Summary of Significant Accounting Policies (Policies)

9 Months Ended

Jul. 31, 2019

Inventory [Line Items]

Product Warranty Disclosure [Text Block]

Product Warranty Liability

The following table presents accrued product warranty and deferred warranty revenue activity:

	Nine Months Ended July 31,
(in millions)	2019			2018
Balance at beginning of period	$	529		$	629
Costs accrued and revenues deferred	182			139
Adjustments to pre-existing warranties(A)	7			(4		)
Payments and revenues recognized	(208		)	(233		)
Other adjustments(B)	12			—
Balance at end of period	522			531
Less: Current portion	247			254
Noncurrent accrued product warranty and deferred warranty revenue	$	275		$	277

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(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior fiscal 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.

(B)

Other adjustments include a $14 million increase in revenues deferred in connection with the adoption of the new revenue standard (as defined below regarding Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606), partially offset by a $2 million reduction in liability related to the sale of a majority interest in our defense business, ND Holdings, LLC ("Navistar Defense")..

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations 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, 2018, 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

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 $28 million and $39 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $3 million and $4 million, at each date. As of July 31, 2019 and October 31, 2018, assets include $3 million and $4 million of cash and cash equivalents, respectively, 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 $1.1 billion and $994 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $956 million and $852 million as of July 31, 2019 and October 31, 2018, 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 $465 million and $370 million as of July 31, 2019 and October 31, 2018, respectively, and corresponding liabilities of $253 million and $205 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.

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.

Use of Estimates, Policy [Policy Text Block]

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, tax contingency accruals and valuation allowances, product warranty accruals, asbestos and other product liability accruals, asset impairment charges, restructuring charges and litigation-related accruals. Actual results could differ from our estimates.

Concentration Risk Disclosure [Text Block]

Concentration Risks

Our financial condition, results of operations, and cash flows are subject to concentration risks related to our significant unionized workforce. As of July 31, 2019, approximately 8,300, or 98%, of our hourly workers and approximately 700, or 13%, of our salaried workers, are represented by labor unions and are covered by collective bargaining agreements. In January 2019, certain of our United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") represented employees executed a new six-year master collective bargaining agreement with a ratification date of December 17, 2018 that replaced the prior agreement which expired in October 2018. Our future operations may be affected by changes in governmental procurement 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).

Inventory, Policy [Policy Text Block]

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is principally determined using the first-in, first-out method. Our gross used truck inventory was $251 million at July 31, 2019 compared to $154 million at October 31, 2018, offset by reserves of $55 million and $31 million, respectively.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

On November 1, 2018, we adopted the new accounting standard ASC 606, "Revenue from Contracts with Customers" and all the related amendments (“new revenue standard”) using the modified retrospective method to all contracts. Based on our assessment, the cumulative effect adjustment upon adoption of the new revenue standard had a $27 million impact on our Accumulated deficit. The primary impacts include an increase in Accumulated deficit due to an increase in the refund liability owed to our customers for future returns of core components. Previously our refund liability was recorded net of our future trade-in value to our suppliers. Under the new revenue standard, we record a liability for the amounts owed to our customers and a deposit asset for the amount we are currently eligible to receive from our suppliers. An additional increase relates to a change in the recognition pattern of revenue for extended warranty contracts. Revenue from these contracts was recognized on a straight-line basis over the life of the contract. Under the new revenue standard, revenue for extended warranty contracts is recorded in proportion to the costs expected to be incurred in satisfying the obligations based on historical cost patterns over the life of similar contracts.

The increase in Accumulated deficit is partially offset by certain contracts where revenue recognition occurred as units were delivered and accepted. Under the new revenue standard, when the contract transfers control of a good to a customer as services or production occurs, revenue is recognized over time. An additional decrease in Accumulated deficit relates to certain sales that were recorded as leases or borrowings as we retained substantial risks of ownership. Under the new revenue standard, revenue is recognized upon transfer of control for these transactions, less the value of any guarantees provided to the customer. The adoption of the new revenue standard resulted in changes in the classification of Sales and revenues, net and Costs of products sold in our Consolidated Statements of Operations. The new revenue standard also resulted in changes in the classification of certain assets and liabilities in our Consolidated Balance Sheets.

We have revised our relevant policy and procedures and provided expanded revenue recognition disclosures based on the new qualitative and quantitative disclosure requirements of the standard in Note 2, Revenue.

The cumulative effects of the adjustments made to our November 1, 2018 Consolidated Balance Sheet for the adoption of the new revenue standard were as follows:

(in millions)	Balance at October 31, 2018			Change Due to New Standard			Balance at November 1, 2018
ASSETS
Current assets
Trade and other receivables, net	$	456		$	(8	)	$	448
Inventories, net	1,110			(91		)	1,019
Other current assets	189			101			290
Total current assets	5,136			2			5,138
Property and equipment, net	1,370			(109		)	1,261
Deferred taxes, net	121			1			122
Other noncurrent assets	113			(3		)	110
Total assets	$	7,230		$	(109	)	$	7,121
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	946		$	(15	)	$	931
Other current liabilities	1,255			13			1,268
Total current liabilities	3,807			(2		)	3,805
Long-term debt	4,521			(58		)	4,463
Other noncurrent liabilities	731			(22		)	709
Total liabilities	11,156			(82		)	11,074
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,931		)	(27		)	(3,958		)
Total liabilities and stockholders’ deficit	$	7,230		$	(109	)	$	7,121

The following reconciles amounts as they would have been reported under the prior standard to current reporting:

	Three months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	2,998		$	(2	)	$	2,996
Costs of products sold	2,504			(3		)	2,501
Interest expense	77			(1		)	76
Income before income tax	188			2			190
Income tax expense	(29		)	—			(29		)
Net income	$	159		$	2		$	161

	Nine months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	8,307		$	23		$	8,330
Costs of products sold	6,965			8			6,973
Interest expense	246			(3		)	243
Income before income tax	126			18			144
Income tax expense	(6		)	(3		)	(9		)
Net income	$	120		$	15		$	135

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(A) Our Consolidated Statements of Operations for the nine months ended July 31, 2019 includes two months of the operating activity of Navistar Defense prior to the sale of a majority interest in our former defense business. See Note 3 Restructuring, Impairments and Divestitures for additional information.

	As of July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
ASSETS
Current assets
Trade and other receivables, net	$	432		$	(3	)	$	429
Inventories, net	1,248			(53		)	1,195
Other current assets	210			63			273
Total current assets	5,319			7			5,326
Property and equipment, net	1,485			(195		)	1,290
Deferred taxes, net	126			(2		)	124
Other noncurrent assets	120			(8		)	112
Total assets	$	7,492		$	(198	)	$	7,294
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	689		$	(13	)	$	676
Other current liabilities	1,305			18			1,323
Total current liabilities	3,800			5			3,805
Long-term debt	4,577			(49		)	4,528
Other noncurrent liabilities	824			(132		)	692
Total liabilities	11,130			(176		)	10,954
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,641		)	(22		)	(3,663		)
Total liabilities and stockholders’ deficit	$	7,492		$	(198	)	$	7,294

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(A) Our Consolidated Balance Sheet as of July 31, 2019 does not include the impact of Navistar Defense due to the sale of a majority interest in our former defense business. See Note 3, Restructuring, Impairments and Divestitures for additional information.

Recently Issued Accounting Standards

In August 2018, the FASB issued Accounting Standard Update ("ASU") No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". This ASU provides guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) and determining when the arrangement includes a software license. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2021. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)". This ASU provides guidance on a reclassification from accumulated other comprehensive income to retained earnings for the effect of the tax rate change resulting from the Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. 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: Measurement of Credit Losses on Financial Instruments” (Topic 326), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-13. This 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. This ASU is effective for us in the first quarter of fiscal 2021. The impact of this ASU on our consolidated financial statements will primarily result from our Financial Services operations and certain financial guarantees, and will largely depend on economic conditions and forecasts existing at the time of adoption.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-02. 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. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We expect to adopt this ASU in the first quarter of fiscal 2020 on a modified retrospective basis by which the cumulative effect adjustment will be recognized in Accumulated deficit as of November 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also expect to elect the practical expedient related to land easements, but do not expect to elect the use-of-hindsight. We are currently evaluating our lease population to assess the effect of the guidance on our consolidated financial statements, but expect to record lease liabilities and right-of-use assets for operating leases related to certain property and equipment. We have selected our software and service providers and are focused on designing new processes and controls to assist with the implementation of the standard. We continue to evaluate the impact of this ASU on our consolidated financial statements.