<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 July 31, 1997
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 September 8, 1997, the number of shares outstanding of the
registrant's common stock was 52,178,299 and the Class B Common was
23,090,905.
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months and Nine Months
Ended July 31, 1997 and 1996 ............ 3
Statement of Financial Condition --
July 31, 1997, October 31, 1996
and July 31, 1996 ....................... 4
Statement of Cash Flow --
Nine Months Ended July 31, 1997 and 1996 ... 5
Notes to Financial Statements .................. 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition ............................. 11
Part II. Other Information:
Item 1. Legal Proceedings ..................... 16
Item 6. Exhibits and Reports on Form 8-K ...... 16
Signature ...................................... 17
Exhibit 3 ........................................... E-1
Exhibit 10 .......................................... E-2
Exhibit 11 .......................................... E-27
<PAGE 3>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
------------------------------------------------------------------------------------
Millions of dollars, except per share data
------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------
Three Months Ended Nine Months Ended
July 31 July 31
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
Sales and revenues
Sales of manufactured products ........ $1,526 $1,325 $4,259 $4,110
Finance and insurance revenue ......... 45 53 133 154
Other income .......................... 15 13 41 39
------ ------ ------ ------
Total sales and revenues ............ 1,586 1,391 4,433 4,303
------ ------ ------ ------
Costs and expenses
Cost of products and services sold .... 1,320 1,159 3,688 3,588
Postretirement benefits ............... 50 52 158 163
Engineering and research expense ...... 28 29 90 93
Marketing and administrative expense .. 97 84 267 232
Interest expense ...................... 20 22 57 63
Financing charges on sold receivables . 4 5 16 21
Insurance claims
and underwriting expense ............ 11 12 28 38
------ ------ ------ ------
Total costs and expenses ............ 1,530 1,363 4,304 4,198
------ ------ ------ ------
Income before income taxes ........ 56 28 129 105
Income tax expense ................ 21 11 49 40
------ ------ ------ ------
Net income ............................ 35 17 80 65
Less dividends on Series G
Preferred stock ..................... 7 7 21 21
------ ------ ------ ------
Net income applicable to common stock . $ 28 $ 10 $ 59 $ 44
====== ====== ====== ======
Net income per common share ........... $ .38 $ .13 $ .80 $ .59
====== ====== ====== ======
Average number of common and dilutive
common equivalent shares outstanding
(millions) .......................... 73.6 73.8 73.6 73.8
<FN>
See Notes to Financial Statements.
<PAGE 4>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ------------------------------------------------------------------------------------
Millions of dollars
- ------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
---------------------------------------------
July 31 October 31 July 31
1997 1996 1996
---------- ---------- ----------
ASSETS
- --------------------------------
Cash and cash equivalents ...... $ 212 $ 487 $ 201
Marketable securities .......... 503 394 386
------ ------ ------
715 881 587
Receivables, net ............... 1,379 1,655 1,503
Inventories .................... 497 463 549
Property, net of accumulated
depreciation and amortization
of $893, $842 and $824 ....... 772 770 703
Investments and other assets ... 311 213 227
Intangible pension assets ...... 267 314 284
Deferred tax asset, net ....... 976 1,030 1,055
------ ------ ------
Total assets ................... $4,917 $5,326 $4,908
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable,
principally trade ............ $ 864 $ 820 $ 750
Debt:
Manufacturing operations ..... 98 115 122
Financial services operations. 957 1,305 996
Postretirement benefits
liability .................... 1,221 1,351 1,323
Other liabilities .............. 814 819 811
------ ------ ------
Total liabilities .......... 3,954 4,410 4,002
------ ------ ------
Commitments and contingencies
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 (52.2, 51.0 and
51.0 million shares issued) .. 1,662 1,642 1,642
Class B Common stock (23.1, 24.3
and 24.3 million shares issued) 471 491 491
Retained earnings (deficit) -
balance accumulated after the
deficit reclassification
as of October 31, 1987 ....... (1,364) (1,431) (1,441)
Common stock held in treasury,
at cost ...................... (50) (30) (30)
------ ------ ------
Total shareowners' equity .. 963 916 906
------ ------ ------
Total liabilities
and shareowners' equity ...... $4,917 $5,326 $4,908
====== ====== ======
<FN>
See Notes to Financial Statements.
<PAGE 5>
STATEMENT OF CASH FLOW (Unaudited)
-------------------------------------------------------------------------
For the Nine Months Ended July 31 (Millions of dollars)
-------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
1997 1996
------ ------
Cash flow from operations
Net income ....................................... $ 80 $ 65
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation and amortization .................. 89 75
Deferred income taxes .......................... 45 35
Other, net ..................................... (51) (25)
Change in operating assets and liabilities:
Receivables .................................... (40) 189
Inventories .................................... (40) (134)
Prepaid and other current assets ............... 3 (13)
Accounts payable ............................... 48 (187)
Other liabilities .............................. (100) (164)
------ ------
Cash provided by (used in) operations ............ 34 (159)
------ ------
Cash flow from investment programs
Purchase of retail notes and lease receivables ... (703) (844)
Collections/sales of retail notes
and lease receivables ......................... 1,007 1,016
Purchase of marketable securities ................ (417) (519)
Sales or maturities of marketable securities ..... 315 684
Capital expenditures ............................. (89) (72)
Other investment programs, net ................... (26) (25)
------ ------
Cash provided by investment programs ............. 87 240
------ ------
Cash flow from financing activities
Issuance of debt ................................. 176 -
Principal payments on debt ....................... (37) (130)
Net decrease in notes and debt outstanding
under bank revolving credit facility and
asset-backed and other commercial paper programs (494) (214)
Dividends paid ................................... (21) (21)
Repurchase of Class B Common stock ............... (20) -
------ ------
Cash used in financing activities ................ (396) (365)
------ ------
Cash and cash equivalents
Decrease during the period ..................... (275) (284)
At beginning of the year ....................... 487 485
------ ------
Cash and cash equivalents at end of the period ... $ 212 $ 201
====== ======
<FN>
See Notes to Financial Statements.
<PAGE 6>
Navistar International Corporation and Consolidated 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" or "Navistar" refers
to Navistar International Corporation and its consolidated subsidiaries.
The consolidated financial statements include the results of
Transportation's manufacturing operations and its wholly owned financial
services subsidiaries. The effects of transactions between the
manufacturing and financial services operations have been eliminated to
arrive at the consolidated totals.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1996 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position, results of operations and cash
flow for the periods presented. Interim results are not necessarily
indicative of results for the full year. Certain 1996 amounts have been
reclassified to conform with the presentation used in the 1997 financial
statements.
Note B. Supplemental Cash Flow Information
Consolidated interest payments during the first nine months of 1997
and 1996 were $57 million and $67 million, respectively. Consolidated tax
payments made during the first nine months of both 1997 and 1996 were $3
million.
Note C. Income Taxes
The benefit of Net Operating Loss (NOL) carryforwards is recognized as
a deferred tax asset in the Statement of Financial Condition, while 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 federal income taxes will be minimal.
Note D. Receivables
On January 1, 1997, the company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" for all applicable
transactions. The new standard did not have a material effect on the
company's net income or financial position.
<PAGE 7>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note E. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1997 1996 1996
- ----------------------------------------------------------------
Finished products ........ $ 237 $ 242 $ 302
Work in process .......... 129 97 111
Raw materials and supplies 131 124 136
------ ------ ------
Total inventories ........ $ 497 $ 463 $ 549
====== ====== ======
Note F. Financial Instruments
The company purchases collateralized mortgage obligations (CMOs) that
have predetermined fixed-principal payment patterns which are relatively
certain. These instruments totaled $23 million at July 31, 1997.
During May through July 1997, Navistar Financial Corporation (NFC)
entered into $100 million of forward starting swaps which begin in October
1997 and expire in July 1999. NFC also entered into $100 million of
forward interest rate lock agreements on a U.S. Treasury security maturing
in July 1999. NFC intends to close these positions on the pricing date of
the anticipated November 1997 sale of retail receivables.
During May 1997, NFC sold $100 million of Senior Subordinated Notes
due June 2002. NFC used the net proceeds of $98 million to repurchase $6
million of its outstanding 1998 Notes and to reduce outstanding
indebtedness under the bank revolving credit facility.
During May 1997, NFC sold $500 million of retail notes, realizing net
proceeds of $499 million which were used for working capital purposes. A
gain of approximately $6 million was recognized on the sale.
During August 1997, NFC's revolving wholesale note trust issued, to
the public, a $200 million tranche of asset-backed certificates which
matures in August 2003. The net proceeds of $199 million were used by NFC
for general working capital purposes.
<PAGE 8>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note G. Environmental Matters
In March 1997, the U.S. Department of Justice and Transportation
approved the final consent decree in settlement of a dispute related to the
Wisconsin Steel property which was disclosed in Note 4 to the company's
Annual Report on Form 10-K. In June 1997, the company paid $11 million to
the Economic Development Administration in settlement of various commercial
issues and past environmental costs which is consistent with the company's
estimate of the anticipated clean-up costs reported at October 31, 1996.
Note H. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," (SFAS 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS 131). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS 131 establishes
standards for reporting information about operating segments, and related
disclosures about products and services, geographic areas and major
customers. The requirements of both statements are effective for fiscal
years beginning after December 15, 1997. The impact of the adoption of
these statements on the company's financial position and results of
operations has not been fully determined.
Note I. Subsequent Event
During August 1997, the company's current master contract with the
United Auto Workers (UAW) was extended through October 1, 2002 and the
company announced plans to build its next generation truck (NGT), pending
approval by Navistar's Board of Directors in October. Implementation of NGT
will result in various plant rationalizations and significant capital and
development expenditures.
The company also entered into a tentative ten year agreement,
effective with model year 2003, to continue to supply Ford Motor Company
with diesel engines for Ford's F-Series pickup trucks and Econoline vans.
<PAGE 9>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note J. Supplemental Financial Information
Navistar International Corporation (with financial services operations on an equity
basis) in millions of dollars:
Three Months Ended Nine Months Ended
July 31 July 31
-------------------- --------------------
Condensed Statement of Income 1997 1996 1997 1996
- ------------------------------ ------ ------ ------ ------
Sales of manufactured
products ................... $1,526 $1,325 $4,259 $4,110
Other income ................. 12 11 36 34
------ ------ ------ ------
Total sales and revenues ..... 1,538 1,336 4,295 4,144
------ ------ ------ ------
Cost of products sold ........ 1,315 1,158 3,673 3,582
Postretirement benefits ...... 50 52 158 163
Engineering and
research expense ........... 28 29 90 93
Marketing and
administrative expense ..... 89 75 243 207
Other expenses ............... 23 20 64 63
------ ------ ------ ------
Total costs and expenses ..... 1,505 1,334 4,228 4,108
------ ------ ------ ------
Income before income taxes
Manufacturing operations ... 33 2 67 36
Financial services operations 23 26 62 69
------ ------ ------ ------
Income before income taxes 56 28 129 105
Income tax expense ........... 21 11 49 40
------ ------ ------ ------
Net income ................... $ 35 $ 17 $ 80 $ 65
====== ====== ====== ======
Condensed Statement July 31 October 31 July 31
of Financial Condition 1997 1996 1996
- ------------------------------ ------ ------ ------
Cash, cash equivalents
and marketable securities .. $ 553 $ 707 $ 407
Receivables, net ............. 272 181 261
Inventories .................. 497 463 549
Property and equipment, net .. 653 666 643
Equity in financial
services subsidiaries ...... 310 306 303
Other assets ................. 517 462 464
Deferred tax asset, net ...... 976 1,030 1,055
------ ------ ------
Total assets ............ $3,778 $3,815 $3,682
====== ====== ======
Accounts payable,
principally trade .......... $ 826 $ 771 $ 675
Debt ......................... 98 115 122
Postretirement benefits
liability .................. 1,213 1,344 1,316
Other liabilities ............ 678 669 663
Shareowners' equity .......... 963 916 906
------ ------ ------
Total liabilities and
shareowners' equity . $3,778 $3,815 $3,682
====== ====== ======
<PAGE 10>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note J. Supplemental Financial Information (continued)
Navistar International Corporation (with financial services operations
on an equity basis) in millions of dollars:
Nine Months Ended
July 31
Condensed Statement of Cash Flow 1997 1996
- -------------------------------- ------ ------
Cash flow from operations
Net income ..................... $ 80 $ 65
Adjustments to reconcile net
income to cash provided by
(used in) operations:
Depreciation and amortization 72 68
Equity in earnings
of nonconsolidated
companies, net of
dividends received ...... (4) (23)
Deferred income taxes ..... 45 35
Other, net ................ (25) (5)
Change in operating assets
and liabilities .............. (78) (418)
------ ------
Cash provided by
(used in) operations ......... 90 (278)
------ ------
Cash flow from investment programs
Purchase of marketable securities (337) (456)
Sales or maturities
of marketable securities ..... 216 616
Capital expenditures ........... (89) (72)
Advance to Navistar Financial
Corporation .................. (99) (82)
Other investment programs, net . 4 -
------ ------
Cash (used in)
provided by investment programs (305) 6
------ ------
Cash flow from financing
activities ................... (60) (34)
------ ------
Cash and cash equivalents
Decrease during the period ..... (275) (306)
At beginning of the year ....... 452 461
------ ------
Cash and cash equivalents
at end of the period ........ $ 177 $ 155
====== ======
<PAGE 11>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" under the Reform Act, which involve risks and uncertainties.
Navistar International Corporation's actual results may differ
significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include, but are
not limited to, those discussed under the heading "Business Environment."
Third Quarter Ended July 31, 1997
---------------------------------
The company reported net income of $35 million, or $0.38 per common
share for the third quarter ended July 31, 1997, compared with net income
of $17 million, or $0.13 per common share for the comparable quarter last
year.
The company's manufacturing operations reported income before income
taxes of $33 million compared with pretax income of $2 million in the third
quarter of 1996 reflecting continued strong demand for mid-range diesel
engines. The financial services operations' pretax income for the third
quarter of 1997 was $23 million, compared with $26 million for the same
period in 1996.
Sales and Revenues. Third quarter 1997 industry retail sales of Class 5
through 8 trucks totaled 93,100 units, which is an increase of two percent
over the 91,300 units sold during this period in 1996. Class 8 heavy truck
sales of 51,600 units during the third quarter of 1997 were two percent
higher than the 1996 level of 50,600 units. Industry sales of Class 5, 6
and 7 medium trucks, including school buses, increased two percent to
41,400 units. Industry sales of school buses, which accounted for 24
percent of the medium truck market, increased 11 percent.
Sales and revenues for the third quarter of 1997 totaled $1,586
million, 14 percent higher than the $1,391 million reported for the
comparable quarter in 1996. Sales of trucks, mid-range diesel engines and
service parts for the third quarter of 1997 totaled $1,526 million compared
with $1,325 million reported for the same period in 1996.
The company maintained its position as sales leader in the combined
United States and Canadian Class 5 through 8 truck market with a 27.8
percent market share for the third quarter of 1997, a slight decrease from
the market share reported in 1996. (Sources: American Automobile
Manufacturer's Association, the United States Motor Vehicle Manufacturer's
Association and R.L. Polk & Company.)
Shipments of mid-range diesel engines by the company to other original
equipment manufacturers during the third quarter of 1997 totaled 41,900
units, a 16 percent increase from the same period of 1996. Higher
shipments to Ford Motor Company to meet consumer demand for the light
trucks and vans which use this engine was the primary reason for the
increase.
<PAGE 12>
Service parts sales of $197 million in the third quarter of 1997
increased more than six percent from the prior year's level.
Finance and insurance revenue was $45 million compared with $53
million in the third quarter of 1996 primarily as a result of a decline in
wholesale financing activity.
Costs and expenses. Manufacturing gross margin was 13.8 percent of sales
for the third quarter of 1997 compared with 12.6 percent for the same
period in 1996.
Consolidated marketing and administrative expense increased to $97
million in 1997 from $84 million in the third quarter of 1996 reflecting
investment in the implementation of the company's strategy to reduce costs
and complexity in its manufacturing processes.
Nine Months Ended July 31, 1997
-------------------------------
Pretax income for the first nine months of 1997 was $129 million
compared with $105 million reported for the same period of 1996. The
company's manufacturing operations reported income before income taxes of
$67 million during this period, compared with $36 million reported in 1996.
The financial services operations' pretax income for the first nine months
of 1997 was $62 million, a decline from the $69 million reported in 1996.
This change is a result of lower income on sales of retail receivables and
a lower volume of wholesale financing.
Manufacturing operations' sales and revenues during this period
totaled $4,295 million, an increase of four percent from 1996. During the
first nine months of 1997, sales of trucks increased one percent while
sales of diesel engines to original equipment manufacturers increased 11
percent. Service parts sales were six percent higher than in the same
period of 1996. Finance and insurance revenue was $133 million during the
first three quarters of 1997 compared with $154 million in 1996.
Industry retail sales of Class 5 through 8 trucks during the first
nine months of 1997 totaled 252,800 units, a slight decrease from the
258,900 units sold during this period in 1996. The company remained the
sales leader in the combined United States and Canadian Class 5 through 8
truck market for the first three quarters of the year with a 27.1 percent
market share that is consistent with the same period a year ago.
Manufacturing gross margin for the first nine months of 1997 increased
to 13.8 percent from 12.8 percent in the prior year. The increase in gross
margin reflects increased sales volume, product mix, and improved operating
performance, offset by increased accruals for profit sharing.
Consolidated marketing and administrative expense was $267 million
during the first three quarters of 1997 compared with $232 million during
the first three quarters of 1996. The factors which influenced this
expense during the third quarter of 1997 were also responsible for the
change during the first nine months of the year.
<PAGE 13>
Liquidity and Capital Resources
Cash flow is generated from the manufacture and sale of trucks, mid-
range diesel engines and service parts as well as product financing and
insurance coverage provided to the company's dealers and retail customers
by the financial services operations.
Historically, funds to finance the company's products are obtained
from a combination of commercial paper, short- and long-term bank
borrowings, medium- and long-term debt issues, sales of finance receivables
and equity capital. NFC's current debt ratings have made bank borrowings
and sales of finance receivables the most economic sources of cash.
Insurance operations are funded through internal operations.
Total cash, cash equivalents and marketable securities of the company
amounted to $715 million at July 31, 1997, $881 million at October 31, 1996
and $587 million at July 31, 1996.
Cash provided by operations during the first nine months of 1997
totaled $34 million primarily from a net change in operating assets and
liabilities of $129 million offset by net income of $80 million and $83
million of other noncash items, principally depreciation. The net change
in operating assets and liabilities includes a $48 million increase in
payables offset by increases of $40 million in receivables and inventory
and a $100 million decline in other liabilities. The change in other
liabilities includes the company's contributions of $214 million to its
hourly and salaried pension plans during the first half of 1997.
Investment programs provided $87 million in cash reflecting a net
increase in marketable securities of $102 million and a net decrease in
retail notes and lease receivables of $304 million. In addition, $89
million was used to fund capital expenditures for construction of a truck
assembly facility in Mexico, to increase mid-range diesel engine capacity,
and for truck product improvements.
Financing activities used cash to reduce notes and debt outstanding
under the bank revolving credit facility and asset-backed and other
commercial paper program by $494 million offset by a $176 million increase
in debt and $21 million in dividends on the Series G Preferred shares. In
addition, $20 million was used to repurchase Class B Common stock
Receivable sales were a significant source of funding in 1997 and
1996. During the first nine months of 1997 and of 1996, NFC sold $987
million and $985 million, respectively, of retail notes through Navistar
Financial Retail Receivables Corporation (NFRRC). NFRRC has filed
registration statements with the Securities and Exchange Commission which
provide for the issuance of up to $5,000 million of asset-backed
securities. At July 31, 1997, the remaining shelf registration available
to NFRRC was $1,473 million.
<PAGE 14>
During the third quarter of 1997, NFC entered into $100 million of
forward starting swap agreements which begin in October 1997 and expire in
July 1999. NFC also entered into $100 million of forward interest rate
lock agreements on a U.S. Treasury security maturing in 1999. NFC intends
to close these positions on the pricing date of the anticipated November
1997 sale of retail receivables.
NFC also utilizes a $400 million revolving wholesale note trust that
provides for the continuous sale of eligible wholesale notes on a daily
basis. The trust is comprised of two $100 million tranches of investor
certificates maturing serially from 1998 to 1999 and a $200 million tranche
maturing in 2004. In July 1997, NFC filed a shelf registration to issue an
additional $400 million of investor certificates. During August 1997, the
trust issued a $200 million tranche of investor certificates which matures
in August 2003. The net proceeds of $199 million were used by NFC for
general working capital purposes.
At July 31, 1997, available funding under NFC's amended and restated
credit facility and the asset-backed commercial paper facility was $755
million, of which $112 million was used to back short-term debt at July 31,
1997. The remaining $643 million, when combined with unrestricted cash and
cash equivalents made $652 million available to fund the general business
purposes of NFC at July 31, 1997.
During May 1997, NFC sold $100 million of Senior Subordinated Notes
due June 2002. NFC used the net proceeds of $98 million to repurchase $6
million of its outstanding 1998 Notes and to reduce outstanding
indebtedness under the Bank Revolving Credit Facility.
The company had outstanding capital commitments of $175 million at
July 31, 1997, which consist of truck and engine development, ongoing
facility maintenance programs and construction of a plant in Mexico. In
November 1996, the company announced plans to spend $167 million, over the
next two years, to construct this new truck assembly facility in Mexico.
During August 1997, the company approved a plan for $51 million of capital
expenditures to increase the manufacturing capacity of the Indianapolis
plant.
Management continues to evaluate current and forecasted cash flow as a
basis for financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. Management also believes that
collections on the outstanding receivables portfolios as well as funds
available from various funding sources will permit the financial services
operations to meet the financing requirements of the company's dealers and
customers.
<PAGE 15>
Business Environment
Sales of Class 5 through 8 trucks are cyclical, with demand affected
by such economic factors as industrial production, construction, demand for
consumer durable goods, interest rates and the earnings and cash flow of
dealers and customers. Although the general economy remains stable, demand
for new trucks in 1997 is anticipated to be slightly lower than in 1996.
An improvement in the number of new truck orders has increased the
company's order backlog to 38,900 units at July 31, 1997 from 20,500 units
at July 31, 1996. Retail deliveries during the remainder of 1997 continue
to be highly dependent on the rate at which new truck orders are received.
The company will evaluate order receipts and backlog throughout the year
and will balance production with demand as appropriate.
The company currently projects 1997 United States and Canadian Class 8
heavy truck demand to be 190,000 units, a three percent decrease from 1996.
Class 5, 6 and 7 medium truck demand, excluding school buses, is forecast
at 114,000 units, a slight increase from 1996. Demand for school buses is
expected to decline six percent in 1997 to 30,500 units. Mid-range diesel
engine shipments by the company to original equipment manufacturers in 1997
are expected to be 185,100 units, 13 percent higher than in 1996. The
company's service parts sales are projected to grow six percent to $809
million.
During August 1997, the company's current master contract with the
United Auto Workers (UAW) was extended through October 1, 2002 and the
company announced plans to build its next generation truck (NGT), pending
approval by Navistar's Board of Directors in October. Implementation of NGT
will result in various plant rationalizations and significant capital and
development expenditures.
The company also entered into a tentative ten year agreement,
effective with model year 2003, to continue to supply Ford Motor Company
with diesel engines for Ford's F-Series pickup trucks and Econoline vans.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," (SFAS 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS 131). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS 131 establishes
standards for reporting information about operating segments, and related
disclosures about products and services, geographic areas and major
customers. The requirements of both statements are effective for fiscal
years beginning after December 15, 1997. The impact of the adoption of
these statements on the company's financial position and results of
operations has not been fully determined.
<PAGE 16>
Navistar International Corporation and Consolidated 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 22, 1997, Commission File No. 1-9618.
Item 6. Exhibits and Reports on Form 8-K
10-Q Page
---------
(a) Exhibits:
3. Articles of Incorporation and By-Laws E-1
10. Material Contracts E-2
11. Computation of Net Income Per Share E-27
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the
nine months ended July 31, 1997.
PAGE 17
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/ J. Steven Keate
- ----------------------------------
J. Steven Keate
Vice President and Controller
(Principal Accounting Officer)
September 12, 1997