UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 May 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 Six Months Ended April 30, 1994 and 1993 . . . . 2
Statement of Consolidated Financial Condition --
April 30, 1994; October 31, 1993; and April 30, 1993. . . . . . . 3
Statement of Consolidated Cash Flow --
Six Months Ended April 30, 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 Six Months Ended
April 30 April 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . . . $ 15.2 $ 26.7 $ 39.7 $ 55.5
Wholesale notes. . . . . . . . . . . . . . . . 9.4 7.7 18.5 14.8
Accounts . . . . . . . . . . . . . . . . . . . 4.9 4.1 9.5 8.2
Insurance premiums earned. . . . . . . . . . . 13.0 14.8 26.7 29.8
Marketable securities. . . . . . . . . . . . . 2.7 3.3 5.4 7.1
Total. . . . . . . . . . . . . . . . . . 45.2 56.6 99.8 115.4
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . . . 15.7 18.8 31.4 39.6
Other. . . . . . . . . . . . . . . . . . . 1.4 .8 2.8 1.5
Total. . . . . . . . . . . . . . . . . . 17.1 19.6 34.2 41.1
Credit, collection and administrative. . . . . 1.6 3.6 4.1 7.6
Provision for losses on receivables. . . . . . .2 1.1 1.0 2.0
Insurance claims and underwriting. . . . . . . 13.1 17.4 28.7 32.9
Other expense (revenue), net . . . . . . . . . 1.0 1.4 1.9 3.2
Total. . . . . . . . . . . . . . . . . . 33.0 43.1 69.9 86.8
Income Before Taxes on Income and Cumulative
Effect of Changes in Accounting Policy . . . . 12.2 13.5 29.9 28.6
Taxes on Income. . . . . . . . . . . . . . . . . 4.2 4.7 11.0 10.1
Income Before Cumulative Effect of Changes
in Accounting Policy . . . . . . . . . . . . . 8.0 8.8 18.9 18.5
Cumulative Effect of Changes in
Accounting Policy (Note 1) . . . . . . . . . . - - - 8.8
Net Income . . . . . . . . . . . . . . . . . . . 8.0 8.8 18.9 9.7
Retained Earnings
Beginning of period. . . . . . . . . . . . . . 52.4 49.4 48.4 48.5
Dividends paid . . . . . . . . . . . . . . . . 5.0 8.0 11.9 8.0
End of period. . . . . . . . . . . . . . . . . $ 55.4 $ 50.2 $ 55.4 $ 50.2
</TABLE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
April 30 October 31 April 30
1994 1993 1993
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents. . . . . . . . . . . . $ 15.8 $ 33.9 $ 50.1
Marketable Securities. . . . . . . . . . . . . . 132.4 125.6 132.5
Finance Receivables
Retail notes and lease financing. . . . . . . 617.0 831.4 770.9
Wholesale notes . . . . . . . . . . . . . . . 338.0 259.0 222.9
Accounts. . . . . . . . . . . . . . . . . . . 344.9 245.1 250.2
1,299.9 1,335.5 1,244.0
Allowance for losses. . . . . . . . . . . . . (9.2) (12.0) (12.4)
Finance Receivables, Net. . . . . . . . . . 1,290.7 1,323.5 1,231.6
Amounts Due from Sales of Receivables
(Note 3). . . . . . . . . . . . . . . . . . . 78.6 75.5 76.9
Equipment on Operating Leases, Net . . . . . . . 13.6 25.1 23.5
Repossessions. . . . . . . . . . . . . . . . . . 2.8 1.8 7.0
Other Assets . . . . . . . . . . . . . . . . . . 89.8 39.8 49.0
Total Assets . . . . . . . . . . . . . . . . . . $1,623.7 $1,625.2 $1,570.6
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Bank Borrowings . . . . . . . . . . . $ 50.0 $ 75.0 $ -
Accounts Payable
Affiliated companies. . . . . . . . . . . . . 97.3 19.5 -
Other . . . . . . . . . . . . . . . . . . . . 38.8 57.8 64.7
Total. . . . . . . . . . . . . . . . . . . 136.1 77.3 64.7
Dealers' Reserves. . . . . . . . . . . . . . . . 17.9 17.3 17.1
Unpaid Insurance Claims and Unearned Premiums. . 121.8 94.5 86.7
Accrued Income Taxes . . . . . . . . . . . . . . 8.0 3.1 5.9
Accrued Interest . . . . . . . . . . . . . . . . 14.1 14.4 16.2
Senior and Subordinated Debt (Note 2). . . . . . 1,049.4 1,124.2 1,158.8
Shareowner's Equity
Capital stock (Par value $1.00, 1,600,000
shares issued and outstanding) . . . . . . 171.0 171.0 171.0
Retained earnings . . . . . . . . . . . . . . 55.4 48.4 50.2
Total. . . . . . . . . . . . . . . . . . . 226.4 219.4 221.2
Total Liabilities and Shareowner's Equity. . . . $1,623.7 $1,625.2 $1,570.6
</TABLE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
April 30
1994 1993
<S> <C> <C>
Cash Flow From Operations
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 18.9 $ 9.7
Adjustments to reconcile net income to cash
provided from operations:
Cumulative effect of changes in accounting policy. . . . . . . . . . - 8.8
Gains on sales of receivables. . . . . . . . . . . . . . . . . . . . (9.9) (9.7)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 3.3 4.0
Provision for losses on receivables. . . . . . . . . . . . . . . . . 1.0 2.0
Increase (decrease) in other accounts payable
and accrued liabilities. . . . . . . . . . . . . . . . . . . . . . (6.7) 7.2
Increase (decrease) in unpaid insurance reserves . . . . . . . . . . (6.6) 2.9
Increase in deferred income taxes. . . . . . . . . . . . . . . . . . - 4.5
Increase (decrease) in accounts payable to
affiliated companies . . . . . . . . . . . . . . . . . . . . . . . 77.8 (3.8)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) (.5)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76.7 25.1
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . . . . . . . . . . 515.7 315.6
Purchase of retail notes and lease receivables. . . . . . . . . . . . . (431.3) (320.2)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 107.3 174.0
Acquisitions over cash collections of wholesale
notes and accounts receivable. . . . . . . . . . . . . . . . . . . . (178.7) (140.9)
Purchase of marketable securities . . . . . . . . . . . . . . . . . . . (40.9) (40.4)
Proceeds from sales of marketable securities. . . . . . . . . . . . . . 35.3 39.3
Decrease (increase) in property and equipment leased to others. . . . . 9.7 (9.6)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.1 17.8
Cash Flow From Financing Activities
Principal payments on short-term debt . . . . . . . . . . . . . . . . . (25.0) -
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . (75.0) (64.0)
Dividends paid to Transportation. . . . . . . . . . . . . . . . . . . . (11.9) (8.0)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111.9) (72.0)
Decrease in Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . (18.1) (29.1)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 33.9 79.2
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . .$ 15.8 $ 50.1
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 31.5 $ 42.9
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 9.3 $ 7.3
</TABLE>
<PAGE>
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 six months of fiscal
1994 was approximately $.8 million, at an average cost of 6.7%. There was
no outstanding short-term debt during the first six months of fiscal 1993.
The weighted average interest rate on all debt, including the effect of
discounts and related amortization, was 7.3% and 6.7% for the first six
months of fiscal 1994 and 1993, respectively.
Accounts payable due to affiliated companies at April 30, 1994 include an
intercompany advance of $90.6 million. The advance, which is payable to
Transportation, accrues interest at the Corporation's incremental
borrowing rate.
3. Finance receivable balances do not include receivables sold by the
Corporation to public and private investors with limited recourse
provisions. Uncollected sold receivables balances are as follows:
<TABLE>
<CAPTION>
April 30 October 31 April 30
1994 1993 1993
($ Millions)
<S> <C> <C> <C>
Retail notes . . . . . . . . . . . $ 812.8 $539.4 $482.4
Wholesale notes. . . . . . . . . . 300.0 300.0 300.0
Total. . . . . . . . . . . . $1,112.8 $839.4 $782.4
</TABLE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
April 30 October 31 April 30
1994 1993 1993
($ Millions)
<S> <C> <C> <C>
Allowance pertaining to:
Owned receivables. . . . . . . $ 9.2 $12.0 $12.4
Sold notes . . . . . . . . . . 6.1 2.8 2.3
Total . . . . . . . . . . . $15.3 $14.8 $14.7
</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 April 30, 1994 is $151.2 million which includes
holdback reserves of $74.6 million, subordinated retained interests in
securitized receivable sales of $51.8 million and certain cash deposits
established pursuant to securitized receivables recourse provisions of
$24.8 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 notes are less than required.
The total cash deposits of $28.5 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 April 30, 1994. Total cash
deposits of $9.6 million are included in the Corporation's other assets at
October 31, 1993 and April 30, 1993. The allowance for estimated losses
on sold notes is determined on a basis consistent with owned receivables
and 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 April 30,
1994, the unused commitment under the receivable purchase facility was
$118.4 million, of which $50.0 million provided funding backup for short-
term bank borrowings at April 30, 1994. The remaining $68.4 million when
combined with unrestricted cash and cash equivalents made $84.2 million
available to fund the general business purposes of the Corporation. The
bank revolving credit facility was fully utilized at April 30, 1994.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Corporation paid regular dividends of $1.9 million and special
dividends of $10.0 million to Transportation during the first six months
of 1994, compared with $8.0 million of regular dividends paid during the
first six months of 1993. Effective with the decline in the Corporation's
debt ratings in 1992, the Corporation's bank revolving credit facility
limits regular dividends to Transportation to 50% of cumulative net income,
measured quarterly beginning February 1, 1992. Under this provision at
April 30, 1994, $9.5 million was available for regular dividends to
Transportation on May 1, 1994 or thereafter. The restated bank revolving
credit facility also permits special dividends to Transportation in an
aggregate amount not to exceed $20 million, payable after July 1, 1993.
No special dividends were available at April 30, 1994 as the Corporation
has paid an aggregate of $20 million of special dividends to Transportation
pursuant to the restated bank revolving credit facility.
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
other assets include $34.0 million of reinsurance receivables at April 30,
1994. The adoption of SFAS 113 did not have a material effect on the
Corporation's financial results.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations - Three Months Ended April 30, 1994 Compared with
Three Months Ended April 30, 1993
Consolidated
The Corporation earned pretax income of $12.2 million in the second quarter
of fiscal 1994, a reduction from $13.5 million for the same period a year ago.
Pretax income from the Corporation's finance operations decreased $3.5 million
primarily from the absence of retail note receivable sales during the 1994
quarter. Improved loss experience in the Corporation's liability insurance
product lines increased second quarter pretax earnings from insurance
operations by $2.2 million.
Finance Operations
Second quarter revenue from finance operations decreased $9.0 million to $30.1
million in 1994 as increased volumes of retail note sales in prior quarters
caused the average balance of owned retail notes to decline significantly
compared to the second quarter of 1993. A slight drop in the owned retail
portfolio yield also contributed as the portfolio yield continued to adjust
to current market rates. There were no sales of retail notes during the
second quarter of 1994 compared with sales of $172 million of retail notes in
1993 on which gains of $4.7 million were recognized. 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 $3.1 million in the second quarter of 1994 compared
to the second 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 14 points from the second quarter
of 1993. Reduced commission costs and an increase in realized gains from
Harco's investment portfolio also contributed to the increase in insurance
earnings for the second quarter of fiscal 1994.
Results of Operations - Six Months Ended April 30, 1994 Compared with
Six Months Ended April 30, 1993
Pretax income from the Corporation's finance and insurance operations
increased $.1 million and $1.2 million, respectively, during the first half
of fiscal 1994 as compared with the first half of fiscal 1993. Consolidated
net income was higher by $9.2 million for the first six months of 1994
compared to the first half of 1993 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 second quarter results generally apply to the changes in
first half results except for gains from retail note sales, which were equal
for both periods.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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 six months of fiscal 1994, the Corporation supplied 92.6% of
the wholesale financing of new trucks to Transportation's dealers and 15.1%
of the retail financing of new International trucks sold in the United States.
These market shares are up from 87.3% for wholesale financing and 14.2% for
retail financing in the first six 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
$2.6 billion at April 30, 1994, from $2.3 billion at October 31, 1993 and $2.2
billion at April 30, 1993. Gross acquisitions of retail notes and leases for
the first six months increased to $483 million in 1994 from $362 million in
1993. Serviced wholesale note balances were $638 at April 30, 1994 compared
to $559 million at October 31, 1993 and $523 million at April 30, 1993.
Owned net finance receivable balances were $1,291 million at April 30, 1994
compared to $1,324 million at October 31, 1993 and $1,232 million at April 30,
1993. During the first six months of 1994, the Corporation sold $538 million
of retail notes receivable, $203 million through its bank receivable purchase
facility and $335 million through its special purpose subsidiary, Navistar
Financial Retail Receivables Corporation, and an owner trust to public
investors. The public sale was part of a $1 billion registration of asset
backed securities filed by Navistar Financial Retail Receivables Corporation
in September 1993. Except for a $25 million cash reserve account established
as credit enhancement for the public sale, all the cash proceeds from these
receivable sales were used to reduce borrowings under the Corporation's
revolving bank credit facility.
On May 3, 1994, the Corporation sold an additional $280 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 $279 million, of which $18 million was used to
establish a cash reserve account for the trust and the remainder reduced
borrowings under the Corporation's 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Funds Management (continued)
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 April 30, 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 April 30, 1994, the
unused commitment under the receivable purchase facility was $118.4 million,
of which $50.0 million provided funding backup for short-term bank borrowings
at April 30, 1994. The remaining $68.4 million when combined with
unrestricted cash and cash equivalents made $84.2 million available to fund
the general business purposes of the Corporation. The bank revolving credit
facility was fully utilized at April 30, 1994. 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 regular dividends of $1.9 million and special dividends
of $10.0 million to Transportation during the first six months of 1994,
compared with $8.0 million of regular dividends paid during the first six
months of 1993. Effective with the decline in the Corporation's debt ratings
in 1992, dividends to Transportation are limited by the bank revolving credit
agreement to 50% of cumulative net income measured quarterly beginning
February 1, 1992. Under this provision at April 30, 1994, $9.5 million was
available for dividend to Transportation in the third quarter of fiscal 1994
or thereafter. The restated bank revolving credit facility also permits
special dividends to Transportation in an aggregate amount not to exceed $20
million, payable after July 1, 1993. No special dividends were available at
April 30, 1994 as the Corporation has paid an aggregate of $20 million of
special dividends to Transportation pursuant to the restated bank revolving
credit facility. The Corporation's debt to equity ratio was 4.9:1, 5.5:1 and
5.2:1 at April 30, 1994, October 31, 1993 and April 30, 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.
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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
April 30, 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 June 10, 1994 /s/A. C. Hill
A. C. Hill
Vice President and Controller
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