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, 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 August 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 Nine Months Ended July 31, 1996 and 1995 2
Statement of Consolidated Financial Condition --
July 31, 1996; October 31, 1995; and July 31, 1995 3
Statement of Consolidated Cash Flow --
Nine Months Ended July 31, 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 Nine Months Ended
July 31 July 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . $ 27.8 $ 22.0 $ 75.9 $ 54.5
Wholesale notes . . . . . . . . . . . . . . 14.6 16.4 46.0 41.6
Accounts . . . . . . . . . . . . . . . . . 7.1 7.7 19.9 21.9
Servicing fee income . . . . . . . . . . . 5.1 5.0 15.7 13.5
Insurance premiums earned . . . . . . . . . 10.5 11.1 31.6 33.7
Marketable securities . . . . . . . . . . . 1.9 1.9 7.3 6.3
Total . . . . . . . . . . . . . . . . 67.0 64.1 196.4 171.5
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . 18.8 19.1 55.6 56.6
Other . . . . . . . . . . . . . . . . . 1.6 2.4 6.9 6.5
Total . . . . . . . . . . . . . . . . 20.4 21.5 62.5 63.1
Credit, collection and administrative . . . 7.3 7.2 21.1 20.4
Provision for losses on receivables . . . . 1.7 .4 4.4 1.0
Insurance claims and underwriting . . . . . 11.1 11.2 35.6 37.2
Other expense, net . . . . . . . . . . . . 0.8 2.0 5.7 5.4
Total . . . . . . . . . . . . . . . . 41.3 42.3 129.3 127.1
Income Before Taxes on Income . . . . . . . 25.7 21.8 67.1 44.4
Taxes on Income . . . . . . . . . . . . . . 10.1 8.5 26.2 17.3
Net Income . . . . . . . . . . . . . . . . . 15.6 13.3 40.9 27.1
Retained Earnings
Beginning of period . . . . . . . . . . . . 99.3 67.6 84.0 56.8
Dividends paid . . . . . . . . . . . . . . 10.0 3.0 20.0 6.0
End of period . . . . . . . . . . . . . . . $104.9 $ 77.9 $104.9 $ 77.9
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
July 31 October 31 July 31
1996 1995 1995
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents . . . . . . . . . . . $ 19.5 $ 2.9 $ 43.4
Marketable Securities . . . . . . . . . . . . 123.1 131.8 130.1
Finance Receivables
Retail notes and lease financing . . . . . . 535.6 747.2 430.8
Wholesale notes . . . . . . . . . . . . . . 217.6 268.2 136.7
Accounts . . . . . . . . . . . . . . . . . . 261.3 365.9 282.0
1,014.5 1,381.3 849.5
Allowance for losses . . . . . . . . . . . (8.5) (10.4) (6.3)
Finance Receivables, Net . . . . . . . . 1,006.0 1,370.9 843.2
Amounts Due from Sales of Receivables . . . . . 295.0 247.8 259.0
Equipment on Operating Leases, Net . . . . . . 57.1 39.3 32.7
Repossessions . . . . . . . . . . . . . . . . . 9.3 5.8 2.1
Reinsurance Receivables . . . . . . . . . . . . 22.5 24.8 27.4
Other Assets . . . . . . . . . . . . . . . . . 52.0 51.4 47.0
Total Assets . . . . . . . . . . . . . . . . . $1,584.5 $1,874.7 $1,384.9
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Borrowings . . . . . . . . . . . . . $ 117.8 $ 50.5 $ 43.3
Accounts Payable
Affiliated companies . . . . . . . . . . . . 110.4 89.5 116.4
Other . . . . . . . . . . . . . . . . . . . 58.5 49.3 50.7
Total . . . . . . . . . . . . . . . . . . 168.9 138.8 167.1
Dealers' Reserves . . . . . . . . . . . . . . . 22.9 21.0 20.8
Unpaid Insurance Claims and Unearned Premiums . 102.1 103.8 109.3
Accrued Income Taxes . . . . . . . . . . . . . 13.5 12.0 11.4
Accrued Interest . . . . . . . . . . . . . . . 5.6 12.1 9.9
Senior and Subordinated Debt . . . . . . . . . 878.1 1,279.8 773.2
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 . . . . . . . . . . . . . 104.9 84.0 77.9
Unrealized gains (losses) on marketable
securities . . . . . . . . . . . . . . . (0.3) 1.7 1.0
Total . . . . . . . . . . . . . . . . . 275.6 256.7 249.9
Total Liabilities and Shareowner's Equity . . $1,584.5 $1,874.7 $1,384.9
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
July 31
1996 1995
<S> <C> <C>
Cash Flow From Operations
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.9 $ 27.1
Adjustments to reconcile net income to cash
provided from operations:
Gains on sales of receivables . . . . . . . . . . . . . . . (20.2) (5.2)
Depreciation and amortization . . . . . . . . . . . . . . . 10.8 7.8
Provision for losses on receivables . . . . . . . . . . . . 4.4 1.0
Increase (decrease) in accounts payable to affiliates . . . (61.2) 1.4
Increase (decrease) in unpaid insurance claims and unearned
premiums, net of reinsurance receivables . . . . . . . . . .6 (6.1)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.9) 2.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . (27.6) 28.2
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . . . . . 950.0 714.2
Purchase of retail notes and lease receivables . . . . . . . . (843.6) (747.5)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . 66.2 90.7
Acquisitions under (over) cash collections of wholesale
notes and accounts receivable . . . . . . . . . . . . . . . 158.2 137.9
Purchase of marketable securities . . . . . . . . . . . . . . . (47.4) (45.4)
Proceeds from sales and maturities of marketable securities . . 54.5 51.1
Increase in property and equipment leased to others . . . . . . (24.8) (10.4)
Total . . . . . . . . . . . . . . . . . . . . . . . . . 313.1 190.6
Cash Flow From Financing Activities
Net increase (decrease) in short-term borrowings . . . . . . . 67.3 (375.9)
Net decrease in bank revolving credit facility usage . . . . . (250.0) (102.0)
Net increase (decrease) in asset-backed commercial paper
facility usage . . . . . . . . . . . . . . . . . . . . . . . (30.8) 181.5
Principal payments on long-term debt . . . . . . . . . . . . . (117.5) -
Net increase in advance from Transportation . . . . . . . . . . 82.1 98.7
Dividends paid to Transportation . . . . . . . . . . . . . . . (20.0) (6.0)
Total . . . . . . . . . . . . . . . . . . . . . . . . . (268.9) (203.7)
Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . 16.6 15.1
Cash and Cash Equivalents at Beginning of Period . . . . . . . . 2.9 28.3
Cash and Cash Equivalents at End of Period . . . . . . . . . . . $ 19.5 $ 43.4
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . $ 62.1 $ 57.9
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . $ 23.7 $ 9.4
</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
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 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>
July 31 October 31 July 31
1996 1995 1995
($ Millions)
<S> <C> <C> <C>
Retail notes . . . . . . . . . . $1,566.7 $1,173.2 $1,336.6
Wholesale notes . . . . . . . . 500.0 500.0 500.0
Total . . . . . . . . . . $2,066.7 $1,673.2 $1,836.6
</TABLE>
The Corporation's retained interest in sold receivables and
other related amounts are generally restricted and subject to
limited recourse provisions. Holdback reserves were
established pursuant to the limited recourse provisions of the
retail note sales to private investors. The securitized sales
structure requires the Corporation to maintain cash reserves
with the trusts as credit enhancement for public sales. The
cash reserves are held by the trusts and restricted for use by
the securitized sales agreements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of amounts included in "Amounts
Due from Sales of Receivables":
<TABLE>
<CAPTION>
July 31 October 31 July 31
1996 1995 1995
($ Millions)
<S> <C> <C> <C>
Cash held and invested by
trusts . . . . . . . . . . . . $ 95.6 $ 66.8 $ 73.9
Subordinated retained interests
in wholesale receivables . . . 85.6 86.3 86.5
Subordinated retained interests
in retail receivables . . . . . 12.5 12.2 12.4
Holdback reserves . . . . . . . . 36.2 43.7 49.6
Excess servicing fee and other . . 79.3 48.0 47.8
Allowance for credit losses . . . (14.2) (9.2) (11.2)
Total . . . . . . . . . . . $295.0 $247.8 $259.0
</TABLE>
The allowance for losses on receivables is summarized as
follows:
<TABLE>
<CAPTION>
July 31 October 31 July 31
1996 1995 1995
($ Millions)
<S> <C> <C> <C>
Allowance pertaining to:
Owned receivables . . . . . . $ 8.5 $10.4 $ 6.3
Sold notes . . . . . . . . . 14.2 9.2 11.2
Total . . . . . . . . . . $22.7 $19.6 $17.5
</TABLE>
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 retail note and lease
financing revenue in the Statement of Consolidated Income and
Retained Earnings.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Average short-term debt outstanding during the first nine
months of fiscal 1996 and 1995, which included commercial paper
and bank borrowings, was approximately $64 million and $60
million, at an average cost of 6.0% and 5.7%, respectively.
The weighted average interest rate on all debt, including short-
term debt and the effect of discounts and related amortization,
was 6.5% and 7.4% for the first nine months of fiscal 1996 and
1995, respectively.
Accounts payable due to affiliated companies at July 31,
1996 and 1995 include an intercompany advance of $82.1 million
and $98.7 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.
4. 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 or loss on
the sale of receivables.
In February and May 1996, the Corporation entered into
forward interest rate lock agreements with a total notional
amount of $450 million on U.S. Treasury securities maturing
in 1998 related to the May 1996 sale of retail receivables.
These forward interest rate lock agreements were closed in
May 1996 in conjunction with the sale of $460 million of
retail notes receivable. (See Note 2.)
In August and September 1996, the Corporation entered into
forward interest rate lock agreements related to the
anticipated sale of retail receivables. The Corporation, in
anticipation of selling receivables at some time in November
1996, hedged, a total of $300 million against a U.S. Treasury
security maturing in 1998.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. 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 has been pending. On June
10, 1996, the Oklahoma Supreme Court dismissed its review of the
Court of Appeals decision and left standing the Court of Appeals
decision reversing the jury verdict.
<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
approximately 8% during the third quarter of 1996 and 10% during
the first nine 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. In addition, the high liquidity in the
commercial financing markets that has existed over the last
several years continues to give NFC's customers an abundance of
financing alternatives.
Financial Condition
The Corporation's serviced receivables portfolio, which includes
sold receivables, totaled $3.2 billion at July 31, 1996 and
October 31, 1995 and $2.8 billion at July 31, 1995. During the
first nine 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 nine months
of 1995. Acquisitions of wholesale notes decreased $11 million
to $2,088 million during the first nine months of fiscal 1996 as
compared to the same period a year ago. Serviced wholesale note
balances were $803 million at July 31, 1996, compared with $854
million and $723 million at October 31, 1995 and July 31, 1995,
respectively.
Acquisitions of retail notes and leases, net of unearned finance
income, remained strong during the first nine months of fiscal
1996 at $844 million compared to $748 million during the first
nine months of fiscal 1995. The Corporation's share of the
retail financing of new trucks manufactured by Transportation
and sold in the United States was 17% during the first nine
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 July 31, 1996, up from $1.9 billion at October
31, 1995 and $1.8 billion at July 31, 1995.
Owned net finance receivable balances including subordinated
interests in retail and wholesale receivables, were $1.1 billion
at July 31, 1996, $1.5 billion at October 31, 1995 and $1.0
billion at July 31, 1995. Sold retail receivables balances
increased to $1.6 billion at July 31, 1996 from $1.2 billion at
October 31, 1995 and $1.3 billion at July 31, 1995; and sold
wholesale note balances were $500 million at each of the
aforementioned periods.
<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 nine month periods
ended July 31 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended July 31 Ended July 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income before income taxes:
Finance operations. . . . . . . . . . . $24.7 $20.3 $64.4 $42.4
Insurance operations. . . . . . . . . . 1.0 1.5 2.7 2.0
Income before taxes. . . . . . . . . 25.7 21.8 67.1 44.4
Taxes on income . . . . . . . . . . . . . 10.1 8.5 26.2 17.3
Net income . . . . . . . . . . . . . $15.6 $13.3 $40.9 $27.1
</TABLE>
In the third quarter of fiscal 1996, the Corporation's pretax
income increased $4 million to $26 million compared to the third
quarter of fiscal 1995 as the result of increased gains on the
sales of retail receivables and higher retail note balances.
Pretax income from finance operations during the first nine
months of 1996 increased $22 million to $64 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 nine months of
1996 were $20.2 million on $985 million sold compared with $5.2
million of gains recognized on $740 million of retail
receivables sold in 1995. The higher gains on sales resulted
from higher margins on retail notes due to declining market
interest rates prior to the sale in November 1995. 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 on the sale in November 1994 as
market interest rates were rising and a loss was recorded on
that sale.
In spite of higher debt balances to support increased finance
receivables, interest expense decreased $.3 million during the
third quarter and $1.0 million during the first nine 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 $1.3 million to $1.7 million
during the third quarter of 1996 and $3.4 million to $4.4
million during the first nine 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 $.7
million during the first nine months of 1996 as compared to the
first nine months of 1995 as the result of higher realized gains
on sales of investments and improved experience in liability
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 nine months of 1996, the Corporation
sold $985 million of retail notes, net of unearned finance
income, through Navistar Financial Retail Receivables
Corporation ("NFRRC"), its wholly-owned subsidiary, to two owner
trusts. The owner trusts, in turn, sold $946 million of notes
and $39 million of certificates to investors. Net proceeds from
the sales were $935 million after deducting $2 million for
underwriting fees and $48 million to establish reserve accounts
with the trusts as credit enhancement for the public sales.
During the same period in 1995, the Corporation sold $740
million of retail notes receivable through NFRRC and owner
trusts to public investors. Net proceeds from these sales were
$693 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. At July 31,
1996, the remaining shelf registration available to NFRRC for
issuance of asset-backed securities was $2.4 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 July 31, 1996, available funding under the amended and
restated credit facility and the asset-backed commercial paper
facility was $551 million, of which $118 million provided
funding backup for the outstanding short-term debt. The
remaining $433 million when combined with unrestricted cash and
cash equivalents made $453 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 $20.0 million to Transportation
during the first nine months of 1996 compared with $6.0 million
of dividends paid during the first nine months of 1995. The
Corporation's debt to equity ratio was 3.6:1 at July 31, 1996,
5.2:1 at October 31, 1995 and 3.3:1 at July 31, 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 4 to the
Consolidated Financial Statements for further 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 10% decline in customer demand for Class 5 through 8
trucks during the first three quarters of fiscal 1996 is
anticipated to continue in the fourth quarter and NFC's
wholesale and retail financing activity is forecast to be lower
in the fourth quarter of fiscal 1996. The lower 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
The Registrant filed the following reports on Form 8-K
during the nine months ended July 31, 1996:
Date of Report Date Filed Items Reported
March 29, 1996 June 5, 1996 5, 7
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 11, 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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996<F1>
<PERIOD-END> JUL-31-1996
<CASH> 19,500
<SECURITIES> 123,100
<RECEIVABLES> 1,014,500
<ALLOWANCES> (8,500)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,700
<DEPRECIATION> (7,100)
<TOTAL-ASSETS> 1,584,500
<CURRENT-LIABILITIES> 0
<BONDS> 878,100
0
0
<COMMON> 171,000
<OTHER-SE> 104,600
<TOTAL-LIABILITY-AND-EQUITY> 1,584,500
<SALES> 0
<TOTAL-REVENUES> 196,400
<CGS> 0
<TOTAL-COSTS> 63,600
<OTHER-EXPENSES> 5,700
<LOSS-PROVISION> 4,400
<INTEREST-EXPENSE> 55,600
<INCOME-PRETAX> 67,100
<INCOME-TAX> 26,200
<INCOME-CONTINUING> 40,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,900
<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>
