|
|
|
37
|
|
Over 90 days past due
|
16
|
|
|
2
|
|
|
18
|
|
|
13
|
|
|
1
|
|
|
14
|
|
Total finance receivables
|
$
|
545
|
|
|
$
|
1,169
|
|
|
$
|
1,714
|
|
|
$
|
499
|
|
|
$
|
1,199
|
|
|
$
|
1,698
|
|
5. Inventories
The following table presents the components of
Inventories
in our
Consolidated Balance Sheets
:
|
|
|
|
|
|
|
|
|
(in millions)
|
April 30,
2017
|
|
October 31,
2016
|
Finished products
|
$
|
619
|
|
|
$
|
678
|
|
Work in process
|
57
|
|
|
46
|
|
Raw materials
|
270
|
|
|
220
|
|
Total inventories, net
|
$
|
946
|
|
|
$
|
944
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
6. Debt
The following tables present the components of
Notes payable and current maturities of long-term debt
and
Long-term debt
in our
Consolidated Balance Sheets
:
|
|
|
|
|
|
|
|
|
(in millions)
|
April 30, 2017
|
|
October 31, 2016
|
Manufacturing operations
|
|
|
|
Senior Secured Term Loan Credit Facility, as amended, due 2020, net of unamortized discount of $12 and $14, respectively, and unamortized debt issuance costs of $13 and $7, respectively
|
$
|
1,002
|
|
|
$
|
1,009
|
|
8.25% Senior Notes, due 2022 net of unamortized discount of $14 and $15, respectively, and unamortized debt issuance costs of $15 and $12, respectively
|
1,421
|
|
|
1,173
|
|
4.50% Senior Subordinated Convertible Notes, due 2018, net of unamortized discount of $8 and $10, respectively, and unamortized debt issuance costs of $1 at both dates
|
192
|
|
|
189
|
|
4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $19 and $24, respectively, and unamortized debt issuance costs of $4 at both dates
|
388
|
|
|
383
|
|
Financing arrangements and capital lease obligations
|
38
|
|
|
42
|
|
Loan Agreement related to 6.5% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates
|
220
|
|
|
220
|
|
Financed lease obligations
|
102
|
|
|
52
|
|
Other
|
20
|
|
|
28
|
|
Total Manufacturing operations debt
|
3,383
|
|
|
3,096
|
|
Less: Current portion
|
85
|
|
|
71
|
|
Net long-term Manufacturing operations debt
|
$
|
3,298
|
|
|
$
|
3,025
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
April 30, 2017
|
|
October 31, 2016
|
Financial Services operations
|
|
|
|
Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2022
, net of unamortized debt issuance costs of $5 and $6, respectively
|
$
|
735
|
|
|
$
|
753
|
|
Bank credit facilities, at fixed and variable rates, due dates from 2017 through 2021, net of unamortized debt issuance costs of $2 and $3, respectively
|
766
|
|
|
861
|
|
Commercial paper, at variable rates, program matures in 2022
|
93
|
|
|
96
|
|
Borrowings secured by operating and finance leases, at various rates, due serially through 2021
|
88
|
|
|
98
|
|
Total Financial Services operations debt
|
1,682
|
|
|
1,808
|
|
Less: Current portion
|
659
|
|
|
836
|
|
Net long-term Financial Services operations debt
|
$
|
1,023
|
|
|
$
|
972
|
|
Manufacturing Operations
Senior Secured Term Loan Credit Facility
In February 2017, the Senior Secured Term Loan Credit Facility ("Term Loan") was amended, pursuant to which the Company's remaining approximately
$1.0 billion
loan was repriced and provisions regarding European Union bail-in legislation were inserted. The amendment reduces the interest rate applicable to the outstanding loan by
1.50%
. Under the terms of the amendment, the interest rate on the outstanding loan is based, at our option, on an adjusted Eurodollar Rate, plus a margin of
4.00%
, or a Base Rate, plus a margin of
3.00%
. In connection with the amendment, we paid a consent fee equal to
0.25%
of the aggregate principal amount, a call protection fee equal to
1.00%
of the aggregate principal amount, and certain other fees. During the second quarter of 2017, we recorded a charge of
$4 million
related to certain third party fees and debt issuance costs associated with the repricing of our Term Loan. The remaining debt issuance costs were recorded as a direct deduction from the carrying amount of the Term Loan and will be amortized through
Interest expense
over the remaining life of the Term Loan.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Senior Notes
In October 2009, we completed the sale of
$1.0 billion
aggregate principal amount of our
8.25%
Senior Notes due 2022 ("Senior Notes"). In March 2013, we completed the sale of an additional
$300 million
aggregate principal amount of Senior Notes. In January 2017, we issued an additional
$250 million
aggregate principal amount of Senior Notes. Interest related to the Senior Notes is payable on May 1 and November 1 of each year until the maturity date of November 1, 2021. The Senior Notes are senior unsecured obligations of the Company.
We received net proceeds of approximately
$250 million
from the January 2017 issuance of additional Senior Notes, which included accrued interest of
$4 million
, offset by underwriter fees of
$4 million
. The debt issuance costs were recorded as a direct deduction from the carrying amount of the Senior Notes
and will be amortized through
Interest expense
over the remaining life of the Senior Notes. As a result of the transaction, the effective interest rate of the Senior Notes is now
8.5%
. The proceeds from the January 2017 sale of additional Senior Notes are being used for general corporate purposes, including working capital and capital expenditures.
Financial Services Operations
Asset-backed Debt
In November 2016, the maturity date of the variable funding notes ("VFN") facility was extended from May 2017 to November 2017, and the maximum capacity was reduced from
$500 million
to
$450 million
. In May 2017, the VFN was extended to May 2018, and the maximum capacity was reduced to
$425 million
. The VFN facility is secured by assets of the wholesale note owner trust.
In May 2017, Truck Retail Accounts Corporation ("TRAC"), one of our consolidated SPEs, renewed its
$100 million
revolving facility to April 2018. Borrowings under this facility are secured by eligible retail accounts receivable.
Bank Credit Facilities
In May 2016, NFC amended and extended its 2011 bank credit facility which was originally due in December 2016. The 2016 amendment extended the maturity date to June 2018 and initially reduced the revolving portion of the facility from
$500 million
to
$400 million
. In December 2016, and in accordance with the amendment, the revolving portion of the facility was reduced to a maximum of
$275 million
, the term loan portion of the facility was paid down to
$82 million
, and the quarterly principal payments were reduced from
$9 million
to
$2 million
. The borrowings on the revolving portion of the facility totaled
$274 million
as of
April 30, 2017
. The balance of the term loan portion of the facility was
$80 million
as of
April 30, 2017
. The amendment allows NFC to increase revolving or term loan commitments, subject to obtaining commitments from existing or new lenders to provide additional or increased revolving commitments and/or additional term loans, to permit a maximum total facility size of
$700 million
after giving effect to any such increase and without taking into account the non-extended loans and commitments.
Commercial Paper
Effective February 2017, our Mexican financial services operation entered into a
five
-year commercial paper program for up to
₱1.8 billion
(the equivalent of approximately US
$94 million
at
April 30, 2017
). This program replaced the program that matured in December 2016.
7. Postretirement Benefits
Defined Benefit Plans
We provide postretirement benefits to a substantial portion of our employees and retirees. Costs associated with postretirement benefits include pension and postretirement health care expenses for employees, retirees, surviving spouses and dependents.
Generally, the pension plans are non-contributory. Our policy is to fund the pension plans in accordance with applicable U.S. and Canadian government regulations and to make additional contributions from time to time. For the
three and six months ended April 30, 2017
, we contributed
$24 million
and
$46 million
, respectively, and for the
three and six months ended April 30, 2016
,
$21 million
and
$40 million
, respectively, to our pension plans to meet regulatory funding requirements. We expect to contribute approximately
$65 million
to our pension plans during the remainder of
2017
.
We primarily fund other post-employment benefit ("OPEB") obligations, such as retiree medical, in accordance with the 1993 Settlement Agreement (the "1993 Settlement Agreement"), which requires us to fund a portion of the plans' annual service cost to a retiree benefit trust (the "Base Trust"). The 1993 Settlement Agreement resolved a class action lawsuit originally filed in 1992 regarding the restructuring of our then applicable retiree health care and life insurance benefits. Contributions for the
three and six months ended April 30, 2017
, and
2016
, as well as anticipated contributions for the remainder of
2017
, are not material.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Components of Net Periodic Benefit Expense
Net periodic benefit expense included in our
Consolidated Statements of Operations,
and other amounts recognized in our
Consolidated Statements of Stockholders' Deficit
, for the
periods ended April 30
is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
Six Months Ended April 30,
|
|
Pension Benefits
|
|
Health and Life
Insurance Benefits
|
|
Pension Benefits
|
|
Health and Life
Insurance Benefits
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost for benefits earned during the period
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Interest on obligation
|
26
|
|
|
29
|
|
|
12
|
|
|
15
|
|
|
53
|
|
|
59
|
|
|
24
|
|
|
30
|
|
Amortization of cumulative loss
|
30
|
|
|
26
|
|
|
5
|
|
|
8
|
|
|
59
|
|
|
52
|
|
|
11
|
|
|
16
|
|
Amortization of prior service benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Contractual termination benefits
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Premiums on pension insurance
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
Expected return on assets
|
(39
|
)
|
|
(42
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|
(79
|
)
|
|
(84
|
)
|
|
(12
|
)
|
|
(13
|
)
|
Net periodic benefit expense
|
$
|
23
|
|
|
$
|
22
|
|
|
$
|
13
|
|
|
$
|
17
|
|
|
$
|
46
|
|
|
$
|
42
|
|
|
$
|
26
|
|
|
$
|
35
|
|
In 2016, we changed the approach utilized to estimate the service cost and interest cost components of net periodic benefit cost for our major defined benefit postretirement plans. Historically, we estimated the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. In 2016, we began using a spot rate approach for the estimation of service and interest cost for our major plans by applying specific spot rates along the yield curve to the relevant projected cash flows, to provide a better estimate of service and interest costs.
In April 2016, we filed a qualified partial wind-up report for approval by FSCO related to the 2011 closure of our Chatham, Ontario plant. FSCO provided formal approval in January 2017. As a result of an ongoing administration review ordered in conjunction with the partial wind-up, we recognized
$1 million
of contractual termination charges in the first quarter of 2017. Once the wind-up is complete, severance has been paid, and pension elections have been made by participants, there may be adjustments made to pension and post-retirement accruals which could be material.
Defined Contribution Plans and Other Contractual Arrangements
Our defined contribution plans cover a substantial portion of domestic salaried employees and certain domestic represented employees. The defined contribution plans contain a 401(k) feature and provide most participants with a matching contribution from the Company. We deposit the matching contribution annually. Many participants covered by the plans receive annual Company contributions to their retirement accounts based on an age-weighted percentage of the participant's eligible compensation for the calendar year. Defined contribution expense pursuant to these plans was
$9 million
and
$16 million
in the
three and six months ended April 30, 2017
, respectively, and
$8 million
and
$15 million
in the
three and six months ended April 30, 2016
, respectively.
In accordance with the 1993 Settlement Agreement, an independent Retiree Supplemental Benefit Trust (the "Supplemental Trust") was established. The Supplemental Trust, and the benefits it provides to certain retirees pursuant to a certain Retiree Supplemental Benefit Program under the 1993 Settlement Agreement ("Supplemental Benefit Program"), is not part of our consolidated financial statements.
Our contingent profit sharing obligations under a certain Supplemental Benefit Trust Profit Sharing Plan ("Supplemental Benefit Trust Profit Sharing Plan") will continue until certain funding targets defined by the 1993 Settlement Agreement are met. We have recorded no profit sharing accruals based on the operating performance of the entities that are included in the determination of qualifying profits. For more information on pending arbitration regarding the Supplemental Benefit Trust Profit Sharing Plan, see Note 10,
Commitments and Contingencies
.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
8. Income Taxes
We compute, on a quarterly basis, an estimated annual effective tax rate considering ordinary income and related income tax expense. For all periods presented, U.S. and certain foreign results are excluded from ordinary income due to ordinary losses for which no benefit can be recognized. Ordinary income refers to income (loss) before income tax expense excluding significant unusual or infrequently occurring items. The tax effect of a significant unusual or infrequently occurring item is recorded in the interim period in which the item occurs. Items included in income tax expense in the periods in which they occur include the tax effects of material restructurings, impairments, cumulative effect of changes in tax laws or rates, foreign exchange gains and losses, adjustments to uncertain tax positions, and adjustments to our valuation allowance due to changes in judgment regarding the ability to realize deferred tax assets in future years.
We have evaluated the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. We continue to maintain a valuation allowance on the majority of our U.S. deferred tax assets as well as certain foreign deferred tax assets that we believe, on a more-likely-than-not basis, will not be realized based on current forecasted results. For all remaining deferred tax assets, while we believe that it is more likely than not that they will be realized, we believe that it is reasonably possible that additional deferred tax asset valuation allowances could be required in the next twelve months.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than
fifty percent
likelihood of being realized upon ultimate settlement. As of
April 30, 2017
, the amount of liability for uncertain tax positions was
$48 million
. The liability at
April 30, 2017
has a recorded offsetting tax benefit associated with various issues that total
$14 million
. If the unrecognized tax benefits are recognized, all would impact our effective tax rate. However, to the extent we continue to maintain a full valuation allowance against certain deferred tax assets, the effect may be in the form of an increase in the deferred tax asset related to our net operating loss carryforward, which would be offset by a full valuation allowance.
We recognize interest and penalties related to uncertain tax positions as part of
Income tax expense
. For the
three and six months ended April 30, 2017
, total interest and penalties related to our uncertain tax positions resulted in an income tax expense of less than
$1 million
, for both periods.
We have open tax years back to 2001 with various significant taxing jurisdictions including the U.S., Canada, Mexico, and Brazil. In connection with the examination of tax returns, contingencies may arise that generally result from differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenues or expenses in taxable income, or the sustainability of tax credits to reduce income taxes payable. We believe we have sufficient accruals for our contingent tax liabilities. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns, although actual results may differ. While it is probable that the liability for unrecognized tax benefits may increase or decrease during the next twelve months, we do not expect any such change would have a material effect on our financial condition, results of operations, or cash flows.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
9. Fair Value Measurements
For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect our assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, we classify each fair value measurement as follows:
|
|
•
|
Level 1—based upon quoted prices for
identical
instruments in active markets,
|
|
|
•
|
Level 2—based upon quoted prices for
similar
instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and
|
|
|
•
|
Level 3—based upon one or more significant unobservable inputs.
|
The following section describes key inputs and assumptions in our valuation methodologies:
Cash Equivalents and Restricted Cash Equivalents
—We classify highly liquid investments, with an original maturity of
90
days or less, including U.S. Treasury bills, federal agency securities, and commercial paper, as cash equivalents. The carrying amounts of cash and cash equivalents and restricted cash approximate fair value because of the short-term maturity and highly liquid nature of these instruments.
Marketable Securities
—Our marketable securities portfolios are classified as available-for-sale and primarily include investments in U.S. government securities and commercial paper with an original maturity greater than
90
days. We use quoted prices from active markets to determine fair value.
Derivative Assets and Liabilities
—We measure the fair value of derivatives assuming that the unit of account is an individual derivative transaction and that each derivative could be sold or transferred on a stand-alone basis. We classify within Level 2 our derivatives that are traded over-the-counter and valued using internal models based on observable market inputs. In certain cases, market data is not available and we estimate inputs such as in situations where trading in a particular commodity is not active. Measurements based upon these unobservable inputs are classified within Level 3.
Guarantees
—We provide certain guarantees of payments and residual values, to which losses are generally capped, to specific counterparties. The fair value of these guarantees includes a contingent component and a non-contingent component that are based upon internally developed models using unobservable inputs. We classify these liabilities within Level 3. For more information regarding guarantees, see Note 10,
Commitments and Contingencies.
Impaired Finance Receivables and Impaired Assets Under Operating Leases
— Fair values of the underlying collateral are determined by current and forecasted sales prices, aging of and demand for used trucks, and the mix of sales through various market channels. For more information regarding impaired finance receivables, see Note 4,
Allowance for Doubtful Accounts,
and for more information regarding impaired assets under operating leases, see Note 2,
Restructuring and Impairments
.
Impaired Property, Plant and Equipment
— We measure the fair value by discounting future cash flows expected to be received from the operation of, or disposition of, the asset or asset group that has been determined to be impaired. For more information regarding the impairment of property, plant and equipment, see Note 2,
Restructuring and Impairments
.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
The following table presents the financial instruments measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2017
|
|
As of October 31, 2016
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
64
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Other
|
114
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity forward contracts
(A)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Foreign currency contracts
(A)
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest rate caps
(B)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total assets
|
$
|
178
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
184
|
|
|
$
|
46
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
49
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity forward contracts
(C)
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency contracts
(C)
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Guarantees
|
—
|
|
|
—
|
|
|
19
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
23
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
19
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
23
|
|
_________________________
|
|
(A)
|
The asset value of commodity forward contracts and foreign currency contracts is included in
Other current assets
in the accompanying
Consolidated Balance Sheets
.
|
|
|
(B)
|
The asset value of interest rate caps is included in
Other noncurrent assets
in the accompanying
Consolidated Balance Sheets.
|
|
|
(C)
|
The liability value of commodity forward contracts and foreign currency contracts is included in
Other current liabilities
in the accompanying
Consolidated Balance Sheets.
|
The following table presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
Six Months Ended April 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Guarantees, at beginning of period
|
$
|
(23
|
)
|
|
$
|
(10
|
)
|
|
$
|
(23
|
)
|
|
$
|
(10
|
)
|
Transfers out of Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net terminations (issuances)
|
2
|
|
|
(10
|
)
|
|
1
|
|
|
(11
|
)
|
Settlements
|
2
|
|
|
1
|
|
|
3
|
|
|
2
|
|
Guarantees, at end of period
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
In addition to the methods and assumptions we use for the financial instruments recorded at fair value as discussed above, we use the following methods and assumptions to estimate the fair value for our other financial instruments that are not marked to market on a recurring basis. The carrying amounts of
Cash and cash equivalents
,
Restricted cash
, and
Accounts payable
approximate fair values because of the short-term maturity and highly liquid nature of these instruments.
Finance receivables
generally consist of retail and wholesale accounts and retail and wholesale notes. The carrying amounts of
Trade and other receivables
and retail and wholesale accounts approximate fair values as a result of the short-term nature of the receivables. The carrying amounts of wholesale notes approximate fair values as a result of the short-term nature of the wholesale notes and their variable interest rate terms. Due to the nature of the aforementioned financial instruments, they have been excluded from the fair value amounts presented in the table below.
The fair values of our retail notes are estimated by discounting expected cash flows at estimated current market rates. The fair values of our retail notes are classified as Level 3 financial instruments.
The fair values of our debt instruments classified as Level 1 were determined using quoted market prices. The
6.5%
Tax Exempt Bonds, due 2040, are traded, but the trading market is illiquid, and as a result, the Loan Agreement underlying the Tax Exempt Bonds is classified as Level 2. The fair values of our Level 3 debt instruments are generally determined using internally developed valuation techniques such as discounted cash flow modeling. Inputs such as discount rates and credit spreads reflect our estimates of assumptions that market participants would use in pricing the instrument and may be unobservable.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
The following tables present the carrying values and estimated fair values of financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2017
|
|
Estimated Fair Value
|
|
Carrying Value
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Retail notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
151
|
|
|
$
|
151
|
|
|
$
|
155
|
|
Notes receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
Manufacturing operations
|
|
|
|
|
|
|
|
|
|
Senior Secured Term Loan Credit Facility, as Amended, due 2020
|
—
|
|
|
—
|
|
|
1,041
|
|
|
1,041
|
|
|
1,002
|
|
8.25% Senior Notes, due 2022
|
1,470
|
|
|
—
|
|
|
—
|
|
|
1,470
|
|
|
1,421
|
|
4.50% Senior Subordinated Convertible Notes, due 2018
(A)
|
—
|
|
|
—
|
|
|
197
|
|
|
197
|
|
|
192
|
|
4.75% Senior Subordinated Convertible Notes, due 2019
(A)
|
—
|
|
|
—
|
|
|
401
|
|
|
401
|
|
|
388
|
|
Financing arrangements
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
|
34
|
|
Loan Agreement related to 6.50% Tax Exempt Bonds, due 2040
|
—
|
|
|
229
|
|
|
—
|
|
|
229
|
|
|
220
|
|
Financed lease obligations
|
—
|
|
|
—
|
|
|
102
|
|
|
102
|
|
|
102
|
|
Other
|
—
|
|
|
—
|
|
|
20
|
|
|
20
|
|
|
20
|
|
Financial Services operations
|
|
|
|
|
|
|
|
|
|
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2022
|
—
|
|
|
—
|
|
|
737
|
|
|
737
|
|
|
735
|
|
Bank credit facilities, at fixed and variable rates, due dates from 2017 through 2021
|
—
|
|
|
—
|
|
|
752
|
|
|
752
|
|
|
766
|
|
Commercial paper, at variable rates, program matures in 2022
|
93
|
|
|
—
|
|
|
—
|
|
|
93
|
|
|
93
|
|
Borrowings secured by operating and finance leases, at various rates, due serially through 2021
|
—
|
|
|
—
|
|
|
89
|
|
|
89
|
|
|
88
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2016
|
|
Estimated Fair Value
|
|
Carrying Value
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Retail notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
153
|
|
|
$
|
153
|
|
|
$
|
151
|
|
Notes receivable
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
Manufacturing operations
|
|
|
|
|
|
|
|
|
|
Senior Secured Term Loan Credit Facility, as Amended, due 2020
|
—
|
|
|
—
|
|
|
1,037
|
|
|
1,037
|
|
|
1,009
|
|
8.25% Senior Notes, due 2022
|
1,180
|
|
|
—
|
|
|
—
|
|
|
1,180
|
|
|
1,173
|
|
4.50% Senior Subordinated Convertible Notes, due 2018
(A)
|
—
|
|
|
—
|
|
|
189
|
|
|
189
|
|
|
189
|
|
4.75% Senior Subordinated Convertible Notes, due 2019
(A)
|
—
|
|
|
—
|
|
|
382
|
|
|
382
|
|
|
383
|
|
Financing arrangements
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
|
37
|
|
Loan Agreement related to 6.50% Tax Exempt Bonds, due 2040
|
—
|
|
|
233
|
|
|
—
|
|
|
233
|
|
|
220
|
|
Financed lease obligations
|
—
|
|
|
—
|
|
|
52
|
|
|
52
|
|
|
52
|
|
Other
|
—
|
|
|
—
|
|
|
26
|
|
|
26
|
|
|
28
|
|
Financial Services operations
|
|
|
|
|
|
|
|
|
|
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2017
|
—
|
|
|
—
|
|
|
754
|
|
|
754
|
|
|
753
|
|
Bank credit facilities, at fixed and variable rates, due dates from 2017 through 2021
|
—
|
|
|
—
|
|
|
851
|
|
|
851
|
|
|
861
|
|
Commercial paper, at variable rates, program matures in 2022
|
96
|
|
|
—
|
|
|
—
|
|
|
96
|
|
|
96
|
|
Borrowings secured by operating and finance leases, at various rates, due serially through 2021
|
—
|
|
|
—
|
|
|
98
|
|
|
98
|
|
|
98
|
|
_________________________
|
|
(A)
|
The carrying value represents the consolidated financial statement amount of the debt which excludes the allocation of the conversion feature to equity, while the fair value is based on internally developed valuation techniques such as discounted cash flow modeling for Level 3 convertible notes which include the equity feature.
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
10. Commitments and Contingencies
Guarantees
We occasionally provide guarantees that could obligate us to make future payments if the primary entity fails to perform under its contractual obligations. We have recognized liabilities for some of these guarantees in our
Consolidated Balance Sheets
as they meet the recognition and measurement provisions of U.S. GAAP. In addition to the liabilities that have been recognized, we are contingently liable for other potential losses under various guarantees. We do not believe that claims that may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash flows.
Under the terms of the Navistar Capital Operating Agreement, BMO Financial Group and its wholly-owned subsidiary BMO Harris Bank N.A. (together "BMO") is our third-party preferred source of retail customer financing for equipment offered by us and our dealers in the U.S. We refer to this alliance as "Navistar Capital." The Navistar Capital Operating Agreement contains a loss sharing arrangement for certain credit losses. Under the loss sharing arrangement, as amended, we generally reimburse our financing partner for credit losses in excess of the first
10%
of the financed value of a contract; for certain leases we reimburse our financing partner for credit losses up to a maximum of the first
9.5%
of the financed value of those lease contracts. Our exposure to loss is mitigated because contracts under the Navistar Capital Operating Agreement are secured by the financed equipment. There were
$1.4 billion
and
$1.5 billion
of outstanding loan principal and operating lease payments receivable at
April 30, 2017
and
October 31, 2016
, respectively, financed through the Navistar Capital Operating Agreement and subject to the loss sharing arrangements in the U.S. The related financed values of these outstanding contracts were
$2.3 billion
and
$2.4 billion
at
April 30, 2017
and
October 31, 2016
, respectively. Generally, we do not carry the contracts under the Navistar Capital Operating Agreement on our
Consolidated Balance Sheets
. However, for certain Navistar Capital financed contracts which we have accounted for as borrowings, we have recognized equipment leased to others of
$93 million
and
$48 million
and financed lease obligations of
$102 million
and
$51 million
, in our
Consolidated Balance Sheets
as of
April 30, 2017
and
October 31, 2016
, respectively.
We also have issued a limited number of residual value guarantees, for which losses are generally capped. If substantial risk of loss has not transferred, we account for these arrangements as operating leases and revenue is recognized on a straight-line basis over the term of the lease. If substantial risk of loss has transferred, revenue is recognized upon sale and the amounts of the guarantees are estimated and recorded. Our guarantees are contingent upon the fair value of the leased assets at the end of the lease term. We have recognized liabilities for some of these guarantees in our
Consolidated Balance Sheets
as they meet recognition and measurement provisions. In addition to the liabilities that have been recognized, we are contingently liable for other potential losses under various guarantees that are not recognized in our
Consolidated Balance Sheets
. We do not believe claims that may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash flows.
We obtain certain stand-by letters of credit and surety bonds from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance-related requirements. As of
April 30, 2017
, the amount of stand-by letters of credit and surety bonds was
$85 million
.
In addition, as of
April 30, 2017
, we have
$22 million
of outstanding purchase commitments and contracts with
$40 million
of cancellation fees with expiration dates through 2021.
In the ordinary course of business, we also provide routine indemnifications and other guarantees, the terms of which range in duration and often are not explicitly defined. We do not believe these will result in claims that would have a material impact on our financial condition, results of operations, or cash flows.
Environmental Liabilities
We have 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 us 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 us 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 our share of the probable costs, if any, and accruals are recorded in our consolidated financial statements. These accruals are generally recognized no later than upon completion of the remedial feasibility study and are not discounted to their present value. We review all accruals on a regular basis and believe that, based on these calculations, our share of the potential additional costs for the cleanup of each site will not have a material effect on our financial condition, results of operations, or cash flows.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
In addition, other sites formerly owned by us or where we are currently operating have been identified as having soil and groundwater contamination. While investigations and cleanup activities continue at these sites, we believe that we have appropriate accruals to cover costs to complete the cleanup of all sites.
We have accrued
$20 million
for these and other environmental matters, which are included within
Other current liabilities
and
Other noncurrent liabilities
, as of
April 30, 2017
. The majority of these accrued liabilities are expected to be paid subsequent to
2018
.
Along with other vehicle manufacturers, we have been subject to an increased number of asbestos-related claims in recent years. 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 alleged presence of asbestos in our facilities. In these claims, we are generally not the sole defendant, and the claims name as defendants numerous manufacturers and suppliers of a wide variety of products allegedly containing asbestos. We have strongly disputed these claims, and it has been our policy to defend against them vigorously. Historically, the actual damages paid out to claimants have not been material in any year to our financial condition, results of operations, or cash flows. 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.
Legal Proceedings
Overview
We are subject to various claims arising in the ordinary course of business, and are party to various legal proceedings that constitute ordinary, routine litigation incidental to our business. The majority of these claims and proceedings relate to commercial, product liability, and warranty matters. In addition, from time to time we are subject to various claims and legal proceedings related to employee compensation, benefits, and benefits administration including, but not limited to, compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Department of Labor requirements. In our opinion, apart from the actions set forth below, the disposition of these proceedings and claims, after taking into account recorded accruals and the availability and limits of our insurance coverage, will not have a material adverse effect on our business or our financial condition, results of operations, or cash flows.
Profit Sharing Disputes
Pursuant to the 1993 Settlement Agreement, the program administrator and named fiduciary of the Supplemental Benefit Program is the Supplemental Benefit Program committee (the "Committee"), composed of individuals not appointed by NI or NIC. In August 2013, the Committee filed a motion for leave to amend its February 2013 complaint (which sought injunctive relief for the Company to provide certain information to which it was allegedly entitled under the Supplemental Benefit Trust Profit Sharing Plan) and a proposed amended complaint (the "Profit Sharing Complaint") in the U.S. District Court for the Southern District of Ohio (the "Court"). Leave to file the Profit Sharing Complaint was granted by the Court in October 2013. In its Profit Sharing Complaint, the Committee alleged the Company breached the 1993 Settlement Agreement and violated ERISA by failing to properly calculate profit sharing contributions due under the Supplemental Benefit Trust Profit Sharing Plan. The Committee seeks damages in excess of
$50 million
, injunctive relief and reimbursement of attorneys' fees and costs. Following the resolution of a procedural dispute by the U.S. Court of Appeals for the 6
th
Circuit, in May 2015, the Court ordered that the claims in the Profit Sharing Complaint be arbitrated pursuant to the dispute resolution procedures in the Supplemental Benefit Trust Profit Sharing Plan. In November 2015, the Company and the Committee selected an arbitrator and the discovery process has commenced. On August 1, 2016, the parties submitted briefs on issues related to the scope of the arbitration.
In addition, various local bargaining units of the United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") have filed separate grievances pursuant to the profit sharing plans under various collective bargaining agreements in effect between the Company and the UAW that may have similar legal and factual issues as the Profit Sharing Complaint.
Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Retiree Health Care Litigation
On October 21, 2016,
two
lawsuits were filed in the U.S. District Court for the Southern District of Ohio relating to postretirement healthcare and life insurance obligations under the 1993 Settlement Agreement. The first lawsuit (the “Committee’s Complaint”) was filed by the Supplemental Benefit Program Committee. The Committee’s Complaint was filed against NIC, NI, NFC and a former affiliate, all of which are parties to the 1993 Settlement Agreement. Since January 1, 2012, the Navistar, Inc. Retiree Health Benefit Trust, created pursuant to the 1993 Settlement Agreement (the “Base Trust”), has received certain Medicare Part D subsidies from the federal Centers for Medicare and Medicaid Services that were made available for prescription drug benefits provided to Medicare-eligible seniors pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and has also received certain Medicare Part D coverage-gap discounts from prescription drug manufacturers that were made available to eligible seniors pursuant to the Patient Protection and Affordable Care Act (collectively, the “Subsidies”). The Committee alleges, among other things, that the defendants breached the 1993 Settlement Agreement since January 1, 2012 by causing the Base Trust to allocate the Subsidies in a manner that improperly decreased the defendants’ contributions to the Base Trust and increased retiree contributions. The Committee seeks damages, attorneys’ fees and costs for all alleged violations of the 1993 Settlement Agreement, including approximately
$26 million
which the Committee alleges is the eligible retirees’ “fair share” of the Subsidies that were allegedly misappropriated by the defendants from January, 2012 through April, 2015.
The second lawsuit was filed by
two
individual members of the Committee (the “Committee Members”) who are retirees and participants in the Navistar, Inc. Health Benefit and Life Insurance Plan (the “Plan”) created pursuant to the 1993 Settlement Agreement. The Committee Members’ complaint (the “Committee Members’ Complaint”) was filed against NIC, NI, NFC and certain other former or current affiliates, all of which are parties or employers as defined in the 1993 Settlement Agreement. The Committee Members allege, among other things, that the Company violated the terms of the Plan, breached a fiduciary duty under the ERISA, and engaged in ERISA-prohibited transactions by improperly using the Plan’s assets (a portion of the Subsidies) for the Company’s benefit. The Committee Members request that the court order the defendants to restore all losses to the Base Trust, including approximately
$26 million
, which the Committee Members allege is the Plan participants’ “fair share” of the Subsidies that were allegedly misappropriated by the defendants from January 2012 through April 2015. The Committee Members also request that the court enjoin the defendants from alleged future violations of the Plan and ERISA with respect to treatment of the Subsidies, order the defendants to remedy all alleged ERISA-prohibited transactions and pay the Committee Members’ attorneys’ fees and costs.
The defendants filed motions to dismiss each respective complaint on January 10, 2017. On May 10, 2017, the court dismissed the Committee's Complaint with prejudice stating that the Committee lacked standing to bring its claims and overruled the defendants' motion to dismiss the Committee Members' Complaint, subject to the parties conducting limited discovery and filing cross-motions for summary judgment on whether the Committee Members' Complaint is barred by the statute of limitations by August 10, 2017.
On April 6, 2017, a motion was filed in the U.S. District Court for the Southern District of Ohio relating to postretirement healthcare and life insurance obligations under the 1993 Settlement Agreement. The motion was filed by the current "Other Member" of the Health Benefit Program Committee ("HBPC"). The HBPC is provided for in the 1993 Settlement Agreement and the HBPC currently consists of the Other Member, three members appointed by the Company ("Company Members"), and two members appointed by the UAW. NI and the Company Members are named as defendants in the motion. The motion alleges that NI and the Company Members impermissibly interfered with the Other Member's ability to discharge his rights and duties relating to eligibility for Plan benefits for an unknown number of non-represented employees and retirees. He requests the court (a) find that all prior Plan eligibility determinations made by NI and the HBPC are invalid to the extent they were not based on eligibility criteria in a plan which pre-dated the Plan; and (b) find all employees or retirees who were improperly denied Plan benefits based on the application of incorrect eligibility criteria, to retroactively enroll them in the Plan, and to reimburse those retirees for costs they incurred as a result of the prior improper determinations of Plan eligibility. He estimates
1,000
non-represented employees or retirees were wrongfully denied Plan benefits. He also requests the court direct him to oversee NI's compliance with the requested relief order. The defendants filed their response to the motion on May 11, 2017 and the Other Member filed his reply on May 17, 2017.
Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
FATMA Notice
International Indústria Automotiva da América do Sul Ltda. ("IIAA"), formerly known as Maxion International Motores S/A ("Maxion"), now a wholly owned subsidiary of the Company, received a notice in July 2010 from the State of Santa Catarina Environmental Protection Agency ("FATMA") in Brazil. The notice alleged that Maxion had sent wastes to a facility owned and operated by a company known as Natureza and that soil and groundwater contamination had occurred at the Natureza facility. The notice asserted liability against Maxion and assessed an initial penalty in the amount of
R$2 million
(the equivalent of approximately less than US
$1 million
at
April 30, 2017
), which is not due and final until all administrative appeals are exhausted. Maxion was one of numerous companies that received similar notices. IIAA filed an administrative defense in August 2010 and has not yet received a decision following that filing. IIAA disputes the allegations in the notice and intends to vigorously defend itself.
Sao Paulo Groundwater Notice
In March 2014, IIAA, along with other nearby companies, received from the Sao Paulo District Attorney (the "District Attorney") a notice and proposed Consent Agreement relating to alleged neighborhood-wide groundwater contamination at or around its Sao Paulo manufacturing facility. The proposed Consent Agreement sought certain groundwater investigations and other technical relief and proposed sanctions in the amount of R
$3 million
(the equivalent of approximately US
$1 million
at
April 30, 2017
). In November 2014, IIAA extended a settlement offer. The parties remained in discussions and IIAA’s settlement offer was never accepted, rejected or countered by the District Attorney. On August 31, 2016, the District Attorney filed civil actions against IIAA and other companies seeking soil and groundwater investigation and remediation, together with monetary payment in an unspecified amount. IIAA filed its defense to the civil action on January 26, 2017, alleging that IIAA has made all necessary investigations and has taken remedial measures to address the contamination and that Companhia Ambiental do Estado de São Paulo (CETESB), the environmental agency of São Paulo State, has agreed to the remedial measures taken by IIAA.
MaxxForce Engine EGR Warranty Litigation
On June 24, 2014, N&C Transportation Ltd. filed a putative class action lawsuit against NIC, NI, Navistar Canada Inc., and Harbour International Trucks in Canada in the Supreme Court of British Columbia (the "N&C Action"). Subsequently, six additional, similar putative class action lawsuits have been filed in Canada (together with the N&C Action, the "Canadian Actions").
From June 13-17, 2016, the court conducted a certification hearing in the N&C Action. On November 16, 2016, the court certified a Canada-wide class comprised of persons who purchased heavy-duty trucks equipped with Advanced EGR MaxxForce 11, MaxxForce 13, and MaxxForce 15 engines designed to meet 2010 EPA regulations. The court in the N&C Action denied certification to persons who operated but did not buy the trucks in question. To date, no appeals have been filed, but the deadline for the Company to appeal the class certification decision has been extended indefinitely, subject to a
15
-day termination.
On June 5, 2017, a hearing was held in the Quebec putative class action lawsuit captioned 4037308 Canada Inc. v. Navistar Canada Inc., NI, and NIC. At that hearing, the Court ruled on certain motions regarding evidence related to certification but deferred a ruling on plaintiff’s proposed amendment to narrow the proposed class to Quebec-only purchasers and lessees of model year 2010-13 vehicles containing MaxxForce 11, 13, and 15 liter engines. The class authorization hearing in Quebec has not been scheduled, and there are no court dates scheduled in any of the other Canadian Actions at this time.
On July 7, 2014, Par 4 Transport, LLC filed a putative class action lawsuit against NI in the United States District Court for the Northern District of Illinois (the "Par 4 Action"). Subsequently,
seventeen
additional putative class action lawsuits were filed in various United States district courts, including the Northern District of Illinois, the Eastern District of Wisconsin, the Southern District of Florida, the Middle District of Pennsylvania, the Southern District of Texas, the Western District of Kentucky, the District of Minnesota, the Northern District of Alabama, and the District of New Jersey (together with the Par 4 Action, the "U.S. Actions"). Some of the U.S. Actions name both NIC and NI, and allege matters substantially similar to the Canadian Actions. More specifically, the Canadian Actions and the U.S. Actions (collectively, the "EGR Class Actions") seek to certify a class of persons or entities in Canada or the United States who purchased and/or leased a ProStar or other Navistar vehicle equipped with a model year 2008-2013 MaxxForce Advanced EGR engine. In substance, the EGR Class Actions allege that the MaxxForce Advanced EGR engines are defective and that the Company and NI failed to disclose and correct the alleged defect. The EGR Class Actions assert claims based on theories of contract, breach of warranty, consumer fraud, unfair competition, misrepresentation and negligence. The EGR Class Actions seek relief in the form of monetary damages, punitive damages, declaratory relief, interest, fees, and costs.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
On October 3, 2014, NIC and NI filed a motion before the United States Judicial Panel on Multidistrict Litigation (the "MDL Panel") seeking to transfer and consolidate before Judge Joan B. Gottschall of the United States District Court for the Northern District of Illinois all of the then-pending U.S. Actions, as well as certain non-class action MaxxForce Advanced EGR engine lawsuits pending in various federal district courts.
On December 17, 2014, Navistar's motion to consolidate the U.S. Actions and certain other non-class action lawsuits was granted. The MDL Panel issued an order consolidating all of the U.S. Actions that were pending on the date of Navistar’s motion before Judge Gottschall in the United States District Court for the Northern District of Illinois (the "MDL Action"). The MDL Panel also consolidated into the MDL Action certain non-class action MaxxForce Advanced EGR engine lawsuits pending in the various federal district courts.
At the request of the various law firms representing the plaintiffs in the MDL Action, on March 5, 2015, Judge Gottschall entered an order in the MDL Action appointing interim lead counsel and interim liaison counsel for the plaintiffs. On May 11, 2015, lead counsel for the plaintiffs filed a First Master Consolidated Class Action Complaint ("Consolidated Complaint"). The parties to the MDL Action exchanged initial disclosures on May 29, 2015. The Company answered the Consolidated Complaint on July 13, 2015. On September 22, 2016, lead counsel for the plaintiffs filed a First Amended Consolidated Class Action Complaint (the “Amended Consolidated Complaint”). The Amended Consolidated Complaint added
twenty-five
additional named plaintiffs. NI and NIC answered the Amended Consolidated Complaint on October 20, 2016.
On May 27, 2016, Judge Gottschall entered a Case Management Order setting a July 13, 2017 date for plaintiffs' class certification motion. On November 30, 2016, the court entered an order referring discovery matters to a magistrate judge for supervision. Pursuant to the magistrate’s order, the parties jointly filed a new proposed case management order on January 25, 2017, which extends the fact discovery deadline to November 22, 2017. On January 31, 2017, the parties filed a joint motion with Judge Gottschall requesting adjustment of the class action briefing schedule to April 24, 2018. On February 2, 2017, Judge Gottschall granted the parties' motion extending the deadline to complete the class certification briefing to April 24, 2018. On February 6, 2017, the magistrate approved the parties' January 25, 2017 proposed case management order extending the deadline for fact discovery to November 22, 2017.
Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
EPA Clean Air Act Litigation
In February 2012, NI received a Notice of Violation ("NOV") from the United States Environmental Protection Agency (the "EPA") pertaining to certain heavy-duty diesel engines which, according to the EPA, were not completely assembled by NI until calendar year 2010 and, therefore, were not covered by NI's model year 2009 certificates of conformity. The NOV concluded that NI's introduction into commerce of each of these engines violated the Federal Clean Air Act.
On July 14, 2015, the Department of Justice ("DOJ"), on behalf of the EPA, filed a lawsuit against NIC and NI in the U.S. District Court for the Northern District of Illinois. Similar to the NOV, the lawsuit alleges that NIC and NI introduced into commerce approximately
7,749
heavy-duty diesel engines that were not covered by model year 2009 certificates of conformity because those engines were not completely assembled until calendar year 2010, resulting in violations of the Federal Clean Air Act. On July 16, 2015, the DOJ filed an Amended Complaint clarifying the amount of civil penalties being sought. The lawsuit requests injunctive relief and the assessment of civil penalties of up to
$37,500
for each violation. On September 14, 2015, NIC and NI each filed an Answer and Affirmative Defenses to the Amended Complaint. We dispute the allegations in the lawsuit.
Discovery in the matter is proceeding in two phases: fact discovery followed by expert discovery. Fact discovery for the liability phase commenced on December 9, 2015. Pursuant to the court's Second Amended Scheduling Order entered on January 23, 2017, the Phase I liability fact discovery is to be completed by August 9, 2017, and the deadline for dispositive motions is set for February 16, 2018. After completion of the liability phase, the court will set further dates for a remedy phase.
On May 13, 2016, the DOJ, on behalf of the EPA filed a motion for summary judgment on liability. On June 30, 2016, NIC and NI opposed the EPA's motion for summary judgment, and NIC cross-moved for summary judgment against EPA. On March 1, 2017, the court entered a Memorandum Opinion and Order (i) granting the DOJ’s motion for summary judgment on the issue of liability with respect to NI, (ii) denying the DOJ’s motion for summary judgment on the issue of liability with respect to NIC, and (iii) denying NIC’s motion for summary judgment.
Based on our assessment of the facts underlying the complaint above, potential charges to the
Consolidated Statement of Operations
and cash outlays in future periods could range from
$2 million
to
$291 million
related to the resolution of this matter. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Brazil Truck Dealer Disputes
In January 2014, IIAA initiated an arbitration proceeding under the International Chamber of Commerce rules seeking payment for goods sold and unpaid, in the amount of R
$64 million
(approximately US
$20 million
as of
April 30, 2017
), including penalties and interest, from a group of affiliated truck dealers in Brazil. The truck dealers are affiliated with each other, but not with us, and are collectively referred to as Navitrucks. In the proceeding, IIAA also seeks a declaration of fault against Navitrucks related to the termination of the truck dealer agreements between IIAA and Navitrucks. Navitrucks responded in part by submitting counterclaims against IIAA seeking the amount of
R$128 million
(approximately US
$40 million
as of
April 30, 2017
) for damages related to alleged unfulfilled promises and injury to Navitrucks’ reputation. In October 2014, Navitrucks amended their counterclaims by increasing the amount of damages. During a preliminary hearing before the arbitral tribunal on March 24, 2015, the parties agreed to submit all of the pending claims between the parties to the exclusive jurisdiction of the arbitral tribunal. Pursuant to the timetable issued in the arbitration proceeding, IIAA presented its complaint in July 2015, Navitrucks filed its answer and counterclaims on August 24, 2015, and IIAA filed its rebuttal and answer to Navitrucks’ counterclaims on October 22, 2015. On December 7, 2015, Navitrucks filed its rebuttal to IIAA’s answer to counterclaims. On June 13-15, 2016, the arbitral tribunal held hearings on the parties presenting witnesses and evidence.
On July 18, 2016, IIAA and Navitrucks presented additional documents and information related to the hearing held on June 13-15, 2016. On September 30, 2016, the parties presented their final allegations. On April 20, 2017, the arbitral tribunal issued a partial award granting a portion of the relief sought by each of the parties. Specifically, the arbitral tribunal held that: (a) Navitrucks failed to pay certain amounts to IIAA for the purchase of vehicles under its agreements with IIAA, thereby breaching its contractual obligations; and (b) IIAA breached its contractual obligations under its agreements with Navitrucks due to its failure to fulfill its promises to invest in products, infrastructure, and a dealership network.
Furthermore, the arbitral tribunal held that, due to the mutual breach of the agreements between IIAA and Navitrucks, the agreements should be deemed terminated.
The damages calculation phase is the next step in the arbitration and is estimated to be
one
year or longer in duration. In the damages calculation phase, the actual monetary amount of the damages owed from one party to the other will be definitively determined.
As of
April 30, 2017
, the approximate amount of the IIAA claim against Navitrucks is R
$145 million
(approximately US
$45 million
as of
April 30, 2017
), of which Navitrucks has acknowledged that IIAA is entitled to a credit in the approximate amount of R
$81 million
(approximately US
$25 million
as of
April 30, 2017
), and the approximate amount of the Navitrucks claim against IIAA is
R$153 million
(approximately US
$48 million
as of
April 30, 2017
).
Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.
In addition,
two
other truck dealers and
two
truck fleet owners in Brazil have separate adversarial proceedings pending against IIAA that may have similar legal and factual issues as the Navitrucks claim. These other claims are not material either individually or in the aggregate.
IC Bus Civil RICO Litigation
On June 1, 2016, Plaintiffs Polar Express School Bus and Lakeview Bus Lines filed a lawsuit against NIC, NI, and IC Bus, LLC in the U.S. District Court for the Northern District of Illinois. The lawsuit alleges that the
40
IC brand buses owned or operated by Plaintiffs contain defective ABS braking systems and also engines with defective emissions control systems. Plaintiffs claim that NIC, its subsidiaries, and their authorized dealers deliberately concealed the alleged defects, and the lawsuit seeks to plead causes of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO") and common law fraud. Plaintiffs seek compensatory damages in the amount of
$7 million
, treble damages, punitive damages in the amount of
$50 million
, and attorneys’ fees and costs. We dispute the allegations in the lawsuit, and in August 2016 we filed a motion to dismiss this lawsuit in its entirety. On December 16, 2016, the Court granted the motion and dismissed Plaintiffs’ RICO claims without prejudice. Having dismissed the federal claims, the Court declined to exercise supplemental jurisdiction over the state common law fraud claim. On December 16, 2016, the Court dismissed Plaintiffs’ Complaint but with leave to amend. On January 17, 2017, Plaintiffs filed their amended complaint. The allegations and relief sought are substantially similar to the original complaint, except that Plaintiffs added causes of action for breach of warranty and breach of implied warranty. NIC and NI filed a motion to dismiss the amended complaint on February 17, 2017. Plaintiffs filed a notice of voluntary dismissal without prejudice on March 17, 2017, and the court terminated the case on March 21, 2017.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Other
U.S. Department of Defense Subpoena
In the third quarter of 2016, Navistar Defense, LLC ("ND") received a subpoena from the United States Department of Defense Inspector General (the "DOD IG"). The subpoena requested documents relating to ND's sale of its independent suspension systems ("ISS") for military vehicles to the government for the period from January 1, 2009 through December 31, 2010. On June 3, 2016, ND met with government representatives, including representatives from DOD IG and the U.S. Department of Justice, to discuss the matter. ND has been in ongoing discussions with the DOD IG and the Department of Justice. ND made submissions of documents responsive to the subpoena in June and August 2016 and has substantially completed its subpoena response. On May 1, 2017, ND met with government representatives, including representatives from DOD IG and the U.S. Department of Justice, to further discuss the matter. ND has agreed to provide additional information relating to pricing of the ISS and to meet with the government again on June 13, 2017. At this time, we are unable to predict the outcome of this matter or provide meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.
11. Segment Reporting
The following is a description of our
four
reporting segments:
|
|
•
|
Our
Truck
segment manufactures and distributes Class 4 through 8 trucks, buses, and military vehicles under the International and IC Bus ("IC") brands, and produces engines under our proprietary brand name and parts required to support the military truck lines. This segment sells its products in the U.S., Canada, and Mexico markets, as well as through our export truck business. In an effort to strengthen and maintain our dealer network, this segment occasionally acquires and operates dealer locations for the purpose of transitioning ownership.
|
|
|
•
|
Our
Parts
segment provides customers with proprietary products needed to support the International commercial truck, IC Bus, proprietary engine lines, and export parts business, as well as our other product lines. Our Parts segment also provides a wide selection of other standard truck, trailer, and engine aftermarket parts. Also included in the Parts segment are the operating results of BDP, which manages the sourcing, merchandising, and distribution of certain service parts we sell to Ford in North America.
|
|
|
•
|
Our
Global Operations
segment primarily consists of Brazil engine operations which produce diesel engines under contract manufacturing arrangements, as well as under the MWM brand, for sale to OEMs in South America. In addition, our Global Operations segment includes the operating results of our joint venture in China with Anhui Jianghuai Automobile Co ("JAC").
|
|
|
•
|
Our
Financial Services
segment provides retail, wholesale, and lease financing of products sold by the Truck and Parts segments and their dealers within the U.S. and Mexico, as well as financing for wholesale accounts and selected retail accounts receivable. This segment also facilitates financing relationships in other countries to support our Manufacturing Operations.
|
Corporate contains those items that are not included in our
four
segments.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
Segment Profit (Loss)
We define segment profit (loss) as net income (loss) attributable to NIC, excluding income tax benefit (expense). Selected financial information from our
Consolidated Statements of Operations
and our
Consolidated Balance Sheets
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Truck
|
|
Parts
|
|
Global Operations
|
|
Financial
Services
(A)
|
|
Corporate
and
Eliminations
|
|
Total
|
Three Months Ended April 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
External sales and revenues, net
|
$
|
1,391
|
|
|
$
|
604
|
|
|
$
|
66
|
|
|
$
|
33
|
|
|
$
|
2
|
|
|
$
|
2,096
|
|
Intersegment sales and revenues
|
7
|
|
|
6
|
|
|
4
|
|
|
23
|
|
|
(40
|
)
|
|
—
|
|
Total sales and revenues, net
|
$
|
1,398
|
|
|
$
|
610
|
|
|
$
|
70
|
|
|
$
|
56
|
|
|
$
|
(38
|
)
|
|
$
|
2,096
|
|
Income (loss) attributable to NIC, net of tax
|
$
|
(56
|
)
|
|
$
|
153
|
|
|
$
|
(7
|
)
|
|
$
|
15
|
|
|
$
|
(185
|
)
|
|
$
|
(80
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Segment profit (loss)
|
$
|
(56
|
)
|
|
$
|
153
|
|
|
$
|
(7
|
)
|
|
$
|
15
|
|
|
$
|
(179
|
)
|
|
$
|
(74
|
)
|
Depreciation and amortization
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
3
|
|
|
$
|
53
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
68
|
|
|
89
|
|
Equity in income of non-consolidated affiliates
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Capital expenditures
(B)
|
14
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Truck
|
|
Parts
|
|
Global Operations
|
|
Financial
Services
(A)
|
|
Corporate
and
Eliminations
|
|
Total
|
Three Months Ended April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
External sales and revenues, net
|
$
|
1,459
|
|
|
$
|
640
|
|
|
$
|
64
|
|
|
$
|
33
|
|
|
$
|
1
|
|
|
$
|
2,197
|
|
Intersegment sales and revenues
|
21
|
|
|
7
|
|
|
13
|
|
|
25
|
|
|
(66
|
)
|
|
—
|
|
Total sales and revenues, net
|
$
|
1,480
|
|
|
$
|
647
|
|
|
$
|
77
|
|
|
$
|
58
|
|
|
$
|
(65
|
)
|
|
$
|
2,197
|
|
Income (loss) attributable to NIC, net of tax
|
$
|
(23
|
)
|
|
$
|
176
|
|
|
$
|
(1
|
)
|
|
$
|
25
|
|
|
$
|
(173
|
)
|
|
$
|
4
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
Segment profit (loss)
|
$
|
(23
|
)
|
|
$
|
176
|
|
|
$
|
(1
|
)
|
|
$
|
25
|
|
|
$
|
(157
|
)
|
|
$
|
20
|
|
Depreciation and amortization
|
$
|
29
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
4
|
|
|
$
|
53
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
62
|
|
|
81
|
|
Equity in income of non-consolidated affiliates
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Capital expenditures
(B)
|
19
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
3
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Truck
|
|
Parts
|
|
Global Operations
|
|
Financial
Services
(A)
|
|
Corporate
and
Eliminations
|
|
Total
|
Six Months Ended April 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
External sales and revenues, net
|
$
|
2,408
|
|
|
$
|
1,167
|
|
|
$
|
112
|
|
|
$
|
67
|
|
|
$
|
5
|
|
|
$
|
3,759
|
|
Intersegment sales and revenues
|
17
|
|
|
13
|
|
|
8
|
|
|
43
|
|
|
(81
|
)
|
|
—
|
|
Total sales and revenues, net
|
$
|
2,425
|
|
|
$
|
1,180
|
|
|
$
|
120
|
|
|
$
|
110
|
|
|
$
|
(76
|
)
|
|
$
|
3,759
|
|
Income (loss) attributable to NIC, net of tax
|
$
|
(125
|
)
|
|
$
|
302
|
|
|
$
|
(11
|
)
|
|
$
|
28
|
|
|
$
|
(336
|
)
|
|
$
|
(142
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
Segment profit (loss)
|
$
|
(125
|
)
|
|
$
|
302
|
|
|
$
|
(11
|
)
|
|
$
|
28
|
|
|
$
|
(326
|
)
|
|
$
|
(132
|
)
|
Depreciation and amortization
|
$
|
68
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
25
|
|
|
$
|
6
|
|
|
$
|
112
|
|
Interest expense
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
41
|
|
|
130
|
|
|
171
|
|
Equity in income of non-consolidated affiliates
|
2
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Capital expenditures
(B)
|
57
|
|
|
1
|
|
|
3
|
|
|
1
|
|
|
4
|
|
|
66
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Truck
|
|
Parts
|
|
Global Operations
|
|
Financial
Services
(A)
|
|
Corporate
and
Eliminations
|
|
Total
|
Six Months Ended April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
External sales and revenues, net
|
$
|
2,540
|
|
|
$
|
1,202
|
|
|
$
|
148
|
|
|
$
|
68
|
|
|
$
|
4
|
|
|
$
|
3,962
|
|
Intersegment sales and revenues
|
72
|
|
|
15
|
|
|
21
|
|
|
49
|
|
|
(157
|
)
|
|
—
|
|
Total sales and revenues, net
|
$
|
2,612
|
|
|
$
|
1,217
|
|
|
$
|
169
|
|
|
$
|
117
|
|
|
$
|
(153
|
)
|
|
$
|
3,962
|
|
Income (loss) attributable to NIC, net of tax
|
$
|
(74
|
)
|
|
$
|
326
|
|
|
$
|
(14
|
)
|
|
$
|
51
|
|
|
$
|
(318
|
)
|
|
$
|
(29
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
(11
|
)
|
Segment profit (loss)
|
$
|
(74
|
)
|
|
$
|
326
|
|
|
$
|
(14
|
)
|
|
$
|
51
|
|
|
$
|
(307
|
)
|
|
$
|
(18
|
)
|
Depreciation and amortization
|
$
|
63
|
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
24
|
|
|
$
|
8
|
|
|
$
|
111
|
|
Interest expense
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
38
|
|
|
124
|
|
|
162
|
|
Equity in income (loss) of non-consolidated affiliates
|
2
|
|
|
2
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
1
|
|
Capital expenditures
(B)
|
44
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
5
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Truck
|
|
Parts
|
|
Global Operations
|
|
Financial
Services
|
|
Corporate
and
Eliminations
|
|
Total
|
Segment assets, as of:
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
$
|
1,680
|
|
|
$
|
613
|
|
|
$
|
342
|
|
|
$
|
2,132
|
|
|
$
|
1,185
|
|
|
$
|
5,952
|
|
October 31, 2016
|
1,520
|
|
|
594
|
|
|
407
|
|
|
2,116
|
|
|
1,016
|
|
|
5,653
|
|
_________________________
|
|
(A)
|
Total sales and revenues in the Financial Services segment include interest revenues of
$40 million
and
$76 million
for the
three and six months ended April 30, 2017
, respectively, and
$42 million
and
$84 million
for the
three and six months ended April 30, 2016
, respectively.
|
|
|
(B)
|
Exclusive of purchases of equipment leased to others.
|
12. Stockholders' Deficit
Accumulated Other Comprehensive Loss
The following table presents changes in
Accumulated other comprehensive loss,
net of tax, included in our
Consolidated Statements of Stockholders' Deficit
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Unrealized Gain on Marketable Securities
|
|
Foreign Currency Translation Adjustments
|
|
Defined Benefit Plans
|
|
Total
|
Balance as of January 31, 2017
|
$
|
1
|
|
|
$
|
(292
|
)
|
|
$
|
(2,326
|
)
|
|
$
|
(2,617
|
)
|
Other comprehensive income before reclassifications
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Amounts reclassified out of accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
34
|
|
|
34
|
|
Net current-period other comprehensive income
|
—
|
|
|
4
|
|
|
34
|
|
|
38
|
|
Balance as of April 30, 2017
|
$
|
1
|
|
|
$
|
(288
|
)
|
|
$
|
(2,292
|
)
|
|
$
|
(2,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Unrealized Gain on Marketable Securities
|
|
Foreign Currency Translation Adjustments
|
|
Defined Benefit Plans
|
|
Total
|
Balance as of October 31, 2016
|
$
|
1
|
|
|
$
|
(280
|
)
|
|
$
|
(2,361
|
)
|
|
$
|
(2,640
|
)
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Amounts reclassified out of accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
69
|
|
|
69
|
|
Net current-period other comprehensive income (loss)
|
—
|
|
|
(8
|
)
|
|
69
|
|
|
61
|
|
Balance as of April 30, 2017
|
$
|
1
|
|
|
$
|
(288
|
)
|
|
$
|
(2,292
|
)
|
|
$
|
(2,579
|
)
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Unrealized Gain on Marketable Securities
|
|
Foreign Currency Translation Adjustments
|
|
Defined Benefit Plans
|
|
Total
|
Balance as of January 31, 2016
|
$
|
1
|
|
|
$
|
(320
|
)
|
|
$
|
(2,282
|
)
|
|
$
|
(2,601
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
50
|
|
|
(18
|
)
|
|
32
|
|
Amounts reclassified out of accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
33
|
|
|
33
|
|
Net current-period other comprehensive income
|
—
|
|
|
50
|
|
|
15
|
|
|
65
|
|
Balance as of April 30, 2016
|
$
|
1
|
|
|
$
|
(270
|
)
|
|
$
|
(2,267
|
)
|
|
$
|
(2,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Unrealized Gain on Marketable Securities
|
|
Foreign Currency Translation Adjustments
|
|
Defined Benefit Plans
|
|
Total
|
Balance as of October 31, 2015
|
$
|
1
|
|
|
$
|
(287
|
)
|
|
$
|
(2,315
|
)
|
|
$
|
(2,601
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
17
|
|
|
(18
|
)
|
|
(1
|
)
|
Amounts reclassified out of accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
66
|
|
|
66
|
|
Net current-period other comprehensive income
|
—
|
|
|
17
|
|
|
48
|
|
|
65
|
|
Balance as of April 30, 2016
|
$
|
1
|
|
|
$
|
(270
|
)
|
|
$
|
(2,267
|
)
|
|
$
|
(2,536
|
)
|
The following table presents the amounts reclassified from
Accumulated other comprehensive loss
and the affected line item in our
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
Six Months Ended April 30,
|
|
|
Location in Consolidated
Statements of Operations
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service benefit
|
|
Selling, general and administrative expenses
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
Amortization of actuarial loss
|
|
Selling, general and administrative expenses
|
|
35
|
|
|
34
|
|
|
70
|
|
|
67
|
|
|
|
Total before tax
|
|
35
|
|
|
33
|
|
|
70
|
|
|
66
|
|
|
|
Tax expense
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Total reclassifications for the period, net of tax
|
|
$
|
34
|
|
|
$
|
33
|
|
|
$
|
69
|
|
|
$
|
66
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
13. Earnings (Loss) Per Share Attributable to Navistar International Corporation
The following table presents the information used in the calculation of our basic and diluted earnings (loss) per share all attributable to NIC in our
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
Six Months Ended April 30,
|
(in millions, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss) attributable to Navistar International Corporation common stockholders
|
$
|
(80
|
)
|
|
$
|
4
|
|
|
$
|
(142
|
)
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
93.3
|
|
|
81.7
|
|
|
87.5
|
|
|
81.7
|
|
Effect of dilutive securities
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Diluted
|
93.3
|
|
|
82.0
|
|
|
87.5
|
|
|
81.7
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Navistar International Corporation:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.86
|
)
|
|
$
|
0.05
|
|
|
$
|
(1.62
|
)
|
|
$
|
(0.35
|
)
|
Diluted
|
(0.86
|
)
|
|
0.05
|
|
|
(1.62
|
)
|
|
(0.35
|
)
|
The conversion rate on our
4.5%
Senior Subordinated Convertible Notes due 2018 (the "2018 Convertible Notes") is
17.1233
shares of common stock per
$1,000
principal amount of 2018 Convertible Notes, equivalent to an initial conversion price of approximately
$58.40
per share of common stock. The 2018 Convertible Notes have an anti-dilutive effect when calculating diluted earnings per share when our average stock price is less than
$58.40
.
The conversion rate on our
4.75%
Senior Subordinated Convertible Notes due 2019 (the “2019 Convertible Notes”) is
18.4946
shares of common stock per
$1,000
principal amount of 2019 Convertible Notes, equivalent to an initial conversion price of approximately
$54.07
per share of common stock. The 2019 Convertible Notes have an anti-dilutive effect when calculating diluted earnings per share when our average stock price is less than
$54.07
.
The computation of diluted earnings per share also excludes outstanding options and other common stock equivalents in periods where inclusion of such potential common stock instruments would be anti-dilutive.
For the
three months ended April 30, 2016
, certain securities have been excluded from the computation of earnings per share, as our average stock price during the period was less than their respective exercise prices. For the
three months ended April 30, 2016
, the aggregate shares not included were
14.9 million
.
For the
three months ended April 30, 2017
, no dilutive securities were included in the computation of diluted earnings per share because they would have been anti-dilutive due to the net loss attributable to NIC. Additionally, certain securities have been excluded from the computation of earnings per share, as our average stock price during the period was less than their respective exercise prices. For the
three months ended April 30, 2017
, the aggregate shares not included were
14.9 million
.
In February 2017, we consummated our previously announced strategic alliance with Volkswagen Truck & Bus ("VW T&B"), which included an equity investment in the Company by VW T&B pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement"), a License and Supply Framework Agreement and a Procurement JV Framework Agreement. Pursuant to the Stock Purchase Agreement, on February 28, 2017 we issued and VW T&B purchased
16.2 million
shares of our common stock for an aggregate purchase price of
$256 million
at
$15.76
per share (a
19.9%
stake (
16.6%
on a fully-diluted basis)) in the Company, excluding stock issuance costs.
For both the
six months ended April 30, 2017
and
2016
, no dilutive securities were included in the computation of diluted earnings per share because they would have been anti-dilutive due to the net loss attributable to NIC. Additionally, certain securities have been excluded from the computation of earnings per share, as our average stock price was less than their respective exercise prices. For both the
six months ended April 30, 2017
and
2016
, the aggregate shares not included were
14.8 million
.
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
For both the
three and six months ended April 30, 2017
and
2016
, the aggregate shares not included in the computation of earnings per share were primarily comprised of
3.4 million
shares related to the 2018 Convertible Notes and
7.6 million
shares
related to the 2019 Convertible Notes.
14. Condensed Consolidating Guarantor and Non-guarantor Financial Information
The following tables set forth condensed consolidating balance sheets as of
April 30, 2017
and
October 31, 2016
, and condensed consolidating statements of operations and comprehensive income (loss) for the
three and six months ended April 30, 2017
and
2016
, and condensed consolidating statements of cash flows for the
six months ended April 30, 2017
and
2016
.
The information is presented as a result of NI’s guarantee, exclusive of its subsidiaries, of NIC’s indebtedness under our Senior Notes, and obligations under our Loan Agreement related to the
6.5%
Tax Exempt Bonds, due 2040. NI is a direct wholly-owned subsidiary of NIC. None of NIC’s other subsidiaries guarantee any of these notes or bonds. The guarantees are "full and unconditional," as those terms are used in Regulation S-X Rule 3-10, except that the guarantees will be automatically released in certain customary circumstances, such as when the subsidiary is sold or all of the assets of the subsidiary are sold, the capital stock is sold, when the subsidiary is designated as an "unrestricted subsidiary" for purposes of the respective indentures for each of the Senior Notes, and the
6.5%
Tax Exempt Bonds, due 2040, upon liquidation or dissolution of the subsidiary or upon legal or covenant defeasance, or satisfaction and discharge of the notes or bonds. Separate financial statements and other disclosures concerning NI have not been presented because management believes that such information is not material to investors. Within this disclosure only, "NIC" includes the financial results of the parent company only, with all of its wholly-owned subsidiaries accounted for under the equity method. Likewise, "NI," for purposes of this disclosure only, includes the consolidated financial results of its wholly-owned subsidiaries accounted for under the equity method and its operating units accounted for on a consolidated basis. "Non-Guarantor Subsidiaries" includes the combined financial results of all other non-guarantor subsidiaries. "Eliminations and Other" includes all eliminations and reclassifications to reconcile to the consolidated financial statements. NIC files a consolidated U.S. federal income tax return that includes NI and its U.S. subsidiaries. NI has a tax allocation agreement ("Tax Agreement") with NIC which requires NI to compute its separate federal income tax liability and remit any resulting tax liability to NIC. Tax benefits that may arise from net operating losses of NI are not refunded to Navistar, Inc. but may be used to offset future required tax payments under the Tax Agreement. The effect of the Tax Agreement is to allow NIC, the parent company, rather than NI, to utilize current U.S. taxable losses of NI and all other direct or indirect domestic subsidiaries of NIC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations for the Three Months Ended April 30, 2017
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Sales and revenues, net
|
$
|
—
|
|
|
$
|
1,533
|
|
|
$
|
1,398
|
|
|
$
|
(835
|
)
|
|
$
|
2,096
|
|
Costs of products sold
|
—
|
|
|
1,381
|
|
|
1,215
|
|
|
(820
|
)
|
|
1,776
|
|
Restructuring charges
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Asset impairment charges
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
All other operating expenses (income)
|
31
|
|
|
255
|
|
|
109
|
|
|
(11
|
)
|
|
384
|
|
Total costs and expenses
|
31
|
|
|
1,643
|
|
|
1,324
|
|
|
(831
|
)
|
|
2,167
|
|
Equity in income (loss) of affiliates
|
(49
|
)
|
|
38
|
|
|
1
|
|
|
12
|
|
|
2
|
|
Income (loss) before income taxes
|
(80
|
)
|
|
(72
|
)
|
|
75
|
|
|
8
|
|
|
(69
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
Net income (loss)
|
(80
|
)
|
|
(72
|
)
|
|
69
|
|
|
8
|
|
|
(75
|
)
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Net income (loss) attributable to Navistar International Corporation
|
$
|
(80
|
)
|
|
$
|
(72
|
)
|
|
$
|
64
|
|
|
$
|
8
|
|
|
$
|
(80
|
)
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Three Months Ended April 30, 2017
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Net income (loss)
|
$
|
(80
|
)
|
|
$
|
(72
|
)
|
|
$
|
69
|
|
|
$
|
8
|
|
|
$
|
(75
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
4
|
|
|
—
|
|
|
4
|
|
|
(4
|
)
|
|
4
|
|
Defined benefit plans, net of tax
|
34
|
|
|
33
|
|
|
1
|
|
|
(34
|
)
|
|
34
|
|
Total other comprehensive income (loss)
|
38
|
|
|
33
|
|
|
5
|
|
|
(38
|
)
|
|
38
|
|
Comprehensive income (loss)
|
(42
|
)
|
|
(39
|
)
|
|
74
|
|
|
(30
|
)
|
|
(37
|
)
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Total comprehensive income (loss) attributable to Navistar International Corporation
|
$
|
(42
|
)
|
|
$
|
(39
|
)
|
|
$
|
69
|
|
|
$
|
(30
|
)
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations for the Six Months Ended April 30, 2017
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Sales and revenues, net
|
$
|
—
|
|
|
$
|
2,795
|
|
|
$
|
2,426
|
|
|
$
|
(1,462
|
)
|
|
$
|
3,759
|
|
Costs of products sold
|
—
|
|
|
2,485
|
|
|
2,094
|
|
|
(1,433
|
)
|
|
3,146
|
|
Restructuring charges
|
—
|
|
|
2
|
|
|
7
|
|
|
—
|
|
|
9
|
|
Asset impairment charges
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
All other operating expenses (income)
|
56
|
|
|
471
|
|
|
219
|
|
|
(25
|
)
|
|
721
|
|
Total costs and expenses
|
56
|
|
|
2,965
|
|
|
2,320
|
|
|
(1,458
|
)
|
|
3,883
|
|
Equity in income (loss) of affiliates
|
(86
|
)
|
|
61
|
|
|
3
|
|
|
27
|
|
|
5
|
|
Income (loss) before income taxes
|
(142
|
)
|
|
(109
|
)
|
|
109
|
|
|
23
|
|
|
(119
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
Net income (loss)
|
(142
|
)
|
|
(109
|
)
|
|
99
|
|
|
23
|
|
|
(129
|
)
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Net income (loss) attributable to Navistar International Corporation
|
$
|
(142
|
)
|
|
$
|
(109
|
)
|
|
$
|
86
|
|
|
$
|
23
|
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Six Months Ended April 30, 2017
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Net income (loss)
|
$
|
(142
|
)
|
|
$
|
(109
|
)
|
|
$
|
99
|
|
|
$
|
23
|
|
|
$
|
(129
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
|
8
|
|
|
(8
|
)
|
Defined benefit plans, net of tax
|
69
|
|
|
66
|
|
|
3
|
|
|
(69
|
)
|
|
69
|
|
Total other comprehensive income (loss)
|
61
|
|
|
66
|
|
|
(5
|
)
|
|
(61
|
)
|
|
61
|
|
Comprehensive income (loss)
|
(81
|
)
|
|
(43
|
)
|
|
94
|
|
|
(38
|
)
|
|
(68
|
)
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Total comprehensive income (loss) attributable to Navistar International Corporation
|
$
|
(81
|
)
|
|
$
|
(43
|
)
|
|
$
|
81
|
|
|
$
|
(38
|
)
|
|
$
|
(81
|
)
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of April 30, 2017
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
333
|
|
|
$
|
101
|
|
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
771
|
|
Marketable securities
|
26
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
178
|
|
Restricted cash
|
16
|
|
|
6
|
|
|
138
|
|
|
—
|
|
|
160
|
|
Finance and other receivables, net
|
11
|
|
|
206
|
|
|
1,882
|
|
|
(91
|
)
|
|
2,008
|
|
Inventories
|
—
|
|
|
593
|
|
|
361
|
|
|
(8
|
)
|
|
946
|
|
Investments in non-consolidated affiliates
|
(7,488
|
)
|
|
6,313
|
|
|
52
|
|
|
1,178
|
|
|
55
|
|
Property and equipment, net
|
—
|
|
|
782
|
|
|
549
|
|
|
(7
|
)
|
|
1,324
|
|
Goodwill
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Deferred taxes, net
|
—
|
|
|
10
|
|
|
152
|
|
|
(1
|
)
|
|
161
|
|
Other
|
5
|
|
|
127
|
|
|
180
|
|
|
(1
|
)
|
|
311
|
|
Total assets
|
$
|
(7,097
|
)
|
|
$
|
8,138
|
|
|
$
|
3,841
|
|
|
$
|
1,070
|
|
|
$
|
5,952
|
|
Liabilities and stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
|
Debt
|
$
|
2,221
|
|
|
$
|
1,140
|
|
|
$
|
1,706
|
|
|
$
|
(2
|
)
|
|
$
|
5,065
|
|
Postretirement benefits liabilities
|
—
|
|
|
2,790
|
|
|
226
|
|
|
—
|
|
|
3,016
|
|
Amounts due to (from) affiliates
|
(8,026
|
)
|
|
10,948
|
|
|
(2,972
|
)
|
|
50
|
|
|
—
|
|
Other liabilities
|
3,839
|
|
|
(149
|
)
|
|
(630
|
)
|
|
(62
|
)
|
|
2,998
|
|
Total liabilities
|
(1,966
|
)
|
|
14,729
|
|
|
(1,670
|
)
|
|
(14
|
)
|
|
11,079
|
|
Stockholders’ equity (deficit) attributable to Navistar International Corporation
|
(5,131
|
)
|
|
(6,591
|
)
|
|
5,507
|
|
|
1,084
|
|
|
(5,131
|
)
|
Stockholders’ equity attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Total liabilities and stockholders’ equity (deficit)
|
$
|
(7,097
|
)
|
|
$
|
8,138
|
|
|
$
|
3,841
|
|
|
$
|
1,070
|
|
|
$
|
5,952
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for the Six Months Ended April 30, 2017
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Net cash provided by (used in) operating activities
|
$
|
(346
|
)
|
|
$
|
(669
|
)
|
|
$
|
188
|
|
|
$
|
720
|
|
|
$
|
(107
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Net change in restricted cash and cash equivalents
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
—
|
|
|
(48
|
)
|
Net sales (purchases) of marketable securities
|
2
|
|
|
—
|
|
|
(134
|
)
|
|
—
|
|
|
(132
|
)
|
Capital expenditures and purchase of equipment leased to others
|
—
|
|
|
(70
|
)
|
|
(33
|
)
|
|
—
|
|
|
(103
|
)
|
Other investing activities
|
(250
|
)
|
|
6
|
|
|
6
|
|
|
250
|
|
|
12
|
|
Net cash provided by (used in) investing activities
|
(248
|
)
|
|
(64
|
)
|
|
(209
|
)
|
|
250
|
|
|
(271
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) of debt
|
244
|
|
|
704
|
|
|
(130
|
)
|
|
(720
|
)
|
|
98
|
|
Issuance of common stock, net of issuance costs
|
245
|
|
|
—
|
|
|
250
|
|
|
(250
|
)
|
|
245
|
|
Other financing activities
|
3
|
|
|
13
|
|
|
(15
|
)
|
|
—
|
|
|
1
|
|
Net cash provided by (used in) financing activities
|
492
|
|
|
717
|
|
|
105
|
|
|
(970
|
)
|
|
344
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Increase (decrease) in cash and cash equivalents
|
(102
|
)
|
|
(16
|
)
|
|
85
|
|
|
—
|
|
|
(33
|
)
|
Cash and cash equivalents at beginning of the period
|
435
|
|
|
117
|
|
|
252
|
|
|
—
|
|
|
804
|
|
Cash and cash equivalents at end of the period
|
$
|
333
|
|
|
$
|
101
|
|
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations for the Three Months Ended April 30, 2016
|
(in millions)
|
NIC
|
|
Navistar, Inc.
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations and Other
|
|
Consolidated
|
Sales and revenues, net
|
$
|
—
|
|
|
$
|
1,702
|
|
|
$
|
1,423
|
|
|
$
|
(928
|
)
|
|
$
|
2,197
|
|
Costs of products sold
|
—
|
|
|
1,548
|
|
|
1,208
|
|
|
(911
|
)
|
|
1,845
|
|
Restructuring charges
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Asset impairment charges
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
3
|
|
All other operating expenses (income)
|
38
|
|
|
233
|
|
|
66
|
|
|
(18
|
)
|
|
319
|
|
Total costs and expenses
|
38
|
|
|
1,786
|
|
|
1,275
|
|
|
(929
|
)
|
|
2,170
|
|
Equity in income (loss) of affiliates
|
42
|
|
|
68
|
|
|
—
|
|
|
(108
|
)
|
|
2
|
|
Income (loss) before income taxes
|
4
|
|
|
(16
|
)
|
|
148
|
|
|
(107
|
)
|
|
29
|
|
Income tax expense
|
—
|
|
|
(2
|
)
|
|
(14
|
)
|
|
—
|
|
|
(16
|
)
|
Net income (loss)
|
4
|
|
|
(18
|
)
|
|
134
|
|
|
(107
|
)
|
|
13
|
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Net income (loss) attributable to Navistar International Corporation
|
$
|
4
|
|
|
$
|
(18
|
)
|
|
$
|
125
|
|
|
$
|
(107
|
)
|
|
$
|
4
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Three Months Ended April 30, 2016
|
(in millions)
|
NIC
|
|
Navistar, Inc.
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations and Other
|
|
Consolidated
|
Net income (loss)
|
$
|
4
|
|
|
$
|
(18
|
)
|
|
$
|
134
|
|
|
$
|
(107
|
)
|
|
$
|
13
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
50
|
|
|
—
|
|
|
50
|
|
|
(50
|
)
|
|
50
|
|
Defined benefit plans (net of tax)
|
15
|
|
|
31
|
|
|
(16
|
)
|
|
(15
|
)
|
|
15
|
|
Total other comprehensive income (loss)
|
65
|
|
|
31
|
|
|
34
|
|
|
(65
|
)
|
|
65
|
|
Comprehensive income (loss)
|
69
|
|
|
13
|
|
|
168
|
|
|
(172
|
)
|
|
78
|
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Total comprehensive income (loss) attributable to Navistar International Corporation
|
$
|
69
|
|
|
$
|
13
|
|
|
$
|
159
|
|
|
$
|
(172
|
)
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations for the Six Months Ended April 30, 2016
|
(in millions)
|
NIC
|
|
Navistar, Inc.
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations and Other
|
|
Consolidated
|
Sales and revenues, net
|
$
|
—
|
|
|
$
|
3,044
|
|
|
$
|
2,623
|
|
|
$
|
(1,705
|
)
|
|
$
|
3,962
|
|
Costs of products sold
|
—
|
|
|
2,752
|
|
|
2,231
|
|
|
(1,672
|
)
|
|
3,311
|
|
Restructuring charges
|
—
|
|
|
4
|
|
|
2
|
|
|
—
|
|
|
6
|
|
Asset impairment charges
|
—
|
|
|
2
|
|
|
3
|
|
|
—
|
|
|
5
|
|
All other operating expenses (income)
|
57
|
|
|
446
|
|
|
174
|
|
|
(36
|
)
|
|
641
|
|
Total costs and expenses
|
57
|
|
|
3,204
|
|
|
2,410
|
|
|
(1,708
|
)
|
|
3,963
|
|
Equity in income (loss) of affiliates
|
28
|
|
|
55
|
|
|
(1
|
)
|
|
(81
|
)
|
|
1
|
|
Income (loss) before income taxes
|
(29
|
)
|
|
(105
|
)
|
|
212
|
|
|
(78
|
)
|
|
—
|
|
Income tax benefit (expense)
|
—
|
|
|
11
|
|
|
(22
|
)
|
|
—
|
|
|
(11
|
)
|
Net income (loss)
|
(29
|
)
|
|
(94
|
)
|
|
190
|
|
|
(78
|
)
|
|
(11
|
)
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Net income (loss) attributable to Navistar International Corporation
|
$
|
(29
|
)
|
|
$
|
(94
|
)
|
|
$
|
172
|
|
|
$
|
(78
|
)
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Six Months Ended April 30, 2016
|
(in millions)
|
NIC
|
|
Navistar, Inc.
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations and Other
|
|
Consolidated
|
Net income (loss)
|
$
|
(29
|
)
|
|
$
|
(94
|
)
|
|
$
|
190
|
|
|
$
|
(78
|
)
|
|
$
|
(11
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
17
|
|
|
—
|
|
|
17
|
|
|
(17
|
)
|
|
17
|
|
Defined benefit plans (net of tax)
|
48
|
|
|
63
|
|
|
(15
|
)
|
|
(48
|
)
|
|
48
|
|
Total other comprehensive income (loss)
|
65
|
|
|
63
|
|
|
2
|
|
|
(65
|
)
|
|
65
|
|
Comprehensive income (loss)
|
36
|
|
|
(31
|
)
|
|
192
|
|
|
(143
|
)
|
|
54
|
|
Less: Net income attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Total comprehensive income (loss) attributable to Navistar International Corporation
|
$
|
36
|
|
|
$
|
(31
|
)
|
|
$
|
174
|
|
|
$
|
(143
|
)
|
|
$
|
36
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of October 31, 2016
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
435
|
|
|
$
|
117
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
804
|
|
Marketable securities
|
27
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
46
|
|
Restricted cash
|
16
|
|
|
6
|
|
|
90
|
|
|
—
|
|
|
112
|
|
Finance and other receivables, net
|
(1
|
)
|
|
171
|
|
|
1,883
|
|
|
(84
|
)
|
|
1,969
|
|
Inventories
|
—
|
|
|
639
|
|
|
313
|
|
|
(8
|
)
|
|
944
|
|
Investments in non-consolidated affiliates
|
(7,714
|
)
|
|
6,253
|
|
|
57
|
|
|
1,457
|
|
|
53
|
|
Property and equipment, net
|
—
|
|
|
669
|
|
|
580
|
|
|
(8
|
)
|
|
1,241
|
|
Goodwill
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Deferred taxes, net
|
—
|
|
|
10
|
|
|
150
|
|
|
1
|
|
|
161
|
|
Other
|
2
|
|
|
110
|
|
|
175
|
|
|
(2
|
)
|
|
285
|
|
Total assets
|
$
|
(7,235
|
)
|
|
$
|
7,975
|
|
|
$
|
3,557
|
|
|
$
|
1,356
|
|
|
$
|
5,653
|
|
Liabilities and stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
|
Debt
|
$
|
1,965
|
|
|
$
|
1,100
|
|
|
$
|
1,841
|
|
|
$
|
(2
|
)
|
|
$
|
4,904
|
|
Postretirement benefits liabilities
|
—
|
|
|
2,865
|
|
|
233
|
|
|
—
|
|
|
3,098
|
|
Amounts due to (from) affiliates
|
(7,724
|
)
|
|
10,709
|
|
|
(3,040
|
)
|
|
55
|
|
|
—
|
|
Other liabilities
|
3,822
|
|
|
(152
|
)
|
|
(665
|
)
|
|
(61
|
)
|
|
2,944
|
|
Total liabilities
|
(1,937
|
)
|
|
14,522
|
|
|
(1,631
|
)
|
|
(8
|
)
|
|
10,946
|
|
Stockholders’ equity (deficit) attributable to Navistar International Corporation
|
(5,298
|
)
|
|
(6,547
|
)
|
|
5,183
|
|
|
1,364
|
|
|
(5,298
|
)
|
Stockholders’ equity attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Total liabilities and stockholders’ equity (deficit)
|
$
|
(7,235
|
)
|
|
$
|
7,975
|
|
|
$
|
3,557
|
|
|
$
|
1,356
|
|
|
$
|
5,653
|
|
Navistar International Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for the Six Months Ended April 30, 2016
|
(in millions)
|
NIC
|
|
Navistar,
Inc.
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
and Other
|
|
Consolidated
|
Net cash provided by (used in) operations
|
$
|
(293
|
)
|
|
$
|
(297
|
)
|
|
$
|
218
|
|
|
$
|
268
|
|
|
$
|
(104
|
)
|
Cash flows from investment activities
|
|
|
|
|
|
|
|
|
|
Net change in restricted cash and cash equivalents
|
—
|
|
|
2
|
|
|
(21
|
)
|
|
—
|
|
|
(19
|
)
|
Net sales (purchases) of marketable securities
|
65
|
|
|
—
|
|
|
(134
|
)
|
|
—
|
|
|
(69
|
)
|
Capital expenditures and purchase of equipment leased to others
|
—
|
|
|
(34
|
)
|
|
(97
|
)
|
|
—
|
|
|
(131
|
)
|
Other investing activities
|
—
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
53
|
|
Net cash provided by (used in) investing activities
|
65
|
|
|
(32
|
)
|
|
(199
|
)
|
|
—
|
|
|
(166
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) of debt
|
—
|
|
|
259
|
|
|
(26
|
)
|
|
(298
|
)
|
|
(65
|
)
|
Other financing activities
|
—
|
|
|
13
|
|
|
(49
|
)
|
|
30
|
|
|
(6
|
)
|
Net cash provided by (used in) financing activities
|
—
|
|
|
272
|
|
|
(75
|
)
|
|
(268
|
)
|
|
(71
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Decrease in cash and cash equivalents
|
(228
|
)
|
|
(57
|
)
|
|
(38
|
)
|
|
—
|
|
|
(323
|
)
|
Cash and cash equivalents at beginning of the period
|
456
|
|
|
81
|
|
|
375
|
|
|
—
|
|
|
912
|
|
Cash and cash equivalents at end of the period
|
$
|
228
|
|
|
$
|
24
|
|
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
589
|
|