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, 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 May 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
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statement of Consolidated Income and Retained Earnings --
Three Months and Six Months Ended April 30, 1995 and 1994 . . . . 2
Statement of Consolidated Financial Condition --
April 30, 1995; October 31, 1994; and April 30, 1994. . . . . . . 3
Statement of Consolidated Cash Flow --
Six Months Ended April 30, 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
</TABLE>
<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 Six Months Ended
April 30 April 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . . . $ 16.4 $ 15.2 $ 30.1 $ 39.7
Wholesale notes. . . . . . . . . . . . . . . . 13.9 9.4 25.1 18.5
Accounts . . . . . . . . . . . . . . . . . . . 7.2 4.9 14.2 9.5
Servicing fee income . . . . . . . . . . . . . 4.2 4.6 8.5 8.4
Insurance premiums earned. . . . . . . . . . . 11.3 13.0 22.6 26.7
Marketable securities. . . . . . . . . . . . . 3.5 3.1 6.9 6.2
Total. . . . . . . . . . . . . . . . . . 56.5 50.2 107.4 109.0
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . . . 20.4 15.7 37.5 31.4
Other. . . . . . . . . . . . . . . . . . . 2.0 1.4 4.1 2.8
Total. . . . . . . . . . . . . . . . . . 22.4 17.1 41.6 34.2
Credit, collection and administrative. . . . . 6.6 6.2 13.2 12.5
Provision for losses on receivables. . . . . . .5 .2 .6 1.0
Insurance claims and underwriting. . . . . . . 13.2 13.1 26.0 28.7
Other expense (revenue), net . . . . . . . . . 1.6 1.4 3.4 2.7
Total. . . . . . . . . . . . . . . . . . 44.3 38.0 84.8 79.1
Income Before Taxes on Income. . . . . . . . . . 12.2 12.2 22.6 29.9
Taxes on Income. . . . . . . . . . . . . . . . . 4.7 4.2 8.8 11.0
Net Income . . . . . . . . . . . . . . . . . . . 7.5 8.0 13.8 18.9
Retained Earnings
Beginning of period. . . . . . . . . . . . . . 63.1 52.4 56.8 48.4
Dividends paid . . . . . . . . . . . . . . . . 3.0 5.0 3.0 11.9
End of period. . . . . . . . . . . . . . . . . $ 67.6 $ 55.4 $ 67.6 $ 55.4
</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>
April 30 October 31 April 30
1995 1994 1994
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents. . . . . . . . . . . . $ 47.8 $ 28.3 $ 15.8
Marketable Securities. . . . . . . . . . . . . . 130.1 130.5 132.4
Finance Receivables
Retail notes and lease financing. . . . . . . 592.5 513.9 611.7
Wholesale notes . . . . . . . . . . . . . . . 419.5 230.6 291.5
Accounts. . . . . . . . . . . . . . . . . . . 306.8 357.7 344.9
1,318.8 1,102.2 1,248.1
Allowance for losses. . . . . . . . . . . . . (8.6) (8.2) (9.2)
Finance Receivables, Net. . . . . . . . . . 1,310.2 1,094.0 1,238.9
Amounts Due from Sales of Receivables
(Note 2). . . . . . . . . . . . . . . . . . . 194.4 193.0 158.9
Equipment on Operating Leases, Net . . . . . . . 30.5 26.6 13.6
Repossessions. . . . . . . . . . . . . . . . . . 2.6 1.8 2.8
Reinsurance Receivables. . . . . . . . . . . . . 27.3 33.7 34.0
Other Assets . . . . . . . . . . . . . . . . . . 59.3 26.9 27.3
Total Assets . . . . . . . . . . . . . . . . . . $1,802.2 $1,534.8 $1,623.7
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Borrowings (Note 3) . . . . . . . . . $ 81.1 $ 419.2 $ 50.0
Accounts Payable
Affiliated companies (Note 3) . . . . . . . . 98.6 16.3 97.3
Other . . . . . . . . . . . . . . . . . . . . 48.9 47.3 38.8
Total. . . . . . . . . . . . . . . . . . . 147.5 63.6 136.1
Dealers' Reserves. . . . . . . . . . . . . . . . 19.8 18.8 17.9
Unpaid Insurance Claims and Unearned Premiums. . 112.0 121.7 121.8
Accrued Income Taxes . . . . . . . . . . . . . . 3.8 2.3 8.0
Accrued Interest . . . . . . . . . . . . . . . . 13.2 11.3 14.1
Senior and Subordinated Debt (Note 3). . . . . . 1,186.6 672.3 1,049.4
Shareowner's Equity
Capital stock (Par value $1.00, 1,600,000
shares issued and outstanding)
and paid-in capital. . . . . . . . . . . . 171.0 171.0 171.0
Retained earnings . . . . . . . . . . . . . . 67.6 56.8 55.4
Unrealized losses on marketable securities. . (.4) (2.2) -
Total. . . . . . . . . . . . . . . . . . . 238.2 225.6 226.4
Total Liabilities and Shareowner's Equity. . . . $1,802.2 $1,534.8 $1,623.7
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
April 30
1995 1994
<S> <C> <C>
Cash Flow From Operations
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 13.8 $ 18.9
Adjustments to reconcile net income to cash
provided from operations:
Gains on sales of receivables. . . . . . . . . . . . . . . . . . . . .5 (10.3)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 4.9 3.3
Provision for losses on receivables. . . . . . . . . . . . . . . . . .6 1.0
Decrease in other accounts payable
and accrued liabilities. . . . . . . . . . . . . . . . . . . . . . (20.0) (19.5)
Decrease in unpaid insurance claims
and unearned premiums, net of reinsurance receivables. . . . . . . (3.3) (6.6)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.1) (.7)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.6) (13.9)
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . . . . . . . . . . 312.2 515.7
Purchase of retail notes and lease receivables. . . . . . . . . . . . . (457.4) (431.3)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 62.8 107.3
Acquisitions over cash collections of wholesale
notes and accounts receivable. . . . . . . . . . . . . . . . . . . . (128.6) (178.7)
Purchase of marketable securities . . . . . . . . . . . . . . . . . . . (20.0) (40.9)
Proceeds from sales of marketable securities. . . . . . . . . . . . . . 23.4 35.3
Decrease (increase) in property and equipment leased to others. . . . . (6.7) 9.7
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (214.3) 17.1
Cash Flow From Financing Activities
Net increase in commercial paper. . . . . . . . . . . . . . . . . . . . 61.9 -
Principal payments on short-term debt . . . . . . . . . . . . . . . . . (400.0) (25.0)
Net increase in bank revolving credit facility usage. . . . . . . . . . 205.0 -
Net increase in asset-backed commercial paper
facility usage . . . . . . . . . . . . . . . . . . . . . . . . . . . 276.6 -
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . - (75.0)
Net increase in advance from Transportation . . . . . . . . . . . . . . 98.9 90.6
Dividends paid to Transportation. . . . . . . . . . . . . . . . . . . . (3.0) (11.9)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239.4 (21.3)
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . 19.5 (18.1)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 28.3 33.9
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . .$ 47.8 $ 15.8
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 35.6 $ 31.5
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 7.7 $ 9.3
</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. Uncollected sold receivables balances are as follows:
<TABLE>
<CAPTION>
April 30 October 31 April 30
1995 1994 1994
($ Millions)
<S> <C> <C> <C>
Retail notes . . . . . . . . . . . $1,085.8 $1,046.8 $ 812.8
Wholesale notes. . . . . . . . . . 300.0 300.0 300.0
Total. . . . . . . . . . . . $1,385.8 $1,346.8 $1,112.8
</TABLE>
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
April 30 October 31 April 30
1995 1994 1994
($ Millions)
<S> <C> <C> <C>
Allowance pertaining to:
Owned receivables. . . . . . . $ 8.6 $ 8.2 $ 9.2
Sold notes . . . . . . . . . . 8.4 8.0 6.1
Total . . . . . . . . . . . $17.0 $16.2 $15.3
</TABLE>
The Corporation's retained interest in sold receivables and other related
amounts are generally restricted and subject to limited recourse
provisions. Holdback reserves were established pursuant to the limited
recourse provisions of the retail note sales to private investors. The
securitized sales structure requires the Corporation to maintain cash
reserves with the trusts as credit enhancement for public sales. The cash
reserves are held by the trusts and restricted for use by the securitized
sales agreements.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of amounts included in "Amounts Due from Sales of
Receivables":
<TABLE>
<CAPTION>
April 30 October 31 April 30
1995 1994 1994
($ Millions)
<S> <C> <C> <C>
Cash held and invested by
trusts. . . . . . . . . . . . . $ 59.1 $ 51.5 $ 28.5
Subordinated retained interests
in wholesale receivables. . . . 46.5 46.5 46.5
Subordinated retained interests
in retail receivables . . . . . 13.9 14.1 13.3
Holdback reserves. . . . . . . . . 55.4 64.4 74.6
Excess servicing fee and other . . 27.9 24.5 2.1
Allowance for credit losses. . . . (8.4) (8.0) (6.1)
Total. . . . . . . . . . . . $194.4 $193.0 $158.9
</TABLE>
3. Average short-term debt outstanding during the first six months of
fiscal 1995 and 1994, which included commercial paper and bank
borrowings, was approximately $74 million and $1 million, respectively,
at an average cost of 5.9% and 6.7%, 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 7.3% for the first six
months of fiscal 1995 and 1994, respectively.
Accounts payable due to affiliated companies at April 30, 1995 and 1994
include an intercompany advance of $98.9 million and $90.6 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 $340 million, of which $81 million provided funding
backup for the outstanding short-term debt at April 30, 1995. The re-
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
maining $259 million when combined with unrestricted cash and cash
equivalents made $307 million available to fund the general business
purposes of the Corporation at April 30, 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 April 30, 1995, approximately $287 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 and generally funds floating rate receivables
with floating rate funding and fixed rate receivables with fixed rate
funding and equity. The Corporation may use a variety of contracts to
lock in interest rates during the period in which retail receivables are
being sold. In February and April 1995, the Corporation entered into
a total of four short-term forward interest rate lock agreements related
to the future sale of retail receivables. The Corporation hedged a
total of $300 million against three Treasuries maturing in 1997. As
discussed in note 7 to the Consolidated Financial Statements, these
forward interest rate lock agreements were unwound on May 18, 1995 in
conjunction with the sale of $425 million of retail notes receivables.
In June 1995, the Corporation entered into three short-term forward
interest rate lock agreements related to the future sale of retail
receivables. The Corporation, in anticipation of selling receivables
at some time prior to November 1, 1995, hedged, until that date, a total
of $150 million against a Treasury maturing in 1997.
The Corporation's wholly-owned insurance subsidiary has investments in
Collateralized Mortgage Obligations of $30.7 million and are included
in the Corporation's marketable securities at April 30, 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 million of 9.3 year asset backed certificates
to the public. The proceeds of $198 million, net of $2 million of
underwriting fees, were used by the Corporation for general working
capital purposes.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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 six months of 1995. As a result of the strong truck industry and
economy, the financial strength and cash flows of many NFC's customers
continued to improve and NFC's portfolio 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 its marketing efforts of its
retail financing products and services at reduced margins.
Financial Condition
The Corporation's serviced receivables portfolio, which includes sold
receivables, totaled $2.8 billion at April 30, 1995 compared to $2.4 billion
at April 30, 1994. The $.4 billion increase over the twelve months reflects
the continued growth in the truck industry. During the first six 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 six
months of 1994. Acquisitions of wholesale notes increased $313 million to
$1,417 million during the first six months of fiscal 1995 as compared to the
same period a year ago. Serviced wholesale note balances were $720 million
at April 30, 1995 up from $531 million and $592 million at October 31, 1994
and April 30, 1994, respectively. Acquisitions of retail notes and leases,
net of unearned finance, remained strong during the first six months of fiscal
1995 at $457 million compared to $431 million during the first six 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 six months of 1995 compared to 15% during the same period
a year ago. The Corporation's reduced level of retail financing support of
Transportation's sales in 1995 is a result of competition and liquidity in the
commercial financing markets.
Owned net finance receivable balances increased to $1.3 billion at April 30,
1995 from $1.1 billion at October 31, 1994 and $1.2 billion at April 30, 1994.
The increase in owned receivable balances resulted from higher wholesale note
balances to support growth in the truck industry. Sold receivables balances
were $1.4 billion at April 30, 1995, $1.3 billion at October 31, 1994 and $1.1
billion April 30, 1994.
<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
The components of net income for the three and six month periods ended April
30 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended April 30 Ended April 30
1995 1994 1995 1994
($ Millions)
<S> <C> <C> <C> <C>
Income before income taxes:
Finance operations. . . . . . . . . . . $12.1 $10.0 $22.1 $27.2
Insurance operations. . . . . . . . . . .1 2.2 .5 2.7
Income before taxes . . . . . . . . . 12.2 12.2 22.6 29.9
Taxes on income . . . . . . . . . . . . . 4.7 4.2 8.8 11.0
Net income. . . . . . . . . . . . . . $ 7.5 $ 8.0 $13.8 $18.9
</TABLE>
In the second quarter of fiscal 1995, the Corporation's pretax income remained
unchanged compared to the second quarter of fiscal 1994. The Corporation's
pretax income for the first six months of 1995 decreased $7 million to $23
million compared to the same period one year ago.
Pretax income from the Corporation's finance operations increased $2 million
during the second quarter of fiscal 1995 resulting from higher average truck
wholesale note and account balances in support of increased demand for
Transportation truck products.
Pretax income from finance operations during the first six months of 1995
decreased $5 million to $22 million as lower margins on retail financing
resulted in losses of $.5 million on $315 million of retail receivables sold
in the first quarter of 1995 compared with $10.3 million of gains recognized
on $538 million sold in 1994. There were no retail note sales during the
second quarter of fiscal 1995 or 1994. Retail note margins were lower in the
first quarter of fiscal 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 require finance rate commitments
on the purchase date for trucks to be delivered over the next 30 to 90 days.
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. In addition, competition,
coupled with liquidity in the commercial financing markets, limited the
Corporation's ability to increase customer finance rates in the first quarter
of fiscal 1995 commensurate with the increase in funding costs. During the
second quarter of fiscal 1995, margins on retail note acquisitions have
improved as market interest rates have declined, but margins remain below
historical levels due to increased competition in the commercial financing
markets. The decline in retail financing during the first half of 1995 was
partially offset by the increased volume of wholesale note financing as well
as higher average account balances in support of increased demand for
Transportation truck products.
Borrowing costs increased $5.3 million to $22.4 million during the second
quarter of 1995 and $7.4 million to $41.6 million during the first six months
of 1995 as compared to the same periods in 1994. The increase was primarily
<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)
a 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, decreased $2 million during the second quarter and
first six 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 during the second quarter and first half of 1995 as compared
to the same periods a year ago. Also contributing to the decline in income
was a reduction in written 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 six months of 1995, the Corporation sold $315 million of
retail notes, net of unearned finance income, through Navistar Financial
Retail Receivables Corporation ("NFRRC"), its wholly-owned subsidiary, to an
owner trust. The owner trust, in turn, sold $304 million of notes and $11
million of certificates to investors. Net proceeds from the sale were $295
million after deducting $1 million for underwriting fees and $19 million to
establish a reserve account with the trust as credit enhancement for the
public sale. During the same period in 1994, the Corporation sold $538
million of retail notes receivable, $203 million through its bank receivable
purchase facility and $335 million through NFRRC and an owner trust to public
investors. Net proceeds from these sales were $491 million after the
reduction of holdback reserves and credit enhancement. The net proceeds were
used by the Corporation for general working capital purposes. At April 30,
1995, the remaining shelf registration available to NFRRC for issuance of
asset backed securities was $1,855 million.
At April 30, 1995, available funding under the amended and restated credit
facility and the asset-backed commercial paper facility was $340 million, of
which $81 million provided funding backup for the outstanding short-term debt
at April 30, 1995. The remaining $259 million when combined with unrestricted
cash and cash equivalents made $307 million available to fund the general bus-
<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)
iness 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.
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 $3.0 million to Transportation during the
first six months of 1995 compared with $11.9 million of dividends paid during
the first half of 1994. The Corporation's debt to equity ratio was 5.3:1 at
April 30, 1995, 4.8:1 at October 31, 1994 and 4.9:1 at April 30, 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 will occasionally enter
into a forward interest rate lock agreement prior to a retail note receivables
sale 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
April 30, 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 June 12, 1995 /s/P. E. Cochran
P. E. Cochran
Vice President and Controller
<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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995<F1>
<PERIOD-END> APR-30-1995
<CASH> 47,800
<SECURITIES> 130,100
<RECEIVABLES> 1,318,800
<ALLOWANCES> (8,600)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,000
<DEPRECIATION> (6,700)
<TOTAL-ASSETS> 1,802,200
<CURRENT-LIABILITIES> 0
<BONDS> 1,186,600
<COMMON> 171,000
0
0
<OTHER-SE> 67,200
<TOTAL-LIABILITY-AND-EQUITY> 1,802,200
<SALES> 0
<TOTAL-REVENUES> 107,400
<CGS> 0
<TOTAL-COSTS> 43,300
<OTHER-EXPENSES> 3,400
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 37,500
<INCOME-PRETAX> 22,600
<INCOME-TAX> 8,800
<INCOME-CONTINUING> 13,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,800
<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>
