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, 1997
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 847-734-4000
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, 1997, the number of shares outstanding of the registrant's
common stock was 1,600,000.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
TRANSPORTATION CORP. AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Consolidated Income and Retained Earnings --
Three Months and Nine Months Ended July 31, 1997 and 1996.......... 2
Statements of Consolidated Financial Condition --
July 31, 1997; October 31, 1996; and July 31, 1996................. 3
Statements of Consolidated Cash Flow --
Nine Months Ended July 31, 1997 and 1996........................... 4
Notes to Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 12
Signature .................................................................. 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31 July 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue
Retail notes and lease financing . . . . . $ 28.7 $ 27.8 $ 80.6 $ 75.9
Wholesale notes . . . . . . . . . . . . . . 9.3 14.6 27.8 46.0
Accounts . . . . . . . . . . . . . . . . . 8.7 7.1 23.0 19.9
Servicing fee income . . . . . . . . . . . 5.1 5.1 15.2 15.7
Insurance premiums earned . . . . . . . . . 8.4 10.5 24.9 31.6
Marketable securities . . . . . . . . . . . 2.3 1.9 6.4 7.3
Total . . . . . . . . . . . . . . . 62.5 67.0 177.9 196.4
Expense
Cost of borrowing
Interest . . . . . . . . . . . . . . . 16.7 18.8 48.2 55.6
Other . . . . . . . . . . . . . . . . . 2.2 1.6 5.2 6.9
Total . . . . . . . . . . . . . . . 18.9 20.4 53.4 62.5
Credit, collection and administrative . . . 7.9 7.3 22.4 21.1
Provision for losses on receivables . . . . 0.3 1.7 1.5 4.4
Insurance claims and underwriting . . . . . 9.2 11.1 26.8 35.6
Depreciation expense and other. . . . . . . 4.2 0.8 14.7 5.7
Total . . . . . . . . . . . . . . . 40.5 41.3 118.8 129.3
Income Before Taxes on Income. . . . . . . . . 22.0 25.7 59.1 67.1
Taxes on Income. . . . . . . . . . . . . . . . 8.6 10.1 23.0 26.2
Net Income . . . . . . . . . . . . . . . . . . 13.4 15.6 36.1 40.9
Retained Earnings
Beginning of period . . . . . . . . . . . . 100.1 99.3 107.4 84.0
Dividends paid . . . . . . . . . . . . . . 5.0 10.0 35.0 20.0
End of period . . . . . . . . . . . . . . . $108.5 $104.9 $108.5 $104.9
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
July 31 October 31 July 31
1997 1996 1996
ASSETS
<S> <C> <C> <C>
Cash and Cash Equivalents . . . . . . . . . . $ 8.9 $ 6.7 $ 19.5
Marketable Securities . . . . . . . . . . . . 115.6 128.1 123.1
Finance Receivables
Retail notes and lease financing . . . . 453.3 733.3 535.6
Wholesale notes . . . . . . . . . . . . 179.9 100.5 217.6
Accounts . . . . . . . . . . . . . . . . 336.8 371.4 261.3
970.0 1,205.2 1,014.5
Allowance for losses . . . . . . . . . . (9.3) (11.6) (8.5)
Finance Receivables, Net . . . . . . 960.7 1,193.6 1,006.0
Amounts Due from Sales of Receivables . . . . 219.3 264.3 295.0
Equipment on Operating Leases, Net . . . . . 116.0 101.1 57.1
Repossessions . . . . . . . . . . . . . . . . 24.5 13.2 9.3
Reinsurance Receivables . . . . . . . . . . . 23.7 21.2 22.5
Other Assets . . . . . . . . . . . . . . . . 49.1 65.6 52.0
Total Assets . . . . . . . . . . . . . . . . $1,517.8 $1,793.8 $1,584.5
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Borrowings . . . . . . . . . . . . $ 112.3 $ 99.4 $ 117.8
Accounts Payable
Affiliated companies . . . . . . . . . . 114.0 24.5 110.4
Other . . . . . . . . . . . . . . . . . 32.5 42.2 58.5
Total . . . . . . . . . . . . . . . 146.5 66.7 168.9
Dealers' Reserves . . . . . . . . . . . . . . 22.5 22.3 22.9
Unpaid Insurance Claims and
Unearned Premiums . . . . . . . . . . . . 89.5 99.6 102.1
Accrued Income Taxes . . . . . . . . . . . . 13.0 10.8 13.5
Accrued Interest . . . . . . . . . . . . . . 6.3 8.9 5.6
Senior and Subordinated Debt . . . . . . . . 844.6 1,206.4 878.1
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 . . . . . . . . . . . 108.5 107.4 104.9
Unrealized gains (losses) on marketable
securities . . . . . . . . . . . . . 3.6 1.3 (0.3)
Total . . . . . . . . . . . . . . . 283.1 279.7 275.6
Total Liabilities and Shareowner's Equity . . $1,517.8 $1,793.8 $1,584.5
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOW (Unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
July 31
1997 1996
<S> <C> <C>
Cash Flow From Operations
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 36.1 $ 40.9
Adjustments to reconcile net income to cash
provided from operations:
Gains on sales of receivables . . . . . . . . . . . . (13.4) (20.2)
Depreciation and amortization . . . . . . . . . . . . 16.4 10.8
Provision for losses on receivables . . . . . . . . . 1.5 4.4
Increase in accounts payable to affiliates . . . . . 89.5 20.9
(Decrease) increase in unpaid insurance claims and
unearned premiums, net of reinsurance receivables . (12.6) 0.6
Other . . . . . . . . . . . . . . . . . . . . . . . . (8.2) (2.9)
Total . . . . . . . . . . . . . . . . . . . . . . 109.3 54.5
Cash Flow From Investing Activities
Net proceeds from sold retail notes . . . . . . . . . . . 938.1 950.0
Purchase of retail notes and lease receivables . . . . . (703.0) (843.6)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . 69.0 66.2
Acquisitions (over) under cash collections of wholesale
notes and accounts receivable . . . . . . . . . . . . (28.7) 158.2
Purchase of marketable securities . . . . . . . . . . . . (67.9) (47.4)
Proceeds from sales and maturities
of marketable securities . . . . . . . . . . . . . . 86.0 54.5
Increase in property and equipment leased to others . . . (29.3) (24.8)
Total . . . . . . . . . . . . . . . . . . . . . . 264.2 313.1
Cash Flow From Financing Activities
Net increase in short-term borrowings . . . . . . . . . 12.9 67.3
Net (decrease) in bank revolving credit facility usage. . (334.0) (250.0)
Net (decrease) in asset-backed
commercial paper facility usage . . . . . . . . . . . (173.0) (30.8)
Proceeds from long-term debt . . . . . . . . . . . . . . 176.4 -
Principal payments on long-term debt . . . . . . . . . . (18.6) (117.5)
Dividends paid to Transportation . . . . . . . . . . . . (35.0) (20.0)
Total . . . . . . . . . . . . . . . . . . . . . . (371.3) (351.0)
Increase in Cash and Cash Equivalents . . . . . . . . . . . 2.2 16.6
Cash and Cash Equivalents at Beginning of Period . . . . . . 6.7 2.9
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 8.9 $ 19.5
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . $ 49.5 $ 62.1
Income taxes paid . . . . . . . . . . . . . . . . . . . $ 22.1 $ 23.7
</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 Transportation Corp.
("Transportation"), which is wholly-owned by Navistar International
Corporation ("Navistar"), is the parent company of the Corporation.
The accompanying unaudited financial statements and notes have been
prepared in accordance with the accounting policies set forth in the
Corporation's 1996 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 1996
amounts have been reclassified to conform with the presentation used in the
1997 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, net of unearned finance
income, are as follows:
<TABLE>
<CAPTION>
July 31 October 31 July 31
1997 1996 1996
($ Millions)
<S> <C> <C> <C>
Retail notes . . . . . . . . . . $1,634.6 $1,366.4 $1,566.7
Wholesale notes . . . . . . . . 400.0 500.0 500.0
Total . . . . . . . . . . . $2,034.6 $1,866.4 $2,066.7
</TABLE>
During the first three quarters of 1997, the Corporation sold $987 million
of retail notes, net of unearned finance income, through Navistar Financial
Retail Receivables Corporation ("NFRRC"), a wholly-owned subsidiary, to an
owner trust which, in turn, sold notes and certificates to investors. The
proceeds, net of underwriting fees and credit enhancements, were $950
million.
In July 1997, Navistar Financial Securities Corporation ("NFSC"), a
wholly-owned subsidiary of the Corporation, filed a shelf registration
statement with the Securities and Exchange Commission providing for the
issuance of up to $400 million of pass-through certificates backed by an
undivided ownership interest in wholesale notes. The registration
statement, which was declared effective July 21, 1997, permitted NFSC to
offer and sell series of certificates backed by interests in wholesale
notes. On August 5, 1997, NFSC sold to the public, $200 million of asset
backed certificates issued by Navistar Financial Dealer Note Master Trust.
The certificates mature in August 2003.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standards No. 125 ("SFAS No. 125"), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", for
all applicable transactions. SFAS No. 125 requires that amounts previously
classified as excess servicing be reclassified as interest only receivables
and that such amounts be recorded at estimated fair value. Restatement of
the financial statements of prior periods is not permitted. The new
standard did not have a material effect on the Corporation's net income or
financial condition.
The Corporation's subordinated retained interests in sold receivables are
generally restricted and subject to limited recourse provisions. The terms
of retail receivable sales require the Corporation to maintain cash
reserves with the trusts as credit enhancement for public sales. The cash
reserves held by the trusts are restricted for use by the securitized sales
agreements. The following is a summary of amounts included in "Amounts Due
from Sales of Receivables":
<TABLE>
<CAPTION>
July 31 October 31 July 31
1997 1996 1996
($ Millions)
<S> <C> <C> <C>
Cash held and invested by
trusts . . . . . . . . . . . . $ 92.7 $ 85.2 $ 95.6
Subordinated retained interests
in wholesale receivables . . . 69.2 85.4 85.6
Subordinated retained interests
in retail receivables . . . . . 61.4 96.0 114.0
Interest only receivables. . . . . 11.2 - -
Excess servicing . . . . . . . . . - 10.1 14.0
Allowance for credit losses . . . (15.2) (12.4) (14.2)
Total . . . . . . . . . . . $219.3 $264.3 $295.0
</TABLE>
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
July 31 October 31 July 31
1997 1996 1996
($ Millions)
<C> <C> <C> <C>
Allowance pertaining to:
Owned notes . . . . . . . . . $ 9.3 $11.6 $ 8.5
Sold notes . . . . . . . . . 15.2 12.4 14.2
Total . . . . . . . . . . $24.5 $24.0 $22.7
</TABLE>
3. Average short-term debt outstanding during the first nine months of fiscal
1997 and 1996, which included commercial paper and bank borrowings, was
approximately $120 million and $64 million, respectively, at an average
cost, during each period, of 6.0%. The weighted average interest rate on
all debt, including short-term debt and the effect of discounts and related
amortization, was 6.3% and 6.5% for the first nine months of fiscal 1997
and 1996, respectively.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. The Corporation has $1,325 million of contractually committed support
facilities, consisting of a $925 million bank revolving credit facility and
a $400 million asset-backed commercial paper ("ABCP") program supported by
a bank liquidity facility. Each of these facilities has a maturity date of
March 31, 2001. At July 31, 1997, unused commitments under these facilities
were $755 million, of which $112 million provided funding backup for the
outstanding short-term debt. The remaining $643 million, when combined with
unrestricted cash and cash equivalents, made $652 million available to fund
the general business purposes of the Corporation at July 31, 1997.
In May 1997, the Corporation sold $100 million of Senior Subordinated Notes
due June 2002. The net proceeds from the sale of the Notes offered were
approximately $97.5 million after deduction of the underwriting
compensation and certain other estimated expenses. The Corporation used the
net proceeds to repurchase $6.0 million of its outstanding Senior
Subordinated Notes due November 1998 and to reduce outstanding indebtedness
under the bank revolving credit facility.
In the third quarter of fiscal 1997, the Corporation entered into $100
million of forward starting swaps. The swap agreements start on October 31,
1997 and expire on July 15, 1999. The Corporation also entered into $100
million of forward interest rate lock agreements based on a U.S. Treasury
Security maturing in July 1999. The Corporation entered into these
agreements in anticipation of a November 1997 sale of retail receivables
and intends to close these positions on the pricing date of the sale. The
gain or loss which will result from these hedge transactions will be
included in the gain or loss on the sale of receivables recognized in
November 1997.
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 $12 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. On February 14, 1997, a
state law was enacted which will negate the Department's position and will
relieve NFC of the aforementioned Notice of Deficiency.
The Corporation and its subsidiaries are subject to various other claims
arising in the ordinary course of business, and are parties to various
legal proceedings which constitute ordinary routine litigation incidental
to the business of the Corporation and its subsidiaries. In the opinion of
the Corporation's management, none of these proceedings or claims are
material to the business or the financial condition of the Corporation.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Certain statements under this caption constitute "forward-looking statements"
under the Securities Reform Act, which involve risks and uncertainties. Navistar
Financial Corporation's actual results may differ significantly from the results
discussed in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed under the heading
"Business Outlook".
Financing Volume
In the first nine months of fiscal 1997 industry demand for Class 5 through 8
trucks declined approximately 4% compared with the same period of 1996. During
the first nine months of 1997, the Corporation's retail financing acquisitions,
including retail notes and finance and operating leases, were $703 million or
17% lower than the comparable period of fiscal 1996. The decrease is primarily
the result of the lower industry demand and the highly competitive commercial
financing market. 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 1997 compared with 17% during the same period a year ago.
Serviced retail notes and lease financing balances were $2.2 billion at July 31,
1997, October 31, 1996, and July 31, 1996.
During the first nine months of fiscal 1997 and 1996 the Corporation supplied
94% of the wholesale financing of new trucks sold to Transportation's dealers.
Serviced wholesale note balances were $649 million at July 31, 1997, $686
million at October 31, 1996, and $803 million at July 31, 1996. The decrease in
wholesale financing is due to lower dealer inventory levels.
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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Income before income taxes:
Finance operations. . . . . . . . . . . $20.5 $24.7 $54.9 $64.4
Insurance operations. . . . . . . . . . 1.5 1.0 4.2 2.7
Income before taxes. . . . . . . . . 22.0 25.7 59.1 67.1
Taxes on income . . . . . . . . . . . . 8.6 10.1 23.0 26.2
Net income . . . . . . . . . . . . . $13.4 $15.6 $36.1 $40.9
</TABLE>
<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)
During the third quarter of fiscal 1997, the Corporation's pretax income of
$22.0 million was $3.7 million lower than the corresponding period of fiscal
1996. The decrease was due primarily to lower wholesale financing activity which
was the result of lower levels of dealer inventory.
Pretax income during the first nine months of 1997 decreased $8.0 million to
$59.1 million compared to 1996 primarily as a result of lower wholesale
financing activities and lower gains on sales of retail notes partially offset
by lower borrowing costs due to the maturity of high yield fixed rate debt.
Gains on sales of retail notes receivable during the first nine months of 1997
were $13.4 million on $987 million sold compared with gains of $20.2 million on
$985 million sold in the first nine months of 1996. The higher gains in fiscal
1996 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 the
Corporation'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 market interest rates at the
time of the sale, which may be up to six months after the Corporation acquired
the retail notes.
Borrowing costs declined $9.1 million to $53.4 million during the first nine
months of 1997 due to lower wholesale funding requirements and lower borrowing
rates. The Corporation's weighted average interest rate on all debt declined to
6.3% from 6.5% in the first nine months of 1996 primarily due to the maturity of
high fixed rate public debt in June 1996.
The provision for losses decreased $2.9 million to $1.5 million during the first
nine months of 1997 as compared to the same period of fiscal 1996. The lower
provision for losses in 1997 is primarily a result of lower retail financing
activities. The Corporation's allowance for losses as a percentage of serviced
finance receivables was .77%, .74% and .70% at July 31, 1997, October 31, 1996
and July 31, 1996, respectively.
Depreciation and other expenses during the first nine months of 1997 was $14.7
million compared to $5.7 million in the comparable period of 1996. The increase
is primarily the result of a larger investment in equipment under operating
leases.
Harco National Insurance Company ("Harco"), the Corporation's wholly-owned
insurance subsidiary, had pretax income of $4.2 million in the first nine months
of fiscal 1997 up $1.5 million from the first nine months of fiscal 1996. This
increase was primarily due to improved loss experience in Harco's liability
insurance lines, offset in part by lower earned premiums in Harco's physical
damage and liability lines.
<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
The Corporation's operations are substantially dependent upon the production and
sale of Transportation's truck products in the United States. Navistar Financial
has traditionally obtained the funds to provide financing to Transportation's
dealers and retail customers from sales of receivables, commercial paper, short
and long-term bank borrowings, medium and long-term debt issues and equity
capital. The current debt ratings of the Corporation have made bank borrowings
and sales of finance receivables the most economical sources of financing. The
Corporation's insurance operation generates its funds through internal
operations and has no external borrowings.
Operations provided $109.3 million in cash in the first nine months of 1997.
Investment activities provided $264.2 million in cash during this period
principally as a result of the proceeds from sold retail notes offset by the
purchase of retail notes and the maturity of one $100 million tranche of sold
wholesale notes. The cash generated by operations and investing activities was
used to pay dividends of $35.0 million to Transportation and reduce financing
activities by $336.3 million during the nine months ended July 31, 1997.
Retail receivable sales were a significant source of funding in 1997 and 1996.
Through the asset-backed public market, the Corporation has been able to fund
fixed rate retail note receivables at rates offered to companies with investment
grade ratings. During the first nine months of fiscal 1997 and 1996 the
Corporation sold $987 million and $985 million, respectively, of retail notes.
At July 31, 1997, the remaining shelf registration available to NFRRC for
issuance of asset-backed securities was $1.5 billion.
The Corporation has a revolving wholesale note trust that provides for the
continuous sale of eligible wholesale notes on a daily basis. The trust is
funded by securities sold to the public comprised of three $100 million tranches
of investor certificates maturing serially from 1997 to 1999 and a $200 million
tranche maturing in 2004. As of July 31, 1997, $100 million of the tranche
maturing in 1997 has been paid, and the outstanding securities are $400 million.
In July 1997, the Corporation filed a shelf registration to issue an additional
$400 million of investor certificates. In August, the trust issued a $200
million tranche of investor certificates which matures in August 2003.
In May 1997, the Corporation sold $100 million of Senior Subordinated Notes due
June 2002. The net proceeds from the sale of the Notes offered were
approximately $97.5 million after deduction of the underwriting fees and certain
other expenses.
The Corporation has $1,325 million of contractually committed support
facilities, consisting of a $925 million bank revolving credit facility and a
$400 million asset-backed commercial paper ("ABCP") program supported by a bank
liquidity facility. Each of these facilities has a maturity date of March 31,
2001. At July 31, 1997, unused commitments under these facilities were $755
million, of which $112 million provided funding backup for the outstanding
short-term debt. The remaining $643 million, when combined with unrestricted
cash and cash equivalents, made $652 million available to fund the general
business purposes of the Corporation at July 31, 1997.
<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)
The Corporation manages sensitivity to interest rate changes by funding floating
rate assets with floating rate debt, primarily by borrowing under the bank
revolving credit agreement. Fixed rate assets are funded 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. At July 31, 1997, the Corporation was a party to four interest rate
derivative transactions; two forward starting swap agreements and two forward
treasury locks. The Corporation entered into these agreements in anticipation of
a November 1997 sale of retail receivables and intends to close these positions
on the pricing date of the sale. The gain or loss which will result from these
transactions will be included in the gain or loss on the sale of retail
receivables recognized in November 1997.
Under a state law enacted February 14, 1997, the Corporation will be relieved of
any liability under the Notice of Deficiency issued by the Illinois Department
of Revenue ("Department") to the Corporation for the fiscal years 1989 through
1991. See Note 5 to the Consolidated Financial Statements for further
discussion.
Business Outlook
Fiscal 1997 full year demand for combined class 5-8 trucks is anticipated to be
slightly below fiscal 1996 levels. Competition will continue to put pressure on
the Corporation's retail note acquisition activity and retail note margins.
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 1997 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, 1997:
<TABLE>
<S> <C> <C>
Date of Report Date Filed Items Reported
May 27, 1997 June 17, 1997 5, 7
</TABLE>
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 15, 1997 /s/ P. E. Cochran
P. E. Cochran
Vice President and Controller
(Principal Accounting Officer)
<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> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997<F1>
<PERIOD-END> JUL-31-1997
<CASH> 8,900
<SECURITIES> 115,600
<RECEIVABLES> 970,000
<ALLOWANCES> (9,300)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,500
<DEPRECIATION> (7,800)
<TOTAL-ASSETS> 1,517,800
<CURRENT-LIABILITIES> 0
<BONDS> 844,600
0
0
<COMMON> 171,000
<OTHER-SE> 112,100
<TOTAL-LIABILITY-AND-EQUITY> 1,517,800
<SALES> 0
<TOTAL-REVENUES> 62,500
<CGS> 0
<TOTAL-COSTS> 18,900
<OTHER-EXPENSES> 4,200
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 16,700
<INCOME-PRETAX> 22,000
<INCOME-TAX> 8,600
<INCOME-CONTINUING> 13,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,400
<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>
