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, 1996
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 847-734-4275
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, 1996, 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
<TABLE>
<CAPTION>
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, 1996 and 1995 2
Statement of Consolidated Financial Condition --
April 30, 1996; October 31, 1995; and April 30, 1995 3
Statement of Consolidated Cash Flow --
Six Months Ended April 30, 1996 and 1995 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 14
Signature 14
</TABLE>
<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
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . . . $ 20.9 $ 17.6 $ 48.1 $ 32.5
Wholesale notes . . . . . . . . . . . . . . . 15.3 14.0 31.4 25.2
Accounts . . . . . . . . . . . . . . . . . . 6.0 7.2 12.8 14.2
Servicing fee income . . . . . . . . . . . . 5.0 4.2 10.6 8.5
Insurance premiums earned . . . . . . . . . . 10.7 11.3 21.1 22.6
Marketable securities . . . . . . . . . . . . 2.8 2.2 5.4 4.4
Total . . . . . . . . . . . . . . . . . 60.7 56.5 129.4 107.4
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . . 19.7 20.4 36.8 37.5
Other. . . . . . . . . . . . . . . . . . 2.2 2.0 5.3 4.1
Total . . . . . . . . . . . . . . . . 21.9 22.4 42.1 41.6
Credit, collection and administrative . . . . 7.0 6.6 13.8 13.2
Provision for losses on receivables . . . . . 1.6 .5 2.7 .6
Insurance claims and underwriting . . . . . . 13.6 13.2 24.5 26.0
Other expense, net . . . . . . . . . . . . . 2.1 1.6 4.9 3.4
Total . . . . . . . . . . . . . . . . 46.2 44.3 88.0 84.8
Income Before Taxes on Income . . . . . . . . . 14.5 12.2 41.4 22.6
Taxes on Income . . . . . . . . . . . . . . . . 5.8 4.7 16.1 8.8
Net Income . . . . . . . . . . . . . . . . . . 8.7 7.5 25.3 13.8
Retained Earnings
Beginning of period . . . . . . . . . . . . . 90.6 63.1 84.0 56.8
Dividends paid. . . . . . . . . . . . . . . . - 3.0 10.0 3.0
End of period . . . . . . . . . . . . . . . . $ 99.3 $ 67.6 $ 99.3 $ 67.6
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
April 30 October 31 April 30
1996 1995 1995
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents . . . . . . . . . . . . $ 6.7 $ 2.9 $ 47.8
Marketable Securities . . . . . . . . . . . . . . 125.0 131.8 130.1
Finance Receivables
Retail notes and lease financing . . . . . . . 746.4 747.2 592.5
Wholesale notes . . . . . . . . . . . . . . . 323.9 268.2 419.5
Accounts . . . . . . . . . . . . . . . . . . . 298.6 365.9 306.8
1,368.9 1,381.3 1,318.8
Allowance for losses . . . . . . . . . . . . . (10.4) (10.4) (8.6)
Finance Receivables, Net . . . . . . . . . 1,358.5 1,370.9 1,310.2
Amounts Due from Sales of Receivables . . . . . . 267.3 247.8 194.4
Equipment on Operating Leases, Net . . . . . . . 54.0 39.3 30.5
Repossessions . . . . . . . . . . . . . . . . . . 9.8 5.8 2.6
Reinsurance Receivables . . . . . . . . . . . . . 22.8 24.8 27.3
Other Assets . . . . . . . . . . . . . . . . . . 58.6 51.4 59.3
Total Assets . . . . . . . . . . . . . . . . . . $1,902.7 $1,874.7 $1,802.2
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Borrowings . . . . . . . . . . . . . . $ 49.3 $ 50.5 $ 81.1
Accounts Payable
Affiliated companies . . . . . . . . . . . . . 49.0 89.5 98.6
Other . . . . . . . . . . . . . . . . . . . . . 56.7 49.3 48.9
Total . . . . . . . . . . . . . . . . . . . 105.7 138.8 147.5
Dealers' Reserves . . . . . . . . . . . . . . . . 22.5 21.0 19.8
Unpaid Insurance Claims and Unearned Premiums . . 103.8 103.8 112.0
Accrued Income Taxes . . . . . . . . . . . . . . 10.9 12.0 3.8
Accrued Interest . . . . . . . . . . . . . . . . 11.0 12.1 13.2
Senior and Subordinated Debt . . . . . . . . . . 1,328.8 1,279.8 1,186.6
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 . . . . . . . . . . . . . . . 99.3 84.0 67.6
Unrealized gains (losses) on marketable
securities . . . . . . . . . . . . . . . . . .4 1.7 (.4)
Total . . . . . . . . . . . . . . . . . . . 270.7 256.7 238.2
Total Liabilities and Shareowner's Equity . . . . $1,902.7 $1,874.7 $1,802.2
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
April 30
1996 1995
<S> <C> <C>
Cash Flow From Operations
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.3 $ 13.8
Adjustments to reconcile net income to cash
provided from operations:
Losses (gains) on sales of receivables . . . . . . . . . . . . (12.2) .5
Depreciation and amortization . . . . . . . . . . . . . . . . 7.8 4.9
Provision for losses on receivables . . . . . . . . . . . . . 2.7 .6
Decrease in accounts payable to affiliates . . . . . . . . . . (69.4) (16.6)
Increase (decrease) in unpaid insurance claims
and unearned premiums, net of reinsurance receivables . . . 2.0 (3.3)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 (5.5)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (42.1) (5.6)
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . . . . . . . 514.2 312.2
Purchase of retail notes and lease receivables . . . . . . . . . (575.6) (457.4)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . . 47.1 62.8
Acquisitions under (over) cash collections of
wholesale notes and accounts receivable . . . . . . . . . . . 12.1 (128.6)
Purchase of marketable securities . . . . . . . . . . . . . . . . (36.1) (20.0)
Proceeds from sales and maturities of marketable securities . . . 42.4 23.4
Increase in property and equipment leased to others . . . . . . . (19.2) (6.7)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.1) (214.3)
Cash Flow From Financing Activities
Net increase (decrease) in commercial paper . . . . . . . . . . . (1.2) 61.9
Principal payments on short-term debt . . . . . . . . . . . . . . - (400.0)
Net increase (decrease) in bank revolving credit facility usage . (50.0) 205.0
Net increase in asset-backed commercial paper
facility usage . . . . . . . . . . . . . . . . . . . . . . . . 93.3 276.6
Net increase in advance from Transportation . . . . . . . . . . . 28.9 98.9
Dividends paid to Transportation . . . . . . . . . . . . . . . . (10.0) (3.0)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.0 239.4
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . 3.8 19.5
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . 2.9 28.3
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . $ 6.7 $ 47.8
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37.9 $ 35.6
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . $ 16.5 $ 7.7
</TABLE>
See Notes to Consolidated Financial Statements.
<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 Trans-
portation 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 1995 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 1995 amounts have been reclassified
to conform with the presentation used in the 1996 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
1996 1995 1995
($ Millions)
<S> <C> <C> <C>
Retail notes . . . . . . . . . . $1,325.4 $1,173.2 $1,085.8
Wholesale notes . . . . . . . . 500.0 500.0 300.0
Total . . . . . . . . . . $1,825.4 $1,673.2 $1,385.8
</TABLE>
The Corporation's retained interest in sold receivables and
other related amounts are generally restricted and subject to
limited recourse provisions. Holdback reserves were
established pursuant to the limited recourse provisions of the
retail note sales to private investors. The securitized sales
structure requires the Corporation to maintain cash reserves
with the trusts as credit enhancement for public sales. The
cash reserves are held by the trusts and restricted for use by
the securitized sales agreements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of amounts included in "Amounts
Due from Sales of Receivables":
<TABLE>
<CAPTION>
April 30 October 31 April 30
1996 1995 1995
($ Millions)
<S> <C> <C> <C>
Cash held and invested by
trusts . . . . . . . . . . . . . $ 80.3 $ 66.8 $ 59.1
Subordinated retained interests
in wholesale receivables . . . . 85.8 86.3 46.5
Subordinated retained interests
in retail receivables . . . . . . 12.4 12.2 13.9
Holdback reserves . . . . . . . . . 37.4 43.7 55.4
Excess servicing fee and other . . . 62.7 48.0 27.9
Allowance for credit losses . . . . (11.3) (9.2) (8.4)
Total . . . . . . . . . . . . $267.3 $247.8 $194.4
</TABLE>
The allowance for losses on receivables is summarized as
follows:
<TABLE>
<CAPTION>
April 30 October 31 April 30
1996 1995 1995
($ Millions)
<S> <C> <C> <C>
Allowance pertaining to:
Owned receivables . . . . . . . $10.4 $10.4 $ 8.6
Sold notes . . . . . . . . . . 11.3 9.2 8.4
Total . . . . . . . . . . . $21.7 $19.6 $17.0
</TABLE>
3. Average short-term debt outstanding during the first six
months of fiscal 1996 and 1995, which included commercial paper
and bank borrowings, was approximately $56 million and $74
million, at an average cost of 6.1% and 5.9%, respectively.
The weighted average interest rate on all debt, including short-
term debt and the effect of discounts and related amortization,
was 6.6% and 7.5% for the first six months of fiscal 1996 and
1995, respectively.
Accounts payable due to affiliated companies at April 30,
1996 and 1995 include an intercompany advance of $28.9 million
and $98.9 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, 1995.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Effective March 29, 1996, the Corporation amended and
restated its $900 million bank revolving credit facility,
extending the maturity date to March 29, 2001 and expanding the
commitment to $925 million. In addition, the asset-backed
commercial paper ("ABCP") program supported by a bank liquidity
facility was also amended and restated, extending the maturity
date to March 2001 and increasing the facility from $300
million to $400 million.
Available funding under the amended and restated credit
facility and the ABCP program was $227 million, of which $49
million provided funding backup for the outstanding short-
term debt at April 30, 1996. The remaining $178 million
when combined with unrestricted cash and cash equivalents
made $185 million available to fund the general business
purposes of the Corporation at April 30, 1996.
5. The Corporation enters into forward interest rate contracts
to manage its exposure to fluctuations in funding costs from
the anticipated securitization and sale of retail notes.
Gains or losses incurred with the closing of these agreements
are included as a component of the gain on sale of receivables.
In February 1996, the Corporation entered into $200 million
of short-term forward interest rate lock agreements on a U.S.
Treasury security maturing in 1998 related to the May 1996
sale of retail receivables. At April 30, 1996, the deferred
unrealized gain from hedging the anticipated, but not yet
committed, sales transaction was $3.9 million.
In May 1996, the Corporation entered into forward interest
rate lock agreements with a total notional amount of $250
million on U.S. Treasury securities maturing in 1998 related
to the May 1996 sale of retail receivables. The hedge
agreements totaling $450 million were closed on May 22, 1996,
in conjunction with the pricing of the May sale. See also
Note 7.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. During 1992, auditors of the Illinois Department of
Revenue ("Department") began an income tax audit of NFC for the
fiscal years ended October 31, 1989, 1990 and 1991. On
February 1, 1994, the Department issued a Notice of Deficiency
to NFC for approximately $11.9 million. The Department has
taken the position that nearly 100% of NFC's income during
these years should be attributed to and taxed by Illinois. NFC
maintains that the Department's interpretation and application
of the law is incorrect and improper, and that the Department's
intended result is constitutionally prohibited. Based on
discussions with outside counsel, NFC's management is of the
opinion that it is more likely than not that NFC's position
will prevail such that the Department's action will not have a
material impact on NFC's earnings and financial position.
In May 1993, a jury issued a verdict in favor of Vernon Klein
Truck & Equipment, Inc. ("Klein Truck") and against
Transportation and the Corporation in the amount of $10.8
million in compensatory damages and $15 million in punitive
damages. Transportation appealed the verdict and, in
November 1994, the Court of Appeals of the State of Oklahoma
reversed the verdict and entered judgment in favor of
Transportation on virtually all aspects of the case. Klein
Truck appealed to the Oklahoma Supreme Court where the case
is now pending.
7. On May 30, 1996, the Corporation sold $460 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 $439 million of notes and $21 million of
certificates to investors. The proceeds of $459 million, net
of $1 million of underwriting fees, were used by the
Corporation for general working capital purposes and to
establish $23 million in cash reserves with the trust as credit
enhancement for the public sale. A gain of $8.0 million was
recognized on the sale of retail receivables and was recorded
in May 1996.
<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 declined approxi-
mately 11% during the second quarter of 1996 and 20% during the
first six months of 1996 compared to the same periods in 1995.
The softening in the trucking industry has resulted in an increase
in delinquencies, repossessions and credit losses as compared
to 1995. Nonetheless, the high liquidity in the commercial
financing markets that has existed over the last several years
continued to give NFC's customers an abundance of financing
alternatives.
Financial Condition
The Corporation's serviced receivables portfolio, which includes
sold receivables, totaled $3.3 billion at April 30, 1996
compared to $3.2 billion at October 31, 1995 and $2.8 billion at
April 30, 1995. During the first six months of 1996, the
Corporation supplied 94% of the wholesale financing of new
trucks sold to Transportation's dealers, compared to 93%
supplied during the first six months of 1995. Acquisitions of
wholesale notes increased $74 million to $1,491 million during
the first six months of fiscal 1996 as compared to the same
period a year ago. Serviced wholesale note balances were $910
million at April 30, 1996, up from $854 million and $766 million
at October 31, 1995 and April 30, 1995, respectively.
Acquisitions of retail notes and leases, net of unearned finance
income, remained strong during the first half of fiscal 1996 at
$576 million compared to $457 million during the first half of
fiscal 1995. The Corporation's share of the retail financing of
new trucks manufactured by Transportation and sold in the United
States was 18% during the first six months of 1996 compared to
13% during the same period a year ago. Serviced retail notes
and lease financing balances were $2.1 billion at April 30, 1996
compared with $1.9 billion at October 31, 1995 and $1.7 billion
at April 30, 1995.
Owned net finance receivable balances including subordinated
interests in retail and wholesale receivables, were $1.5 billion
at April 30, 1996 and October 31, 1995 and $1.4 billion at April
30, 1995. Sold retail receivables balances increased to $1.3
billion at April 30, 1996 from $1.2 billion at October 31, 1995
and $1.1 billion at April 30, 1995. Sold wholesale note
balances were $500 million at April 30, 1996 and October 31,
1995 and $300 million at April 30, 1995.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
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
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income before income taxes:
Finance operations. . . . . . . . . . . . $14.7 $12.1 $39.7 $22.1
Insurance operations. . . . . . . . . . . (.2) .1 1.7 .5
Income before taxes. . . . . . . . . . 14.5 12.2 41.4 22.6
Taxes on income . . . . . . . . . . . . . . 5.8 4.7 16.1 8.8
Net income . . . . . . . . . . . . . . $ 8.7 $ 7.5 $25.3 $13.8
</TABLE>
In the second quarter of fiscal 1996, the Corporation's pretax
income increased $2 million to $14 million compared to the
second quarter of fiscal 1995 as the result of increased
revenues from higher retail and wholesale note balances.
Pretax income from finance operations during the first six months
of 1996 increased $18 million to $40 million compared to 1995
primarily as a result of higher gains on sales of retail notes
and higher levels of wholesale note financing. Gains on sales
of retail notes receivable during the first six months of 1996
were $12.2 million on $525 million sold in November 1995
compared with losses of $.5 million on $315 million of retail
receivables sold in November 1994. The higher gains on sales
resulted from higher margins on retail notes due to declining
market interest rates prior to the date of sale. During a
declining interest rate environment, the Corporation's
acquisition spreads improve as NFC's cost of borrowing differs
from the time when interest rates are quoted to borrowers and
the time when notes are acquired. In addition, the effective
interest rate for each sale is based on a market interest rate
at the time of the sale which may be up to six months after the
Corporation acquires the retail note. During 1995, the opposite
impact was experienced by NFC as market interest rates were
rising and a loss was recorded on the sale.
In spite of higher debt balances to support increased finance
receivables, interest expense decreased $.7 million during the
second quarter and first six months of 1996 as compared to 1995
as the result of lower market interest rates combined with a
change in the mix of outstanding debt balances.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
The provision for losses increased $1.1 million to $1.6 million
during the second quarter of 1996 and $2.1 million to $2.7
million during the first six months of 1996 as compared to the
same periods one year ago. The higher provision in 1996 is a
result of an increase in receivables balances combined with
higher repossession frequency and losses as compared to the
prior year.
Pretax income for Harco National Insurance Company ("Harco"), the
Corporation's wholly-owned insurance subsidiary, increased $1.2
million during the first six months of 1996 as compared to the
first half of 1995 as the result of higher realized gains on
sales of investments and improved experience in liability lines,
partially offset by adverse experience in physical damage lines.
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 1996 and
1995. During the first six months of 1996, the Corporation sold
$525 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 $507 million of notes and $18 million
of certificates to investors. Net proceeds from the sale were
$495 million after deducting $1 million for underwriting fees
and $29 million to establish a reserve account with the trust as
credit enhancement for the public sale. During the same
period in 1995, the Corporation sold $315 million of retail
notes receivable through NFRRC and an owner trust to public
investors. Net proceeds from this sale were $295 million after
the reduction of underwriting fees and credit enhancement. The
net proceeds from the sales were used by the Corporation for
general working capital purposes. On November 14, 1995, NFRRC
filed an additional registration with the Securities and
Exchange Commission providing for the issuance from time to time
of an additional $2.0 billion of asset-backed securities. At
April 30, 1996, the remaining shelf registration available to
NFRRC for issuance of asset-backed securities was $2.9 billion.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Liquidity and Funds Management (continued)
Effective March 29, 1996, the Corporation amended and restated
its $900 million bank revolving credit facility and its $300
million asset-backed commercial paper ("ABCP") program supported
by a bank liquidity facility, extending the maturity date of
each facility to March 2001. In addition, the commitment of the
bank revolving credit facility was expanded to $925 million, the
ABCP facility was increased to $400 million and a new pricing
and fee schedule was established.
At April 30, 1996, available funding under the amended and
restated credit facility and the asset-backed commercial paper
facility was $227 million, of which $49 million provided funding
backup for the outstanding short-term debt at April 30, 1996.
The remaining $178 million when combined with unrestricted cash
and cash equivalents made $185 million available to fund the
general business purposes of the Corporation. In addition to
the committed credit facilities, the Corporation also utilizes
$500 million of revolving wholesale note sales trusts providing
for the continuous sale of eligible wholesale notes on a daily
basis. The sales trusts are composed of three $100 million
pools of notes maturing serially from 1997 to 1999 and a $200
million pool maturing in 2004.
The Corporation paid dividends of $10.0 million to Transportation
during the first six months of 1996 compared with $3.0 million
of dividends paid during the first half of 1995. The
Corporation's debt to equity ratio was 5.1:1 at April 30, 1996,
5.2:1 at October 31, 1995 and 5.3:1 at April 30, 1995.
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 and, to a lesser extent, by
utilizing derivative financial instruments. See Note 5 to the
Consolidated Financial Statements for a discussion of
derivatives.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Business Outlook
The year-over-year truck demand levels are forecast to soften
during fiscal 1996 and correspondingly NFC's wholesale and
retail financing activity is anticipated to be lower in the last
half of fiscal 1996. The decline in the truck industry may
impact the financial strength of dealers and customers and NFC's
ability to maintain the current level of portfolio quality.
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 1996 and beyond.
<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 six
months ended April 30, 1996.
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 7, 1996 /s/ P. E. Cochran
P. E. Cochran
Vice President and Controller
<PAGE>
<TABLE> <S> <C>
<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996<F1>
<PERIOD-END> APR-30-1996
<CASH> 6,700
<SECURITIES> 125,000
<RECEIVABLES> 1,368,900
<ALLOWANCES> (10,400)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,500
<DEPRECIATION> (7,000)
<TOTAL-ASSETS> 1,902,700
<CURRENT-LIABILITIES> 0
<BONDS> 1,328,800
<COMMON> 171,000
0
0
<OTHER-SE> 99,700
<TOTAL-LIABILITY-AND-EQUITY> 1,902,700
<SALES> 0
<TOTAL-REVENUES> 129,400
<CGS> 0
<TOTAL-COSTS> 43,600
<OTHER-EXPENSES> 4,900
<LOSS-PROVISION> 2,700
<INTEREST-EXPENSE> 36,800
<INCOME-PRETAX> 41,400
<INCOME-TAX> 16,100
<INCOME-CONTINUING> 25,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,300
<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>
