<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, 1996
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 4, 1996, 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.
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NAVISTAR INTERNATIONAL TRANSPORTATION CORP.
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, 1996 and 1995 3
Statement of Financial Condition --
July 31, 1996, October 31, 1995 and July 31, 1996 ....... 5
Statement of Cash Flow --
Nine Months Ended July 31, 1996 and 1995 ................ 6
Notes to Financial Statements .............................. 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ................ 14
Part II. Other Information:
Item 1. Legal Proceedings ................................. 14
Item 6. Exhibits and Reports on Form 8-K .................. 14
Signature ................................................. 15
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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*
------------------------- ------------------ ------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products ........ $1,325 $1,455 $1,325 $1,455 $ - $ -
Finance and insurance revenue ......... 53 50 - - 66 66
Other income .......................... 5 5 3 6 3 -
------ ------ ------ ------ ------ ------
Total sales and revenues ............ 1,383 1,510 1,328 1,461 69 66
------ ------ ------ ------ ------ ------
Costs and expenses
Cost of products and services sold .... 1,159 1,253 1,158 1,251 1 2
Postretirement benefits ............... 52 50 52 50 - -
Engineering and research expense ...... 30 30 30 30 - -
Marketing and administrative expense .. 83 79 74 72 9 7
Interest expense ...................... 43 44 23 23 21 22
Financing charges on sold receivables . 5 5 18 21 - -
Insurance claims
and underwriting expense ............ 12 12 - - 12 12
------ ------ ------ ------ ------ ------
Total costs and expenses ............ 1,384 1,473 1,355 1,447 43 43
------ ------ ------ ------ ------ ------
Income (loss) before income taxes
Manufacturing ....................... - - (27) 14 - -
Financial Services .................. - - 26 23 - -
------ ------ ------ ------ ------ ------
Income (loss) before income taxes . (1) 37 (1) 37 26 23
Income tax expense ................ (8) (19) (8) (19) (10)
(9)
------ ------ ------ ------ ------ ------
Net income (loss) ..................... $ (9) $ 18 $ (9) $ 18 $ 16 $ 14
====== ====== ====== ====== ====== ======
<FN>
See Notes to Financial Statements.
</TABLE>
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<PAGE 4>
<TABLE>
<CAPTION>
Nine Months Ended July 31, 1996
- ----------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
- ------------------------- ------------------ -------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C>
$4,110 $4,408 $4,110 $4,408 $ - $ -
154 125 - - 192 168
20 25 15 21 9 8
------ ------ ------ ------ ------ ------
4,284 4,558 4,125 4,429 201 176
------ ------ ------ ------ ------ ------
3,589 3,817 3,583 3,812 6 5
163 155 163 154 - 1
93 80 93 80 - -
231 221 206 200 25 21
126 130 67 71 63 63
21 20 59 63 - -
38 39 - - 38 39
------ ------ ------ ------ ------ ------
4,261 4,462 4,171 4,380 132 129
------ ------ ------ ------ ------ ------
- - (46) 49 - -
- - 69 47 - -
------ ------ ------ ------ ------ ------
23 96 23 96 69 47
(28) (34) (28) (34) (26) (17)
------ ------ ------ ------ ------ ------
$ (5) $ 62 $ (5) $ 62 $ 43 $ 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>
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<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Millions of dollars
- ----------------------------------------------------------------------------------------------------------------------------------
Navistar International
Transportation Corp. and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------------ ------------------------------ ------------------------------
July 31 October 31 July 31 July 31 October 31 July 31 July 31 October 31 July 31
1996 1995 1995 1996 1995 1995 1996 1995 1995
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ----------------------------------
Cash and cash equivalents ........ $ 89 $ 442 $ 220 $ 43 $ 418 $ 145 $ 46 $ 24 $ 75
Marketable securities ............ 135 226 173 1 86 34 134 140 139
------ ------ ------ ------ ------ ------ ------ ------ ------
224 668 393 44 504 179 180 164 214
Receivables, net ................. 1,498 1,831 1,295 262 251 266 1,348 1,672 1,149
Inventories ...................... 549 416 477 549 416 477 - - -
Property, net of accumulated
depreciation and amortization
of $823, $764 and $738 ......... 703 683 616 643 642 581 60 41 35
Equity in Financial Services
subsidiaries ................... - - - 303 282 277 - - -
Investments and other assets ..... 173 163 174 130 119 138 46 44 36
Prepaid and intangible pension
assets ......................... 323 320 365 322 319 364 1 1 1
------ ------ ------ ------ ------ ------ ------ ------ ------
Total assets ..................... $3,470 $4,081 $3,320 $2,253 $2,533 $2,282 $1,635 $1,922 $1,435
====== ====== ====== ====== ====== ====== ====== ====== ======
LIABILITIES AND
SHAREOWNER'S EQUITY
- ----------------------------------
Liabilities
Accounts payable ................. $ 741 $ 933 $ 736 $ 675 $ 876 $ 682 $ 176 $ 146 $ 170
Other liabilities ................ 795 949 904 647 795 744 153 157 164
Debt due Parent Company .......... 853 923 898 853 923 898 - - -
Debt ............................. 1,288 1,457 977 292 127 160 996 1,330 817
Postretirement benefits
liabilities .................... 1,323 1,341 1,236 1,316 1,334 1,229 7 7 7
------ ------ ------ ------ ------ ------ ------ ------ ------
Total liabilities ............ 5,000 5,603 4,751 3,783 4,055 3,713 1,332 1,640 1,158
------ ------ ------ ------ ------ ------ ------ ------ ------
Shareowner's equity
Capital stock
(1,000 shares issued) ......... 786 786 785 786 786 785 178 178 178
Retained earnings (deficit) ...... (2,316) (2,308) (2,216) (2,316) (2,308) (2,216) 125 104 99
------ ------ ------ ------ ------ ------ ------ ------ ------
Total shareowner's equity .... (1,530) (1,522) (1,431) (1,530) (1,522) (1,431) 303 282 277
------ ------ ------ ------ ------ ------ ------ ------ ------
Total liabilities
and shareowner's equity ........ $3,470 $4,081 $3,320 $2,253 $2,533 $2,282 $1,635 $1,922 $1,435
====== ====== ====== ====== ====== ====== ====== ====== ======
<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>
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<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*
------------------------- ------------------ ------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operations
Net income (loss) ................................ $ (5) $ 62 $ (5) $ 62 $ 43 $ 30
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization .................. 75 63 68 59 7 4
Equity in earnings of Financial Services,
net of dividends received .................... - - (23) (24) - -
Additional pension funding ..................... - (72) - (72) - -
Change in operating assets and liabilities:
Receivables .................................. 174 160 70 11 - -
Inventories .................................. (134) (48) (134) (48) - -
Prepaids and other current assets ............ (12) - (12) - - -
Accounts payable ............................. (186) (103) (198) (95) (50) (3)
Other liabilities ............................ (165) 77 (158) 76 (5) 7
Other, net ..................................... (23) (7) (3) 2 (20) (9)
------ ------ ------ ------ ------ ------
Cash provided by (used in) operations ............ (276) 132 (395) (29) (25) 29
------ ------ ------ ------ ------ ------
Cash flow from investment programs
Purchase of retail notes and lease receivables ... (844) (748) - - (844) (748)
Collections/sales of retail notes and lease
receivables .................................... 1,016 805 - - 1,016 805
Cash collections in excess of acquisitions
of wholesale notes and accounts receivable .... - - - - 164 138
Purchase of marketable securities ................ (216) (162) (153) (108) (63) (54)
Sales or maturities of marketable securities ..... 306 166 238 107 68 59
Proceeds from property sold under sale/leaseback . 7 - 7 - - -
Capital expenditures ............................. (72) (91) (72) (91) - -
Advance to Navistar Financial .................... - - (82) (99) 82 99
Other investment programs, net ................... (32) 1 (7) 10 (25) (9)
------ ------ ------ ------ ------ ------
Cash provided by (used in) investment programs ... 165 (29) (69) (181) 398 290
------ ------ ------ ------ ------ ------
Cash flow from financing activities
Principal payments on debt ....................... (129) (409) (12) (9) (117) (400)
Net increase in notes and debt outstanding
under bank revolving credit facility and
asset-backed and other commercial paper programs (214) 104 - - (214) 104
Net increase (decrease) in loan from Navistar
International Corporation ...................... 101 (32) 101 (32) - -
Dividends paid ................................... - - - - (20) (6)
------ ------ ------ ------ ------ ------
Cash provided by (used in) financing activities .. (242) (337) 89 (41) (351) (302)
------ ------ ------ ------ ------ ------
Cash and cash equivalents
Increase (decrease) during the period .......... (353) (234) (375) (251) 22 17
At beginning of the year ....................... 442 454 418 396 24 58
------ ------ ------ ------ ------ ------
Cash and cash equivalents at end of the period ... $ 89 $ 220 $ 43 $ 145 $ 46 $ 75
====== ====== ====== ====== ====== ======
<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 7>
Navistar International Transportation Corp. and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note A. Summary of Accounting Policies
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 1995
Annual Report on Form 10-K.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1995 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 1995 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 the consolidated financial results of Navistar Financial
Corporation (Navistar Financial), its domestic insurance subsidiary and
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 1995 amounts have been
reclassified to conform with the presentation used in the 1996 financial
statements.
Note B. Supplemental Cash Flow Information
On the Statement of Cash Flow, "Cash collections in excess of
acquisitions" relating to Financial Services' wholesale notes and accounts
receivable are included on a consolidated basis as a change in operating
assets and liabilities under cash flow from operations and in Financial
Services as cash flow from investment programs.
Consolidated interest payments during the first nine months of 1996
and 1995 were $130 million. The Parent Company made consolidated tax
payments of $3 million and $5 million during the first nine months of 1996
and 1995, respectively.
<PAGE>
<PAGE 8>
Navistar International Transportation Corp. and Consolidated
Subsidiaries
Notes to Financial Statements (Unaudited)
Note C. 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.
Under the Tax Agreement, if Transportation records income, it is required
to compute its federal income tax expense based on such income and report
it in the Statement of Income; if a loss is recorded, the federal income
tax benefit from such loss is recorded by the Parent Company. 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 loss carryforwards (NOLs) generated in
earlier years.
Note D. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1996 1995 1995
- --------------------------------------------------------------------------
Finished products ................. $ 302 $ 167 $ 215
Work in process ................... 111 91 100
Raw materials and supplies ........ 136 158 162
------- ------- -------
Total inventories ................. $ 549 $ 416 $ 477
======= ======= =======
Note E. Financial Instruments
Navistar Financial enters into forward interest rate contracts to
manage its exposures to fluctuations in funding costs from the anticipated
securitization and sale of retail notes. Gains or losses incurred with the
closing of these agreements are included as a component of the gain or loss
on the sale of receivables.
In February and May 1996, Navistar Financial entered into short-term
forward interest rate lock agreements totalling $450 million on Treasury
securities maturing in 1998 related to the sale of retail receivables in
May 1996. These hedge agreements were closed in May 1996 in conjunction
with the sale of $460 million of retail notes receivable.
In August and September 1996, Navistar Financial entered into $300
million of forward interest rate lock agreements on a Treasury security
maturing in 1998 related to the anticipated sale of retail receivables
sometime in November 1996.
<PAGE>
<PAGE 9>
Navistar International Transportation Corp. and Consolidated
Subsidiaries
Notes to Financial Statements (Unaudited)
Note F. Legal Proceedings
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. (Klein Truck) and against Transportation in the amount of
$11 million in compensatory damages and $15 million in punitive damages.
Transportation appealed the verdict and in order to do so was required to
post a bond collateralized with $30 million in cash. In November 1994, the
Court of Appeals of the State of Oklahoma reversed the verdict and entered
judgment in favor of Transportation on virtually all aspects of the case.
Klein Truck then appealed to the Oklahoma Supreme Court.
On June 10, 1996, the Oklahoma Supreme Court dismissed its review of
the Court of Appeals decision and left standing the Court of Appeals
decision reversing the jury verdict. Transportation has made the
appropriate motions for return of its bond and expects the bond to be
returned in due course.
Note G. Environmental Matters
In the fourth quarter of 1994, Transportation recorded a charge for
potential clean-up costs related to two formerly owned businesses,
Wisconsin Steel and Solar Turbines, Inc. (Solar), as disclosed in Note 5 to
Transportation's Annual Report on Form 10-K. During the third quarter of
1995, Transportation and 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 Transportation's estimate of the
anticipated clean-up costs of the Wisconsin Steel and Solar sites reported
at October 31, 1995.
Note H. Subsequent Event
During the third quarter of 1996, the company announced plans for the
production of the Next Generation Truck (NGT) at its Springfield, Ohio
assembly facility. To achieve the necessary financial returns for the new
program, the company made proposals to the UAW (United Automobile,
Aerospace and Agricultural Implement Workers of America) to obtain
modifications to the existing labor contract and will continue to fund the
NGT program as long as rapid and significant progress is being made toward
reaching an acceptable agreement with the UAW. If these negotiations are
unsuccessful, the company's Board of Directors has authorized management to
halt development of the NGT program and to evaluate various strategy
alternatives aimed at improving the company's competitiveness. Management
estimates that as of August 31, 1996, a complete termination of the NGT
program would have resulted in a charge to earnings of approximately $30
million.
<PAGE>
<PAGE 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated
Transportation reported a net loss of $9 million for the third quarter
ended July 31, 1996, compared with net income of $18 million for the
comparable quarter last year. For the first nine months of 1996,
Transportation reported a net loss of $5 million, a decrease from the $62
million in net income reported for the same period in 1995.
Consolidated sales and revenues for the third quarter of 1996 totaled
$1,383 million compared with $1,510 million reported in 1995. During the
first nine months of 1996, consolidated sales and revenues declined 6% to
$4,284 million from $4,558 million.
Manufacturing
Third Quarter Ended July 31, 1996
---------------------------------
Manufacturing, excluding Financial Services, reported a loss before
income taxes of $27 million compared with pretax income of $14 million in
the third quarter of 1995. The change reflects a decline in demand for
trucks partially offset by the effect of ongoing cost improvement
initiatives and continued strong sales of mid-range diesel engines and
service parts.
Third quarter 1996 industry retail sales of Class 5 through 8 trucks
totaled 91,900 units, a decrease of 8% over 1995. Class 8 heavy truck
sales of 50,400 units during the third quarter of 1996 were 16% lower than
the 1995 level of 60,000 units. Industry sales of Class 5, 6 and 7 medium
trucks, including school buses, increased 3% to 41,500 units. Industry
sales of school buses, which accounted for 22% of the medium truck market
increased 4%.
Manufacturing's sales of trucks, diesel engines and service parts for
the third quarter of 1996 totaled $1,325 million compared with $1,455
million reported for the same period in 1995. Transportation maintained
its position as sales leader in the combined United States and Canadian
Class 5 through 8 truck market with a 28.2% market share for the third
quarter of 1996, an improvement from the 26.9% market share reported in
1995.
Shipments of mid-range diesel engines by Transportation to other
original equipment manufacturers during the third quarter of 1996 totaled
36,100 units, a 6% decrease from the same period of 1995. Lower shipments
to a major automotive manufacturer for use in the light trucks and vans
which use this engine was the primary reason for the decrease.
Service parts sales of $185 million in the third quarter of 1996 were
4% higher than the $178 million reported in 1995.
Operating Costs and Expenses. Manufacturing gross margin was 12.6% of
sales for the third quarter of 1996 compared with 14.0% for the same period
in 1995. The decrease in gross margin is primarily the result of lower
sales volumes and more competitive pricing partially offset by improved
operating efficiency.
<PAGE>
<PAGE 11>
Nine Months Ended July 31, 1996
-------------------------------
The pretax loss, excluding Financial Services, for the first nine
months of 1996 was $46 million compared with net income of $49 million
reported for the same period of 1995.
Manufacturing's sales and revenues during this period totaled $4,125
million, 7% lower than the first three quarters of 1995. During the first
nine months of 1996, sales of trucks declined 11% while sales of diesel
engines to other original equipment manufacturers increased 4%. Service
parts sales were 5% higher than in the same period of 1995.
Industry retail sales of Class 5 through 8 trucks during the first
nine months of fiscal 1996 totaled 259,800 units, a decrease from the
287,200 units sold during this period in 1995. Transportation 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 with a 26.9%
market share, a slight increase over the 26.2% market share reported for
the same period last year.
Manufacturing gross margin for the first nine months of 1996 was 12.8%
compared with 13.5% in 1995. The factors which influenced gross margin
during the third quarter of 1996 were also responsible for the change
during the first nine months of the year.
Marketing and administrative expense increased to $206 million for the
first three quarters of 1996 from $200 million in 1995 reflecting
investment in Transportation's strategy for the manufacture of the next
generation of medium trucks.
Financial Services
Financial Services' pretax income for the third quarter of 1996 was
$26 million, an improvement from the $23 million reported in 1995.
Navistar Financial was responsible for the change which reflects higher
income on sales of retail receivables and higher retail note balances.
The increase in pretax income from $47 million for the first nine
months of 1995 to $69 million in 1996 reflects higher income on sales of
retail notes and higher levels of wholesale note financing. During the
first three quarters of 1996, sales of receivables totaled $985 million
with a gain of $20 million compared with $740 million sold a year ago with
a gain of $5 million. The improved gains on sales resulted from higher
margins on retail notes reflecting declining market interest rates.
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 Transportation amounted to $224
million at July 31, 1996, $668 million at October 31, 1995 and $393 million
at July 31, 1995.
<PAGE>
<PAGE 12>
Manufacturing
Cash used in operations during the first nine months of 1996 totaled
$395 million, primarily from a net change in operating assets and
liabilities of $432 million. The net change in operating assets and
liabilities includes a $70 million decrease in receivables offset by a
reduction in accounts payable of $198 million resulting from lower
production, higher inventories and a $158 million decrease in other
liabilities. The decline in other liabilities is the result of the payment
to employees as required by Transportation's profit sharing agreements as
well as the timing of planned pension funding.
Investment programs used $69 million in cash to fund capital
expenditures for truck product improvement, to increase diesel engine
capacity and to improve cost performance as well as for an $82 million
advance to Navistar Financial. These programs were funded by a net
decrease in marketable securities of $85 million and by $89 million
provided by financing activities.
At July 31, 1996, Transportation had outstanding capital commitments
of $42 million. The commitments include truck and engine product
development and ongoing facility maintenance programs. Transportation
finances capital expenditures principally through internally generated
cash. Capital leasing is used to fund selected projects based on economic
and operating factors.
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 and capital expenditures.
Financial Services
Operations used $25 million in cash through the third quarter of 1996
primarily reflecting a payment to Manufacturing. Cash from investment
programs funded Financial Services' operations and financing activities.
Investment programs provided $398 million during this period principally as
a result of a net decrease of $336 million in retail and wholesale finance
notes and receivables and $82 million in funds advanced to Navistar
Financial by Transportation. Financing activities used $351 million
primarily to reduce debt.
Receivable sales were a significant source of funding in 1996 and
1995. During the first nine months of 1996, Navistar Financial sold $985
million of retail notes, net of unearned finance income, through Navistar
Financial Retail Receivables Corporation (NFRRC), realizing net proceeds
from the sales of $935 million. During the same period in 1995, Navistar
Financial sold $740 million of retail notes receivables with net proceeds
of $693 million. In both years, the net proceeds were used for general
working capital purposes.
On November 14, 1995, NFRRC filed an additional registration statement
with the Securities and Exchange Commission providing for the issuance from
time to time of an additional $2,000 million of asset-backed securities.
This registration statement, along with two previously issued
registrations, allow NFRRC to issue up to $5,000 million of asset-backed
securities. At July 31, 1996, the remaining shelf registration available
to NFRRC was $2,400 million.
<PAGE>
<PAGE 13>
Effective March 29, 1996, Navistar Financial amended and restated its
$900 million bank revolving credit facility and its $300 million asset-
backed commercial paper (ABCP) program, extending the maturity date of
each facility to March 2001. In addition, the commitment of the bank
revolving credit facility was expanded to $925 million, the ABCP facility
was increased to $400 million and a new pricing and fee schedule was
established.
At July 31, 1996, available funding under the amended and restated
credit facility and the asset-backed commercial paper facility was $551
million, of which $118 million was used to back short-term debt at July 31,
1996. The remaining $433 million, when combined with unrestricted cash and
cash equivalents made $453 million available to fund the general business
purposes of Navistar Financial at July 31, 1996.
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.
Business Outlook
During the first three quarters of 1996, the Class 5 through 8 truck
market experienced a significant decline in the rate of new truck orders
and an increase in the cancellation of some existing orders. Accordingly,
retail deliveries in 1996 will be highly dependent on the rate at which new
truck orders are received. Anticipating lower year-over-year truck demand
levels, management will balance production with demand as appropriate to
assure that Transportation's operating and financial objectives for the
year are met.
As a result of a decline in truck orders which reflect a softening of
certain key economic indicators in the truck industry, Transportation
currently projects 1996 United States and Canadian Class 8 heavy truck
demand to be 190,000 units, a 17% decrease from 1995. Class 5, 6 and 7
medium truck demand, including school buses, is forecast at 147,500 units,
a 3% decrease from 1995. Diesel engine shipments by Transportation to
other original equipment manufacturers in 1996 are expected to be
approximately 162,400 units, a 4% increase from 1995. Transportation's
parts sales are expected to grow 6% to $773 million.
During the third quarter of 1996, the company announced plans for the
production of the Next Generation Truck (NGT) at its Springfield, Ohio
assembly facility. To achieve the necessary financial returns for the new
program, the company made proposals to the UAW (United Automobile,
Aerospace and Agricultural Implement Workers of America) to obtain
modifications to the existing labor contract and will continue to fund the
NGT program as long as rapid and significant progress is being made toward
reaching an acceptable agreement with the UAW. If these negotiations are
unsuccessful, the company's Board of Directors has authorized management to
halt development of the NGT program and to evaluate various strategy
alternatives aimed at improving the company's competitiveness. Management
estimates that as of August 31, 1996, a complete termination of the NGT
program would have resulted in a charge to earnings of approximately $30
million.
<PAGE>
<PAGE 14>
Navistar International Transportation Corp.
and Consolidated Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal
Proceedings" in Transportation's definitive Form 10-K dated
January 26, 1996, 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, 1996.
<PAGE>
<PAGE 15>
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 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 89
<SECURITIES> 135
<RECEIVABLES> 1,522
<ALLOWANCES> (24)
<INVENTORY> 549
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,526
<DEPRECIATION> (823)
<TOTAL-ASSETS> 3,470
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,141
0
0
<COMMON> 786
<OTHER-SE> (2,316)
<TOTAL-LIABILITY-AND-EQUITY> 3,470
<SALES> 1,325
<TOTAL-REVENUES> 1,383
<CGS> 1,159
<TOTAL-COSTS> 1,384
<OTHER-EXPENSES> 52
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> (1)
<INCOME-TAX> (8)
<INCOME-CONTINUING> (9)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
