<PAGE 1> UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9618 N A V I S T A R I N T E R N A T I O N A L C O R P O R A T I O N ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-3359573 ---------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 455 North Cityfront Plaza Drive, Chicago, Illinois 60611 -------------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 836-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 8, 1995, the number of shares outstanding of the registrant's Common Stock was 50,069,632 and the Class B Common was 25,034,861. <PAGE 2> NAVISTAR INTERNATIONAL CORPORATION AND SUBSIDIARIES ---------------------------------- INDEX ----- Page Reference --------- Part I. Financial Information: Item 1. Financial Statements: Statement of Income -- Three Months Ended January 31, 1995 and 1994 ............ 3 Statement of Financial Condition -- January 31, 1995, October 31, 1994 and January 31, 1994 . 4 Statement of Cash Flow -- Three Months Ended January 31, 1995 and 1994 ............ 6 Notes to Financial Statements ............................. 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition . 13 Part II. Other Information: Item 1. Legal Proceedings ................................ 18 Item 6. Exhibits and Reports on Form 8-K ................. 18 Signature ................................................. 19 Exhibit 11 .................................................. E-1 <PAGE 3> PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements STATEMENT OF INCOME (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------- Millions of dollars, except per share data - ------------------------------------------------------------------------------------------------------------------------------- Three Months Ended January 31 ------------------------------------------------------------------------------------------ Navistar International Corporation and Consolidated Subsidiaries Manufacturing* Financial Services* ------------------------- Note --------------------- --------------------- 1995 1994 Reference 1995 1994 1995 1994 -------- -------- --------- -------- -------- -------- -------- Sales and revenues Sales of manufactured product ....... $ 1,367 $ 1,087 $ 1,367 $ 1,087 $ - $ - Finance and insurance revenue ....... 35 44 - - 48 56 Other income ........................ 14 8 11 5 4 3 -------- -------- -------- -------- -------- -------- Total sales and revenues .......... 1,416 1,139 1,378 1,092 52 59 -------- -------- -------- -------- -------- -------- Costs and expenses Cost of products and services sold .. 1,198 946 1,197 945 1 1 Postretirement benefits ............. 50 46 Note D 49 46 1 - Engineering expense ................. 24 22 24 22 - - Marketing and administrative expense. 69 62 62 56 7 6 Interest expense .................... 20 20 2 3 19 17 Financing charges on sold receivables 6 3 19 15 - - Insurance claims and underwriting expense .......... 13 16 - - 13 16 -------- -------- -------- -------- -------- -------- Total costs and expenses ........... 1,380 1,115 1,353 1,087 41 40 -------- -------- -------- -------- -------- -------- Income before income taxes Manufacturing ..................... - - 25 5 - - Financial Services ................ - - 11 19 - - -------- -------- -------- -------- -------- -------- Income before income taxes ...... 36 24 36 24 11 19 Income tax expense .............. (13) (8) Note E (13) (8) (4) (7) -------- -------- -------- -------- -------- -------- Net income .......................... $ 23 $ 16 $ 23 $ 16 $ 7 $ 12 ======== ======== ======== ======== Less dividends on Series G preferred stock ............................. 7 7 -------- -------- Net income applicable to common stock $ 16 $ 9 ======== ======== Net income per common share ......... $ .21 $ .12 ======== ======== Average number of common and dilutive common equivalent shares outstanding (millions) ..... 74.5 74.8 <FN> See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of the Company's manufacturing operations with its wholly-owned financial services subsidiaries included under the equity method of accounting. "Financial Services" includes the Company's wholly-owned subsidiary, Navistar Financial Corporation, and other wholly-owned finance and insurance subsidiaries. Transactions between Manufacturing and Financial Services have been eliminated from the "Navistar International Corporation and Consolidated Subsidiaries" columns. The basis of consolidation is described in Note A while a summary of eliminations and reclassifications is shown in Note B. <PAGE 4> STATEMENT OF FINANCIAL CONDITION (Unaudited) - ------------------------------------------------------------------------------------------------ Millions of dollars - ------------------------------------------------------------------------------------------------ Navistar International Corporation and Consolidated Subsidiaries -------------------------- January 31 October 31 January 31 Note 1995 1994 1994 Reference ---------- ---------- ---------- --------- ASSETS - ----------------------------------- Cash and cash equivalents .................. $ 346 $ 557 $ 291 Marketable securities ...................... 363 304 227 Receivables, net ........................... 1,354 1,517 1,305 Inventories ................................ 475 429 462 Note F Prepaid pension assets ..................... 50 63 84 Property, net of accumulated depreciation and amortization of $703, $684 and $649 .. 583 578 546 Equity in Financial Services subsidiaries .. - - - Investments and other assets ............... 191 165 238 Intangible pension assets .................. 309 309 340 Deferred tax asset ......................... 1,123 1,134 1,170 Note E -------- -------- -------- Total assets ............................... $ 4,794 $ 5,056 $ 4,663 ======== ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY - ----------------------------------- Liabilities Accounts payable ........................... $ 791 $ 836 $ 700 Accrued liabilities ........................ 432 452 390 Short-term debt ............................ 168 522 30 Long-term debt ............................. 820 696 970 Other long-term liabilities ................ 301 298 296 Loss reserves and unearned premiums ........ 129 136 141 Postretirement benefits liabilities ........ 1,313 1,299 1,360 Note D -------- -------- -------- Total liabilities ........................ 3,954 4,239 3,887 -------- -------- -------- Shareowners' equity Series G convertible preferred stock (liquidation preference $240 million) .... 240 240 240 Series D convertible junior preference stock (liquidation preference $4 million) ...... 4 4 5 Common stock (50.1, 50.0 and 49.8 million shares issued) ........................... 1,628 1,628 1,623 Class B Common (25.0, 25.0 and 25.2 million shares issued) ........................... 501 501 504 Retained earnings (deficit) - balance accumulated after the deficit reclassification ......................... (1,509) (1,532) (1,579) Note G Accumulated foreign currency translation adjustments and net unrealized holding gains (losses) on marketable securities .. (6) (6) (4) Common stock held in treasury, at cost ..... (18) (18) (13) -------- -------- -------- Total shareowners' equity ................ 840 817 776 -------- -------- -------- Total liabilities and shareowners' equity .. $ 4,794 $ 5,056 $ 4,663 ======== ======== ======== <FN> See Notes to Financial Statements. <PAGE 5> Manufacturing* Financial Services* - ------------------------------------ ------------------------------------ January 31 October 31 January 31 January 31 October 31 January 31 1995 1994 1994 1995 1994 1994 - ---------- ---------- ---------- ---------- ---------- ---------- $ 311 $ 499 $ 247 $ 35 $ 58 $ 44 227 166 83 136 138 144 241 176 207 1,199 1,351 1,203 475 429 462 - - - 49 62 83 1 1 1 547 549 526 36 29 20 257 249 246 - - - 162 151 211 29 14 27 309 309 340 - - - 1,123 1,134 1,170 - - - -------- -------- -------- -------- -------- -------- $ 3,701 $ 3,724 $ 3,575 $ 1,436 $ 1,591 $ 1,439 ======== ======== ======== ======== ======== ======== $ 736 $ 779 $ 629 $ 141 $ 70 $ 173 400 420 361 32 29 32 9 3 25 159 519 5 118 124 146 702 572 824 292 289 285 9 9 11 - - - 129 136 141 1,306 1,292 1,353 7 7 7 -------- -------- -------- -------- -------- -------- 2,861 2,907 2,799 1,179 1,342 1,193 -------- -------- -------- -------- -------- -------- 240 240 240 - - - 4 4 5 - - - 1,628 1,628 1,623 178 178 178 501 501 504 - - - (1,509) (1,532) (1,579) 81 73 68 (6) (6) (4) (2) (2) - (18) (18) (13) - - - -------- -------- -------- -------- -------- -------- 840 817 776 257 249 246 -------- -------- -------- -------- -------- -------- $ 3,701 $ 3,724 $ 3,575 $ 1,436 $ 1,591 $ 1,439 ======== ======== ======== ======== ======== ======== <FN> * "Manufacturing" includes the consolidated financial results of the Company's manufacturing operations with its wholly-owned financial services subsidiaries included under the equity method of accounting. "Financial Services" includes the Company's wholly-owned subsidiary, Navistar Financial Corporation, and other wholly-owned finance and insurance subsidiaries. Transactions between Manufacturing and Financial Services have been eliminated from the "Navistar International Corporation and Consolidated Subsidiaries" columns on the preceding page. The basis of consolidation is described in Note A while a summary of eliminations is shown in Note B. <PAGE 6> STATEMENT OF CASH FLOW (Unaudited) - -------------------------------------------------------------------------------------------------------------------------------- For the Three Months Ended January 31 (Millions of dollars) - -------------------------------------------------------------------------------------------------------------------------------- Navistar International Corporation and Consolidated Subsidiaries Manufacturing* Financial Services* ------------------------- Note --------------------- --------------------- 1995 1994 Reference 1995 1994 1995 1994 -------- -------- --------- -------- -------- -------- -------- Cash flow from operations Net income ............................ $ 23 $ 16 $ 23 $ 16 $ 7 $ 12 Adjustments to reconcile net income to cash provided by (used in) operations: Depreciation and amortization ....... 21 20 19 19 2 1 Equity in earnings of Financial Services, net of dividends received - - (7) (5) - - Allowance for losses on receivables and dealer loans .................. 1 3 1 2 - 1 Non-cash income tax expense ......... 11 8 11 8 - - Other, net .......................... (3) (19) - (6) (3) (13) Change in operating assets and liabilities ................... (55) (136) Note C (153) (190) 75 100 -------- -------- -------- -------- -------- -------- Cash provided by (used in) operations (2) (108) (106) (156) 81 101 -------- -------- -------- -------- -------- -------- Cash flow from investment programs Purchase of retail notes and lease receivables ............... (216) (220) - - (216) (220) Principal collections on retail notes and lease receivables ............... 39 50 - - 39 50 Sale of retail notes receivable ...... 299 494 - - 299 494 Acquisitions (over) under cash collections of wholesale notes and accounts receivable ............. - - Note C - - 23 (46) Purchase of marketable securities ..... (102) (226) (89) (199) (13) (27) Sales or maturities of marketable securities ............ 43 217 28 200 15 17 Proceeds from property sold under sale/leaseback ...................... - 87 - 87 - - Capital expenditures .................. (18) (12) (18) (12) - - Net (increase) decrease in property and equipment, leased to others ..... (8) 7 - - (8) 7 Other investment programs, net ........ 3 1 3 1 - - -------- -------- -------- -------- -------- -------- Cash provided by (used in) investment programs ............... 40 398 (76) 77 139 275 -------- -------- -------- -------- -------- -------- Cash flow from financing activities Principal payments on short-term debt . (400) - - - (400) - Principal payments on long-term debt .. (6) (7) (6) (7) - - Net increase (decrease) in notes and commercial paper ....... 147 (150) 7 - 140 (150) Increase (decrease) in debt outstanding under bank revolving credit facility. 17 (219) - - 17 (219) Dividends paid ........................ (7) (36) (7) (36) - (7) Repurchase of Class B Common stock .... - (8) - (8) - - -------- -------- -------- -------- -------- -------- Cash used in financing activities ... (249) (420) (6) (51) (243) (376) -------- -------- -------- -------- -------- -------- Cash and cash equivalents Decrease during the period ........... (211) (130) (188) (130) (23) - At beginning of the year ............. 557 421 499 377 58 44 -------- -------- -------- -------- -------- -------- Cash and cash equivalents at end of the period ................. $ 346 $ 291 $ 311 $ 247 $ 35 $ 44 ======== ======== ======== ======== ======== ======== <FN> See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of the Company's manufacturing operations with its wholly-owned financial services subsidiaries included under the equity method of accounting. "Financial Services" includes the Company's wholly-owned subsidiary, Navistar Financial Corporation, and other wholly-owned finance and insurance subsidiaries. Transactions between Manufacturing and Financial Services have been eliminated from the "Navistar International Corporation and Consolidated Subsidiaries" columns. The basis of consolidation is described in Note A while a summary of eliminations and reclassifications is shown in Note B. <PAGE 7> Navistar International Corporation and Subsidiaries Notes to Financial Statements--(Unaudited) Note A Summary of Accounting Policies Navistar International Corporation is a holding company whose principal operating subsidiary is Navistar International Transportation Corp. (Transportation). As used hereafter, "Company" refers to Navistar International Corporation and its consolidated subsidiaries. The accompanying unaudited financial statements have been prepared in accordance with accounting policies described in the 1994 Annual Report on Form 10-K and should be read in conjunction with the disclosures therein. In addition to the consolidated financial statements, the Company has elected to provide financial information in a format that presents the operating results, financial condition and cash flow from operations designated as "Manufacturing" and "Financial Services." As used herein and in the 1994 Annual Report on Form 10-K, Manufacturing includes the consolidated financial results of the Company's manufacturing operations with its wholly- owned financial services subsidiaries included on a one-line basis under the equity method of accounting. Financial Services includes Navistar Financial Corporation (Navistar Financial), and other wholly-owned foreign finance and insurance subsidiaries. In the opinion of management, these interim financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flow for the periods presented. Interim results are not necessarily indicative of results for the full year. Certain 1994 amounts have been reclassified to conform with the presentation used in the 1995 financial statements. Note B Financial Statement Eliminations The consolidated columns of the financial statements represent the summation of Manufacturing and Financial Services after intercompany transactions between Manufacturing and Financial Services have been eliminated. The following are the intercompany amounts which have been eliminated to arrive at the consolidated financial statements: STATEMENT OF INCOME Three Months Ended January 31 --------------------- Millions of dollars 1995 1994 - -------------------------------------------------------------------------- Sales and revenues Finance and insurance revenue .................. $ (13) $ (12) Other income ................................... (1) - -------- -------- $ (14) $ (12) ======== ======== Costs and expenses Financing charges on sold receivables .......... $ (13) $ (12) Interest expense ............................... (1) - -------- -------- $ (14) $ (12) ======== ======== Income before income taxes, Financial Services ... $ (11) $ (19) ======== ======== <PAGE 8> Navistar International Corporation and Subsidiaries Notes to Financial Statements--(Unaudited) Note C Financial Statement Eliminations (Continued) STATEMENT OF FINANCIAL CONDITION January 31 October 31 January 31 Millions of dollars 1995 1994 1994 - ----------------------------------------------------------------------------- Receivables, net ...................... $ (86) $ (10) $ (105) Equity in Financial Services subsidiaries ........................ (257) (249) (246) -------- -------- -------- Total assets .......................... $ (343) $ (259) $ (351) ======== ======== ======== Accounts payable ...................... $ (86) $ (13) $ (102) Accrued liabilities ................... - 3 (3) Shareowner's equity, Financial Services (257) (249) (246) -------- -------- -------- Total liabilities and shareowners' equity ............. $ (343) $ (259) $ (351) ======== ======== ======== STATEMENT OF CASH FLOW Three Months Ended January 31 --------------------- Millions of dollars 1995 1994 - -------------------------------------------------------------- Cash and cash equivalents provided by (used in): Operations ......................... $ 23 $ (53) Investment programs ................ (23) 46 Financing activities ............... - 7 -------- -------- Change in cash and cash equivalents ... $ - $ - ======== ======== <PAGE 9> Navistar International Corporation and Subsidiaries Notes to Financial Statements--(Unaudited) Note C Information Related to the Statement of Cash Flow The following provides information related to the change in operating assets and liabilities included in cash and cash equivalents provided by (used in) operations: Three Months Ended January 31 --------------------- Millions of dollars 1995 1994 - -------------------------------------------------------------- MANUFACTURING Decrease in receivables ............ $ 14 $ 16 Increase in inventories ............ (49) (52) Increase in prepaid and other current assets ......... (12) (15) Decrease in accounts payable ....... (38) (37) Increase (decrease) in accrued liabilities ........... 16 (2) Increase in advances to Navistar Financial ............ (84) (100) -------- -------- Manufacturing change in operating assets and liabilities . (153) (190) -------- -------- FINANCIAL SERVICES Increase in receivables ............ - (24) Increase (decrease) in accounts payable .............. (15) 20 Increase in accrued liabilities .... 6 4 Increase in advances from Transportation .............. 84 100 -------- -------- Financial Services change in operating assets and liabilities . 75 100 -------- -------- Eliminations/reclassifications (a) ... 23 (46) -------- -------- Change in operating assets and liabilities .................... $ (55) $ (136) ======== ======== (a) Eliminations and reclassifications to the Statement of Cash Flow primarily consist of "Acquisitions (over) under cash collections" relating to Navistar Financial's wholesale notes and accounts. These amounts are included on a consolidated basis as a change in operating assets and liabilities under cash flow from operations which differs from the Financial Services classification in which net changes in wholesale notes and accounts are classified as cash flow from investment programs. Consolidated interest payments during the first three months of 1995 and 1994 were $18 million and $25 million, respectively. <PAGE 10> Navistar International Corporation and Subsidiaries Notes to Financial Statements--(Unaudited) Note D. Postretirement Benefits The Company provides other postretirement benefits to substantially all of its employees. Expenses associated with postretirement benefits include pension expense for employees, retirees and surviving spouses; postretirement health care and life insurance coverage for employees, retirees, surviving spouses and dependents; as well as a provision for payment of profit sharing to a separate independent retiree Supplemental Trust. This Trust was established under the terms of a Settlement Agreement which restructured postretirement health care and life insurance benefits. The assets held in the Supplemental Trust can be used to potentially reduce retiree premiums, co- payments and deductibles and provide additional benefits in the future. The costs of postretirement benefits are segregated as a separate component in the Statement of Income as follows: Three Months Ended January 31 --------------------- Millions of dollars 1995 1994 - -------------------------------------------------------------- Pension expense ..................... $ 29 $ 28 Health care and life insurance ...... 17 16 Profit sharing Trust contribution ... 4 2 -------- -------- Total postretirement benefits expense $ 50 $ 46 ======== ======== On the Statement of Financial Condition, postretirement benefits liabilities includes the following: January 31 October 31 January 31 Millions of dollars 1995 1994 1994 - ---------------------------------------------------------------------------- Pension .......................... $ 568 $ 549 $ 608 Health care and life insurance ... 745 750 752 -------- -------- -------- Postretirement benefits liabilities .................... $ 1,313 $ 1,299 $ 1,360 ======== ======== ======== <PAGE 11> Navistar International Corporation and Subsidiaries Notes to Financial Statements--(Unaudited) Note E Income Taxes Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," deferred tax assets and liabilities are generally determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Recognition of a net deferred tax asset is allowed if future realization is more-likely-than-not. Because the benefit of Net Operating Loss (NOL) carryforwards is recognized as a deferred tax asset in the Statement of Financial Condition, the Statement of Income includes income taxes calculated at the statutory rate. The amount reported does not represent cash payment of income taxes except for certain state income, foreign withholding and federal alternative minimum taxes which are not material. In the Statement of Financial Condition, the deferred tax asset is reduced by the amount of deferred tax expense or increased by a deferred tax benefit recorded during the year. Until the Company has utilized its significant NOL carryforwards, the cash payment of income taxes will be minimal. Note F Inventories Inventories are as follows: January 31 October 31 January 31 Millions of dollars 1995 1994 1994 - ---------------------------------------------------------------------------- Finished products ................... $ 202 $ 169 $ 215 Work in process ..................... 112 103 98 Raw materials and supplies .......... 161 157 149 -------- -------- -------- Total inventories ................... $ 475 $ 429 $ 462 ======== ======== ======== Note G Retained Earnings Retained earnings (deficit) are as follows: January 31 October 31 January 31 Millions of dollars 1995 1994 1994 - ---------------------------------------------------------------------------- Retained earnings (deficit) at beginning of year .............. $ (1,532) $ (1,588) $ (1,588) Net income .......................... 23 82 16 Preferred dividends declared ........ - (36) (7) Adjustment for excess additional pension liability over intangible pension assets, net of tax expense. - 10 - -------- -------- -------- Retained earnings (deficit) at end of period .................. $ (1,509) $ (1,532) $ (1,579) ======== ======== ======== <PAGE 12> Navistar International Corporation and Subsidiaries Notes to Financial Statements--(Unaudited) Note H Financial Instruments Derivatives are used by the Company to transfer or reduce risks in foreign exchange and purchase transactions, reduce interest rate risks and potentially increase the return on invested funds. The use of derivatives by Manufacturing is generally not material as disclosed in the Company's Annual Report on Form 10-K at October 31, 1994. At January 31, 1995, Manufacturing had $11 million of collateralized mortgage obligations in its investment portfolio and there were no hedging instruments in effect which is unchanged from October 31, 1994. Navistar Financial uses interest rate caps and swaps when needed to convert floating rate funds to fixed and vice versa to match its receivable asset portfolio and a variety of contracts to lock in interest rates during the period in which retail receivables are being sold. In addition to the instruments disclosed in the Annual Report on Form 10-K at October 31, 1994, in February 1995, Navistar Financial entered into two short-term forward interest rate lock agreements related to the future sale of retail receivables. Navistar Financial, in anticipation of selling receivables at some time prior to June 1, 1995, hedged, until that date, a total of $150 million against two U.S. Treasury notes maturing in 1997. The Financial Services' insurance companies use CMO's and foreign exchange future contracts to increase the yield on their investment portfolios. These instruments totalled $24 million at January 31, 1995. <PAGE 13> Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- Consolidated The Company reported net income of $23 million, or $.21 per common share, for the first quarter ended January 31, 1995, an increase from the net income of $16 million, or $.12 per common share, reported for the same period last year. Consolidated sales and revenues for the first quarter of 1995 totalled $1,416 million, an increase of 24% from the $1,139 million reported for the comparable quarter in 1994, a result of continued strong demand for trucks, diesel engines and service parts. Manufacturing Manufacturing, excluding Financial Services, reported income before income taxes of $25 million compared with pretax income of $5 million in the first quarter of 1994. The improvement in 1995 operating results over 1994 reflects increased demand in each of the Company's businesses. As a result of the continuing strength of the economies of the United States and Canada, first quarter 1995 industry retail sales of Class 5 through 8 trucks totalled 90,000 units, an increase of 19% over 1994. Class 8 heavy truck industry sales of 55,100 units during the first quarter of 1995 were 21% higher than the 1994 level of 45,400 units. Industry sales of Class 5, 6 and 7 medium trucks, including school bus chassis, were up 17% to 34,900 units. Industry sales of school bus chassis, which accounted for about 19% of the medium truck market, increased 9%. The Company's sales of trucks, diesel engines and service parts for the first quarter of 1995 totalled $1,367 million, 26% above the $1,087 million reported for the same period in 1994. The Company maintained its position as sales leader in the combined United States and Canadian Class 5 through 8 truck market with a 26.1% market share, up from the 25.4% market share reported for the first quarter of fiscal 1994. Shipments of mid-range diesel engines by the Company to original equipment manufacturers during the first quarter of fiscal 1995 totalled 33,400 units, an increase of 22% from the same period of fiscal 1994. Higher shipments to a major automotive manufacturer to meet consumer demand for the light trucks and vans which use this engine was the primary reason for the increase. Service parts sales of $180 million in the first quarter of fiscal 1995 improved 10% from the prior year's level. Other income was $11 million in 1995, up from $5 million in the first quarter of 1994 as a result of increased earnings on higher cash, cash equivalent and marketable securities balances. <PAGE 14> Manufacturing gross margin (sales less cost of sales) was 12.5% of sales for the first quarter of 1995 compared with 13.0% for the same period in fiscal 1994. The impact on gross margin from the increase in sales volume, performance improvement programs and higher price realization was more than offset by an increase in material costs, adverse Canadian foreign exchange and higher operating costs associated with increased levels of production at both the truck and engine operations. Marketing and administrative expense increased to $62 million in 1995 from $56 million in the first quarter of 1994 primarily as a result of higher sales and distribution expense. Finance service charges on sold receivables were $19 million, up 27% over the same period in 1994, as a result of higher truck sales and increased interest rates. Financial Services Net income, in millions of dollars, of the subsidiaries comprising Financial Services is as follows: Three Months Ended January 31 --------------------- 1995 1994 -------- -------- Income before income taxes: Navistar Financial Corporation ...... $ 10 $ 18 Foreign Subsidiaries ................ 1 1 -------- -------- Total ............................. 11 19 Income tax expense .................. (4) (7) -------- -------- Net income .......................... $ 7 $ 12 ======== ======== Navistar Financial's income before income taxes for the first quarter of fiscal 1995 was $10 million, a decrease from the $18 million reported in 1994. The change was primarily a result of lower margins on retail financing as rising interest costs could not be offset fully by increased retail note pricing. During the first quarter of 1995, sales of receivables totalled $315 million with a small loss compared with $538 million sold a year ago with a gain of $10 million. The decline in retail note income was offset in part by an increased volume of wholesale financing to support the higher demand for trucks. LIQUIDITY AND CAPITAL RESOURCES Consolidated Consolidated cash flow is generated from the manufacture, sale and financing of trucks, diesel engines and service parts. Total cash, cash equivalents and marketable securities of the Company amounted to $709 million at January 31, 1995, $861 million at October 31, 1994 and $518 million at January 31, 1994. The following discussion has been organized to discuss separately the cash flows of the Company's Manufacturing and Financial Services operations. <PAGE 15> Manufacturing Liquidity available to Manufacturing in the form of cash, cash equivalents and marketable securities totalled $538 million at January 31, 1995, $665 million at October 31, 1994 and $330 million at January 31, 1994. The following is a summary of cash flow for the three months ended January 31, 1995. Three Months Ended Millions of dollars January 31, 1995 - ----------------------------------------------------------------------------- Cash and cash equivalents used in: Operations ........................ $ (106) Investment programs ............... (76) Financing activities .............. (6) -------- Decrease in cash and cash equivalents .......... $ (188) ======== Operations used $106 million in cash during the first quarter of 1995 as follows: Three Months Ended Millions of dollars January 31, 1995 - ----------------------------------------------------------------------------- Net income .......................... $ 23 Items not affecting cash, principally depreciation .......... 13 Non-cash income tax expense ......... 11 Change in operating assets and liabilities: Decrease in receivables ......... $ 14 Increase in inventories ......... (49) Decrease in accounts payable .... (38) Increase in advance to Navistar Financial ......... (84) Increase in accrued liabilities/other ............. 4 (153) -------- -------- Cash used in operations ............. $ (106) ======== The $153 million net change in operating assets and liabilities consists primarily of a $49 million increase in inventories reflecting the impact of higher sales volume and production, a $38 million decrease in accounts payable between October 31, 1994 and January 31, 1995 reflecting a normal seasonal pattern resulting from a scheduled Christmas plant shutdown and an advance to Navistar Financial of $84 million. Investment programs used $76 million in cash during the first three months of fiscal 1995 as a result of a $61 million net increase in marketable securities and capital expenditures of $18 million. Cash used for financing programs consisted of $7 million in cash dividends paid on the Series G Preferred Stock offset by a $1 million net increase in debt. At January 31, 1995, the Company had outstanding capital commitments of $37 million. The commitments include truck and engine product development and ongoing facility maintenance programs. The Company finances capital expenditures principally through internally generated cash. Capital leasing is used to fund selected projects based on economic and operating factors. <PAGE 16> Management's discussion of the future liquidity of manufacturing's operations is included in the Business Outlook section of Management's Discussion and Analysis. Financial Services Total cash, cash equivalents and marketable securities of Financial Services were $171 million at January 31, 1995, $196 million at October 31, 1994 and $188 million at January 31, 1994. The cash flow for Financial Services for the three months ended January 31, 1995 is summarized as follows: Three Months Ended Millions of dollars January 31, 1995 - ----------------------------------------------------------------------------- Cash and cash equivalents provided by (used in): Operations ....................... $ 81 Investment programs .............. 139 Financing activities ............. (243) -------- Decrease in cash and cash equivalents ......... $ (23) ======== Operations provided $81 million in cash in the first quarter of 1995 primarily from $84 million in funds advanced to Navistar Financial by Transportation. The Financial Services investment programs provided $139 million in cash principally as a result of collections on and sales of retail notes. Financial Services used cash generated from operations and investment programs during the first quarter of 1995 to reduce debt by a net amount of $243 million. During the first three months of fiscal 1995, Navistar Financial supplied 92% of the wholesale financing of new trucks to Transportation's dealers, unchanged from the comparable period in 1994. Navistar Financial's share of the retail financing of new trucks sold to customers in the United States was 12% during the first quarter of 1995, a decrease from 15% in 1994. Navistar Financial's reduced level of retail financing is a result of competition and liquidity in the commercial financing markets. At January 31, 1995, available funding under Navistar Financial's amended and restated credit facility and the asset-backed commercial paper facility was $712 million, of which $59 million provided funding backup for the outstanding short-term debt. The remaining $653 million when combined with unrestricted cash and cash equivalents made $657 million available to fund the general business purposes of Navistar Financial. In addition to the committed credit facilities, Navistar Financial also utilizes a $300 million revolving wholesale note sales trust providing for the continuous sale of eligible wholesale notes on a daily basis. The sales trust is composed of three $100 million pools of notes maturing serially from 1997 to 1999. Management's discussion of the future liquidity of financial services operations is included in the Business Outlook section of Management's Discussion and Analysis. <PAGE 17> BUSINESS OUTLOOK Based on continuing strong demand, key market indicators and record order backlogs, the Company currently projects 1995 United States and Canadian Class 5, 6 and 7 medium truck demand, including school bus chassis, to be 154,500 units, up from the previous estimate of 150,500 units and 15% above 1994 unit sales. In addition, the Company projects heavy truck demand at 215,000 units, an increase from the previous estimate of 205,000 units and 5% above 1994 unit sales. The Company's diesel engine shipments to original equipment manufacturers are expected to be 153,800 units, 18% higher in 1995 than in 1994. Sales of service parts by the Company are forecast to grow 6% in 1995 to $757 million. It is the opinion of management that, in the absence of significant unanticipated cash demands, current and forecasted cash flow will provide a basis for financing operating requirements, capital expenditures and anticipated payments of preferred dividends. In addition, management believes that collections on the outstanding receivables portfolios as well as funds available from various funding sources will permit the Financial Services subsidiaries to meet the financing requirements of the Company's dealers and customers. <PAGE 18> Navistar International Corporation and Subsidiaries PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings Incorporated herein by reference from Item 3 - "Legal Proceedings" in the Company's definitive Form 10-K dated January 27, 1995, Commission File No. 1-9618. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10-Q Page --------- 11. Computation of Net Income Per Share E-1 (b) Reports on Form 8-K: No Reports on Form 8-K were filed for the three months ended January 31, 1995. <PAGE 19> SIGNATURE SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NAVISTAR INTERNATIONAL CORPORATION - ---------------------------------- (Registrant) /s/ R. I. Morrison - ---------------------------------- R. I. Morrison Vice President and Controller March 13, 1995