UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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, 1995, 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>
<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, 1995 and 1994 . . 2
Statement of Consolidated Financial Condition --
July 31, 1995; October 31, 1994; and July 31, 1994. . . . . . 3
Statement of Consolidated Cash Flow --
Nine Months Ended July 31, 1995 and 1994. . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 13
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
<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
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . . . $ 22.0 $ 14.9 $ 54.5 $ 55.2
Wholesale notes. . . . . . . . . . . . . . . . 16.4 11.2 41.6 29.8
Accounts . . . . . . . . . . . . . . . . . . . 7.7 5.9 21.9 15.4
Servicing fee income . . . . . . . . . . . . . 5.0 4.4 13.5 12.8
Insurance premiums earned. . . . . . . . . . . 11.1 12.2 33.7 38.9
Marketable securities. . . . . . . . . . . . . 1.9 2.0 6.3 7.5
Total. . . . . . . . . . . . . . . . . . 64.1 50.6 171.5 159.6
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . . . 19.1 16.7 56.6 48.1
Other. . . . . . . . . . . . . . . . . . . 2.4 1.3 6.5 4.1
Total. . . . . . . . . . . . . . . . . . 21.5 18.0 63.1 52.2
Credit, collection and administrative. . . . . 7.2 6.2 20.4 18.7
Provision for losses on receivables. . . . . . .4 .1 1.0 1.1
Insurance claims and underwriting. . . . . . . 11.2 12.7 37.2 41.4
Other expense, net . . . . . . . . . . . . . . 2.0 1.0 5.4 3.7
Total. . . . . . . . . . . . . . . . . . 42.3 38.0 127.1 117.1
Income Before Taxes on Income . . . . . . . . . 21.8 12.6 44.4 42.5
Taxes on Income. . . . . . . . . . . . . . . . . 8.5 4.0 17.3 15.0
Net Income . . . . . . . . . . . . . . . . . . . 13.3 8.6 27.1 27.5
Retained Earnings
Beginning of period. . . . . . . . . . . . . . 67.6 55.4 56.8 48.4
Dividends paid . . . . . . . . . . . . . . . . 3.0 9.5 6.0 21.4
End of period. . . . . . . . . . . . . . . . . $ 77.9 $ 54.5 $ 77.9 $ 54.5
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
July 31 October 31 July 31
1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents. . . . . . . . . . . . $ 43.4 $ 28.3 $ 17.4
Marketable Securities. . . . . . . . . . . . . . 130.1 130.5 138.7
Finance Receivables
Retail notes and lease financing. . . . . . . 430.8 513.9 534.9
Wholesale notes . . . . . . . . . . . . . . . 136.7 230.6 189.0
Accounts. . . . . . . . . . . . . . . . . . . 282.0 357.7 265.4
849.5 1,102.2 989.3
Allowance for losses. . . . . . . . . . . . . (6.3) (8.2) (8.7)
Finance Receivables, Net . . . . . . . . . 843.2 1,094.0 980.6
Amounts Due from Sales of Receivables
(Note 2). . . . . . . . . . . . . . . . . . . 259.0 193.0 185.2
Equipment on Operating Leases, Net . . . . . . . 32.7 26.6 17.2
Repossessions. . . . . . . . . . . . . . . . . . 2.1 1.8 2.9
Reinsurance Receivables. . . . . . . . . . . . . 27.4 33.7 36.1
Other Assets . . . . . . . . . . . . . . . . . . 47.0 26.9 29.7
Total Assets . . . . . . . . . . . . . . . . . . $1,384.9 $1,534.8 $1,407.8
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Bank Borrowings (Note 3). . . . . . . $ 43.3 $ 419.2 $ 71.7
Accounts Payable
Affiliated companies (Note 3) . . . . . . . . 116.4 16.3 54.9
Other . . . . . . . . . . . . . . . . . . . . 50.7 47.3 53.8
Total. . . . . . . . . . . . . . . . . . . 167.1 63.6 108.7
Dealers' Reserves. . . . . . . . . . . . . . . . 20.8 18.8 18.5
Unpaid Insurance Claims and Unearned Premiums. . 109.3 121.7 125.0
Accrued Income Taxes . . . . . . . . . . . . . . 11.4 2.3 9.2
Accrued Interest . . . . . . . . . . . . . . . . 9.9 11.3 10.9
Senior and Subordinated Debt (Note 3). . . . . . 773.2 672.3 838.3
Shareowner's Equity
Capital stock (Par value $1.00, 1,600,000
shares issued and outstanding) . . . . . . 171.0 171.0 171.0
Retained earnings . . . . . . . . . . . . . . 77.9 56.8 54.5
Unrealized gains (losses) on marketable
securities . . . . . . . . . . . . . . . . 1.0 (2.2) -
Total. . . . . . . . . . . . . . . . . . . 249.9 225.6 225.5
Total Liabilities and Shareowner's Equity. . . . $1,384.9 $1,534.8 $1,407.8
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
July 31
1995 1994
<S> <C> <C>
Cash Flow From Operations
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27.1 $ 27.5
Adjustments to reconcile net income to cash
provided from operations:
Gains on sales of receivables. . . . . . . . . . . . . . . . . . . (5.2) (11.7)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 7.8 5.1
Provision for losses on receivables. . . . . . . . . . . . . . . . 1.0 1.1
Increase (decrease) in other accounts payable
and accrued liabilities. . . . . . . . . . . . . . . . . . . . . 4.9 (.8)
Decrease in unpaid insurance claims and unearned
premiums, net of reinsurance receivables . . . . . . . . . . . . (6.1) (5.7)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.3) .2
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.2 15.7
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . . . . . . . . . 714.2 769.6
Purchase of retail notes and lease receivables. . . . . . . . . . . . (747.5) (675.9)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . 90.7 149.6
Acquisitions under (over) cash collections of wholesale
notes and accounts receivable. . . . . . . . . . . . . . . . . . . 137.9 (7.6)
Purchase of marketable securities . . . . . . . . . . . . . . . . . . (45.4) (51.6)
Proceeds from sales of marketable securities. . . . . . . . . . . . . 51.1 40.0
Decrease (increase) in property and equipment leased to others. . . . (10.4) 5.2
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190.6 229.3
Cash Flow From Financing Activities
Net increase in commercial paper. . . . . . . . . . . . . . . . . . . 24.1 -
Principal payments on short-term debt . . . . . . . . . . . . . . . . (400.0) (3.3)
Net decrease in bank revolving credit facility usage. . . . . . . . . (102.0) (211.0)
Net increase in asset-backed commercial paper facility usage. . . . . 181.5 -
Principal payments on long-term debt. . . . . . . . . . . . . . . . . - (75.0)
Net increase in advance from Transportation . . . . . . . . . . . . . 98.7 49.2
Dividends paid to Transportation. . . . . . . . . . . . . . . . . . . (6.0) (21.4)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203.7) (261.5)
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . 15.1 (16.5)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . 28.3 33.9
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . $ 43.4 $ 17.4
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57.9 $ 50.7
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.4 $ 15.1
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<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 1994 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 1994
amounts have been reclassified to conform with the presentation used in
the 1995 financial statements.
2. Finance receivable balances do not include receivables sold by the
Corporation to public and private investors with limited recourse
provisions. Outstanding sold receivables balances are as follows:
<TABLE>
<CAPTION>
July 31 October 31 July 31
1995 1994 1994
($ Millions)
<S> <C> <C> <C>
Retail notes. . . . . . . . . . . $1,336.6 $1,046.8 $ 964.8
Wholesale notes . . . . . . . . . 500.0 300.0 300.0
Total. . . . . . . . . . . . $1,836.6 $1,346.8 $1,264.8
</TABLE>
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
July 31 October 31 July 31
1995 1994 1994
($ Millions)
<S> <C> <C> <C>
Allowance pertaining to:
Owned receivables. . . . . . . $ 6.3 $ 8.2 $ 8.7
Sold notes . . . . . . . . . . 11.2 8.0 6.6
Total . . . . . . . . . . . $17.5 $16.2 $15.3
</TABLE>
The Corporation's retained interest in sold receivables and other related
amounts are generally restricted and subject to limited recourse
provisions. Holdback reserves were established pursuant to the limited
recourse provisions of the retail note sales to private investors. The
securitized sales structure requires the Corporation to maintain cash
reserves with the trusts as credit enhancement for public sales. The cash
reserves are held by the trusts and restricted for use by the securitized
sales agreements.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of amounts included in "Amounts Due from Sales
of Receivables":
<TABLE>
<CAPTION>
July 31 October 31 July 31
1995 1994 1994
($ Millions)
<S> <C> <C> <C>
Cash held and invested by
trusts. . . . . . . . . . . . . $ 73.9 $ 51.5 $ 42.4
Subordinated retained interests
in wholesale receivables. . . . 86.5 46.5 46.5
Subordinated retained interests
in retail receivables . . . . . 12.4 14.1 14.7
Holdback reserves . . . . . . . . 49.6 64.4 68.1
Excess servicing fee and other. . 47.8 24.5 20.2
Allowance for credit losses . . . (11.2) (8.0) (6.7)
Total. . . . . . . . . . . . $259.0 $193.0 $185.2
</TABLE>
3. Average short-term debt outstanding during the first nine months of fiscal
1995 and 1994, which included commercial paper and bank borrowings, was
approximately $60 million and $3 million, respectively, at an average cost
of 5.7% and 6.1%, respectively. The weighted average interest rate on all
debt, including short-term debt and the effect of discounts and related
amortization, was 7.5% and 7.0% for the first nine months of fiscal 1995
and 1994, respectively.
Accounts payable due to affiliated companies at July 31, 1995 and 1994
include an intercompany advance of $98.7 million and $49.2 million,
respectively. The advance, which is payable to Transportation, accrues
interest at the Corporation's incremental short-term borrowing rate.
There was no intercompany advance outstanding at October 31, 1994.
4. Effective November 9, 1994, the Corporation amended and restated its $727
million bank revolving credit agreement, extending the maturity date to
October 31, 1998 and expanding the commitment to $900 million. In
addition, the purchasers' commitments under the $600 million retail notes
purchase facility agreement were terminated and the Corporation
established a $300 million asset backed commercial paper ("ABCP") program
supported by a bank liquidity facility with a maturity date of October 31,
1998. Under the terms of the ABCP program, a special purpose wholly-owned
subsidiary of NFC purchases eligible receivables from NFC. All assets of
the subsidiary are pledged to a Trust that funds the receivables with
A1/P1 rated commercial paper. In addition, the assets may be sold to the
Trust.
Available funding under the amended and restated credit facility and the
ABCP program was $748 million, of which $43 million provided funding
backup for the outstanding short-term debt at July 31, 1995. The re-
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
maining $705 million when combined with unrestricted cash and cash
equivalents made available $748 million to fund the general business
purposes of the Corporation at July 31, 1995. While the amended revolving
credit facility removes certain dividend restrictions, the Corporation is
required to maintain tangible net worth at a minimum of $175 million and
a debt to tangible net worth ratio of no greater than 7 to 1. Consistent
with the previous revolving credit agreement, the restated agreement
grants security interests in substantially all of the Corporation's assets
to the Corporation's debtholders. Compensating cash balances are not
required under the restated revolving credit facility. Facility fees are
paid quarterly regardless of usage.
As of July 31, 1995, approximately $248 million of sold notes were
outstanding under the $600 million retail notes purchase facility.
Participants of the facility will continue to own the receivables during
the run-off.
5. The Corporation acquires floating rate wholesale receivables and fixed
rate retail receivables which are generally funded with floating rate
funding and fixed rate funding and equity, respectively. The Corporation
may use a variety of contracts to lock in interest rates during the period
in which retail receivables are expected to be sold. In February and
April 1995, the Corporation entered into $300 million of short-term
forward interest rate lock agreements on Treasuries maturing in 1997
related to the May 1995 sale of retail receivables. As discussed in note
7 to the Consolidated Financial Statements, these forward interest rate
lock agreements were closed on May 18, 1995 in conjunction with the sale
of $425 million of retail notes receivables. Gains or losses incurred
with the closing of these agreements are included in the gain on sale of
receivables and recorded in retail note and lease financing revenue in the
Statement of Consolidated Income and Retained Earnings.
In June and July 1995, the Corporation entered into $225 million of short-
term forward interest rate lock agreements on a Treasury maturing in 1997.
These lock agreements are related to the future sale of retail receivables
anticipated in late October or early November.
The Corporation's wholly-owned insurance subsidiary has investments in
Collateralized Mortgage Obligations of $28.8 million which are included
in the Corporation's marketable securities at July 31, 1995.
6. In December 1994, Navistar Financial Securities Corporation ("NFSC"), a
wholly-owned subsidiary of NFC, filed a shelf registration statement with
the Securities and Exchange Commission providing for the issuance of up
to $200 million of pass-through certificates backed by an undivided
ownership interest in wholesale notes. The registration statement, which
was declared effective March 1, 1995, permitted NFSC to offer and sell
series of certificates backed by interests in wholesale notes. On June
8, 1995, a new Navistar Financial Dealer Note Master Trust issued $200
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
million of 9.3 year asset backed certificates to the public. The proceeds
of $198 million, net of $2 million of expenses and underwriting fees, were
used by the Corporation for general working capital purposes.
This issuance of $200 million of certificates during the third quarter of
1995 increased NFSC's revolving wholesale note sales trust to $500
million. Under the terms of the sale, the Corporation increased the
amount subordinated to the investor's interest from $46.5 million to $86.5
million. Additionally, cash reserves with the trust, which were
established to assure the availability of cash in the event that losses
are applied against the available subordinated amount, were increased $2.6
million to $6.3 million. The Corporation will continue to service all
receivables in the trust, for which a servicing fee shall be received from
a portion of the interest collected on the wholesale notes.
7. On May 25, 1995, the Corporation sold $425 million of retail notes, net
of unearned finance income, through Navistar Financial Retail Receivables
Corporation ("NFRRC"), a wholly-owned subsidiary of NFC, to an owner
trust. The owner trust, in turn, sold $410 million of notes and $15
million of certificates to investors. The proceeds of $424 million, net
of $1 million of expenses and underwriting fees, were used by the
Corporation for general working capital purposes and to establish $25
million in cash reserves with the trust as credit enhancement for the
public sale.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Customer demand for Class 5 through 8 trucks remains high in 1995, as the
strength in the U. S. economy experienced during fiscal 1994 continued during
the first nine months of 1995. As a result of the strong truck industry and
economy, the financial strength and cash flows of many NFC customers continued
to improve and NFC's delinquencies and losses remained low. The strong
economy is contributing to high liquidity in the commercial financing markets.
Many financial institutions have increased their loan activity which gives
NFC's customers more financing alternatives than normal. This competition has
caused NFC to increase marketing efforts of its retail financing products and
services and to reduce finance rates.
Financial Condition
The Corporation's serviced receivables portfolio, which includes sold
receivables, totaled $2.8 billion at July 31, 1995 compared to $2.3 billion
at July 31, 1994. The $.5 billion increase over the twelve months reflects
the continued growth in the truck industry. During the first nine months of
1995, the Corporation supplied 93% of the wholesale financing of new trucks
sold to Transportation's dealers, the same as supplied during the first nine
months of 1994. Acquisitions of wholesale notes increased $456 million to
$2,100 million during the first nine months of fiscal 1995 as compared to the
same period a year ago. Serviced wholesale note balances were $637 million
at July 31, 1995 up from $531 million and $546 million at October 31, 1994 and
July 31, 1994, respectively. Acquisitions of retail notes and leases, net of
unearned finance, remained strong during the first nine months of fiscal 1995
at $748 million compared to $676 million during the first nine months of
fiscal 1994. The consistently high levels of acquisitions reflect increased
sales by Transportation. The Corporation's share of the retail financing of
new trucks manufactured by Transportation and sold in the United States was
13% during the first nine months of 1995 compared to 16% during the same
period a year ago. The Corporation's reduced penetration level of retail
financing of Transportation's sales in 1995 is a result of competition and
liquidity in the commercial financing markets.
Owned net finance receivable balances, including subordinated interests in
retail and wholesale receivables, declined to $.9 billion at July 31, 1995
from $1.1 billion at October 31, 1994 and $1.0 billion at July 31, 1994. The
decrease in owned receivable balances resulted from retail and wholesale
receivables sales activity as sold receivables balances increased to $1.8
billion at July 31, 1995 from $1.3 billion at October 31, 1994 and July 31,
1994.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
The components of net income for the three and nine month periods ended July
31 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended July 31 Ended July 31
1995 1994 1995 1994
($ Millions)
<S> <C> <C> <C> <C>
Income before income taxes:
Finance operations. . . . . . . . . . . $20.3 $11.5 $42.4 $38.7
Insurance operations. . . . . . . . . . 1.5 1.1 2.0 3.8
Income before taxes . . . . . . . . . 21.8 12.6 44.4 42.5
Taxes on income . . . . . . . . . . . . . 8.5 4.0 17.3 15.0
Net income. . . . . . . . . . . . . . $13.3 $ 8.6 $27.1 $27.5
</TABLE>
In the third quarter of fiscal 1995, the Corporation's pretax income increased
$9 million to $22 million compared to the third quarter of fiscal 1994. The
Corporation's pretax income for the first nine months of 1995 increased $2
million to $44 million compared to the same period one year ago.
Pretax income from the Corporation's finance operations increased $9 million
during the third quarter of fiscal 1995 as improved margins on retail
financing resulted in gains of $5.7 million on $425 million of retail
receivables sold compared with $1.4 million of gains recognized on $280
million sold in the third quarter of 1994. Also contributing to the
improvement in the third quarter's pretax income were higher average truck
wholesale note and account balances in support of increased demand for
Transportation truck products and a $1.6 million gain on the public sale of
$200 million of certificates securitized by wholesale notes receivable.
Pretax income from finance operations during the first nine months of 1995
increased $4 million to $42 million compared to 1994 primarily as a result of
higher wholesale note and account balances to support demand for
Transportation product and improvement in the Corporation's borrowing spread
over market interest rates. This increase was partially offset by lower gains
on sales of retail notes. Gains on sales of retail notes receivable during
the first nine months of fiscal 1995 were $5.2 million on $740 million sold
compared with gains of $11.7 million on $818 million sold in 1994. Lower
gains on sales were the result of lower retail margins on retail note
acquisitions from March 1994 through January 1995 as rising interest costs to
fund retail note acquisitions could not be offset fully by increased retail
note pricing. In a rising interest rate environment, this margin contraction
is a typical occurrence for NFC as retail truck customers generally require
finance rate commitments on purchases of trucks 30 to 90 days in advance of
delivery. In addition, the Corporation funds the majority of its retail notes
by selling the notes in the public or private markets and the effective
interest rate for each sale is based on a market interest rate at the time of
sale which may be three to four months after the truck delivery date. The
gains on sales in fiscal 1994 were primarily on sales in November and
December, prior to the increase in market interest rates. During the second
and third quarters of fiscal 1995, margins on retail note acquisitions have
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations (continued)
improved as market interest rates have declined, but margins remain below
historical levels due to increased competition in the commercial financing
markets.
Borrowing costs increased $3.5 million to $21.5 million during the third
quarter of 1995 and $10.9 million to $63.1 million during the first nine
months of 1995 as compared to the same periods in 1994. The increases were
primarily the result of higher debt balances to support increased wholesale
note and account balances and higher market interest rates. These increased
borrowing costs were offset by an improvement in the Corporation's borrowing
spread over market interest rates as a result of the amended revolving debt
agreement and the asset backed commercial paper ("ABCP") program.
Pretax income for Harco National Insurance Company ("Harco"), NFC's wholly-
owned insurance subsidiary, remained unchanged during the third quarter and
decreased $2 million during the first nine months of fiscal 1995 as compared
to the same periods in 1994. The decrease was the result of higher loss
experience in Harco's liability insurance lines. Also contributing to the
decline in income was a reduction in written and earned premium volume in 1995
as compared to 1994. The decrease in written premiums reflects management's
underwriting actions and competition.
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.
Receivable sales were a significant source of funding in 1995 and 1994.
During the first nine months of 1995, the Corporation sold $740 million of
retail notes, net of unearned finance income, through Navistar Financial
Retail Receivables Corporation ("NFRRC"), a wholly-owned subsidiary, to two
owner trusts. The owner trusts, in turn, sold $714 million of notes and $26
million of certificates to investors. Net proceeds from the sales were $693
million after deducting $2 million for underwriting fees and $45 million to
establish reserve accounts with the trusts as credit enhancement for the
public sales. During the same period in 1994, the Corporation sold $818
million of retail notes receivable, $203 million through its bank receivable
purchase facility and $615 million through NFRRC and owner trusts to public
investors. Net proceeds from these sales were $752 million after the
reduction of holdback reserves and credit enhancement. The net proceeds were
used by the Corporation for general working capital purposes. At July 31,
1995, the remaining shelf registration available to NFRRC for issuance of
asset backed securities was $1,430 million.
At July 31, 1995, available funding under the amended and restated credit
facility and the asset-backed commercial paper facility was $748 million, of
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Funds Management (continued)
which $43 million provided funding backup for the outstanding short-term debt
at July 31, 1995. The remaining $705 million when combined with unrestricted
cash and cash equivalents made $748 million available to fund the general
business purposes of the Corporation. In addition to the committed credit
facilities, the Corporation also utilizes a $500 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 and a $200 million pool maturing in
2004.
In March 1995, ratings on the Corporation's debt were upgraded. Moody's
Investors Service, Inc. raised its ratings for the Corporation's debt from Ba3
to Ba2 for senior debt and from B2 to B1 for subordinated debt.
The Corporation paid dividends of $6.0 million to Transportation during the
first nine months of 1995 compared with $21.4 million of dividends paid during
the first nine months of 1994. The Corporation's debt to equity ratio was
3.3:1 at July 31, 1995, 4.8:1 at October 31, 1994 and 4.0:1 at July 31, 1994.
The Corporation manages sensitivity to interest rate changes by funding
floating rate assets with floating rate debt, primarily borrowings under the
bank revolving credit agreement and ABCP program, 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. The Corporation occasionally enters into
forward interest rate lock agreements prior to retail note receivables sales
to protect against rising interest rates.
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 1995 and beyond.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
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, 1995.
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 13, 1995 /s/P. E. Cochran
P. E. Cochran
Vice President and Controller
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS AND THE STATEMENT
OF CONSOLIDATED FINANCIAL CONDITION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995<F1>
<PERIOD-END> JUL-31-1995
<CASH> 43,400
<SECURITIES> 130,100
<RECEIVABLES> 849,500
<ALLOWANCES> (6,300)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,100
<DEPRECIATION> (6,800)
<TOTAL-ASSETS> 1,384,900
<CURRENT-LIABILITIES> 0
<BONDS> 773,200
<COMMON> 171,000
0
0
<OTHER-SE> 78,900
<TOTAL-LIABILITY-AND-EQUITY> 1,384,900
<SALES> 0
<TOTAL-REVENUES> 171,500
<CGS> 0
<TOTAL-COSTS> 64,100
<OTHER-EXPENSES> 5,400
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 56,600
<INCOME-PRETAX> 44,400
<INCOME-TAX> 17,300
<INCOME-CONTINUING> 27,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,100
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE CORPORATION'S STATEMENT OF FINANCIAL CONDITION IS UNCLASSIFIED,
THEREFORE, THE DISTINCTION BETWEEN CURRENT AND LONG-TERM ASSETS
AND LIABILITIES IS NOT AVAILABLE.
</FN>
</TABLE>
