UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
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
incorporation or organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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__
As of November 30, 1999, 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 INSTRUCTION
I(1) (a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
Year Ended October 31, 1999
INDEX
Page
PART I
Item 1. Business (A).................................................. 1
Item 2. Properties (A)................................................ 1
Item 3. Legal Proceedings............................................. 1
Item 4. Submission of Matters to a Vote of
Security Holders (A).......................................... 1
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters................................... 1
Item 6. Selected Financial Data (A)................................... 1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (A)....................... 2
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 10
Item 8. Financial Statements.......................................... 12
Statement of Financial Reporting Responsibility............... 37
Independent Auditors' Report.................................. 38
Supplementary Financial Data.................................. 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 42
PART III
Item 10. Directors and Executive Officers of the
Registrant (A)................................................. 42
Item 11. Executive Compensation (A)..................................... 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management (A)............................................. 42
Item 13. Certain Relationships and Related
Transactions (A)............................................... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 42
SIGNATURES - Principal Accounting Officer ............................ 43
- Directors................................................ 44
POWER OF ATTORNEY....................................................... 44
INDEX TO EXHIBITS....................................................... E-1
(A)- Omitted or amended as the registrant is a wholly-owned subsidiary of
Navistar International Transportation Corp. and meets the conditions set
forth in General Instructions I(1) (a) and (b) of Form 10-K and is,
therefore, filing this Form with the reduced disclosure format.
<PAGE>
PART I
Item 1. Business
The registrant, Navistar Financial Corporation ("NFC"), was incorporated in
Delaware in 1949 and is a wholly-owned subsidiary of Navistar International
Transportation Corp. ("Transportation"), which is wholly-owned by Navistar
International Corporation ("Navistar"). As used herein, the "Corporation" refers
to Navistar Financial Corporation and its wholly-owned subsidiaries unless the
context otherwise requires.
The Corporation is a commercial financing organization that provides
wholesale, retail and lease financing in the United States for sales of new and
used trucks sold by Transportation and Transportation's dealers. The Corporation
also finances wholesale accounts and selected retail accounts receivable of
Transportation. Sales of new products (including trailers) of other
manufacturers are also financed regardless of whether designed or customarily
sold for use with Transportation's truck products. Harco National Insurance
Company, NFC's wholly-owned insurance subsidiary, provides commercial physical
damage and liability insurance coverage to Transportation's dealers and retail
customers, and to the general public through an independent insurance agency
system.
Item 2. Properties
The Corporation's properties principally consist of office equipment and
leased office space in Rolling Meadows, Illinois; Columbus, Ohio; Duluth,
Georgia; Plano, Texas; Mt. Laurel, New Jersey; and San Ramon, California. The
office equipment owned and in use by the Corporation is not significant in
relation to the total assets of the Corporation.
Item 3. Legal Proceedings
There were no material pending legal proceedings other than ordinary,
routine litigation incidental to the business of the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
Intentionally omitted. See the index page of this Report for explanation.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
See Note 13 to Consolidated Financial Statements.
Item 6. Selected Financial Data
Intentionally omitted. See the index page of this Report for explanation.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Certain statements under this caption, which involve risks and
uncertainties, constitute "forward-looking statements" under the Securities
Reform Act. 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 headings "Year 2000", "Business Outlook" and
"Quantitative and Qualitative Disclosures About Market Risk."
Financing Volume
In response to the continued strong U.S. economy, customer demand for Class
5 through 8 trucks in fiscal 1999 was 19% and 34% higher than 1998 and 1997,
respectively. The strong economy continued to contribute to high liquidity in
the commercial financing markets, which gives the Corporation's customers more
financing alternatives. This continuing, highly competitive financing market has
caused the Corporation to increase marketing efforts for its retail and
wholesale financing products and services and to reduce finance rates offered
during the fiscal year.
Financing support provided to retail customers over the last three years
was as follows:
1999 1998 1997
---- ---- ----
Retail and Lease Financing: ($ millions)
Finance market share of new International
trucks sold in the U.S. 16.4% 16.0% 13.2%
Purchases of receivables and
equipment leased to others $1,526 $1,397 $1,036
Serviced retail notes and lease
financing balances (including
sold notes) at October 31 $3,003 $2,579 $2,253
As a result of the Corporation's higher finance market share and the higher
truck industry demand in 1999, purchases of receivables and equipment leased to
others were 9% above 1998. During fiscal 1999 the serviced portfolio grew 16% to
$3.0 billion. Purchases of receivables and equipment leased to others in 1998
grew 14% above 1997 as a result of the higher finance market share and truck
industry demand.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Financing Volume (continued)
Financing support provided to Transportation's dealers over the last three
years was as follows:
1999 1998 1997
---- ---- ----
Wholesale Financing: ($ millions)
Percent of wholesale financing of
new International trucks sold to
Transportation's dealers in the U.S. 96% 95% 94%
Purchases of receivables $4,188 $3,813 $2,773
Serviced wholesale note balances
(including sold notes) at
October 31 $1,226 $1,039 $691
In spite of the strong liquidity in the commercial financing market, the
Corporation's finance percentage of new International trucks sold to
Transportation's dealers increased slightly to 96% from 95% and 94% in 1998 and
1997, respectively. In response to the strong industry demand, the volume of
receivables purchased in 1999 was 10% higher than 1998 which was 38% higher than
1997.
Results of Operations
The components of net income over the last three years were as follows:
1999 1998 1997
---- ---- ----
Income before income taxes: ($ millions)
Finance operations $96.4 $79.2 $68.6
Insurance operations 5.0 6.0 6.0
----- ----- -----
Income before income taxes 101.4 85.2 74.6
Taxes on income 38.9 32.3 28.9
---- ----- -----
Net income $62.5 $52.9 $45.7
===== ===== =====
Return on average equity 22.1% 18.5% 16.1%
The Corporation's 1999 return on average equity was a record 22.1% in 1999,
compared with 18.5% and 16.1% in 1998 and 1997, respectively. The increase over
1998 was due primarily to higher finance receivable balances, resulting from an
increase in Transportation's sales, and a higher level of average outstanding
accounts payable to affiliates which proportionately lowered debt levels and
interest expense. This was offset, in part, by a higher provision for losses,
higher costs to service the larger portfolio, and the competitive commercial
financing market which continued to put pressure on retail and wholesale finance
margins. The 1998 increase over 1997 is primarily due to the higher level of
wholesale and retail financing, partially offset by lower financing margins and
higher costs to service the larger portfolio.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations - Finance Operations:
Retail note and lease financing revenue for 1999 was $161 million compared
with $136 million and $106 million in 1998 and 1997, respectively. The 18%
growth in fiscal 1999 is due to higher retail financing activities and continued
growth in lease financing, offset in part by lower yields. Included in retail
note and lease financing revenue is operating lease revenue of $62 million, $46
million and $29 million in 1999, 1998 and 1997, respectively. The higher
operating lease revenue is the result of an increase in vehicles under operating
leases due to a market shift toward lease financing. For operating leases, the
Corporation recognizes the entire lease payment as revenue and records
depreciation expense on the assets under lease. Also included in retail note and
lease finance revenue are gains on sales of retail note receivables of $12
million, $15 million and $13 million in 1999, 1998 and 1997, respectively. The
lower gains on sales of retail note receivables in fiscal 1999 resulted from
lower retail note margins and increased credit spreads in the capital market.
In fiscal 1999 wholesale note revenue increased 45% to $63 million versus
1998, primarily as a result of the higher level of wholesale financing activity,
offset in part by lower yields in response to the lower average prime interest
rate in 1999 and the competitive commercial financing market. Wholesale note
revenue increased 20% in 1998 to $43 million as a result of the higher level of
wholesale financing activity, offset in part by lower yields in response to
competitive commercial financing market.
Borrowing costs increased 7% in 1999 to $95 million from $88 million in
1998 primarily due to higher average receivable funding requirements, offset in
part by a higher level of average outstanding accounts payable to affiliates and
lower average interest rates. The higher level of average outstanding accounts
payable to affiliates reduced debt levels and resulted in a reduction in
borrowing costs of $13 million for fiscal year 1999. The Corporation's weighted
average interest rate on all debt was 5.6% in 1999 and 6.4% in 1998 and 1997.
The decrease in the Corporation's weighted average interest rate is primarily a
result of the decrease in market interest rates and a lower outstanding
subordinated term debt balance. Borrowing costs increased 21% in 1998 to $88
million from $73 million in 1997 primarily due to higher average receivable
funding requirements. The ratio of debt to equity was 6.1:1, 5.8:1, and 4.3:1 at
October 31, 1999, 1998 and 1997, respectively.
Credit, collection and administrative expenses increased to $43 million in
1999 from $36 million and $31 million in 1998 and 1997, respectively. The
increase in 1999 compared with 1998 and 1997 was primarily due to higher costs
to service the larger portfolio and costs associated with year 2000 initiatives.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations - Finance Operations (continued)
The provision for losses on receivables totaled $6 million in 1999 compared
with $1 million in 1998 and $3 million in 1997. The increase in 1999 compared to
1998 is primarily due to a non-recurring loss recovery in 1998 and the increase
in serviced finance receivable balances. Notes and account write-offs, net of
recoveries, including sold notes, were $5 million in 1999, less than one million
in 1998 and $2 million in 1997. The Corporation's allowance for losses as a
percentage of serviced finance receivables was .55%, .64% and .72% at October
31, 1999, 1998 and 1997, respectively.
Depreciation and other expenses in 1999 increased to $44 million from $30
million in 1998 and $19 million in 1997. The increase is primarily the result of
a larger investment in equipment under operating leases.
Insurance Operations:
Harco National Insurance Company's ("Harco") pretax income was $5 million
in 1999 and $6 million in both 1998 and 1997. Harco's gross premiums written in
1999 were $47 million, consistent with 1998 and 2% below 1997. The insurance
industry continues to be over capitalized which results in a highly competitive
market and places pressure on Harco's volume and margins. The ratio of losses to
earned premiums was 72% during 1999, compared to 70% in 1998 and 1997.
Liquidity and Funds Management
The Corporation 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
and equity capital. The Corporation's current debt ratings have made sales of
finance receivables the most economical source of funding. The Corporation's
insurance operation generates its funds through internal operations and has no
external borrowings.
In May 1999, Moody's and Duff and Phelps raised the Corporation's senior
debt ratings from Ba1 and BBB- to Baa3 and BBB, respectively, while also raising
the subordinated debt ratings from Ba3 and BB+ to Ba2 and BBB-, respectively. In
January 1998, Standard and Poors raised the Corporation's senior debt ratings
from BB to BB+, while the subordinated debt ratings were also raised from B+ to
BB-.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Liquidity and Funds Management (continued)
Operations provided $654 million of cash in 1999 primarily as a result of
an increase in accounts payable to affiliates. The cash provided by operations
was used primarily for investing activities of $637 million, of which $410
million supported wholesale note and account financing, and to pay dividends of
$60 million. Financing activities, excluding dividends, provided $68 million.
During 1999, the purchase of $1,526 million of retail receivables and equipment
leased to others was funded primarily with $1,192 million of proceeds from the
sale of receivables, principal collections on retail notes and lease receivables
of $88 million, and $68 million net increase in total debt. See also the
"Statements of Consolidated Cash Flow" on page 14.
Over the last three years, operations provided an aggregate of $864 million
in cash and proceeds from the sale of retail receivables totaled $3,102 million.
These amounts were used principally to fund the purchase of finance receivables
and equipment leased to others of $3,661, net of principal collections on the
receivables, and to pay dividends of $157 million.
Receivable sales were a significant source of funding in 1999, 1998 and
1997. Through the asset-backed public market and private placement sales, the
Corporation has been able to fund fixed rate retail note receivables at rates
offered to companies with investment grade ratings. During fiscal 1999, in two
separate sales, the Corporation sold a total of $1,260 million of retail notes,
net of unearned finance income, through Navistar Financial Retail Receivables
Corporation ("NFRRC"), a wholly owned subsidiary of the Corporation. The
Corporation sold $545 million of retail notes in November 1998 to a multi-seller
asset-backed commercial paper conduit sponsored by a major financial institution
and $715 million of retail notes in June 1999 to an owner trust which, in turn,
issued securities which were sold to investors. During fiscal 1998 and 1997, the
Corporation sold $1,001 and $987 million, respectively, of retail notes, through
"NFRRC", to owner trusts, which in turn, issued securities which were sold to
investors. The aggregate shelf registration available to NFRRC for issuance of
asset-backed securities is $2,257 million.
At October 31, 1999, Navistar Financial Securities Corporation ("NFSC"), a
wholly-owned subsidiary of the Corporation, had a revolving wholesale note trust
that provides for the funding of $600 million of wholesale notes. All eligible
wholesale notes are sold to the trust through NFSC. During 1999, a $100 million
tranche of investor certificates matured. As of October 31, 1999, the trust is
comprised of three $200 million tranches of investor certificates maturing in
2003, 2004 and 2008.
During fiscal 1999, 1998 and 1997, the Corporation entered into
sale/leaseback agreements involving vehicles subject to retail finance leases
and operating leases with end users. Total proceeds were $160 million, $144
million and $111 million in 1999, 1998 and 1997, respectively. The outstanding
capital lease obligations at October 31, 1999 were $323 million.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Liquidity and Funds Management (continued)
The Corporation has a $925 million bank revolving credit facility and a
$400 million asset-backed commercial paper ("ABCP") program supported by a bank
liquidity facility, which mature in March 2001. See Note 10 to the Consolidated
Financial Statements for further discussion.
As of October 31, 1999, available funding under the bank revolving credit
facility and the ABCP program was $87 million, of which $35 million provided
funding backup for the outstanding short-term debt. The remaining $52 million,
when combined with unrestricted cash and cash equivalents, made $90 million
available to fund the general business purposes of the Corporation.
The Corporation manages its exposure to fluctuations in interest rates by
limiting the amount of fixed rate assets funded with variable rate debt
generally by selling fixed rate receivables on a fixed rate basis and by
utilizing derivative financial instruments. These derivative financial
instruments may include forward contracts, interest rate swaps and interest rate
caps.
As of October 31, 1999, the Corporation had a total of $500 million of
forward interest rate contracts outstanding in anticipation of a November 1999
sale of retail receivables and a $75 million forward starting swap contract in
anticipation of a March 2000 sale of retail receivables. These forward contracts
were entered into to reduce exposure to future changes in interest rates. The
Corporation closes the forward contract positions on the pricing date of the
sale and any gain or loss is included in the gain on the sale of receivables.
The unrealized loss was immaterial at October 31, 1999.
In November 1998, the Corporation sold fixed rate retail receivables to a
multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution on a variable rate basis. For the protection of investors,
the Corporation issued an interest rate cap. The notional amount of the cap
amortizes based on the expected outstanding principal balance of the sold retail
receivables. Under the terms of the cap agreement, the Corporation will make
payments if interest rates exceed certain levels. As of October 31, 1999 the cap
had a notional amount of $374 million and a fair value of $1 million.
In November 1999, the Corporation sold $533 million of retail notes, net of
unearned finance income, through NFRRC to two multi-seller asset-backed
commercial paper conduits sponsored by a major financial institution. A $2
million gain will be recognized in fiscal year 2000. Lower retail note margins
and increased credit spreads in the capital market have reduced the realized
gains on sales of receivables in fiscal 1999 and 2000.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Year 2000
The Corporation has identified all significant information technology
("IT") applications that required remediation, which in some cases involved the
replacement of systems, to ensure Year 2000 compliance. Internal and external
resources were used to make the required modifications and to test for Year 2000
compliance. As of November 30, 1999, the Corporation is 100% complete with the
modifications and testing process of all significant IT systems. Total costs
connected with the remediation of the Corporation's significant IT systems
totaled $2 million in 1999, $3 million in 1998 and $1 million in 1997.
Approximately 25% of the total costs, representing investment in purchased IT
systems, were capitalized and will be depreciated over three to five years. The
total cost of the Year 2000 project has not had nor is it anticipated to have a
material impact on the Corporation's financial position or results of operations
and has been funded through operating cash flows.
While certain aspects of the Corporation's businesses could operate on a
manual basis for a period of time, in the event the Corporation experiences
interruptions due to the transition to the Year 2000, the Corporation currently
believes that the most reasonably likely worst case scenario would be the
inability to sustain its current level of performance and customer service.
Additionally, a significant failure of the banking systems or key entities in
the financial markets could adversely affect the Corporation's ability to access
various credit and money markets.
The Corporation has received written assurances from its significant
suppliers of cash management services that they will be able to operate in the
Year 2000 and beyond, without interruption in service. While the Corporation
believes that it does not have significant exposure to other significant
suppliers' Year 2000 problems, it has collected compliance assurances from such
other significant suppliers.
As part of its continuous assessment process, the Corporation has prepared
contingency plans for critical business processes that will be placed into
effect in the event of a Year 2000 problem. These plans identify when contingent
actions should be taken and identify the resources necessary for a proper
response. Review and testing of the contingency plans will continue through the
remainder of 1999, along with the necessary training of people that will manage
through the crossover into the Year 2000.
Checklists have been established for each of the contingency plans, against
which status will be measured as the crossover occurs. The first priority will
be to determine that computing platforms, data base management systems and
communication networks for both voice and data are functioning properly.
Immediately following, a series of production applications have been scheduled
to run, with the objective being to quickly identify any remaining Year 2000
problems, and to initiate corrective actions promptly.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Year 2000 (continued)
A Year 2000 command center structure has been established to facilitate the
management of activities and communications. Staffing has been identified, along
with the procedures to manage the implementation of the defined pre and post
- -Year 2000 activities.
The Corporation is using its best efforts to ensure that the Year 2000
impact on its critical systems and processes will not affect its level of
performance and customer service. However, in the event that the Corporation is
unable to implement adequate contingency plans in the event problems arise,
there could be a material adverse effect on the Corporation's business,
financial position or results of operations.
New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Development or Obtained for Internal Use." This statement defines whether or not
certain costs related to the development or acquisition of internal use software
should be expensed or capitalized and is effective for fiscal years beginning
after December 15, 1998. The company will adopt this statement effective
November 1, 1999. At planned fiscal year 2000 spending levels, adoption of this
statement will not have a material impact on the results of operations,
financial condition and cash flow.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," to
establish accounting and reporting standards for derivative instruments. This
statement requires recognition of all derivative instruments in the statement of
financial condition as either assets or liabilities, measured at fair value.
This statement additionally requires changes in the fair value of derivatives to
be recorded each period in current earnings or comprehensive income, depending
on the intended use of the derivatives. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," which amends SFAS 133 by
deferring its effective date for one year, to those fiscal years beginning after
June 15, 2000. The Corporation is currently assessing the impact of these
statements on its results of operations, financial condition and cash flow.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Business Outlook
The truck industry in 2000 is forecasted to decrease approximately 13% from
1999. The competitive commercial financing market will continue to put pressure
on the Corporation's retail and wholesale financing activity and margins.
Increased volatility in the capital markets is likely to put additional pressure
on the funding rates offered to the Corporation in the asset-backed public
market, commercial paper markets and other debt financing markets.
Management believes that collections on the outstanding receivables
portfolio plus cash 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 2000 and beyond.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Corporation is exposed to market risk primarily due to fluctuations in
interest rates. Interest rate risk arises from the funding of a portion of the
Corporation's fixed rate receivables with floating rate debt and from the
Corporation's investment in fixed income securities. The Corporation has managed
exposure to interest rate changes by funding floating rate receivables with
floating rate debt and fixed rate receivables with fixed rate debt, floating
rate debt and equity capital. Management has reduced the net exposure which
results from the funding of fixed rate receivables with floating rate debt by
generally selling fixed rate receivables on a fixed rate basis and by utilizing
derivative financial instruments. The Corporation does not use derivative
financial instruments for trading purposes.
The Corporation maintains investments in marketable securities. The
securities are classified as available for sale and are recorded on the
Statements of Consolidated Financial Condition at fair value with unrealized
gains or losses reported as a separate component of shareowner's equity, net of
applicable deferred taxes. As of October 31, 1999, the fair value of the
Corporation's marketable securities portfolio was $102 million, consisting of
$81 million invested in debt securities and $21 million invested in equity
securities.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(continued)
The Corporation measures its interest rate risk by estimating the net
amount by which the fair value of all interest rate sensitive assets and
liabilities, including derivative financial instruments, would be impacted by
selected hypothetical changes in market interest rates. Assuming a hypothetical
10% increase in interest rates as of October 31, 1999, the estimated net fair
asset value would decrease by approximately $5 million.
Equity price risk arises when the Corporation could incur economic losses
due to adverse changes in a particular stock index or price. The Corporation's
investments in equity securities are exposed to equity price risk and the fair
value of the portfolio is correlated to the S&P 500. Management estimates that
an immediate 10% change in the S&P 500 would affect the fair value of its equity
securities by approximately $2 million.
<PAGE>
Item 8. Financial Statements and Supplementary Data Page
Navistar Financial Corporation and Subsidiaries:
Consolidated Financial Statements:
Statements of Consolidated Income and Retained Earnings
for the years ended October 31, 1999, 1998 and 1997............. 13
Statements of Comprehensive Income for the years
ended October 31, 1999, 1998 and 1997........................... 13
Statements of Consolidated Financial Condition as of
October 31, 1999 and 1998 ...................................... 14
Statements of Consolidated Cash Flow for the years ended
October 31, 1999, 1998 and 1997................................. 15
Notes to Consolidated Financial Statements......................... 16
Statement of Financial Reporting Responsibility....................... 37
Independent Auditors' Report.......................................... 38
Supplementary Financial Data.......................................... 39
<PAGE>
Navistar Financial Corporation and Subsidiaries
------------------------------------------------------------------------------
Statements of Consolidated Income and Retained Earnings
------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
For the years ended October 31 1999 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Retail notes and lease financing.......... $161.3 $135.8 $105.8
Wholesale notes........................... 62.8 43.3 36.1
Accounts.................................. 35.6 33.3 31.2
Servicing fee income...................... 23.8 21.6 20.0
Insurance premiums earned................. 35.7 32.3 33.3
Marketable securities..................... 8.8 9.6 8.5
------ ------ ------
Total................................. 328.0 275.9 234.9
------ ------ ------
Expenses
Cost of borrowing:
Interest expense...................... 88.6 81.0 65.9
Other................................. 6.1 7.1 7.0
------ ------ ------
Total................................. 94.7 88.1 72.9
Credit, collection and administrative..... 42.5 36.1 31.0
Provision for losses on receivables....... 6.2 0.8 2.5
Insurance claims and underwriting......... 39.1 35.6 35.1
Depreciation expense and other............ 44.1 30.1 18.8
------ ------ ------
Total................................. 226.6 190.7 160.3
------ ------ ------
Income Before Taxes............................ 101.4 85.2 74.6
Taxes on Income................................ 38.9 32.3 28.9
------ ------ ------
Net Income..................................... 62.5 52.9 45.7
Retained Earnings
Beginning of year......................... 109.0 113.1 107.4
Dividends paid............................ (60.3) (57.0) (40.0)
------ ------ ------
End of year............................... $111.2 $109.0 $113.1
====== ====== ======
Statements of Comprehensive Income
- -------------------------------------------------------------------------------
For the years ended October 31 1999 1998 1997
----------------------------------------------------------------------------
Net Income..................................... $ 62.5 $ 52.9 $ 45.7
Other comprehensive (loss) income, net of tax:
Unrealized (losses)gains on marketable
securities (net of tax of $(1.9),
$(0.7) and $1.5).......................... (3.2) (1.2) 2.4
Minimum pension liability adjustment
(net of tax of $(0.1), $(0.6) and $0.0)... (0.2) (1.0) 0.0
------ ------ ------
Other comprehensive (loss) income, net of tax.. (3.4) (2.2) 2.4
------ ------ ------
Comprehensive Income........................... $ 59.1 $ 50.7 $ 48.1
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Statements of Consolidated Financial Condition
- -------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
As of October 31 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents...............................$ 38.6 $ 14.1
Marketable Securities................................... 101.7 108.0
Receivables
Finance receivables................................ 2,075.9 1,523.7
Allowance for losses............................... (13.4) (12.8)
-------- --------
Receivables, net............................... 2,062.5 1,510.9
Amounts Due from Sales of Receivables................... 244.5 245.9
Equipment on Operating Leases, Net...................... 266.7 217.7
Repossessions........................................... 21.0 14.4
Other Assets............................................ 114.1 101.9
-------- --------
Total Assets............................................$2,849.1 $2,212.9
======== ========
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Debt.........................................$ 34.5 $ 21.8
Net Accounts Payable to Affiliates...................... 706.9 136.8
Other Liabilities....................................... 49.5 57.1
Senior and Subordinated Debt............................ 1,675.8 1,611.2
Dealers' Reserves....................................... 24.2 24.0
Unpaid Insurance Claims and Unearned Premiums........... 77.9 80.5
Commitments and Contingencies........................... - -
Shareowner's Equity
Capital stock (Par value $1.00, 1,600,000 shares
issued and outstanding) and paid-in capital... 171.0 171.0
Retained earnings.................................... 111.2 109.0
Accumulated other comprehensive (loss) income...... (1.9) 1.5
-------- --------
Total.......................................... 280.3 281.5
-------- --------
Total Liabilities and Shareowner's Equity...............$2,849.1 $2,212.9
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Statements of Consolidated Cash Flow
- -------------------------------------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
For the years ended October 31 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow From Operations
Net income.................................. $ 62.5 $ 52.9 $ 45.7
Adjustments to reconcile net income to
cash provided from operations:
Gains on sales of receivables............. (11.5) (15.3) (13.4)
Depreciation and amortization............. 47.1 35.4 22.5
Provision for losses on receivables....... 6.2 0.8 2.5
Increase in accounts payable
to affiliates........................... 570.1 5.3 107.0
Other..................................... (20.8) (10.5) (22.3)
------- ------- -------
Total.............................. 653.6 68.6 142.0
------- ------- -------
Cash Flow From Investing Activities
Proceeds from sold retail notes............. 1,191.6 952.6 958.2
Purchase of retail notes and
lease receivables.........................(1,417.2) (1,262.8) (969.7)
Principal collections on retail notes and
lease receivables....................... 88.1 116.4 93.8
Acquisitions over cash collections of
wholesale notes and accounts receivable. (410.3) (105.8) (59.9)
Purchase of marketable securities........... (53.1) (43.1) (65.3)
Proceeds from sales and maturities of
marketable securities................... 57.1 50.3 84.8
Purchase of equipment leased to others...... (108.7) (134.2) (66.3)
Sale of equipment leased to others.......... 15.2 8.9 23.8
------- ------- -------
Total.............................. (637.3) (417.7) (0.6)
------- ------- -------
Cash Flow From Financing Activities
Net increase (decrease) in short-term debt.. 12.7 (119.2) 41.6
Net increase (decrease) in bank
revolving credit facility usage......... 25.0 422.0 (311.0)
Net increase (decrease) in asset-backed
commercial paper facility usage......... 4.4 6.0 (15.3)
Principal payments on long-term debt........ (133.3) (43.6) (21.6)
Proceeds from long-term debt................ 159.7 144.3 208.9
Dividends paid to Transportation............ (60.3) (57.0) (40.0)
------- ------- -------
Total.............................. 8.2 352.5 (137.4)
------- ------- -------
Increase in Cash and Cash Equivalents............ 24.5 3.4 4.0
Cash and Cash Equivalents at Beginning of Year... 14.1 10.7 6.7
------- ------- -------
Cash and Cash Equivalents at End of Year......... $ 38.6 $ 14.1 $ 10.7
======= ======= =======
Supplementary disclosure of cash flow information:
Interest paid............................... $ 92.3 $ 80.4 $ 59.7
Income taxes paid........................... $ 39.4 $ 36.4 $ 23.8
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1999
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Navistar
Financial Corporation ("NFC") and its wholly-owned subsidiaries ("Corporation").
All significant intercompany accounts and transactions have been eliminated. All
of the Corporation's capital stock is owned by Navistar International
Transportation Corp. ("Transportation"), which is wholly-owned by Navistar
International Corporation ("Navistar").
Nature of Operations
The Corporation is a commercial financing organization that provides
retail, wholesale and lease financing of products sold by Transportation and its
dealers within the United States. The Corporation also provides commercial
physical damage and liability insurance coverage to Transportation's dealers and
retail customers and to the general public through an independent insurance
agency system.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue on Receivables
Revenue from finance receivables is recognized using the interest method.
Revenue on operating leases is recognized on a straight-line basis over the life
of the lease. Recognition of revenue is suspended when management determines the
collection of future income is not probable. Income recognition is resumed if
collection doubts are removed.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Allowance for Losses on Receivables
The allowance for losses on receivables is established through a charge to
the provision for losses. The allowance is an estimate of the amount required to
absorb losses on existing receivables that may become uncollectible. The
allowance is maintained at an amount management considers appropriate in
relation to the outstanding receivables portfolio based on such factors as
overall portfolio quality, historical loss experience and current economic
conditions.
Under various agreements, Transportation and its dealers may be liable for
a portion of customer losses or may be required to repurchase the repossessed
collateral at the receivable principal value. The Corporation's losses are net
of these benefits. Receivables are charged off to the allowance for losses when
the receivable is determined to be uncollectible.
Receivable Sales
The Corporation securitizes and sells receivables to public and private
investors with limited recourse. The Corporation continues to service the
receivables, for which a servicing fee is received. Servicing fees are earned on
a level yield basis over the terms of the related sold receivables and are
included in servicing fee income. Gains or losses on sales of receivables are
credited or charged to financing revenue in the period in which the sales occur.
An adequate allowance for credit losses is provided prior to the receivable
sales.
Insurance Operations
Insurance premiums written by the Corporation's wholly-owned insurance
subsidiary, Harco National Insurance Company ("Harco"), are earned on a pro rata
basis over the terms of the policies. Commission costs and premium taxes
incurred in acquiring business are deferred and amortized on the same basis as
related premiums are earned. The liability for unpaid insurance claims includes
provisions for reported claims and an estimate of unreported claims based on
past experience. Such provisions include an estimate of loss adjustment expense.
The estimated liability for unpaid insurance claims is regularly reviewed and
updated. Any change in such estimate is reflected in current operations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Insurance Operations (continued)
Harco limits its exposure on any single loss occurrence by ceding
reinsurance to other insurance enterprises. Reinsurance receivables, including
amounts related to unpaid insurance claims and prepaid reinsurance premiums, are
reported as other assets in the Statements of Consolidated Financial Condition.
Income Taxes
Navistar and its subsidiaries file a consolidated federal income tax
return, which includes Transportation and the Corporation. Federal income taxes
for the Corporation are computed on a separate consolidated return basis and are
payable to Transportation.
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and marketable
securities with original maturities of three months or less, except for such
securities held by the insurance operations which are included in marketable
securities.
Marketable Securities
Marketable securities are classified as available-for-sale and are reported
at fair value. The difference between amortized cost and fair value is recorded
as an adjustment to accumulated other comprehensive income, net of applicable
deferred taxes. The fair value of marketable securities is based on quoted
market prices, when available. If a quoted price is not available, fair value is
estimated using quoted market prices for similar financial instruments.
Derivative Financial Instruments
All derivative financial instruments, such as forward contracts, interest
rate swaps and interest rate caps, are held for purposes other than trading. The
Corporation's policy prohibits the use of derivative financial instruments for
speculative purposes. The Corporation generally uses derivative financial
instruments to reduce its exposure to interest rate volatility.
The Corporation may use forward contracts to hedge the fair value of its
fixed rate receivables against changes in market interest rates in anticipation
of the sale of such receivables. The principal balance of receivables expected
to be sold by the Corporation equals or exceeds the notional amount of open
forward contracts. The Corporation may use interest rate swaps to reduce
exposure to interest rate changes when it sells fixed rate receivables on a
variable rate basis. Gains or losses incurred with the closing of forward
contracts and interest rate swaps are included in the net gain or loss on sale
of receivables.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Derivative Financial Instruments (continued)
For the protection of investors, the Corporation may write interest rate
caps when fixed rate receivables are sold on a variable rate basis. The
Corporation will make payments under the terms of the written caps if interest
rates exceed certain levels. The written caps are recorded at fair value with
subsequent changes in fair value recognized in income.
New Accounting Standards
Effective November 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income and its
components. Financial statements for prior periods have been reclassified as
required by this statement.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Development or Obtained for Internal Use." This statement defines whether or not
certain costs related to the development or acquisition of internal use software
should be expensed or capitalized and is effective for fiscal years beginning
after December 15, 1998. The company will adopt this statement effective
November 1, 1999. At planned fiscal year 2000 spending levels, adoption of this
statement will not have a material impact on the results of operations,
financial condition and cash flow.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," to
establish accounting and reporting standards for derivative instruments. This
statement requires recognition of all derivative instruments in the statement of
financial condition as either assets or liabilities, measured at fair value.
This statement additionally requires changes in the fair value of derivatives to
be recorded each period in current earnings or comprehensive income, depending
on the intended use of the derivatives. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," which amends SFAS 133 by
deferring its effective date for one year, to those fiscal years beginning after
June 15, 2000. The Corporation is currently assessing the impact of these
statements on its results of operations, financial condition and cash flow.
Reclassification
Certain prior year amounts have been reclassified to conform with the
presentation used in the 1999 financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
2. TRANSACTIONS WITH AFFILIATED COMPANIES
Wholesale Notes, Wholesale Accounts and Retail Accounts
In accordance with the agreements between the Corporation and
Transportation relating to financing of wholesale notes, wholesale accounts and
retail accounts, the Corporation receives interest income from Transportation at
agreed upon interest rates applied to the average outstanding balances less
interest amounts paid by dealers on wholesale notes and wholesale accounts. The
Corporation purchases wholesale notes and accounts from Transportation at the
principal amount of the receivables. Revenue collected from Transportation was
$71.5 in 1999, $67.2 in 1998 and $54.7 in 1997.
Retail Notes and Lease Financing
In accordance with agreements between the Corporation and Transportation,
Transportation may be liable for certain losses on the finance receivables and
may be required to repurchase the repossessed collateral at the receivable
principal value. Losses recorded by Transportation were $3.5 in 1999, $10.7 in
1998 and $10.1 in 1997.
Support Agreements
Under provisions of certain public and private financing arrangements,
agreements with Transportation and Navistar provide that the Corporation's
consolidated income before interest expense and income taxes will be maintained
at not less than 125% of its consolidated interest expense. No income
maintenance payments were required during the three-year period ended October
31, 1999.
Administrative Expenses
The Corporation pays a fee to Transportation for data processing and other
administrative services based on the actual cost of services performed.
The amount of the fee was $2.6 in 1999 and 1998 and $2.1 in 1997.
Accounts Payable
Accounts payable to affiliates, which are obligated to be repaid upon
request, were $706.9, $136.8 and $131.5 at October 31, 1999, 1998 and 1997,
respectively. The higher level of average outstanding accounts payable to
affiliates reduced debt levels and resulted in a reduction in borrowing costs of
$12.5 for fiscal 1999. The reduction in borrowing costs for fiscal 1998 and 1997
was not material.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
3. INDUSTRY SEGMENTS
Effective November 1, 1998, the Corporation adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Segment
data for 1998 and 1997 has been restated. Under the provisions of the new
standard, the Corporation has two reportable segments: finance and insurance.
Information by industry segment is summarized as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Revenues:
Finance operations....................$ 283.8 $ 234.3 $ 193.5
Insurance operations.................. 44.2 41.6 41.4
------- ------- -------
Total revenues......................$ 328.0 $275.9 $ 234.9
======= ======= =======
Income before taxes:
Finance operations....................$ 96.4 $ 79.2 $ 68.6
Insurance operations.................. 5.0 6.0 6.0
------- ------- -------
Total income before taxes........$ 101.4 $ 85.2 $ 74.6
======= ======= =======
Assets at end of year:
Finance operations....................$2,707.1 $2,067.0 $1,659.3
Insurance operations.................. 142.0 145.9 151.3
------- ------- -------
Total assets at end of year.........$2,849.1 $2,212.9 $1,810.6
======= ======= =======
4. MARKETABLE SECURITIES
The following table sets forth, by type of security, the amortized cost and
estimated fair values at October 31:
1999 1998
---------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------
U.S. government and
agency securities...................$ 23.7 $ 23.4 $ 21.7 $ 23.2
Mortgage and
asset-backed securities............. 31.7 31.3 38.2 38.7
Corporate debt and other securities..... 26.5 26.4 28.4 28.6
------- ------- ------- -------
Total debt securities............... 81.9 81.1 88.3 90.5
Equity securities....................... 20.8 20.6 15.6 17.5
------- ------- ------- -------
Total...............................$ 102.7 $ 101.7 $ 103.9 $ 108.0
======= ======= ======= =======
Net unrealized gains and (losses) on marketable securities were $(1.0) and
$4.1 at October 31, 1999 and 1998, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. MARKETABLE SECURITIES (continued)
Contractual maturities of marketable debt securities at October 31, 1999
are as follows:
Amortized Fair
Cost Value
- -------------------------------------------------------------------------------
Due in one year or less................................. $ 7.1 $ 7.1
Due after one year through five years................... 27.4 27.4
Due after five years through ten years.................. 8.5 8.4
Due after ten years..................................... 7.2 6.9
------ ------
50.2 49.8
Mortgage- and asset-backed securities................... 31.7 31.3
------ ------
Total debt securities............................... $81.9 $81.1
====== ======
Actual maturities may differ from the contractual maturities because of
prepayments.
Proceeds from sales or maturities of marketable securities available for
sale were $57.1 during 1999 and $50.3 during 1998. The related net realized
gains were $3.2 and $3.3 in 1999 and 1998, respectively.
All marketable securities at October 31, 1999 and 1998 were held by Harco,
of which $10.6 and $12.6, respectively, were on deposit with various state
departments of insurance or otherwise restricted as to use.
5. FINANCE RECEIVABLES
Finance receivable balances, net of unearned finance income, at October 31
are summarized as follows:
1999 1998
- -------------------------------------------------------------------------------
Retail notes and lease financing........................ $1,039.7 $915.9
Wholesale notes......................................... 528.7 224.9
Accounts:
Retail............................................. 437.7 312.9
Wholesale.......................................... 69.8 70.0
-------- --------
Total.......................................... 507.5 382.9
-------- --------
Total finance receivables................. $2,075.9 $1,523.7
======== ========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (continued)
Contractual maturities of finance receivables including unearned finance
income at October 31, 1999, are summarized as follows:
Retail Wholesale Accounts
- --------------------------------------------------------------------------------
Due in fiscal year:
2000 ................................ $ 313.5 $ 336.8 $ 507.5
2001 ................................ 251.0 191.9 -
2002 ................................ 244.8 - -
2003 ................................ 188.3 - -
2004 ................................ 147.7 - -
Due after 2004............................. 48.8 - -
-------- ------- -------
Gross finance receivables........... 1,194.1 528.7 507.5
Unearned finance income.................... 154.4 - -
-------- ------- -------
Total finance receivables........... $1,039.7 $ 528.7 $ 507.5
======== ======= =======
The actual cash collections from finance receivables may vary from the
contractual cash flows because of sales, prepayments, extensions and renewals.
The contractual maturities, therefore, should not be regarded as a forecast of
future collections.
The Corporation's primary business is to provide wholesale, retail and
lease financing for new and used trucks sold by Transportation and
Transportation's dealers, and as a result the Corporation's receivables and
leases have significant concentration in the trucking industry. On a geographic
basis, there is not a disproportionate concentration of credit risk in any area
of the United States. The Corporation retains as collateral a security interest
in the equipment associated with wholesale notes, retail notes and leases.
The Corporation sells finance receivables to public and private investors
with limited recourse provisions. Outstanding sold receivable net balances at
October 31 are as follows:
1999 1998
- -------------------------------------------------------------------------------
Retail notes....................................... $1,696.0 $1,445.4
Wholesale notes.................................... 600.0 700.0
-------- --------
Total......................................... $2,296.0 $2,145.4
======== ========
The Corporation has two wholly-owned subsidiaries, Navistar Financial
Retail Receivables Corporation ("NFRRC") and Navistar Financial Securities
Corporation ("NFSC"), which have a limited purpose of purchasing retail and
wholesale receivables, respectively, and transferring an undivided ownership
interest in such notes to investors.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (continued)
During fiscal 1999, in two separate sales, the Corporation sold a total of
$1,260 of retail notes, net of unearned finance income, through NFRRC. The
Corporation sold $545 of retail notes in November 1998 to a multi-seller
asset-backed commercial paper conduit sponsored by a major financial institution
and $715 of retail notes in June 1999 to an owner trust which, in turn, issued
securities which were sold to investors. The aggregate shelf registration
available to NFRRC for issuance of asset-backed securities is $2,257.
At October 31, 1999, NFSC has in place a revolving wholesale note trust
that provides for the funding of $600 of wholesale notes. During 1999, a $100
tranche of investor certificates matured. As of October 31, 1999 the trust is
comprised of three $200 tranches of investor certificates maturing in 2003, 2004
and 2008.
NFRRC and NFSC have limited recourse on the sold receivables and their
assets are available to satisfy the claims of their creditors prior to such
assets becoming available to the Corporation or affiliated companies. The terms
of receivable sales require the Corporation to maintain cash reserves with the
trusts and conduits as credit enhancement. The use of cash reserves held by the
trusts and conduits is restricted under the terms of the securitized sales
agreements. The maximum exposure under all receivable sale recourse provisions
at October 31, 1999 was $257.3; however, management believes the recorded
reserves for losses are adequate.
The following is a summary of amounts included in Amounts Due from Sales of
Receivables as of October 31:
1999 1998
- -------------------------------------------------------------------------------
Cash held and invested by trusts.......................... $111.6 $100.4
Subordinated retained interests in wholesale receivables.. 96.8 114.5
Subordinated retained interests in retail receivables..... 41.4 34.9
Interest only receivables................................. 7.5 8.7
Allowance for credit losses............................... (12.8) (12.6)
------ ------
Total................................................ $244.5 $245.9
====== ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
6. INVESTMENT IN OPERATING LEASES
Operating leases at year-end were as follows:
1999 1998
- -------------------------------------------------------------------------------
Investment in operating leases:
Vehicles and other equipment, at cost.............. $353.7 $271.1
Less: Accumulated depreciation.................... (87.0) (53.4)
------ ------
Net investment in operating leases.............. $266.7 $217.7
====== ======
Future minimum rentals on operating leases are as follows: 2000, $67.7;
2001, $57.7; 2002, $44.4; 2003, $27.3; 2004, $10.6; and $1.8 thereafter. Each of
these assets is depreciated on a straight-line basis over the term of the lease
in an amount necessary to reduce the leased vehicle to its estimated residual
value at the end of the lease term.
7. ALLOWANCE FOR LOSSES
The allowance for losses on receivables is summarized as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Total allowance for losses at beginning of year....... $25.4 $24.5 $24.0
Provision for losses.................................. 6.2 0.8 2.5
Net (losses) recoveries (charged)
credited to allowance............................ (5.4) 0.1 (2.0)
----- ----- -----
Total allowance for losses at end of year.... $26.2 $25.4 $24.5
===== ===== =====
Allowance pertaining to:
Owned notes...................................... $13.4 $12.8 $12.0
Sold notes....................................... 12.8 12.6 12.5
----- ----- -----
Total........................................ $26.2 $25.4 $24.5
===== ===== =====
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
8. TAXES ON INCOME
Taxes on income are summarized as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Current:
Federal.......................................... $30.6 $24.7 $29.6
State and local.................................. 4.9 3.3 4.1
----- ----- -----
Total current................................ 35.5 28.0 33.7
Deferred (primarily Federal).......................... 3.4 4.3 (4.8)
----- ----- -----
Total........................................ $38.9 $32.3 $28.9
===== ===== =====
The effective tax rate of approximately 38% in each of the three years
ended October 31, 1999 differs from the statutory United States Federal tax rate
of 35% primarily because of state and local income taxes. The net deferred tax
liability is included in other liabilities on the Statements of Financial
Condition. Deferred tax assets and liabilities at October 31 comprised the
following:
1999 1998
- -------------------------------------------------------------------------------
Deferred tax assets:
Other postretirement benefits.......................... $3.1 $2.9
Unrealized losses on marketable securities............. 0.4 -
---- ----
Total deferred tax assets.......................... 3.5 2.9
Deferred tax liabilities:
Depreciation and other................................. 9.2 5.8
Unrealized gains on marketable securities.............. - 1.5
---- ----
Total deferred tax liabilities..................... 9.2 7.3
---- ----
Net deferred tax liabilities....................... $5.7 $4.4
==== ====
9. SHORT-TERM DEBT
Commercial paper is issued by the Corporation with varying terms. The
Corporation also has short-term borrowings with various banks on a non-committed
basis. Compensating cash balances and commitment fees are not required under
these agreements.
Information regarding short-term debt is as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Aggregate obligations outstanding:
Daily average................................... $ 16.6 $106.1 $109.7
Maximum month-end balance....................... 50.8 148.8 145.0
Weighted average interest rate:
On average daily borrowing...................... 5.7% 6.1% 6.1%
At October 31................................... 5.7% 6.1% 6.1%
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. SHORT-TERM DEBT (continued)
Unused commitments under the Corporation's bank revolving credit facility
and bank liquidity facility supporting the asset-backed commercial paper program
are used as backup for outstanding short-term borrowings. See also Note 10 to
the Consolidated Financial Statements.
10. SENIOR AND SUBORDINATED DEBT
Senior and subordinated debt outstanding at October 31 is summarized as
follows:
1999 1998
- -------------------------------------------------------------------------------
Bank revolving credit facility, at variable
rates, due March 2001.......................... $ 840.0 $ 815.0
Funding under asset-backed commercial
paper program ("ABCP"), at variable
rates, due March 2001.......................... 412.7 400.7
Capital lease obligations, 4.10% to 6.34%,
due serially through 2006...................... 323.1 213.3
Subordinated term debt:
Senior Notes, 8 7/8%, due November 1998........ - 82.2
Senior Notes, 9%, due June 2002................ 100.0 100.0
-------- --------
Total senior and subordinated debt.... $1,675.8 $1,611.2
======== ========
The weighted average interest rate on total debt, including short-term
debt and the effect of discounts and related amortization, was 5.6% in 1999 and
6.4% in 1998 and 1997. The aggregate annual maturities and required payments of
senior and subordinated debt are as follows:
Fiscal year ended October 31
2000 $ 73.5
2001 1,341.1
2002 171.9
2003 67.8
2004 21.2
2005 and thereafter 0.3
--------
Total $1,675.8
========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. SENIOR AND SUBORDINATED DEBT (continued)
At October 31, 1999, the Corporation had a $925 contractually committed
bank revolving credit facility and a $400 ABCP program supported by a bank
liquidity facility. Available funding under the ABCP program is comprised of the
$400 liquidity facility plus $14 of trust certificates issued in connection with
the formation of the ABCP trust. Under the terms of the ABCP program, Truck
Retail Instalment Paper Company ("TRIP"), a special purpose wholly-owned
subsidiary of the Corporation, purchases eligible receivables from the
Corporation. All assets of TRIP are pledged to a trust that funds the
receivables with A1/P1 rated commercial paper.
Available funding under the bank revolving credit facility and the ABCP
program was $87, of which $35 provided funding backup for the outstanding
short-term debt at October 31, 1999. the remaining $52 when combined with
unrestricted cash and cash equivalents made $90 available to fund the general
business purposes of the Corporation at October 31, 1999. Under the terms of the
bank revolving credit facility, the Corporation is required to maintain tangible
net worth at a minimum of $175 and a debt to tangible net worth ratio of no
greater than 7 to 1. The bank revolving credit agreement grants security
interests in substantially all of the Corporation's assets to the Corporation's
debt holders. Compensating cash balances are not required under the bank
revolving credit facility. Facility fees are paid quarterly regardless of usage.
During fiscal 1999 and 1998, the Corporation entered into sale/leaseback
agreements involving vehicles subject to retail finance and operating leases
with end users. The balances are classified under senior and subordinated debt
as capital lease obligations. In connection with the sale and leaseback of
certain of its leasing portfolio assets, the Corporation and its subsidiary,
Harco Leasing, Inc. ("HLC"), have established Navistar Leasing Company ("NLC"),
a Delaware business trust. NLC holds legal title to leased vehicles and is the
lessor on substantially all leases originated by the Corporation. The assets of
NLC have been and will continue to be allocated into various beneficial
interests issued by NLC. HLC owns one such beneficial interest in NLC and HLC
has transferred other beneficial interests issued by NLC to purchasers under
sale/leaseback agreements. Neither the beneficial interests held by purchasers
under sale/leaseback agreements or the assets represented thereby, nor legal
interest in any assets of NLC, are available to HLC, the Corporation or its
creditors.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. POSTRETIREMENT BENEFITS
The Corporation provides postretirement benefits to a majority of its
employees. Costs associated with postretirement benefits include pension and
postretirement health care expenses for employees, retirees and surviving
spouses and dependents.
Generally, the pension plans are non-contributory. The Corporation's policy
is to fund its pension plans in accordance with applicable United States
government regulations. At October 31, 1999, all legal funding requirements had
been met.
Postretirement Expense
Net periodic benefit cost included in the Statements of Consolidated Income
is composed of the following:
Pension Benefits Other Benefits
- ------------------------------------------------------- ---------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------- ---------------------
Service cost for benefits
earned during the period.... $ 0.7 $ 1.0 $ 0.8 $0.3 $ 0.4 $ 0.4
Interest cost on obligation...... 3.4 3.1 3.0 1.0 0.8 0.9
Net amortization costs and other. 0.2 0.1 - 0.1 - -
Less expected return on assets... (5.0) (4.7) (4.0) (0.7) (0.7) (0.5)
----- ----- ----- ---- ----- -----
Net postretirement.
(income) expense $(0.7) $(0.5) $(0.2) $0.7 $ 0.5 $ 0.8
===== ===== ===== ==== ===== =====
"Amortization costs" include amortization of cumulative gains and losses
over the expected remaining service life of employees and amortization of the
initial transition liability over 15 years and amortization of plan amendments.
Plan amendments are recognized over the remaining service life of employees.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. POSTRETIREMENT BENEFITS (continued)
Postretirement Expense (continued)
The funded status of the Corporation's plans as of October 31, 1999 and
1998 and a reconciliation with amounts recognized in the Statements of
Consolidated Financial Condition are as follows:
Pension Benefits Other Benefits
--------------------- ------------------
1999 1998 1999 1998
- -------------------------------------------------------- ------------------
Change in benefit obligation
Benefit obligation at beginning
of year........................ $51.5 $44.0 $14.0 $11.6
Service cost...................... 0.7 1.0 0.3 0.4
Interest on obligation............ 3.4 3.1 1.0 0.8
Actuarial net loss (gain)......... (4.4) 6.1 - 1.5
Benefits paid..................... (2.7) (2.7) (0.4) (0.3)
----- ----- ----- -----
Benefit obligation at end
of year........................ $48.5 $51.5 $14.9 $14.0
===== ===== ===== =====
Change in plan asset
Fair value of plan assets at
beginning of year.............. $53.0 $50.1 $ 6.7 $ 4.4
Actual return on plan assets...... 3.4 5.3 1.1 0.4
Employer contribution............. - - 0.3 2.1
Benefits paid..................... (2.5) (2.4) (0.3) (0.2)
----- ----- ------ -----
Fair value of plan assets at
year-end....................... $53.9 $53.0 $ 7.8 $ 6.7
===== ===== ===== =====
Funded status..................... $ 5.4 $ 1.5 $(7.0) $(7.3)
Unrecognized actuarial net
(gain) loss.................... (4.0) (1.1) 2.2 2.8
Unrecognized transition amount.... 0.1 0.1 - -
Unrecognized prior service cost... 0.4 0.4 - -
----- ----- ----- -----
Net amount recognized............. $ 1.9 $ 0.9 $(4.8) $(4.5)
===== ===== ===== =====
Amounts recognized in the
Statements of Consolidated
Financial Condition
consists of:
Prepaid benefit cost........ $ 3.5 $ 2.4 $ - $ -
Accrued benefit liability... (3.5) (3.1) (4.8) (4.5)
Intangible asset............ - - - -
Accumulated reduction in
shareowner's equity...... 1.9 1.6 - -
----- ----- ----- -----
Net amount recognized. $ 1.9 $ 0.9 $(4.8) $(4.5)
===== ===== ===== =====
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. POSTRETIREMENT BENEFITS (continued)
Postretirement Expense (continued)
The accumulated reduction in shareowner's equity is recorded in the
Statement of Financial Condition net of deferred income taxes of $0.7 at October
31, 1999.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $3.5, $3.5, and $0.0, respectively, as of October
31, 1999, and $3.3, $3.1 and $0.0, respectively, as of October 31, 1998.
The weighted average rate assumptions used in determining expenses and
benefit obligations were:
Pension Benefits Other Benefits
- -------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------
Discount rate used to determine
present value of benefit
obligation at year-end........... 7.8% 6.7% 7.2% 8.0% 7.1% 7.4%
Expected long-term rate of
return on plan asset for
the year......................... 9.6% 9.6% 9.6% 10.8% 10.8% 11.1%
Expected rate of increase in
future compensation levels....... 3.5% 3.5% 3.5% N/A N/A N/A
For 1999, the weighted average rate of increase in the per capita cost of
covered health care benefits is projected to be 9.7%. The rate is projected to
decrease to 5.0% by the year 2005 and remain at that level each year thereafter.
The effect of changing the health care cost trend rate is as follows:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
- -------------------------------------------------------------------------------
Effect on total of service and interest cost
components................................... $0.3 $(0.2)
Effect on postretirement benefit obligation..... 2.3 (1.9)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
12. LEASES
The Corporation is obligated under non-cancelable operating leases for the
majority of its office facilities and equipment. These leases are generally
renewable and provide that property taxes and maintenance costs are to be paid
by the lessee. At October 31, 1999, future minimum lease commitments under
non-cancelable operating leases with remaining terms in excess of one year are
as follows:
Year Ended October 31,
2000.................................. $ 1.9
2001.................................. 1.8
2002.................................. 1.6
2003.................................. 1.6
2004.................................. 1.5
Thereafter............................ 2.0
-----
Total................................. $10.4
=====
13. SHAREOWNER'S EQUITY
The number of authorized shares of capital stock as of October 31, 1999 and
1998, was 2,000,000 of which 1,600,000 shares were issued and outstanding. All
of the issued and outstanding capital stock is owned by Transportation and no
shares are reserved for officers and employees, or for options, warrants,
conversions and other rights.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Corporation's
financial instruments were as follows:
1999 1998
----------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------------------
Financial assets:
Finance receivables:
Retail notes................... $ 851.9 $ 858.6 $ 775.3 $ 797.6
Wholesale notes and accounts... 1,036.2 1,036.2 607.8 607.8
Amounts due from sales of
receivables.................... 244.5 242.5 245.9 243.8
Financial liabilities:
Senior and subordinated debt....... 1,352.7 1,353.7 1,397.9 1,401.4
The carrying amount of cash and cash equivalents approximates fair value.
The cost and fair value of marketable securities are disclosed in Note 4.
The fair value of retail notes is estimated by discounting the future
contractual cash flows using an estimated discount rate reflecting current rates
paid to purchasers of similar types of receivables with similar credit, interest
rate and prepayment risks. For wholesale notes and retail and wholesale
accounts, all of which reprice monthly, the carrying amounts approximate fair
value as a result of the short-term nature of the receivables.
The fair value of cash deposits included above in amounts due from sales of
receivables approximates their carrying value. The fair values of other amounts
due from sales of receivables were derived by discounting expected cash flows at
estimated current market rates.
For fixed rate debt, the fair value is estimated based on quoted market
prices where available and, where not available, on quoted market prices of debt
with similar characteristics.
The estimated fair values for all other financial instruments approximate
their carrying values due to the short-term nature or variable interest terms
inherent in the financial instruments.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. FINANCIAL INSTRUMENTS (continued)
Derivatives Held or Issued for Purposes Other Than Trading
The Corporation manages its exposure to fluctuations in interest rates by
limiting the amount of fixed rate assets funded with variable rate debt
generally by selling fixed rate receivables on a fixed rate basis and by
utilizing derivative financial instruments. These derivative financial
instruments may include forward contracts, interest rate swaps and interest rate
caps. The fair value of these instruments is subject to market risk as the
instruments may become less valuable due to changes in market conditions or
interest rates. The Corporation manages exposure to counter-party credit risk by
entering into derivative financial instruments with major financial institutions
that can be expected to fully perform under the terms of such agreements. The
Corporation does not require collateral or other security to support derivative
financial instruments with credit risk. The Corporation's counter-party credit
exposure is limited to the fair value of contracts with a positive fair value at
the reporting date. At October 31, 1999, the Corporation's derivative financial
instruments had a negative net fair value. Notional amounts are used to measure
the volume of derivative financial instruments and do not represent exposure to
credit loss.
The Corporation enters into derivative financial instruments to manage its
exposure to fluctuations in the fair value of retail notes anticipated to be
sold. The Corporation manages such risk by entering into forward contracts to
sell fixed debt securities or forward interest rate swaps whose fair value is
highly correlated with that of the Corporation's receivables. Income recognition
of changes in the fair value of the derivatives is deferred until the derivative
instruments are closed. Gains or losses incurred with the closing of these
agreements are included as a component of the gain or loss on sale of
receivables. As of October 31, 1999, outstanding derivative financial
instruments consisted of the following:
Notional
Amount Fair Value
- -------------------------------------------------------------------------------
Forward interest rate contracts in anticipation of
November 1999 sale of retail receivables............ $500 $ 0.0
Forward starting swap contract in anticipation of
March 2000 sale of retail receivables............... $ 75 $(0.2)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. FINANCIAL INSTRUMENTS (continued)
In November 1998, the Corporation sold fixed rate retail receivables to a
multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution on a variable rate basis. For the protection of investors,
the Corporation issued an interest rate cap. The notional amount of the cap
amortizes based on the expected outstanding principal balance of the sold retail
receivables. Under the terms of the cap agreement, the Corporation will make
payments if interest rates exceed certain levels. As of October 31, 1999 the cap
had a notional amount of $374 million and a fair value of $1 million. The
interest rate cap is recorded at fair value with changes in fair value
recognized in income.
15. COMPREHENSIVE INCOME
The components of accumulated other comprehensive income (loss), net of
taxes, are as follows:
Accumulated
Unrealized Minimum Other
Gains (Losses) Pension Comprehensive
On Securities Liability Income (Loss)
- -------------------------------------------------------------------------------
Balance at October 31, 1996 $ 1.3 $ - $ 1.3
Change in 1997 2.4 - 2.4
----- ----- -----
Balance at October 31, 1997 3.7 - 3.7
Change in 1998 (1.2) (1.0) (2.2)
----- ----- -----
Balance at October 31, 1998 2.5 (1.0) 1.5
Change in 1999 (3.2) (0.2) (3.4)
----- ----- -----
Balance at October 31, 1999 $(0.7) $(1.2) $(1.9)
===== ===== =====
16. LEGAL PROCEEDINGS
The Corporation is subject to various claims arising in the ordinary course
of business, and is party to various legal proceedings which constitute ordinary
routine litigation incidental to the business of the Corporation. 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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
17. SUBSEQUENT EVENT
In November 1999, the Corporation sold $533 of retail notes, net of
unearned finance income, through NFRRC to two multi-seller asset-backed
commercial paper conduits sponsored by a major financial institution. A $2.2
million gain was recognized in November 1999.
18. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
1999
----------------------------------------------------
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues.................. $79.2 $79.2 $85.1 $84.5 $328.0
Interest expense.......... 22.2 21.5 20.6 24.3 88.6
Provision for losses
on receivables....... 1.3 1.9 1.3 1.7 6.2
Net income................ 14.5 15.0 17.7 15.3 62.5
1998
----------------------------------------------------
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------
Revenues.................. $62.6 $64.1 $79.3 $69.9 $275.9
Interest expense.......... 15.7 20.3 23.2 21.8 81.0
Provision for losses
on receivables....... 0.4 0.8 (2.6) 2.2 0.8
Net income................ 13.4 10.7 17.7 11.1 52.9
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Navistar Financial Corporation and Subsidiaries
Statement of Financial Reporting Responsibility
- -------------------------------------------------------------------------------
Management of Navistar Financial Corporation and its subsidiaries is
responsible for the preparation and for the integrity and objectivity of the
accompanying financial statements and other financial information in this
report. The financial statements have been prepared in accordance with generally
accepted accounting principles and include amounts that are based on
management's estimates and judgments.
The accompanying financial statements have been audited by Deloitte &
Touche LLP, independent auditors. Management has made available to Deloitte &
Touche LLP all the Corporation's financial records and related data, as well as
the minutes of Directors' meetings. Management believes that all representations
made to Deloitte & Touche LLP during its audit were valid and appropriate.
Management is responsible for establishing and maintaining a system of
internal controls throughout its operations that provides reasonable assurance
as to the integrity and reliability of the financial statements, the protection
of assets from unauthorized use and the execution and recording of transactions
in accordance with management's authorization. The system of internal controls
which provides for appropriate division of responsibility is supported by
written policies and procedures that are updated by management as necessary. The
system is tested and evaluated regularly by the parent Company's internal
auditors as well as by the independent auditors in connection with their annual
audit of the financial statements. The independent auditors conduct their audit
in accordance with generally accepted auditing standards and perform such tests
of transactions and balances as they deem necessary. Management considers the
recommendations of its internal auditors and independent auditors concerning the
Corporation's system of internal controls and takes the necessary actions that
are cost-effective in the circumstances to respond appropriately to the
recommendations presented. Management believes that the Corporation's system of
internal controls accomplishes the objectives set forth in the first sentence of
this paragraph.
John J. Bongiorno
President and Chief Executive Officer
Phyllis E. Cochran
Vice President and Controller
<PAGE>
Navistar Financial Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Independent Auditors' Report
Navistar Financial Corporation:
We have audited the accompanying consolidated financial statements of Navistar
Financial Corporation and its subsidiaries as of October 31, 1999 and 1998 and
for each of the three years in the period ended October 31, 1999, listed in Item
8. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Navistar Financial
Corporation and its subsidiaries as of October 31, 1999 and 1998 and the results
of their operations and their cash flow for each of the three years in the
period ended October 31, 1999 in conformity with generally accepted accounting
principles.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
December 13, 1999
Chicago, Illinois
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
Five Year Summary of Financial and Operating Data
Dollar amounts in millions
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues............... $ 328.0 $ 275.9 $ 234.9 $ 252.8 $ 228.2
Net income ............ 62.5 52.9 45.7 49.4 36.2
Dividends paid ........ 60.3 57.0 40.0 26.0 9.0
Percent of net income to
average shareowner's
equity.............. 22.1% 18.5% 16.1% 18.1% 15.0%
Financial Data:
Finance receivables,
net................. $2,062.5 $1,510.9 $1,211.2 $1,193.6 $1,370.9
Total assets .......... 2,849.1 2,212.9 1,810.6 1,793.8 1,874.7
Total debt ............ 1,710.3 1,633.0 1,223.7 1,305.8 1,330.3
Shareowner's equity ... 280.3 281.5 287.8 279.7 256.7
Debt to equity ratio .. 6.1:1 5.8:1 4.3:1 4.7:1 5.2:1
Senior debt to capital
funds ratio......... 4.2:1 3.1:1 2.1:1 3.2:1 3.4:1
Number of employees at
October 31............. 399 394 358 352 360
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Gross Finance Receivables and Leases Acquired
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ Millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wholesale notes.............. $4,188.5 $3,812.8 $2,772.8 $2,705.8 $2,979.4
Retail notes and leases:
New..................... 1,519.7 1,358.0 976.2 1,064.1 1,075.0
Used ................... 286.4 309.2 270.3 281.7 242.3
-------- -------- -------- -------- --------
Total............... 1,806.1 1,667.2 1,246.5 1,345.8 1,317.3
-------- -------- -------- -------- --------
Total .................. $5,994.6 $5,480.0 $4,019.3 $4,051.6 $4,296.7
======== ======== ======== ======== ========
</TABLE>
Serviced (including sold notes) Retail Notes and
Leases With Installments Past Due Over 60 Days
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At October 31 ($ Millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Original amount of notes
and leases................ $ 40.4 $ 33.6 $ 31.8 $ 14.0 $ 4.2
Balance of notes and leases.... 17.9 16.5 16.2 8.0 2.2
Balance as a percent of
total outstanding......... 0.53% 0.57% 0.64% 0.32% 0.10%
</TABLE>
Retail Note and Lease Repossessions (including sold notes)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Retail note and lease
repossessions acquired as
a percentage of average
serviced retail note and
lease balances............ 1.82% 2.26% 2.69% 3.08% 0.92%
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Credit Loss Experience on Serviced (including sold notes) Receivables
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION.
($ Millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net losses (recoveries):
Retail notes and leases .... $5.5 $ .2 $2.2 $5.1 $ .3
Wholesale notes ............ (.2) (.3) (.2) (.2) (.9)
Accounts.................... .1 - - - (.2)
---- ---- ---- ---- ----
Total .................. $5.4 $(.1) $2.0 $4.9 $(.8)
==== ==== ==== ==== ====
Percent net losses (recoveries)
to liquidations:
Retail notes and leases .. .41% .02% .18% .48% .03%
Wholesale notes .......... - (.01) (.01) (.01) (.03)
Total ................ .10% - .05% .13% (.02)%
Percent net losses (recoveries)
to related average gross
receivables outstanding:
Retail notes and leases .. .18% .01% .09% .22% .02%
Wholesale notes .......... (.02) (.04) (.02) (.02) (.13)
Accounts.................. .02 - - - (.05)
Total ................ .12% - .06% .14% (.03)%
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None
PART III
Items 10, 11, 12 and 13
Intentionally omitted. See the index page of this Report for
explanation.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements
See Index to Financial Statements in Item 8.
Financial Statement Schedules
All schedules are omitted because of the absence of the conditions under
which they are required or because information called for is shown in the
financial statements and notes thereto.
Exhibits, Including Those Incorporated By Reference
See Index to Exhibits.
Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended October 31,
1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/PHYLLIS E. COCHRAN December 22, 1999
Phyllis E. Cochran
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute and
appoint John J. Bongiorno, Phyllis E. Cochran and William W. Jones and each of
them acting individually, true and lawful attorneys-in-fact and agents with
power to act without the other and with full power of substitution, to execute,
deliver and file, for and on such person's behalf, and in such person's name and
capacity or capacities as stated below, any amendment, exhibit or supplement to
the Form 10-K Report making such changes in the report as such attorney-in-fact
deems appropriate.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/JOHN J. BONGIORNO President and Chief Executive December 22, 1999
- ---------------------
John J. Bongiorno Officer; Director
(Principal Executive Officer)
/s/R. WAYNE CAIN Vice President and Treasurer; December 22, 1999
- ---------------------
R. Wayne Cain Director
(Principal Financial Officer)
/s/PHYLLIS E. COCHRAN Vice President and Controller; December 22, 1999
- ---------------------
Phyllis E. Cochran Director
(Principal Accounting Officer)
/s/JOHN R. HORNE Director December 22, 1999
- ---------------------
John R. Horne
/s/THOMAS M. HOUGH Director December 22, 1999
- ---------------------
Thomas M. Hough
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
SIGNATURES (Continued)
Signature Title Date
/s/ROBERT C. LANNERT Director December 22, 1999
- ---------------------
Robert C. Lannert
/s/MARK SCHWETSCHENAU Director December 22, 1999
- ---------------------
Mark Schwetschenau
/s/THOMAS D. SILVER Director December 22, 1999
- ---------------------
Thomas D. Silver
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
The following documents of Navistar Financial Corporation are incorporated
herein by reference:
3.1 Restated Certificate of Incorporation of Navistar Financial
Corporation (as amended and in effect on December 15, 1987). Filed
on Form 8-K dated December 17, 1987. Commission File No. 1-4146-l.
3.2 The By-Laws of Navistar Financial Corporation (as amended February
29, 1988). Filed on Form 10-K dated January 19, 1989. Commission
File No. 1-4146-1.
4.1 Indenture dated as of May 30, 1997 by and between the Corporation
and The Fuji Bank and Trust Company, as Trustee, for 9% Senior
Subordinated Notes due 2002 for $100,000,000. Filed on Registration
No. 333-30167.
10.1 Master Inter-company Agreement dated as of April 26, 1993, between
the Corporation and Transportation. Filed on Form 8-K dated April
30, 1993. Commission File No. 1-4146-1.
10.2 Inter-company Purchase Agreement dated as of April 26, 1993,
between the Corporation and Truck Retail Instalment Paper Corp.
Filed on Form 8-K dated April 30, 1993. Commission File
No. 1-4146-1.
10.3 Amended and Restated Credit Agreement dated as of November 4, 1994,
among the Corporation, certain banks, certain Co-Arranger banks,
and Morgan Guaranty Trust Company of New York, as Administrative
Agent. Filed on Form 8-K dated November 4, 1994. Commission File
No. 1-4146-1.
10.4 Liquidity Agreement dated as of November 7, 1994, among NFC Asset
Trust, as Borrower, Chemical Bank, Bank of America Illinois, The
Bank of Nova Scotia, and Morgan Guaranty Trust Company of New York,
as Co-Arrangers, and Chemical Bank, as Administrative Agent. Filed
on Form 8-K dated November 4, 1994. Commission File No. 1-4146-1.
10.5 Appendix A to Liquidity Agreement at Exhibit 10.4. Filed on Form
8-K dated November 4, 1994. Commission File No. 1-4146-1.
10.6 Collateral Trust Agreement dated as of November 7, 1994, between
NFC Asset Trust and Bankers Trust Company, as Trustee. Filed on
Form 8-K dated November 4, 1994. Commission File No. 1-4146-1.
10.7 Administration Agreement dated as of November 7, 1994, between NFC
Asset Trust and the Corporation, as Administrator. Filed on Form
8-K dated November 4, 1994. Commission File No. 1-4146-1.
E-1
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.8 Trust Agreement dated as of November 7, 1994, between Truck Retail
Instalment Paper Corp., as Depositor, and Chemical Bank Delaware,
as Owner Trustee. Filed on Form 8-K dated November 4, 1994.
Commission File No. 1-4146-1.
10.9 Servicing Agreement dated as of November 7, 1994, between the
Corporation, as Servicer, and Truck Retail Instalment Paper Corp.
Filed on Form 8-K dated November 4, 1994. Commission File No.
1-4146-1.
10.10 Servicing Agreement dated as of November 7, 1994, between the
Corporation, as Servicer, and NFC Asset Trust. Filed on Form 8-K
dated November 4, 1994. Commission File No. 1-4146-1.
10.11 Receivable Purchase Agreement dated as of November 7, 1994,
between Truck Retail Instalment Paper Corp., as Seller, and NFC
Asset Trust, as Purchaser. Filed on Form 8-K dated November 4,
1994. Commission File No. 1-4146-1.
10.12 Retail Receivables Purchase Agreement dated as of November 7, 1994,
between Truck Retail Instalment Paper Corp. and the Corporation.
Filed on Form 8-K dated November 4, 1994. Commission File
No. 1-4146-1.
10.13 Lease Receivables Purchase Agreement dated as of November 7, 1994,
between Truck Retail Instalment Paper Corp. and Navistar Leasing
Corporation. Filed on Form 8-K dated November 4, 1994. Commission
File No. 1-4146-1.
10.14 Pooling and Servicing Agreement dated as of June 8, 1995, among
Navistar Financial Corporation, as Servicer, Navistar Financial
Securities Corporation, as Seller, The Chase Manhattan Bank
(survivor in the merger between The Chase Manhattan Bank and
Chemical Bank which was the survivor in the merger between Chemical
Bank and Manufacturers Hanover Trust Company), as 1990 Trust
Trustee, and The Bank of New York, as Master Trust Trustee. Filed
on Registration No. 33-87374.
10.15 Series 1995-1 Supplement to the Pooling and Servicing Agreement
dated as of June 8, 1995, among the Corporation, as Servicer,
Navistar Financial Securities Corporation, as Seller, and The Bank
of New York, as Master Trust Trustee on behalf of the Series 1995-1
Certificateholders. Filed on Registration No. 33-87374.
10.16 Purchase Agreement dated as of June 8, 1995, between the
Corporation and Navistar Financial Securities Corporation, as
Purchaser, with respect to the Dealer Note Master Trust. Filed on
Registration No. 33-87374.
E-2
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.17 Amendment No. 1 dated as of March 29, 1996, to the Loan and
Security Agreement dated as of November 7, 1994, between Truck
Retail Instalment Paper Corp. ("TRIP") and NFC Asset Trust (the
"Trust") filed on Form 8-K dated June 5, 1996. Commission File
No. 1-4146-1.
10.18 Amendment No. 1 and Consent dated as of March 29, 1996, to the
Liquidity Agreement dated as of November 7, 1994, among NFC Asset
Trust, certain lenders, and Chemical Bank, as Administrative Agent
for the lenders filed on Form 8-K dated June 5, 1996. Commission
File No. 1-4146-1.
10.19 Amendment No. 2 dated as of March 29, 1996, to the Amended and
Restated Credit Agreement dated as of November 4, 1994, as amended
by Amendment No. 1 dated as of December 15, 1995, among the
Corporation, certain banks, certain Co-Arranger banks, and Morgan
Guaranty Trust Company of New York, as Administrative Agent filed
on Form 8-K dated June 5, 1996. Commission File No. 1-4146-1.
10.20 Purchase Agreement dated as of May 30, 1996, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1996-A Owner
Trust. Filed on Registration No. 33-55865.
10.21 Pooling and Servicing Agreement dated as of May 30, 1996, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1996-A Owner Trust,
as Issuer. Filed on Registration No. 33-55865.
10.22 Trust Agreement dated as of May 30, 1996, between Navistar
Financial Retail Receivables Corporation, as Seller, and Chemical
Bank Delaware, as Owner Trustee, with respect to Navistar Financial
1996-A Owner Trust. Filed on Registration No. 33-55865.
10.23 Indenture dated as of May 30, 1996, between Navistar Financial
1996-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1996-A Owner Trust. Filed on
Registration No. 33-55865.
10.24 Purchase Agreement dated as of November 6, 1996, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1996-B Owner
Trust. Filed on Registration No. 33-55865.
E-3
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.25 Pooling and Servicing Agreement dated as of November 6, 1996, among
the Corporation, as Servicer, and Navistar Financial Retail
Receivables Corporation, as Seller, and Navistar Financial 1996-B
Owner Trust, as Issuer. Filed on Registration No. 33-55865.
10.26 Trust Agreement dated as of November 6, 1996, between Navistar
Financial Retail Receivables Corporation, as Seller, and Chemical
Bank Delaware, as Owner Trustee, with respect to Navistar Financial
1996-B Owner Trust. Filed on Registration No. 33-55865.
10.27 Indenture dated as of November 6, 1996, between Navistar Financial
1996-B Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1996-B Owner Trust. Filed on
Registration No. 33-55865.
10.28 Purchase Agreement dated as of May 7, 1997, between the Corporation
and Navistar Financial Retail Receivables Corporation, as
Purchaser, with respect to Navistar Financial 1997-A Owner Trust,
as Issuer. Filed on Registration No. 33-55865.
10.29 Pooling and Servicing Agreement dated as of May 7, 1997, among the
Corporation as Servicer, Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1997-A Owner Trust,
as Issuer. Filed on Registration No. 33-55865.
10.30 Trust Agreement dated as of May 7, 1997, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial
1997-A Owner Trust. Filed on Registration No. 33-55865.
10.31 Indenture dated as of May 7, 1997, between Navistar Financial
1997-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1997-A Owner Trust. Filed on
Registration No. 33-55865.
10.32 Amendment No. 3 dated as of May 27, 1997, to the Amended and
Restated Credit Agreement dated as of November 4, 1994, as amended
by Amendment No. 1 dated as of December 15, 1995 and Amendment No.
2 dated as of March 29, 1996, among the Corporation, certain banks,
certain Co-Arranger banks, and Morgan Guaranty Trust Company of New
York, as Administrative Agent filed on Form 8-K dated June 17,
1997. Commission File No. 1-4146-1.
E-4
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.33 Series 1997-1 Supplement to the Pooling and Servicing Agreement
dated as of August 19, 1997, among Navistar Financial Corporation,
as Servicer, Navistar Financial Securities Corporation, as Seller,
and the Bank of New York, as Master Trust Trustee on behalf of the
Series 1997-1 Certificateholders. Filed on Registration No.
333-30737.
10.34 Purchase Agreement dated as of November 5, 1997, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1997-B Owner
Trust, as Issuer. Filed on Registration No. 33-64249.
10.35 Pooling and Servicing Agreement dated as of November 5, 1997, among
the Corporation, as Servicer, and Navistar Financial Retail
Receivables Corporation, as Seller, and Navistar Financial 1997-B
Owner Trust, as Issuer. Filed on Registration No. 33-64249.
10.36 Trust Agreement dated as of November 5, 1997, between Navistar
Financial Retail Receivables Corporation, as Seller, and Chase
Manhattan Bank Delaware, as Owner Trustee, with respect to Navistar
Financial 1997-B Owner Trust. Filed on Registration No. 33-64249.
10.37 Indenture dated as of November 5, 1997, between Navistar Financial
1997-B Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1997-B Owner Trust. Filed on
Registration No. 33-64249.
10.38 Series 1998-1 Supplement to the Pooling and Servicing Agreement
dated as of July 17, 1997, among Navistar Financial Corporation, as
Servicer, Navistar Financial Securities Corporation, as Seller, and
the Bank of New York, as Master Trust Trustee on behalf of the
Series 1998-1 Certificateholders. Filed on Registration No.
333-30737.
10.39 Purchase Agreement dated as of June 4, 1998, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1998-A Owner
Trust, as Issuer. Filed on Registration No. 33-64249.
10.40 Pooling and Servicing Agreement dated as of June 4, 1998, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1998-A Owner Trust,
as Issuer. Filed on Registration No. 33-64249.
E-5
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.41 Trust Agreement dated as of June 4, 1998, between Navistar
Financial Retail Receivables Corporation, as Seller, and Chase
Manhattan Bank Delaware, as Owner Trustee, with respect to Navistar
Financial 1998-A Owner Trust. Filed on Registration No. 33-64249.
10.42 Indenture dated as of June 4, 1998, between Navistar Financial
1998-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1998-A Owner Trust. Filed on
Registration No. 33-64249.
10.43 Purchase Agreement dated as of November 13, 1998, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1998-B
Multi-seller Asset-backed Commercial Paper Conduit, as Issuer.
Filed on Form 8-K dated December 18, 1998. Commission File No.
33-64249.
10.44 Transfer and Administration Agreement dated as of November 13,
1998, between the Corporation, as Servicer, and Navistar Financial
Retail Receivables Corporation, as Transferor, Park Avenue
Receivables Corporation, as Purchaser, and The Chase Manhattan
Bank, as Funding Agent and APA Bank. Filed on Form 8-K dated
December 18, 1998. Commission File No. 33-64249.
10.45 Purchase Agreement dated as of June 3, 1999, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1999-A Owner
Trust, as Issuer. Filed on Registration No. 333-62445.
10.46 Pooling and Servicing Agreement dated as of June 3, 1999, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1999-A Owner Trust,
as Issuer. Filed on Registration No. 333-62445.
10.47 Trust Agreement dated as of June 3, 1999, between Navistar
Financial Retail Receivables Corporation, as Seller, and Chase
Manhattan Bank Delaware, as Owner Trustee, with respect to Navistar
Financial 1999-A Owner Trust. Filed on Registration No. 333-62445.
10.48 Indenture dated as of June 3, 1999, between Navistar Financial
1999-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1999-A Owner Trust. Filed on
Registration No. 333-62445.
E-6
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.49 Receivable Purchase Agreement dated as of November 12, 1999,
between Navistar Financial Retail Receivables Corporation, as
Seller, the Corporation, as Servicer, and, Falcon Asset
Securitization Corporation and International Securitization
Corporation, as investors, and Bank One NA as agent and as
Securities Intermediary, with respect to Navistar Financial 1999-B
Multi-seller Asset-backed Commercial Paper Conduit. Filed on
Registration No. 333-62445.
10.50 Receivable Sale dated as of November 12, 1999, between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1999-B
Multi-seller Asset-backed Commercial Paper Conduit, as Issuer.
Filed on Registration No. 333-62445.
27.1 Financial Data Schedule for Article 5 of Regulation S-X, Item
601(c) for the year ended October 31, 1999.
E-7
<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> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999<F1>
<PERIOD-END> OCT-31-1999
<CASH> 38,600
<SECURITIES> 101,700
<RECEIVABLES> 2,075,900
<ALLOWANCES> (13,400)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,700
<DEPRECIATION> (9,200)
<TOTAL-ASSETS> 2,849,100
<CURRENT-LIABILITIES> 0
<BONDS> 1,675,800
0
0
<COMMON> 171,000
<OTHER-SE> 109,300
<TOTAL-LIABILITY-AND-EQUITY> 2,849,100
<SALES> 0
<TOTAL-REVENUES> 328,000
<CGS> 0
<TOTAL-COSTS> 94,700
<OTHER-EXPENSES> 44,100
<LOSS-PROVISION> 6,200
<INTEREST-EXPENSE> 88,600
<INCOME-PRETAX> 101,400
<INCOME-TAX> (38,900)
<INCOME-CONTINUING> 62,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,500
<EPS-BASIC> 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>
