<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, 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 1-5236
NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
-------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1264810
------------------------------- -------------------
(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 5, 1995, the number of shares outstanding of the
registrant's common stock was 1,000.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF THE FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
<PAGE 2>
NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
AND SUBSIDIARIES
----------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months and Nine Months Ended
July 31, 1995 and 1994 .............................. 3
Statement of Financial Condition --
July 31, 1995, October 31, 1994
and July 31, 1994 ................................... 5
Statement of Cash Flow --
Nine Months Ended July 31, 1995 and 1994 ........... 7
Notes to Financial Statements .......................... 8
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
<PAGE>
<PAGE 3>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF INCOME (Unaudited)
------------------------------------------------------------------------------
Millions of dollars
------------------------------------------------------------------------------
Three Months Ended July 31
-----------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note ---------------------- ----------------------
1995 1994 Reference 1995 1994 1995 1994
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products ............ $ 1,455 $ 1,211 $ 1,455 $ 1,211 $ - $ -
Finance and insurance revenue ............. 50 38 - - 66 50
Other income .............................. 5 2 6 4 - 2
-------- -------- -------- -------- -------- --------
Total sales and revenues ................ 1,510 1,251 1,461 1,215 66 52
-------- -------- -------- -------- -------- --------
Costs and expenses
Cost of products and services sold ........ 1,253 1,059 1,251 1,057 2 2
Postretirement benefits ................... 50 40 Note C 50 40 - -
Engineering expense ....................... 30 25 30 25 - -
Marketing and administrative expense ...... 79 65 72 59 7 6
Interest expense .......................... 44 39 23 25 22 18
Financing charges on sold receivables ..... 5 4 21 16 - -
Insurance claims and underwriting expense . 12 12 - - 12 12
-------- -------- -------- -------- -------- --------
Total costs and expenses ................ 1,473 1,244 1,447 1,222 43 38
-------- -------- -------- -------- -------- --------
Income before income taxes
Manufacturing ........................... - - 14 (7) - -
Financial Services ...................... - - 23 14 - -
------- -------- -------- -------- -------- --------
Income before income taxes ............ 37 7 37 7 23 14
Income tax expense .................... (19) (5) Note D (19) (5) (9) (4)
------- -------- -------- -------- -------- --------
Net income ................................ $ 18 $ 2 $ 18 $ 2 $ 14 $ 10
======= ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 4>
<TABLE>
<CAPTION>
Nine Months Ended July 31
---------------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ------------------------- -------------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 4,408 $ 3,648 $ 4,408 $ 3,648 $ - $ -
125 118 - - 168 155
25 17 21 14 8 7
-------- -------- -------- -------- -------- --------
4,558 3,783 4,429 3,662 176 162
-------- -------- -------- -------- -------- --------
3,817 3,196 3,812 3,192 5 4
155 130 154 129 1 1
80 69 80 69 - -
221 195 200 176 21 19
130 123 71 75 63 52
20 10 63 47 - -
39 41 - - 39 41
-------- -------- -------- -------- -------- --------
4,462 3,764 4,380 3,688 129 117
-------- -------- -------- -------- -------- --------
- - 49 (26) - -
- - 47 45 - -
-------- -------- -------- -------- -------- --------
96 19 96 19 47 45
(34) (16) (34) (16) (17) (15)
-------- -------- -------- -------- -------- --------
$ 62 $ 3 $ 62 $ 3 $ 30 $ 30
======== ======== ======== ======== ======== ========
<FN>
* "Manufacturing" includes the consolidated financial results of Transportation's manufacturing
operations with its wholly-owned financial services subsidiaries included under the equity
method of accounting. "Financial Services" includes Transportation'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 Transportation Corp. and Consolidated Subsidiaries" columns.
The basis of consolidation is described in Note A.
</TABLE>
<PAGE>
<PAGE 5>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
------------------------------------------------------------------------------------------------------------------------
Millions of dollars
------------------------------------------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries
--------------------------------------
July 31 October 31 July 31 Note
1995 1994 1994 Reference
-------- ---------- -------- ---------
<S> <C> <C> <C> <S>
ASSETS
-----------------------------------
Cash and cash equivalents .......................................... $ 220 $ 454 $ 202
Marketable securities .............................................. 173 170 147
Receivables, net ................................................... 1,295 1,512 1,383
Inventories ........................................................ 477 429 444 Note E
Prepaid pension assets ............................................. 56 63 95
Property, net of accumulated depreciation
and amortization of $738, $684 and $682 .......................... 616 578 549
Equity in Financial Services subsidiaries .......................... - - -
Investments and other assets ....................................... 174 163 220
Intangible pension assets .......................................... 309 309 340
-------- -------- --------
Total assets ....................................................... $ 3,320 $ 3,678 $ 3,380
======== ======== ========
LIABILITIES AND SHAREOWNER'S EQUITY
-----------------------------------
Liabilities
Accounts payable .................................................. $ 736 $ 836 $ 690
Accrued liabilities ............................................... 486 428 399
Short-term debt ................................................... 404 558 115
Long-term debt due Parent Company ................................. 898 932 942
Long-term debt .................................................... 573 696 958
Other long-term liabilities ....................................... 295 290 290
Loss reserves and unearned premiums ............................... 123 136 138
Postretirement benefits liabilities ............................... 1,236 1,299 1,362 Note C
-------- -------- --------
Total liabilities ............................................... 4,751 5,175 4,894
-------- -------- --------
Shareowner's equity
Capital stock (1,000 shares issued) ............................... 785 785 785
Retained earnings (deficit) ....................................... (2,226) (2,288) (2,308)
Accumulated foreign currency translation adjustments
and net unrealized holding gains (loses) on marketable securities 10 6 9
-------- -------- --------
Total shareowner's equity ....................................... (1,431) (1,497) (1,514)
-------- -------- --------
Total liabilities and shareowner's equity ......................... $ 3,320 $ 3,678 $ 3,380
======== ======== ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 6>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
------------------------------------------ ------------------------------------------
July 31 October 31 July 31 July 31 October 31 July 31
1995 1994 1994 1995 1994 1994
-------- ---------- -------- -------- ---------- --------
<C> <C> <C> <C> <C> <C>
$ 145 $ 396 $ 154 $ 75 $ 58 $ 48
34 32 - 139 138 147
266 180 212 1,149 1,342 1,222
477 429 444 - - -
55 62 94 1 1 1
581 549 529 35 29 20
277 249 250 - - -
138 149 204 36 14 16
309 309 340 - - -
-------- -------- -------- -------- -------- --------
$ 2,282 $ 2,355 $ 2,227 $ 1,435 $ 1,582 $ 1,454
======== ======== ======== ======== ======== ========
$ 682 $ 779 $ 627 $ 170 $ 70 $ 114
458 405 373 32 20 26
43 39 38 361 519 77
898 932 942 - - -
117 124 125 456 572 833
286 281 282 9 9 8
- - - 123 136 138
1,229 1,292 1,354 7 7 8
-------- -------- -------- -------- -------- --------
3,713 3,852 3,741 1,158 1,333 1,204
-------- -------- -------- -------- -------- --------
785 785 785 178 178 178
(2,226) (2,288) (2,308) 97 73 72
10 6 9 2 (2) -
-------- -------- -------- -------- -------- --------
(1,431) (1,497) (1,514) 277 249 250
-------- -------- -------- -------- -------- --------
$ 2,282 $ 2,355 $ 2,227 $ 1,435 $ 1,582 $ 1,454
======== ======== ======== ======== ======== ========
<FN>
* "Manufacturing" includes the consolidated financial results of Transportation's manufacturing
operations with its wholly-owned financial services subsidiaries included under the equity
method of accounting. "Financial Services" includes Transportation'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 Transportation Corp. and Consolidated Subsidiaries" columns on the
preceding page. The basis of consolidation is described in Note A.
</TABLE>
<PAGE>
<PAGE 7>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW (Unaudited)
----------------------------------------------------------------------------------
Nine Months Ended July 31 (Millions of dollars)
----------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note -------------------- --------------------
1995 1994 Reference 1995 1994 1995 1994
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Cash flow from operations
Net income .................................... $ 62 $ 3 $ 62 $ 3 $ 30 $ 30
Adjustments to reconcile net income to cash
provided by (used in) operations:
Depreciation and amortization ............... 63 58 59 55 4 3
Equity in earnings of Financial Services,
net of dividends received ................. - - (24) (8) - -
Additional pension funding .................... (72) - (72) - - -
Other, net .................................... (5) (11) 3 3 (8) (14)
Change in operating assets and liabilities:
(Increase) decrease in receivables .......... 160 (39) Note B 11 (37) - -
Increase in inventories ..................... (48) (36) (48) (36) - -
Decrease in accounts payable ................ (103) (52) (95) (63) (3) (6)
Increase (decrease) in accrued liabilities/
other ..................................... 71 (2) 71 (3) 6 3
-------- -------- -------- -------- -------- --------
Cash provided by (used in) operations ......... 128 (79) (33) (86) 29 16
-------- -------- -------- -------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables (748) (676) - - (748) (676)
Principal collections on retail notes
and lease receivables ....................... 91 150 - - 91 150
Sale of retail notes receivables .............. 714 770 - - 714 770
Cash collections in excess of acquisitions
of wholesale notes and accounts receivable .. - - Note B - - 138 13
Purchase of marketable securities ............. (162) (417) (108) (361) (54) (56)
Sales or maturities of marketable securities .. 166 459 107 415 59 44
Proceeds from property sold under sale/leaseback - 87 - 87 - -
Capital expenditures .......................... (91) (53) (91) (53) - -
Advance to Navistar Financial ................. - - (99) (49) 99 49
Other investment programs, net ................ 1 7 10 2 (9) 5
-------- -------- --------- -------- -------- --------
Cash provided by (used in) investment programs. (29) 327 (181) 41 290 299
-------- -------- --------- -------- -------- --------
Cash flow from financing activities
Principal payments on debt .................... (410) (117) (10) (39) (400) (78)
Net increase in notes and commercial paper debt 211 - 5 - 206 -
Decrease in debt outstanding under bank
revolving credit facility ................... (102) (211) - - (102) (211)
Decrease in loan from Navistar International
Corporation ................................. (32) (24) (32) (24) - -
Dividends paid ................................ - - - - (6) (22)
-------- -------- -------- -------- -------- --------
Cash used in financing activities ............. (333) (352) (37) (63) (302) (311)
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
Increase (decrease) during the period ....... (234) (104) (251) (108) 17 4
At beginning of the year .................... 454 306 396 262 58 44
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of the period. $ 220 $ 202 $ 145 $ 154 $ 75 $ 48
======== ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of Transportation's
manufacturing operations with its wholly-owned financial services subsidiaries
included under the equity method of accounting. "Financial Services" includes
Transportation'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 Transportation Corp. and Consolidated Subsidiaries" columns.
The basis of consolidation is described in Note A.
</TABLE>
<PAGE>
<PAGE 8>
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note A. Basis of Consolidation
Navistar International Transportation Corp., hereafter referred to as
"the Company" and "Transportation" is the wholly-owned subsidiary of Navistar
International Corporation, hereafter referred to as "Parent Company". See
Note 1 to the Consolidated Financial Statements in the 1994 Annual Report on
Form 10-K.
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, Transportation 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 Transportation'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. Information Related to the Statement of Cash Flow
On the Statement of Cash Flow, there is a reclassification of "Cash
collections in excess of acquisitions" 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 nine months of 1995 and
1994 were $130 million and $143 million, respectively. The Parent Company
made consolidated tax payments of $5 million and $2 million during the first
nine months of 1995 and 1994, respectively.
Note C. Postretirement Benefits
Transportation 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 reduce retiree premiums,
co-payments and deductibles and provide additional benefits in the future.
<PAGE>
<PAGE 9>
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note C. Postretirement Benefits (Continued)
The costs of postretirement benefits are segregated as a separate
component in the Statement of Income as follows:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ ----------------
Millions of dollars 1995 1994 1995 1994
----------------------------------------------------------------------------
Pension expense ..................... $ 26 $ 26 $ 83 $ 81
Health care and life insurance ...... 18 14 53 47
Profit sharing Trust contribution .. 6 - 19 2
------ ------ ------ ------
Total postretirement benefits expense $ 50 $ 40 $ 155 $ 130
====== ====== ====== ======
On the Statement of Financial Condition, the postretirement benefits
liabilities includes the following:
July 31 October 31 July 31
Millions of dollars 1995 1994 1994
-----------------------------------------------------------------------------
Pension ............................. $ 484 $ 549 $ 620
Health care and life insurance ...... 752 750 742
------ ------ ------
Postretirement benefits liabilities . $1,236 $1,299 $1,362
====== ====== ======
Note D. Income Taxes
The Parent Company files a consolidated U.S. federal income tax return
which includes Transportation and its U.S. subsidiaries. Transportation has a
tax allocation agreement (Tax Agreement) with the Parent Company which
requires Transportation to compute its separate federal income tax expense
based on its adjusted book income. Any resulting tax liability is paid to the
Parent Company. In addition, under the Tax Agreement, Transportation is
required to pay to the Parent Company any tax payments received from its
subsidiaries. The effect of the Tax Agreement is to allow the Parent Company
rather than Transportation to utilize U.S. operating losses and net operating
loss carryforwards (NOLs) generated in earlier years. Accordingly, all
deferred tax assets and liabilities are recorded by the Parent Company.
Note E. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1995 1994 1994
-----------------------------------------------------------------------------
Finished products ................... $ 215 $ 169 $ 181
Work in process ..................... 100 103 97
Raw materials and supplies .......... 162 157 166
------ ------ ------
Total inventories ................... $ 477 $ 429 $ 444
====== ====== ======
<PAGE>
<PAGE 10>
Navistar International Transportation Corp. and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note F. Financial Instruments
Derivatives are used by Transportation to transfer or reduce risks of
foreign exchange and interest rate volatility and potentially increase the
return on invested funds.
At July 31, 1995, Manufacturing had no 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 a variety of contracts to lock in interest rates
during the period in which retail notes are being sold. During the second
quarter of 1995, Navistar Financial entered into 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 agreements were closed during May
1995 in conjunction with the sale of $425 million of retail notes receivable.
In June and July 1995, Navistar Financial entered into four short-term
forward interest rate lock agreements related to the future sale of retail
receivables. Navistar Financial, in anticipation of selling receivables in
late October or early November, hedged until that time, a total of $225
million against a U.S. Treasury note maturing in 1997.
Navistar Financial's insurance subsidiary had $29 million of
collateralized mortgage obligations in its investment portfolio at July 31,
1995.
Note G. Legal Proceedings
During the fourth quarter of 1994, Transportation reached an agreement
with the Economic Development Administration in settlement of commercial and
environmental disputes related to the Wisconsin Steel property as disclosed in
Note 18 to the Company's 1994 Annual Report on Form 10-K. At July 31, 1995, a
final consent decree remained subject to approval by the U.S. Department of
Justice and Transportation.
Note H. Environmental Matters
In the fourth quarter of 1994, Transportation recorded a charge for
potential clean-up costs related to the former Solar Division as disclosed in
Note 6 to the Company's 1994 Annual Report on Form 10-K. In June 1995,
Transportation and Solar Turbines, Inc. (Solar) entered into an agreement
providing for the joint funding of future site studies and necessary
corrective action at the facility. The agreement also provides for
arbitration to resolve a dispute over past remediation costs incurred by
Solar.
There has been no change in the Company's estimate of the anticipated
clean-up costs of the Wisconsin Steel and Solar sites reported at October 31,
1994.
<PAGE>
<PAGE 11>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Consolidated
The Company reported net income of $18 million for the third quarter
ended July 31, 1995, an improvement from the net income of $2 million reported
for the same period last year. For the first nine months of 1995, the Company
reported net income of $62 million, an increase from the $3 million reported
for the same period in 1994.
Consolidated sales and revenues for the third quarter of 1995 totalled
$1,510 million, an increase of 21% from the $1,251 million reported for the
comparable quarter in 1994. During the first nine months of 1995,
consolidated sales and revenues increased to $4,558 million from $3,783
million. The increase in sales and revenues was the result of continued
strong demand for trucks and diesel engines.
Manufacturing
Third Quarter Ended July 31, 1995
---------------------------------
Manufacturing, excluding Financial Services, reported income before
income taxes of $14 million compared with a pretax loss of $7 million in the
third 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, improved
pricing and various cost improvement initiatives.
Although certain key economic indicators of the truck industry have
slowed, they continue to demonstrate year-over-year growth and, as a result,
third quarter 1995 industry retail sales in the United States and Canada of
Class 5 through 8 trucks totalled 100,600 units, an increase of 14% over 1994.
Class 8 heavy truck industry sales of 60,200 units during the third quarter of
1995 were 13% higher than the 1994 level of 53,100 units. Industry sales of
Class 5, 6 and 7 medium trucks, including school bus chassis, were up 14% to
40,400 units. Industry sales of school bus chassis account for about 22% of
the medium truck market.
The Company's sales of trucks, diesel engines and service parts for the
third quarter of 1995 totalled $1,455 million, 20% above the $1,211 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 26.9% market share, unchanged from the same period last
year.
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during the third quarter of fiscal 1995 totalled
38,800 units, an increase of 11% 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.
<PAGE>
<PAGE 12>
Service parts sales of $178 million in the third quarter of 1995 were
unchanged from the prior year's level.
Other income was $6 million in 1995, up from $4 million in the third
quarter of 1994 as a result of increased interest income on higher cash, cash
equivalent and marketable securities balances.
Manufacturing gross margin (sales less cost of sales) was 14.0% of sales
for the third quarter of 1995 compared with 12.7% for the same period in
fiscal 1994. The higher gross margin is primarily a result of improved
operating efficiency and better net price realization, partially offset by
higher material costs, additional overtime costs to meet demand for the
Company's products and the impact of profit sharing on increased earnings.
Postretirement benefits, which include pension expense and postretirement
health care and life insurance coverage for employees, retirees, surviving
spouses and dependents, increased to $50 million in 1995 from $40 million in
the third quarter of 1994. This increase reflects a provision under the terms
of a retiree Settlement Agreement which requires payment of profit sharing to
an independent retiree Supplemental Trust.
Marketing and administrative expense increased to $72 million in the
third quarter of 1995 from $59 million in 1994 primarily as a result of higher
sales and distribution expense and the provision for payment to employees as
provided by the Company's management incentive program.
Nine Months Ended July 31, 1995
-------------------------------
Pretax income, excluding Financial Services, for the first nine months of
1995 was $49 million, an increase from the $26 million loss reported for the
same period of 1994.
Manufacturing's sales and revenues during this period totalled $4,429
million, 21% higher than the first three quarters of 1994. During the first
nine months of 1995, sales of trucks improved 22% 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 nine
months of fiscal 1995 totalled 287,500 units, an increase from the 247,000
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 three quarters of the fiscal year, although its market share
declined slightly to 26.1% from 26.5% for the same period last year.
During the first three quarters of 1995, other income totalled $21
million, up from $14 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 nine months of 1995 was 13.5% of
sales, an improvement from 12.5% during the same period of 1994. The factors
which influenced gross margin during the third quarter of 1995 were also
responsible for the change during the first three quarters of the year.
<PAGE>
<PAGE 13>
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ ----------------
Millions of dollars 1995 1994 1995 1994
----------------------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation .... $ 22 $ 13 $ 44 $ 43
Foreign Subsidiaries .............. 1 1 3 2
------ ------ ------ ------
Total ........................... 23 14 47 45
Income tax expense ................ (9) (4) (17) (15)
------ ------ ------ ------
Net income .......................... $ 14 $ 10 $ 30 $ 30
====== ====== ====== ======
The $9 million increase in Navistar Financial's income before income
taxes for the third quarter of fiscal 1995 reflects improved margins in retail
financing resulting in higher gains on sales of retail notes. Income also
increased as a result of the higher volume of wholesale financing to support
the demand for trucks and a $2 million gain on the sale of $200 million of
wholesale note backed certificates to the public.
Navistar Financial's income before income taxes for the first nine months
of 1995 was $1 million higher than the same period in 1994. The change is a
result of higher income from an increased volume of wholesale financing to
support the demand for trucks and improvement in Navistar Financial's
borrowing spread over market interest rates. The increase was offset by lower
gains on sales of retail notes and lower income from Navistar Financial's
insurance subsidiary, reflecting 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 $393 million
at July 31, 1995, $624 million at October 31, 1994 and $349 million at July
31, 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 $179 million at July 31, 1995,
$428 million at October 31, 1994 and $154 million at July 31, 1994. This
included cash and cash equivalents of $145 million at July 31, 1995, $396
million at October 31, 1994 and $154 million at July 31, 1994.
<PAGE>
<PAGE 14>
Cash used in operations during the first nine months of 1995 totalled $33
million. Cash was provided by net income of $62 million and $38 million of
reconciling non-cash items. These amounts were offset by additional pension
funding of $72 million and a net change in operating assets and liabilities
which resulted in a cash outflow of $61 million.
The net change in other operating assets and liabilities of $61 million,
includes a $48 million increase in inventories and a $95 million decrease in
accounts payable primarily reflecting the effects of third quarter
manufacturing production schedules and a $71 million increase in other
liabilities as a result of the timing of miscellaneous payments.
The Company used cash and cash equivalents to fund its investment and
financing activities. Investment activities included capital expenditures of
$91 million for truck product improvement, to increase diesel engine capacity
and to improve cost performance and a $99 million advance to Navistar
Financial. Financing programs used $37 million for a net reduction of debt.
At July 31, 1995, the Company had outstanding capital commitments of $52
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.
Financial Services
Total cash, cash equivalents and marketable securities of Financial
Services were $214 million at July 31, 1995, $196 million at October 31, 1994
and $195 million at July 31, 1994. These balances included cash and cash
equivalents of $75 million at July 31, 1995, $58 million at October 31, 1994
and $48 million at July 31, 1994.
Operations provided $29 million in cash during the first nine months of
1995 primarily from net income of $30 million. Cash from operations and from
investment programs funded Financial Services' financing activities.
Investment programs provided $290 million in cash during this period as a
result of a net decrease of $195 million in retail and wholesale finance
receivables and $99 million in funds advanced to Navistar Financial by
Transportation. Financing activities used $302 million during the first three
quarters of 1995 reflecting a net decrease in debt of $296 million.
During the first nine months of 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 in the United States was 13% during the first
three quarters of 1995, a decrease from 16% in 1994. Navistar Financial's
reduced level of retail financing is a result of competition and liquidity in
the commercial financing markets.
At July 31, 1995, available funding under Navistar Financial's amended
and restated credit facility and the asset-backed commercial paper facility
was $748 million, of which $43 million provided funding backup for the
outstanding short-term debt. The remaining $705 million, when combined with
unrestricted cash and cash equivalents, made $748 million available to fund
the general business purposes of Navistar Financial.
<PAGE>
<PAGE 15>
In addition to the committed credit facilities, Navistar Financial also
utilizes a $500 million revolving wholesale note sales trust providing for the
continuous sale of eligible wholesale notes on a daily basis. During the
third quarter of 1995, Navistar Financial sold $200 million of medium term
floating rate pass through certificates securitized by wholesale notes
receivable to public investors. This sale increased Navistar Financial's
revolving wholesale note sales trust from $300 million to $500 million. The
sales trust is composed of three $100 million pools of notes maturing serially
from 1997 to 1999 and the $200 million pool maturing in 2004.
BUSINESS OUTLOOK
Based on current demand, key market indicators and order backlog, the
Company currently projects 1995 United States and Canadian Class 5, 6 and 7
medium truck demand, including school bus chassis, to be 157,000 units, 17%
above 1994 unit sales. In addition, the Company projects Class 8 heavy truck
demand will reach 225,000 units, more than 9% above 1994 unit sales. There
are, however, indications that the Class 8 heavy truck market is beginning to
turn downward based on a slowdown in truck orders across the industry in
recent weeks.
A labor slowdown at one of the Company's suppliers has caused disruption
in the supply of frame rails to the Company and many of its competitors in the
Class 8 heavy truck industry. Although the supplier has not resolved its
labor problems, the Company has been advised that the supplier will meet the
Company's needs for the foreseeable future. Provided the supplier meets its
production commitments, the Company does not anticipate a material impact on
its fourth quarter results.
The Company's diesel engine shipments to original equipment manufacturers
are expected to be 159,500 units, 22% 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 trucks, 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>
<PAGE 16>
Navistar International Transportation Corp. 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. 1-5236.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
July 31, 1995.
<PAGE>
<PAGE 17>
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 TRANSPORTATION CORP.
------------------------------------------
(Registrant)
/s/ J. Steven Keate
----------------------------------
J. Steven Keate
Vice President and Controller
September 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 220
<SECURITIES> 173
<RECEIVABLES> 1,318
<ALLOWANCES> (23)
<INVENTORY> 477
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,354
<DEPRECIATION> (738)
<TOTAL-ASSETS> 3,320
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,875
<COMMON> 785
0
0
<OTHER-SE> (2,216)
<TOTAL-LIABILITY-AND-EQUITY> 3,320
<SALES> 4,408
<TOTAL-REVENUES> 4,558
<CGS> 3,817
<TOTAL-COSTS> 4,174
<OTHER-EXPENSES> 155
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 96
<INCOME-TAX> (34)
<INCOME-CONTINUING> 62
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The Company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
