<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 April 30, 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 June 5, 1995, the number of shares outstanding of the registrant's
common stock was 50,518,244 and the Class B Common was 24,676,976.
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months and Six Months Ended April 30, 1995 and 1994 3
Statement of Financial Condition --
April 30, 1995, October 31, 1994 and April 30,1994....... 5
Statement of Cash Flow --
Six Months Ended April 30, 1995 and 1994 ................ 7
Notes to Financial Statements .............................. 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ................. 14
Part II. Other Information:
Item 1. Legal Proceedings .................................... 18
Item 4. Submission of Matters to a Vote of Security Holders .. 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 April 30
-------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note -------------------- --------------------
1995 1994 Reference 1995 1994 1995 1994
-------- -------- --------- -------- -------- -------- --------
Sales and revenues
Sales of manufactured products ............. $ 1,586 $ 1,350 $ 1,586 $ 1,350 $ - $ -
Finance and insurance revenue .............. 40 36 - - 54 49
Other income ............................... 14 9 12 7 4 2
-------- -------- -------- -------- -------- --------
Total sales and revenues ................. 1,640 1,395 1,598 1,357 58 51
-------- -------- -------- -------- -------- --------
Costs and expenses
Cost of products and services sold ......... 1,366 1,191 1,364 1,190 2 1
Postretirement benefits .................... 55 44 Note D 55 43 - 1
Engineering expense ........................ 26 22 26 22 - -
Marketing and administrative expense ....... 73 68 66 61 7 7
Interest expense ........................... 23 19 3 2 22 17
Financing charges on sold receivables ...... 9 3 23 16 - -
Insurance claims and underwriting expense .. 14 13 - - 14 13
-------- -------- -------- -------- -------- --------
Total costs and expenses ................. 1,566 1,360 1,537 1,334 45 39
-------- -------- -------- -------- -------- --------
Income before income taxes
Manufacturing ............................ - - 61 23 - -
Financial Services ....................... - - 13 12 - -
-------- -------- -------- -------- -------- --------
Income before income taxes ............. 74 35 74 35 13 12
Income tax expense ..................... (28) (12) Note E (28) (12) (4) (4)
-------- -------- -------- -------- -------- --------
Net income ................................. $ 46 $ 23 $ 46 $ 23 $ 9 $ 8
======== ======== ======== ========
Less dividends on Series G preferred stock . 7 7
-------- --------
Net income applicable to common stock ...... $ 39 $ 16
======== ========
Net income per common share ................ $ .52 $ .21
======== ========
Average number of common and dilutive
common equivalent shares outstanding
(millions) ............................... 74.4 74.6
<FN>
See Notes to Financial Statements.
<PAGE 4>
Six Months Ended April 30
---------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ------------------------- -------------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
$ 2,953 $ 2,437 $ 2,953 $ 2,437 $ - $ -
75 80 - - 102 105
28 17 23 12 8 5
-------- -------- -------- -------- -------- --------
3,056 2,534 2,976 2,449 110 110
-------- -------- -------- -------- -------- --------
2,564 2,137 2,561 2,135 3 2
105 90 104 89 1 1
50 44 50 44 - -
142 130 128 117 14 13
43 39 5 5 41 34
15 6 42 31 - -
27 29 - - 27 29
-------- -------- -------- -------- -------- --------
2,946 2,475 2,890 2,421 86 79
-------- -------- -------- -------- -------- --------
- - 86 28 - -
- - 24 31 - -
-------- -------- -------- -------- -------- --------
110 59 110 59 24 31
(41) (20) (41) (20) (8) (11)
-------- -------- -------- -------- -------- --------
$ 69 $ 39 $ 69 $ 39 $ 16 $ 20
======== ======== ======== ========
14 14
-------- --------
$ 55 $ 25
======== ========
$ .74 $ .33
======== ========
74.4 74.7
<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. The basis of
consolidation is described in Note A while a summary of eliminations is shown in Note B.
<PAGE 5>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Millions of dollars
- ------------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
--------------------------------------
April 30 October 31 April 30 Note
1995 1994 1994 Reference
-------- ---------- -------- ---------
ASSETS
- -----------------------------------
Cash and cash equivalents ....................................... $ 413 $ 557 $ 348
Marketable securities ........................................... 423 304 323
Receivables, net ................................................ 1,708 1,508 1,580
Inventories ..................................................... 493 429 437 Note F
Prepaid pension assets .......................................... 54 63 96
Property, net of accumulated depreciation
and amortization of $724, $684 and $666 ....................... 593 578 543
Equity in Financial Services subsidiaries ....................... - - -
Investments and other assets .................................... 201 165 217
Intangible pension assets ....................................... 309 309 340
Deferred tax asset .............................................. 1,097 1,134 1,160 Note E
-------- -------- --------
Total assets .................................................... $ 5,291 $ 5,047 $ 5,044
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable ................................................ $ 902 $ 836 $ 773
Accrued liabilities ............................................. 478 443 435
Short-term debt ................................................. 186 522 76
Long-term debt .................................................. 1,207 696 1,189
Other long-term liabilities ..................................... 306 298 296
Loss reserves and unearned premiums ............................. 125 136 134
Postretirement benefits liabilities ............................. 1,209 1,299 1,353 Note D
-------- -------- --------
Total liabilities ............................................. 4,413 4,230 4,256
-------- -------- --------
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 4
Common Stock (50.5, 50.0 and 50.0 million shares
issued) and warrants .......................................... 1,634 1,628 1,628
Class B Common (24.7, 25.0 and 25.0 million shares issued) ...... 496 501 501
Retained earnings (deficit) - balance
accumulated after the deficit reclassification ................ (1,470) (1,532) (1,563)
Accumulated foreign currency translation adjustments and
net unrealized holding gains (losses) on marketable securities. (3) (6) (4)
Common stock held in treasury, at cost .......................... (23) (18) (18)
-------- -------- --------
Total shareowners' equity ..................................... 878 817 788
-------- -------- --------
Total liabilities and shareowners' equity ....................... $ 5,291 $ 5,047 $ 5,044
======== ======== ========
<FN>
See Notes to Financial Statements.
<PAGE 6>
Manufacturing* Financial Services*
------------------------------------------ ------------------------------------------
April 30 October 31 April 30 April 30 October 31 April 30
1995 1994 1994 1995 1994 1994
-------- ---------- -------- -------- ---------- --------
$ 333 $ 499 $ 313 $ 80 $ 58 $ 35
285 166 183 138 138 140
254 176 219 1,551 1,342 1,462
493 429 437 - - -
53 62 95 1 1 1
560 549 527 33 29 16
264 249 250 - - -
152 151 200 49 14 17
309 309 340 - - -
1,097 1,134 1,160 - - -
-------- -------- -------- -------- -------- --------
$ 3,800 $ 3,724 $ 3,724 $ 1,852 $ 1,582 $ 1,671
======== ======== ======== ======== ======== ========
$ 847 $ 779 $ 732 $ 154 $ 70 $ 142
452 420 406 24 20 29
5 3 21 181 519 55
120 124 144 1,087 572 1,045
296 289 287 10 9 9
- - - 125 136 134
1,202 1,292 1,346 7 7 7
-------- -------- -------- -------- -------- --------
2,922 2,907 2,936 1,588 1,333 1,421
-------- -------- -------- -------- -------- --------
240 240 240 - - -
4 4 4 - - -
1,634 1,628 1,628 178 178 178
496 501 501 - - -
(1,470) (1,532) (1,563) 86 73 72
(3) (6) (4) - (2) -
(23) (18) (18) - - -
-------- -------- -------- -------- -------- --------
878 817 788 264 249 250
-------- -------- -------- -------- -------- --------
$ 3,800 $ 3,724 $ 3,724 $ 1,852 $ 1,582 $ 1,671
======== ======== ======== ======== ======== ========
<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 7>
STATEMENT OF CASH FLOW (Unaudited)
- ----------------------------------------------------------------------------------
Six Months Ended April 30 (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 ................................. $ 69 $ 39 $ 69 $ 39 $ 16 $ 20
Adjustments to reconcile net income to
cash provided by (used in) operations:
Depreciation and amortization ............ 43 40 40 38 3 2
Equity in earnings of Financial Services,
net of dividends received .............. - - (13) (8) - -
Non-cash income tax expense .............. 37 18 37 18 - -
Additional pension funding ............... (72) - (72) - - -
Other, net ............................... 2 (14) 5 1 (3) (15)
Change in operating assets and liabilities (100) (141) Note C (51) (41) 78 70
-------- -------- -------- -------- -------- --------
Cash provided by (used in) operations ...... (21) (58) 15 47 94 77
-------- -------- -------- -------- -------- --------
Cash flow from investment programs
Purchase of retail notes
and lease receivables .................... (457) (431) - - (457) (431)
Principal collections on retail notes
and lease receivables .................... 63 107 - - 63 107
Sale of retail notes receivables ........... 312 516 - - 312 516
Acquisitions over cash collections
of wholesale notes and accounts receivable - - Note C - - (127) (170)
Purchase of marketable securities .......... (228) (378) (204) (332) (24) (46)
Sales or maturities of marketable securities 113 274 86 234 27 40
Proceeds from property sold under
sale/leaseback ........................... - 87 - 87 - -
Capital expenditures ....................... (50) (33) (50) (33) - -
Other investment programs, net ............. 2 12 8 2 (6) 10
-------- -------- -------- -------- -------- --------
Cash provided by (used in)
investment programs ...................... (245) 154 (160) (42) (212) 26
-------- -------- -------- -------- -------- --------
Cash flow from financing activities
Principal payments on debt ................. (407) (13) (7) (13) (400) -
Net increase (decrease) in notes and
commercial paper ......................... 343 (100) 5 - 338 (100)
Increase in debt outstanding
under bank revolving credit facility ..... 205 - - - 205 -
Dividends paid ............................. (14) (43) (14) (43) (3) (12)
Repurchase of Class B Common stock ......... (5) (13) (5) (13) - -
-------- -------- -------- -------- -------- --------
Cash provided by (used in)
financing activities ..................... 122 (169) (21) (69) 140 (112)
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
Increase (decrease) during the period .... (144) (73) (166) (64) 22 (9)
At beginning of the year ................. 557 421 499 377 58 44
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
at end of the period ..................... $ 413 $ 348 $ 333 $ 313 $ 80 $ 35
======== ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of the Company's manu-
facturing 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
is shown in Note B.
<PAGE 8>
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 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:
<PAGE 9>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note B Financial Statement Eliminations (Continued)
STATEMENT OF INCOME
Three Months Ended Six Months Ended
April 30 April 30
------------------ -------------------
Millions of dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Sales and revenues
Finance and insurance revenue ... $ (14) $ (13) $ (27) $ (25)
Other income .................... (2) - (3) -
------ ------ ------ ------
$ (16) $ (13) $ (30) $ (25)
====== ====== ====== ======
Costs and expenses
Financing charges
on sold receivables ........... $ (14) $ (13) $ (27) $ (25)
Interest expense ................ (2) - (3) -
------ ------ ------ ------
$ (16) $ (13) $ (30) $ (25)
====== ======= ====== ======
Income before income taxes,
Financial Services .............. $ (13) $ (12) $ (24) $ (31)
====== ====== ====== ======
STATEMENT OF FINANCIAL CONDITION
April 30 October 31 April 30
Millions of dollars 1995 1994 1994
- ---------------------------------------------------------------------------
Receivables, net .................. $ (97) $ (10) $ (101)
Equity in Financial Services
subsidiaries .................... (264) (249) (250)
------ ------ ------
Total assets ...................... $ (361) $ (259) $ (351)
====== ====== ======
Accounts payable .................. $ (99) $ (13) $ (101)
Accrued liabilities ............... 2 3 -
Shareowner's equity,
Financial Services .............. (264) (249) (250)
------ ------ ------
Total liabilities
and shareowners' equity ......... $ (361) $ (259) $ (351)
====== ====== ======
STATEMENT OF CASH FLOW
Six Months Ended
April 30
----------------
Millions of dollars 1995 1994
- ------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ..................... $ (130) $ (182)
Investment programs ............ 127 170
Financing activities ........... 3 12
------ ------
Change in cash
and cash equivalents ............ $ - $ -
====== ======
<PAGE 10>
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:
Six Months Ended
April 30
------------------
Millions of dollars 1995 1994
- ----------------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ............... $ 21 $ (9)
Increase in inventories .......................... (64) (28)
Increase in accounts payable ..................... 66 68
Increase in accrued liabilities/other ............ 25 19
Increase in advances to Navistar Financial ....... (99) (91)
------ ------
Manufacturing change in operating assets
and liabilities ................................ (51) (41)
------ ------
FINANCIAL SERVICES
Decrease in accounts payable ..................... (24) (26)
Increase in accrued liabilities .................. 3 5
Increase in advances from Transportation ......... 99 91
------ ------
Financial Services change in operating assets and
liabilities .................................... 78 70
------ ------
Eliminations/reclassifications (a) .................. (127) (170)
------ ------
Change in operating assets and liabilities .......... $ (100) $ (141)
====== ======
(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 six months of 1995 and
1994 were $40 million and $36 million, respectively.
<PAGE 11>
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 and
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 Six Months Ended
April 30 April 30
------------------ ------------------
Millions of dollars 1995 1994 1995 1994
- ----------------------------------------------------------------------------
Pension expense .................. $ 28 $ 27 $ 57 $ 55
Health care and life insurance .. 18 17 35 33
Profit sharing Trust contribution 9 - 13 2
------ ------ ------ ------
Total postretirement
benefits expense ............... $ 55 $ 44 $ 105 $ 90
====== ====== ====== ======
On the Statement of Financial Condition, the postretirement benefits
liabilities includes the following:
April 30 October 31 April 30
Millions of dollars 1995 1994 1994
- ---------------------------------------------------------------------------
Pension .......................... $ 458 $ 549 $ 611
Health care and life insurance ... 751 750 742
------ ------ ------
Postretirement benefits liabilities $1,209 $1,299 $1,353
====== ====== ======
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 has been
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
<PAGE 12>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note E Income Taxes (continued)
payment of income taxes will be minimal. These NOL carryforwards will expire
between 1997 and 2008, as disclosed in Note 5 to the Company's 1994 Annual
Report on Form 10-K.
Note F Inventories
Inventories are as follows:
April 30 October 31 April 30
Millions of dollars 1995 1994 1994
- ---------------------------------------------------------------------------
Finished products ................ $ 211 $ 169 $ 185
Work in process .................. 126 103 91
Raw materials and supplies ....... 156 157 161
------ ------ ------
Total inventories ................ $ 493 $ 429 $ 437
====== ====== ======
Note G Financial Instruments
Derivatives are used by the Company to transfer or reduce risks of
foreign exchange and interest rate volatility and potentially increase the
return on invested funds.
During the second quarter of 1995, Manufacturing entered into forward
contracts to hedge its foreign exchange exposure to the Canadian dollar on
firm commitments. These foreign currency contracts were valued at $25 million
as of April 30, 1995 and mature within three months of origination. Gains or
losses on these contracts will be recognized at the completion of the related
contract. In addition, Manufacturing had $33 million of collateralized
mortgage obligations in its investment portfolio at April 30, 1995.
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 and April, 1995, Navistar Financial entered into a total of four
short-term forward interest rate lock agreements related to the future sale of
retail receivables. Navistar Financial hedged a total of $300 million against
three U.S. Treasury notes maturing in 1997. These forward interest lock
agreements expired on May 18, 1995 in conjunction with the sale of $425
million of retail notes receivable.
In June 1995, Navistar Financial entered into three short-term forward
interest rate lock agreements related to the future sale of retail
receivables. Navistar Financial, in anticipation of selling receivables prior
to November 1, 1995, hedged, until that date, a total of $150 million against
a Treasury note maturing in 1997.
The Financial Services' insurance companies use CMO's to increase the
yield on their investment portfolios. These instruments totalled $31 million
at April 30, 1995.
<PAGE 13>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note H Subsequent Event
Navistar Financial's wholly-owned subsidiary, Navistar Financial
Securities Corporation, filed a registration statement with the Securities and
Exchange Commission providing for the issuance of up to $200 million of pass-
through certificates backed by an undivided ownership interest in wholesale
notes in December 1994. The registration statement was declared effective
March 1, 1995 and on June 8, 1995, a new Navistar Financial Dealer Note Master
Trust issued $200 million of 9.3 year asset-backed certificates to the public.
The net proceeds of $198 million will be used by Navistar Financial for
general working capital purposes.
<PAGE 14>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Consolidated
The Company reported net income of $46 million, or $.52 per common share,
for the second quarter ended April 30, 1995. This is double the net income
for the same period last year of $23 million, or $.21 per common share. For
the first six months of 1995, the Company reported net income of $69 million,
an increase from the $39 million reported for the same period in 1994.
Consolidated sales and revenues for the second quarter of 1995 totalled
$1,640 million, an increase of 18% from the $1,395 million reported for the
comparable quarter in 1994. During the first six months of 1995,
consolidated sales and revenues increased to $3,056 million from $2,534
million. The increase in sales and revenues was the result of continued
strong demand for trucks and diesel engines.
Manufacturing
Second Quarter Ended April 30, 1995
-----------------------------------
Manufacturing, excluding Financial Services, reported income before
income taxes of $74 million compared with pretax income of $35 million in the
second quarter of 1994. The increase in 1995 operating results over 1994
reflects the effects of margin improvements which were achieved through
continued strong sales of the Company's truck and engine products, more
favorable pricing and various cost improvement initiatives.
As a result of the continuing strength of the economies of the United
States and Canada, second quarter 1995 industry retail sales of Class 5
through 8 trucks totalled 97,800 units, an increase of 18% over 1994. Class 8
heavy truck industry sales of 58,300 units during the second quarter of 1995
were 15% higher than the 1994 level of 50,600 units. Industry sales of Class
5, 6 and 7 medium trucks, including school bus chassis, were up 22% to 39,600
units. Industry sales of school bus chassis accounts for about 15% of the
medium truck market.
The Company's sales of trucks, diesel engines and service parts for the
second quarter of 1995 totalled $1,586 million, 17% above the $1,350 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 25.7% market share. The Company's market share for the
second quarter of fiscal 1994 was 26.9%.
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during the second quarter of fiscal 1995 totalled
40,200 units, an increase of 18% 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 $177 million in the second quarter of fiscal 1995
were off slightly from the prior year's level of $185 million.
Other income was $12 million in 1995, up from $7 million in the second
quarter of 1994 as a result of increased interest income on higher cash, cash
equivalents and marketable securities balances.
Manufacturing gross margin (sales less cost of sales) was 14.0% of sales
for the second quarter of 1995 compared with 11.9% for the same period in
fiscal 1994. The improved gross margin is primarily a result of the increase
in sales volume, more favorable pricing and improved cost performance.
<PAGE 15>
Marketing and administrative expense increased to $66 million in 1995
from $61 million in the second quarter of 1994 primarily as a result of higher
sales and distribution expense. Finance service charges on sold receivables
were $23 million, up $7 million over the same period in 1994, as a result of
higher truck sales and increased interest rates.
Six Months Ended April 30, 1995
-------------------------------
Pretax income, excluding Financial Services, for the first six months of
1995 was $110 million, an increase from the $59 million reported for the same
period of 1994.
Manufacturing's sales and revenues during this period totalled $2,976
million, 22% higher than the first two quarters of 1994. During the first six
months of 1995, sales of trucks improved 19% while sales of diesel engines to
original equipment manufacturers increased 34%. Service parts sales increased
slightly over the same period in 1994.
Industry retail sales of Class 5 through 8 trucks during the first half
of fiscal 1995 totalled 187,100 units, an increase from the 158,400 units sold
during this period in 1994. The Company remained the sales leader in the
combined United States and Canadian Class 5 through 8 truck market for the
first six months of the fiscal year, although its market share declined to
25.7% from 26.2% for the same period last year.
During the first two quarters of 1995, other income totalled $23 million,
up from $12 million in 1994, as a result of increased interest income on
higher cash, cash equivalents and marketable securities balances.
Manufacturing gross margin for the first six months of 1995 was 13.3%, an
improvement from 12.4% during the same period of 1994. The factors which
influenced gross margin during the second quarter of 1995 were also
responsible for the change during the first half of the year.
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended Six Months Ended
April 30 April 30
------------------ -------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation . $ 12 $ 12 $ 23 $ 30
Foreign Subsidiaries ........... 1 - 1 1
------ ------ ------ ------
Total ........................ 13 12 24 31
Income tax expense ............. (4) (4) (8) (11)
------ ------ ------ ------
Net income ....................... $ 9 $ 8 $ 16 $ 20
====== ====== ====== ======
Navistar Financial's income before income taxes for the second quarter of
fiscal 1995 was $12 million, unchanged from the comparable period in 1994.
Higher income from an increased volume of wholesale financing to support the
demand for trucks was offset by Navistar Financial's insurance subsidiary's
higher loss experience in liability lines and lower written premium volume.
<PAGE 16>
Income before income taxes for the first six months of 1995 was $23
million for Navistar Financial, a decrease from the $30 million reported in
1994. The change was a result of lower margins on retail financing in the
first quarter of fiscal 1995, as rising interest costs could not be offset
fully by increased retail note pricing, and Navistar Financial's insurance
subsidiary's higher liability loss experience and lower written premium
volume.
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 $836 million
at April 30, 1995, $861 million at October 31, 1994 and $671 million at April
30, 1994.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services operations.
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $618 million at April 30, 1995,
$665 million at October 31, 1994 and $496 million at April 30, 1994. This
included cash and cash equivalents of $333 million at April 30, 1995, $499
million at October 31, 1994 and $313 million at April 30, 1994.
Cash generated by operations during the first six months of 1995 totalled
$114 million, excluding a $99 million advance to Navistar Financial, resulting
in net cash provided by operations of $15 million as reported on the Statement
of Cash Flow. Cash provided by operations resulted primarily from net income
of $69 million, a net change in operating assets and liabilities which
provided cash of $48 million, excluding the advance to Navistar Financial and
$69 million of reconciling non-cash items. These amounts were offset by
additional pension funding of $72 million. Cash of $50 million was used in
the Company's investment programs to fund capital expenditures intended to
increase capacity or to improve cost performance. The remaining cash from
operations was used to partially fund other investment programs and financing
activities.
Other investment programs included primarily a net increase in marketable
securities of $118 million. Financing programs used cash to pay $14 million
in dividends on the Series G Preferred stock, $5 million to buy back Class B
Common shares and $2 million for a net reduction of debt.
The net change in other operating assets and liabilities of $48 million,
reflects a $21 million reduction in outstanding receivables, increased
inventories of $64 million offset by increased accounts payable of $66 million
resulting from higher production. There was also a $25 million increase in
other liabilities as a result of the timing of miscellaneous payments.
At April 30, 1995, the Company had outstanding capital commitments of $62
million. The commitments include truck and engine product development,
expansion of production facilities and ongoing 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.
Management's discussion of the future liquidity of manufacturing's
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
<PAGE 17>
Financial Services
Total cash, cash equivalents and marketable securities of Financial
Services were $218 million at April 30, 1995, $196 million at October 31, 1994
and $175 million at April 30, 1994. This included cash and cash equivalents
of $80 million at April 30, 1995, $58 million at October 31, 1994 and $35
million at April 30, 1994.
Operations provided $94 million in cash during the first six months of
1995 primarily from $99 million in funds advanced to Navistar Financial by
Transportation. Cash from operations and from financing activities funded
Financial Services investment programs. Financing activities provided $140
million in cash during this period reflecting a net increase in debt of $143
million. The investment programs used $212 million during the first two
quarters of 1995 as a result of a net increase of $209 million in retail and
wholesale finance receivables.
During the first six months of fiscal 1995, Navistar Financial supplied
93% 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
13% during the first half 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 April 30, 1995, available funding under Navistar Financial's amended
and restated credit facility and the asset-backed commercial paper facility
were $340 million, of which $81 million provided funding backup for the
outstanding short-term debt. The remaining $259 million when combined with
unrestricted cash and cash equivalents made $307 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.
BUSINESS OUTLOOK
Based on current demand, key market indicators and 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, 15%
above 1994 unit sales. In addition, the Company projects Class 8 heavy truck
demand will reach 215,000 units, more than 5% above 1994 unit sales.
The Company's diesel engine shipments to original equipment manufacturers
are expected to be 153,900 units, 18% higher in 1995 than in 1994. Sales of
service parts by the Company are forecast to grow 2% in 1995.
Demand for Class 5, 6 and 7 medium truck, Class 8 heavy trucks and mid-
range diesel engines is cyclical. These markets are affected by such economic
factors as industrial production, construction, demand for consumer durable
goods, interest rates and the earnings and cash flow of U.S. and Canadian
corporations. Demand for service parts and revenues from finance and
insurance operations tend to follow the truck industry cycle but are more
stable. The cyclical nature of these markets affects the Company's net income
and its ability to generate cash from operations.
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 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareowners was held on March 15,
1995. The following four nominees were elected to the Board of
Directors for three year terms until the 1998 Annual Meeting of
Shareowners.
Shares Voted Shares
Nominees "FOR" "WITHHELD"
-------- ------------ ----------
Wallace W. Booth 41,622,065 1,274,041
Mary Garst 41,574,111 1,321,995
Dr. Arthur G. Hansen 41,628,371 1,267,735
John R. Horne 41,641,003 1,255,102
The results of the voting on the following additional item was as
follows:
- Ratification of the appointment of Deloitte & Touche LLP as
independent accountants for the current fiscal year -
Shares Voted "FOR" 42,618,612
Shares Voted "AGAINST" 171,799
Shares "ABSTAINING" 105,695
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 April 30, 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/ Robert I. Morrison
- ----------------------------------
Robert I. Morrison
Vice President and Controller
June 12, 1995