[DOCUMENT-COUNT] 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, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4146-1
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NAVISTAR FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-2472404
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 West Golf Road Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 708-734-4275
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 August 31, 1994, the number of shares outstanding of the registrant's
common stock was 1,600,000.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
TRANSPORTATION CORP. AND MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM
WITH THE REDUCED DISCLOSURE FORMAT.<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statement of Consolidated Income and Retained Earnings --
Three Months and Nine Months Ended July 31, 1994 and 1993 . . 2
Statement of Consolidated Financial Condition --
July 31, 1994; October 31, 1993; and July 31, 1993. . . . . . 3
Statement of Consolidated Cash Flow --
Nine Months Ended July 31, 1994 and 1993. . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31 July 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . . . $ 14.2 $ 23.6 $ 53.9 $ 79.1
Wholesale notes. . . . . . . . . . . . . . . . 11.2 8.4 29.7 23.2
Accounts . . . . . . . . . . . . . . . . . . . 5.9 4.9 15.4 13.1
Insurance premiums earned. . . . . . . . . . . 12.2 13.9 38.9 43.7
Marketable securities. . . . . . . . . . . . . 2.7 2.6 8.1 9.7
Total. . . . . . . . . . . . . . . . . . 46.2 53.4 146.0 168.8
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . . . 16.7 17.6 48.1 57.2
Other. . . . . . . . . . . . . . . . . . . 1.3 1.4 4.1 2.9
Total. . . . . . . . . . . . . . . . . . 18.0 19.0 52.2 60.1
Supplemental Trust contribution (Note 6) . . . - 3.7 - 3.7
Credit, collection and administrative. . . . . 1.8 3.2 5.9 10.8
Provision for losses on receivables. . . . . . .1 .3 1.1 2.3
Insurance claims and underwriting. . . . . . . 12.7 17.5 41.4 50.4
Other expense, net . . . . . . . . . . . . . . 1.0 1.9 2.9 5.1
Total. . . . . . . . . . . . . . . . . . 33.6 45.6 103.5 132.4
Income Before Taxes on Income and Cumulative
Effect of Changes in Accounting Policy . . . . 12.6 7.8 42.5 36.4
Taxes on Income. . . . . . . . . . . . . . . . . 4.0 2.6 15.0 12.7
Income before Cumulative Effect of
Changes in Accounting Policy . . . . . . . . . 8.6 5.2 27.5 23.7
Cumulative Effect of Changes in
Accounting Policy (Note 1) . . . . . . . . . . - - - 8.8
Net Income . . . . . . . . . . . . . . . . . . . 8.6 5.2 27.5 14.9
Retained Earnings
Beginning of period. . . . . . . . . . . . . . 55.4 50.2 48.4 48.5
Dividends paid . . . . . . . . . . . . . . . . 9.5 9.6 21.4 17.6
End of period. . . . . . . . . . . . . . . . . $ 54.5 $ 45.8 $ 54.5 $ 45.8<PAGE>
</TABLE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
July 31 October 31 July 31
1994 1993 1993
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents. . . . . . . . . . . . $ 17.4 $ 33.9 $ 63.4
Marketable Securities. . . . . . . . . . . . . . 138.7 125.6 132.4
Finance Receivables
Retail notes and lease financing. . . . . . . 539.3 831.4 731.7
Wholesale notes . . . . . . . . . . . . . . . 246.3 259.0 149.3
Accounts. . . . . . . . . . . . . . . . . . . 265.4 245.1 245.5
1,051.0 1,335.5 1,126.5
Allowance for losses. . . . . . . . . . . . . (8.7) (10.9) (10.8)
Finance Receivables, Net . . . . . . . . . 1,042.3 1,324.6 1,115.7
Amounts Due from Sales of Receivables
(Note 3). . . . . . . . . . . . . . . . . . . 91.9 74.4 75.5
Equipment on Operating Leases, Net . . . . . . . 17.2 25.1 25.6
Repossessions. . . . . . . . . . . . . . . . . . 2.9 1.8 5.2
Reinsurance Receivables. . . . . . . . . . . . . 36.1 - -
Other Assets . . . . . . . . . . . . . . . . . . 72.1 39.8 42.1
Total Assets . . . . . . . . . . . . . . . . . . $1,418.6 $1,625.2 $1,459.9
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Bank Borrowings . . . . . . . . . . . $ 71.7 $ 75.0 $ -
Accounts Payable
Affiliated companies. . . . . . . . . . . . . 54.9 19.5 25.2
Other . . . . . . . . . . . . . . . . . . . . 64.6 57.8 50.7
Total. . . . . . . . . . . . . . . . . . . 119.5 77.3 75.9
Dealers' Reserves. . . . . . . . . . . . . . . . 18.5 17.3 17.6
Unpaid Insurance Claims and Unearned Premiums. . 125.0 94.5 90.7
Accrued Income Taxes . . . . . . . . . . . . . . 9.2 3.1 5.1
Accrued Interest . . . . . . . . . . . . . . . . 10.9 14.4 9.7
Senior and Subordinated Debt (Note 2). . . . . . 838.3 1,124.2 1,044.1
Shareowner's Equity
Capital stock (Par value $1.00, 1,600,000
shares issued and outstanding) . . . . . . 171.0 171.0 171.0
Retained earnings . . . . . . . . . . . . . . 54.5 48.4 45.8
Total. . . . . . . . . . . . . . . . . . . 225.5 219.4 216.8
Total Liabilities and Shareowner's Equity. . . . $1,418.6 $1,625.2 $1,459.9<PAGE>
</TABLE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
July 31
1994 1993
<S>
Cash Flow From Operations <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27.5 $ 14.9
Adjustments to reconcile net income to cash
provided from operations:
Cumulative effect of changes in accounting policy. . . . . . . . . - 8.8
Supplemental Trust obligation. . . . . . . . . . . . . . . . . . . - 3.7
Gains on sales of receivables. . . . . . . . . . . . . . . . . . . (11.1) (13.4)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 5.1 6.7
Provision for losses on receivables. . . . . . . . . . . . . . . . 1.1 2.3
Increase (decrease) in other accounts payable
and accrued liabilities. . . . . . . . . . . . . . . . . . . . . 10.4 (13.6)
Increase (decrease) in unpaid insurance reserves . . . . . . . . . (5.7) 6.9
Increase in accounts payable to affiliated companies . . . . . . . 38.0 22.2
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.4) 4.2
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.9 42.7
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . . . . . . . . . 769.6 494.2
Purchase of retail notes and lease receivables. . . . . . . . . . . . (675.9) (531.4)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . 149.6 251.9
Acquisitions over cash collections of wholesale
notes and accounts receivable. . . . . . . . . . . . . . . . . . . (7.6) (62.6)
Purchase of marketable securities . . . . . . . . . . . . . . . . . . (51.6) (51.6)
Proceeds from sales of marketable securities. . . . . . . . . . . . . 40.0 51.0
Decrease (increase) in property and equipment leased to others. . . . 5.2 (13.4)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229.3 138.1
Cash Flow From Financing Activities
Decrease in debt outstanding under bank
revolving credit facility. . . . . . . . . . . . . . . . . . . . . (211.0) (90.0)
Principal payments on short-term debt . . . . . . . . . . . . . . . . (3.3) -
Principal payments on long-term debt. . . . . . . . . . . . . . . . . (75.0) (89.0)
Dividends paid to Transportation. . . . . . . . . . . . . . . . . . . (21.4) (17.6)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (310.7) (196.6)
Decrease in Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . (16.5) (15.8)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . 33.9 79.2
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . $ 17.4 $ 63.4
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.7 $ 66.8
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.1 $ 10.7<PAGE>
</TABLE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements include the accounts of Navistar
Financial Corporation ("NFC") and its wholly-owned subsidiaries
("Corporation"). Navistar International Transportation Corp.
("Transportation"), which is wholly-owned by Navistar International
Corporation ("Navistar"), is the parent company of NFC.
The accompanying unaudited financial statements and notes have been
prepared in accordance with the accounting policies set forth in the
Corporation's 1993 Annual Report on Form 10-K and should be read in
conjunction with the Notes to the Consolidated Financial Statements
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 interim periods presented. Interim results are not necessarily
indicative of results to be expected for the full year. Certain 1993
amounts have been reclassified to conform with the presentation used in
the 1994 financial statements.
In the third quarter of fiscal 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" retroactive
to November 1, 1992. The cumulative effect of adopting these changes in
accounting policy retroactive to November 1, 1992 resulted in an after tax
charge to income of $8.8 million in the first quarter of fiscal 1993.
2. Average short-term debt outstanding during the first nine months of fiscal
1994, which included commercial paper and bank bid borrowings, was
approximately $2.9 million, at an average cost of 6.1%. There was no
outstanding short-term debt during the first nine months of fiscal 1993.
The weighted average interest rate on all debt, including short term debt
and the effect of discounts and related amortization, was 7.0% and 6.6%
for the first nine months of fiscal 1994 and 1993, respectively.
Accounts payable due to affiliated companies at July 31, 1994 include an
intercompany advance of $49.2 million. The advance, which is payable to
Transportation, accrues interest at the Corporation's incremental
borrowing rate.
3. Finance receivable balances do not include receivables sold by the
Corporation to public and private investors with limited recourse
provisions. Uncollected sold receivables balances are as follows:
<TABLE>
<CAPTION>
July 31 October 31 July 31
1994 1993 1993
($ Millions)
<S> <C> <C> <C>
Retail notes . . . . . . . . . . . $ 964.8 $539.4 $573.0
Wholesale notes. . . . . . . . . . 300.0 300.0 300.0
Total. . . . . . . . . . . . $1,264.8 $839.4 $873.0
</TABLE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The allowance for losses on receivables is summarized as follows:
<TABLE>
July 31 October 31 July 31
1994 1993 1993
($ Millions)
<S>
Allowance pertaining to: <C> <C> <C>
Owned receivables. . . . . . . $ 8.7 $10.9 $10.8
Sold notes . . . . . . . . . . 6.6 3.9 4.0
Total. . . . . . . . . . . . $15.3 $14.8 $14.8
</TABLE>
The "Amounts Due From Sales of Receivables" primarily represents holdback
reserves established pursuant to the limited recourse provisions of
certain retail note sales. The Corporation's maximum exposure under all
receivable sale recourse provisions at July 31, 1994 is $157.7 million
which includes holdback reserves of $68.1 million, subordinated retained
interests in securitized receivable sales of $50.9 million and certain
cash deposits established pursuant to securitized receivables recourse
provisions of $38.7 million. A cash deposit of $3.7 million has also been
established to ensure payment of principal and/or interest to the
investors in the event that collections on the securitized wholesale notes
are less than required. The total cash deposits of $42.4 million, which
are held by the sales trusts and restricted for use by the securitized
sales agreements, are included in the Corporation's other assets at July
31, 1994. Total cash deposits of $9.6 million are included in the
Corporation's other assets at October 31, 1993 and July 31, 1993. The
allowance for estimated losses on sold notes allocated to sold receivables
is included in "Amounts Due From Sales of Receivables" in the Statement
of Consolidated Financial Condition.
4. The Corporation has $1,327 million of contractually committed support
facilities, consisting of a $727 million bank revolving credit facility
and a $600 million retail notes receivable purchase facility. At July 31,
1994, unused commitments under these facilities were $384.9 million, of
which $71.7 million provided funding backup for short-term bank borrowings
at July 31, 1994. The remaining $313.2 million when combined with
unrestricted cash and cash equivalents made $330.6 million available to
fund the general business purposes of the Corporation.
The Corporation paid dividends of $21.4 million to Transportation during
the first nine months of 1994, compared with $17.6 million of dividends
paid during the first nine months of 1993. Under the Corporation's most
restrictive bank covenants, $4.3 million was available for dividend to
Transportation after July 31, 1994.<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. The Corporation's wholly-owned insurance subsidiary, Harco National
Insurance Company ("Harco"), cedes and assumes insurance on risks with
other insurers and reinsurers. Reinsurance ceding arrangements are
utilized to limit maximum loss exposure on larger risks. Ceding
arrangements do not discharge the primary liability of Harco as the
original insurer.
During the first quarter of fiscal 1994, the Corporation adopted Statement
of Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113").
This statement, which is applicable to Harco, eliminates the practice of
reporting liabilities relating to reinsured contracts net of the effects
of ceded reinsurance. It requires reinsurance receivables including
amounts related to unpaid insurance claims and prepaid reinsurance
premiums to be reported as assets. In accordance with SFAS 113, the
Corporation's assets include $36.1 million of reinsurance receivables at
July 31, 1994. The adoption of SFAS 113 did not have a material effect
on the Corporation's financial results.
6. On July 1, 1993, Navistar implemented its restructured retiree health care
and life insurance plan ("the Plan"). The Plan provides for cost sharing
between Navistar and retirees in the form of premiums, co-payments and
deductibles. A Base Program Trust was established to provide a vehicle
for funding of the health care liability through Navistar contributions
and retiree premiums. A separate independent Retiree Supplemental Benefit
Program was also established to potentially reduce retiree premiums, co-
payments and deductibles and provide additional benefits in the future.
In July, 1993, the Corporation agreed to contribute $3.7 million to the
Supplemental Benefit Trust as its portion of the Navistar liability.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations - Three Months Ended July 31, 1994 Compared with
Three Months Ended July 31, 1993
Consolidated
The Corporation earned pretax income of $12.6 million in the third quarter of
fiscal 1994, an increase from $7.8 million for the same period a year ago.
Pretax income from the Corporation's finance operations increased $2.2 million
as the result of a $3.7 million one-time charge in 1993 for the Corporation's
share of a Supplemental Benefit Trust contribution for retirees as discussed
in note 6 to the Consolidated Financial Statements. Improved loss experience
in the Corporation's liability insurance product lines increased third quarter
pretax earnings from insurance operations by $2.6 million.
Finance Operations
Third quarter revenue from finance operations decreased $5.1 million to $32.1
million in 1994 as increased volumes of retail note sales caused the average
balance of owned retail notes to decline significantly compared to the third
quarter of 1993. Lower gains on sales of retail notes also contributed to the
decrease as $1.4 million was earned on retail receivable sales of $280 million
during 1994 compared with gains of $3.3 million earned on $174 million of sold
receivable balances in 1993. The effects of these factors on revenue were
offset, in part, by an increase in average wholesale note balances in support
of higher demand for Transportation truck products.
Interest expense declined $.9 million in the third quarter of 1994 compared
to the third quarter of 1993 with the decrease in average owned finance
receivable balances which required less debt to support. Credit, collection
and administration expenses also dropped as the owned percentage of serviced
retail receivables decreased.
Insurance Operations
The increase in pretax income for Harco National Insurance Company ("Harco"),
NFC's wholly owned insurance subsidiary, resulted from lower loss experience
in Harco's liability insurance lines. Harco's losses on all product lines as
a percentage of earned premiums decreased 16 points from the third quarter of
1993. Reduced commission costs also contributed to the increase in insurance
earnings for the third quarter of fiscal 1994.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations - Nine Months Ended July 31, 1994 Compared with
Nine Months Ended July 31, 1993
Pretax income from the Corporation's finance and insurance operations
increased $2.3 million and $3.8 million, respectively, during the first nine
months of fiscal 1994 as compared with the first nine months of fiscal 1993.
Consolidated net income was higher by $12.6 million for the first nine months
of 1994 compared to the same period a year ago primarily as the result of a
one-time $8.8 million net of tax charge in 1993 for the cumulative effect of
adopting new accounting standards for income taxes and postretirement
benefits. The same factors influencing third quarter results generally apply
to the changes in year-to-date results except for income from Harco's
investment portfolio, which was slightly lower in 1994.
Liquidity and Funds Management
The Corporation's operations are substantially dependent upon the production
and sale of Transportation's truck products in the United States. Navistar
Financial's traditional sources of funding for its receivables include
commercial paper, short- and long-term bank borrowings, medium- and long-term
debt issues, sales of receivables and equity capital. The insurance
operations generate their funds through internal operations and have no
external borrowings.
During the first nine months of fiscal 1994, the Corporation supplied 93.2%
of the wholesale financing of new trucks to Transportation's dealers and 15.6%
of the retail financing of new International trucks sold in the United States.
These market shares are up from 87.8% for wholesale financing and 14.8% for
retail financing in the first nine months of fiscal 1993. Increased industry
demand for Transportation truck products and, to a much lesser extent, these
higher market shares caused serviced truck receivables and leases to grow to
$2.5 billion at July 31, 1994, from $2.3 billion at October 31, 1993 and $2.2
billion at July 31, 1993. Gross acquisitions of retail notes and leases for
the first nine months increased to $769 million in 1994 from $602 million in
1993. Serviced wholesale note balances were $546 at July 31, 1994 compared
to $559 million at October 31, 1993 and $449 million at July 31, 1993.
Owned net finance receivable balances declined to $1,042 million at July 31,
1994 from $1,325 million at October 31, 1993 and $1,116 million at July 31,
1993. During the first nine months of 1994, the Corporation sold $818 million
of retail notes receivable, $203 million through its bank receivable purchase
facility and $615 million through a special purpose subsidiary, Navistar
Financial Retail Receivables Corporation, and an owner trust to public
investors. The public sales were part of a $1 billion registration of asset
backed securities filed by Navistar Financial Retail Receivables Corporation
in September 1993. Except for $42 million in cash reserves established as
credit enhancement for the public sales, all the cash proceeds from these
receivable sales were used to reduce borrowings under the Corporation's
revolving bank credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Funds Management (continued)
On August 3, 1994, the Corporation sold an additional $215 million of retail
notes receivable through Navistar Financial Retail Receivables Corporation and
an owner trust to public investors. This sale of retail notes netted the
Corporation proceeds of $214 million, of which $14 million was used to
establish a cash reserve account for the trust and the remainder reduced the
Corporation's short-term borrowings and borrowings under the revolving bank
credit facility.
Ratings on the Corporation's debt were reviewed by Standard and Poor's
Corporation ("Standard and Poor's") and Moody's Investors Service, Inc.
("Moody's") in October 1993. Standard and Poor's raised its ratings for the
Corporation's debt from B- to BB for senior debt and from CCC to B+ for
subordinated debt. Moody's confirmed their previous ratings of Ba3 for senior
debt and B2 for subordinated debt. In November 1993, Duff & Phelps confirmed
their debt ratings of BB+ for senior debt and BB for subordinated debt. The
Corporation's commercial paper is rated "not prime" by Moody's.
In November 1993, the Corporation sold $100 million of 8 7/8% Senior
Subordinated Notes due 1998 to the public. In December 1993, the net proceeds
from the 8 7/8% subordinated issue were used to redeem the Corporation's
11.95% Subordinated Debentures due December 1995. Additionally, in December
1993, the Corporation redeemed its 7 1/2% Senior Debentures due January 1994.
At July 31, 1994, the Corporation's committed credit and receivable purchase
facilities were $1,327 million. These facilities consisted of a contractually
committed bank revolving credit facility of $727 million and a contractually
committed retail notes receivable purchase facility of $600 million. The
maturity date of both facilities is November 15, 1995. At July 31, 1994,
unused commitments under these facilities were $384.9 million, of which $71.7
million provided funding backup for short-term bank borrowings at July 31,
1994. The remaining $313.2 million when combined with unrestricted cash and
cash equivalents made $330.6 million available to fund the general business
purposes of the Corporation. In addition to the committed credit facilities,
the Corporation also utilizes a $300 million revolving wholesale note sales
trust providing for the continuous sale of eligible wholesale notes on a daily
basis. The sales trust is composed of three $100 million pools of notes
maturing serially from 1997 to 1999.
The Corporation paid dividends of $21.4 million to Transportation during the
first nine months of 1994, compared with $17.6 million of dividends paid
during the first nine months of 1993. Under the Corporation's most
restrictive bank covenants, $4.3 million was available for dividend to
Transportation after July 31, 1994. The Corporation's debt to equity ratio
was 4.0:1, 5.5:1 and 4.8:1 at July 31, 1994, October 31, 1993 and July 31,
1993, respectively.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Funds Management (continued)
Interest rate sensitivity is managed by funding floating rate assets with
floating rate debt, primarily borrowings under the bank revolving credit
agreement, and fixed rate assets with fixed rate debt, equity and floating
rate debt. Management has limited the amount of fixed rate assets funded with
floating rate debt by selling retail receivables on a fixed rate basis and by
using interest rate swaps and caps.
Management believes that collections on the outstanding receivables portfolio
plus funds available from the Corporation's various funding sources will
permit Navistar Financial to meet the financing requirements of
Transportation's dealers and retail customers through 1994 and beyond.
Accounting Standards
As disclosed in the Corporation's annual report on Form 10-K for the fiscal
year ended October 31, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") in May 1993. This
statement establishes financial accounting and reporting standards for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Upon adoption of SFAS 115, the
Corporation's Statement of Financial Condition classification of cash
equivalents and marketable securities will not change and the requirements of
SFAS 115 will be met through revised footnote disclosure. The effective date
for this new standard is for fiscal years beginning after December 15, 1993,
or fiscal 1995 for the Corporation. The Corporation has not yet determined
the impact on the financial statements nor when it will adopt SFAS 115.<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended July
31, 1994.
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 Financial Corporation
(Registrant)
Date September 12, 1994 /s/R. W. Cain
R. W. Cain
Vice President and Treasurer<PAGE>
