<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9618
N A V I S T A R I N T E R N A T I O N A L C O R P O R A T I O N
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
-------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 8, 1995, the number of shares outstanding of the registrant's
Common Stock was 50,069,632 and the Class B Common was 25,034,861.
<PAGE>
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months Ended January 31, 1995 and 1994 ............ 3
Statement of Financial Condition --
January 31, 1995, October 31, 1994 and January 31, 1994 . 4
Statement of Cash Flow --
Three Months Ended January 31, 1995 and 1994 ............ 6
Notes to Financial Statements ............................. 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . 13
Part II. Other Information:
Item 1. Legal Proceedings ................................ 18
Item 6. Exhibits and Reports on Form 8-K ................. 18
Signature ................................................. 19
Exhibit 11 .................................................. E-1
<PAGE>
<PAGE 3>
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Millions of dollars, except per share data
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended January 31
------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note --------------------- ---------------------
1995 1994 Reference 1995 1994 1995 1994
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured product ....... $ 1,367 $ 1,087 $ 1,367 $ 1,087 $ - $ -
Finance and insurance revenue ....... 35 44 - - 48 56
Other income ........................ 14 8 11 5 4 3
-------- -------- -------- -------- -------- --------
Total sales and revenues .......... 1,416 1,139 1,378 1,092 52 59
-------- -------- -------- -------- -------- --------
Costs and expenses
Cost of products and services sold .. 1,198 946 1,197 945 1 1
Postretirement benefits ............. 50 46 Note D 49 46 1 -
Engineering expense ................. 24 22 24 22 - -
Marketing and administrative expense. 69 62 62 56 7 6
Interest expense .................... 20 20 2 3 19 17
Financing charges on sold receivables 6 3 19 15 - -
Insurance claims
and underwriting expense .......... 13 16 - - 13 16
-------- -------- -------- -------- -------- --------
Total costs and expenses ........... 1,380 1,115 1,353 1,087 41 40
-------- -------- -------- -------- -------- --------
Income before income taxes
Manufacturing ..................... - - 25 5 - -
Financial Services ................ - - 11 19 - -
-------- -------- -------- -------- -------- --------
Income before income taxes ...... 36 24 36 24 11 19
Income tax expense .............. (13) (8) Note E (13) (8) (4) (7)
-------- -------- -------- -------- -------- --------
Net income .......................... $ 23 $ 16 $ 23 $ 16 $ 7 $ 12
======== ======== ======== ========
Less dividends on Series G preferred
stock ............................. 7 7
-------- --------
Net income applicable to common stock $ 16 $ 9
======== ========
Net income per common share ......... $ .21 $ .12
======== ========
Average number of common and
dilutive common equivalent
shares outstanding (millions) ..... 74.5 74.8
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of the Company's
manufacturing operations with its
wholly-owned financial services
subsidiaries included under the equity
method of accounting. "Financial
Services" includes the Company's
wholly-owned subsidiary, Navistar
Financial Corporation, and other
wholly-owned finance and insurance
subsidiaries. Transactions between
Manufacturing and Financial Services
have been eliminated from the "Navistar
International Corporation and
Consolidated Subsidiaries" columns.
The basis of consolidation is described
in Note A while a summary of eliminations
and reclassifications is shown in Note B.
</TABLE>
<PAGE>
<PAGE 4>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ------------------------------------------------------------------------------------------------
Millions of dollars
- ------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
--------------------------
January 31 October 31 January 31 Note
1995 1994 1994 Reference
---------- ---------- ---------- ---------
ASSETS
- -----------------------------------
<S> <C> <C> <C> <S>
Cash and cash equivalents .................. $ 346 $ 557 $ 291
Marketable securities ...................... 363 304 227
Receivables, net ........................... 1,354 1,517 1,305
Inventories ................................ 475 429 462 Note F
Prepaid pension assets ..................... 50 63 84
Property, net of accumulated depreciation
and amortization of $703, $684 and $649 .. 583 578 546
Equity in Financial Services subsidiaries .. - - -
Investments and other assets ............... 191 165 238
Intangible pension assets .................. 309 309 340
Deferred tax asset ......................... 1,123 1,134 1,170 Note E
-------- -------- --------
Total assets ............................... $ 4,794 $ 5,056 $ 4,663
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable ........................... $ 791 $ 836 $ 700
Accrued liabilities ........................ 432 452 390
Short-term debt ............................ 168 522 30
Long-term debt ............................. 820 696 970
Other long-term liabilities ................ 301 298 296
Loss reserves and unearned premiums ........ 129 136 141
Postretirement benefits liabilities ........ 1,313 1,299 1,360 Note D
-------- -------- --------
Total liabilities ........................ 3,954 4,239 3,887
-------- -------- --------
Shareowners' equity
Series G convertible preferred stock
(liquidation preference $240 million) .... 240 240 240
Series D convertible junior preference stock
(liquidation preference $4 million) ...... 4 4 5
Common stock (50.1, 50.0 and 49.8 million
shares issued) ........................... 1,628 1,628 1,623
Class B Common (25.0, 25.0 and 25.2 million
shares issued) ........................... 501 501 504
Retained earnings (deficit) - balance
accumulated after the deficit
reclassification ......................... (1,509) (1,532) (1,579) Note G
Accumulated foreign currency translation
adjustments and net unrealized holding
gains (losses) on marketable securities .. (6) (6) (4)
Common stock held in treasury, at cost ..... (18) (18) (13)
-------- -------- --------
Total shareowners' equity ................ 840 817 776
-------- -------- --------
Total liabilities and shareowners' equity .. $ 4,794 $ 5,056 $ 4,663
======== ======== ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 5>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
- ------------------------------------ ------------------------------------
January 31 October 31 January 31 January 31 October 31 January 31
1995 1994 1994 1995 1994 1994
- ---------- ---------- ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$ 311 $ 499 $ 247 $ 35 $ 58 $ 44
227 166 83 136 138 144
241 176 207 1,199 1,351 1,203
475 429 462 - - -
49 62 83 1 1 1
547 549 526 36 29 20
257 249 246 - - -
162 151 211 29 14 27
309 309 340 - - -
1,123 1,134 1,170 - - -
-------- -------- -------- -------- -------- --------
$ 3,701 $ 3,724 $ 3,575 $ 1,436 $ 1,591 $ 1,439
======== ======== ======== ======== ======== ========
$ 736 $ 779 $ 629 $ 141 $ 70 $ 173
400 420 361 32 29 32
9 3 25 159 519 5
118 124 146 702 572 824
292 289 285 9 9 11
- - - 129 136 141
1,306 1,292 1,353 7 7 7
-------- -------- -------- -------- -------- --------
2,861 2,907 2,799 1,179 1,342 1,193
-------- -------- -------- -------- -------- --------
240 240 240 - - -
4 4 5 - - -
1,628 1,628 1,623 178 178 178
501 501 504 - - -
(1,509) (1,532) (1,579) 81 73 68
(6) (6) (4) (2) (2) -
(18) (18) (13) - - -
-------- -------- -------- -------- -------- --------
840 817 776 257 249 246
-------- -------- -------- -------- -------- --------
$ 3,701 $ 3,724 $ 3,575 $ 1,436 $ 1,591 $ 1,439
======== ======== ======== ======== ======== ========
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's
manufacturing operations with its wholly-owned financial services
subsidiaries included under the equity method of accounting. "Financial
Services" includes the Company's wholly-owned subsidiary, Navistar Financial
Corporation, and other wholly-owned finance and insurance subsidiaries.
Transactions between Manufacturing and Financial Services have been
eliminated from the "Navistar International Corporation and Consolidated
Subsidiaries" columns on the preceding page. The basis of consolidation
is described in Note A while a summary of eliminations is shown in Note B.
</TABLE>
<PAGE>
<PAGE 6>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended January 31 (Millions of dollars)
- --------------------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- Note --------------------- ---------------------
1995 1994 Reference 1995 1994 1995 1994
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Cash flow from operations
Net income ............................ $ 23 $ 16 $ 23 $ 16 $ 7 $ 12
Adjustments to reconcile net income
to cash provided by (used in)
operations:
Depreciation and amortization ....... 21 20 19 19 2 1
Equity in earnings of Financial
Services, net of dividends received - - (7) (5) - -
Allowance for losses on receivables
and dealer loans .................. 1 3 1 2 - 1
Non-cash income tax expense ......... 11 8 11 8 - -
Other, net .......................... (3) (19) - (6) (3) (13)
Change in operating assets
and liabilities ................... (55) (136) Note C (153) (190) 75 100
-------- -------- -------- -------- -------- --------
Cash provided by (used in) operations (2) (108) (106) (156) 81 101
-------- -------- -------- -------- -------- --------
Cash flow from investment programs
Purchase of retail notes
and lease receivables ............... (216) (220) - - (216) (220)
Principal collections on retail notes
and lease receivables ............... 39 50 - - 39 50
Sale of retail notes receivable ...... 299 494 - - 299 494
Acquisitions (over) under cash
collections of wholesale notes
and accounts receivable ............. - - Note C - - 23 (46)
Purchase of marketable securities ..... (102) (226) (89) (199) (13) (27)
Sales or maturities
of marketable securities ............ 43 217 28 200 15 17
Proceeds from property sold under
sale/leaseback ...................... - 87 - 87 - -
Capital expenditures .................. (18) (12) (18) (12) - -
Net (increase) decrease in property
and equipment, leased to others ..... (8) 7 - - (8) 7
Other investment programs, net ........ 3 1 3 1 - -
-------- -------- -------- -------- -------- --------
Cash provided by (used in)
investment programs ............... 40 398 (76) 77 139 275
-------- -------- -------- -------- -------- --------
Cash flow from financing activities
Principal payments on short-term debt . (400) - - - (400) -
Principal payments on long-term debt .. (6) (7) (6) (7) - -
Net increase (decrease)
in notes and commercial paper ....... 147 (150) 7 - 140 (150)
Increase (decrease) in debt outstanding
under bank revolving credit facility. 17 (219) - - 17 (219)
Dividends paid ........................ (7) (36) (7) (36) - (7)
Repurchase of Class B Common stock .... - (8) - (8) - -
-------- -------- -------- -------- -------- --------
Cash used in financing activities ... (249) (420) (6) (51) (243) (376)
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
Decrease during the period ........... (211) (130) (188) (130) (23) -
At beginning of the year ............. 557 421 499 377 58 44
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
at end of the period ................. $ 346 $ 291 $ 311 $ 247 $ 35 $ 44
======== ======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated
financial results of the Company's
manufacturing operations with its
wholly-owned financial services
subsidiaries included under the equity
method of accounting. "Financial Services"
includes the Company's wholly-owned
subsidiary, Navistar Financial Corporation,
and other wholly-owned finance and insurance
subsidiaries. Transactions between
Manufacturing and Financial Services have
been eliminated from the "Navistar
International Corporation and Consolidated
Subsidiaries" columns. The basis of
consolidation is described in Note A
while a summary of eliminations and
reclassifications is shown in Note B.
</TABLE>
<PAGE>
<PAGE 7>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note A Summary of Accounting Policies
Navistar International Corporation is a holding company whose principal
operating subsidiary is Navistar International Transportation Corp.
(Transportation). As used hereafter, "Company" refers to Navistar
International Corporation and its consolidated subsidiaries.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1994 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In addition to the consolidated financial statements, the Company has
elected to provide financial information in a format that presents the
operating results, financial condition and cash flow from operations
designated as "Manufacturing" and "Financial Services." As used herein and in
the 1994 Annual Report on Form 10-K, Manufacturing includes the consolidated
financial results of the Company's manufacturing operations with its wholly-
owned financial services subsidiaries included on a one-line basis under the
equity method of accounting. Financial Services includes Navistar Financial
Corporation (Navistar Financial), and other wholly-owned foreign finance and
insurance subsidiaries.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flow for the
periods presented. Interim results are not necessarily indicative of results
for the full year. Certain 1994 amounts have been reclassified to conform
with the presentation used in the 1995 financial statements.
Note B Financial Statement Eliminations
The consolidated columns of the financial statements represent the
summation of Manufacturing and Financial Services after intercompany
transactions between Manufacturing and Financial Services have been
eliminated. The following are the intercompany amounts which have been
eliminated to arrive at the consolidated financial statements:
STATEMENT OF INCOME
Three Months Ended
January 31
---------------------
Millions of dollars 1995 1994
- --------------------------------------------------------------------------
Sales and revenues
Finance and insurance revenue .................. $ (13) $ (12)
Other income ................................... (1) -
-------- --------
$ (14) $ (12)
======== ========
Costs and expenses
Financing charges on sold receivables .......... $ (13) $ (12)
Interest expense ............................... (1) -
-------- --------
$ (14) $ (12)
======== ========
Income before income taxes, Financial Services ... $ (11) $ (19)
======== ========
<PAGE>
<PAGE 8>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note C Financial Statement Eliminations (Continued)
STATEMENT OF FINANCIAL CONDITION
January 31 October 31 January 31
Millions of dollars 1995 1994 1994
- -----------------------------------------------------------------------------
Receivables, net ...................... $ (86) $ (10) $ (105)
Equity in Financial Services
subsidiaries ........................ (257) (249) (246)
-------- -------- --------
Total assets .......................... $ (343) $ (259) $ (351)
======== ======== ========
Accounts payable ...................... $ (86) $ (13) $ (102)
Accrued liabilities ................... - 3 (3)
Shareowner's equity, Financial Services (257) (249) (246)
-------- -------- --------
Total liabilities
and shareowners' equity ............. $ (343) $ (259) $ (351)
======== ======== ========
STATEMENT OF CASH FLOW
Three Months Ended
January 31
---------------------
Millions of dollars 1995 1994
- --------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ......................... $ 23 $ (53)
Investment programs ................ (23) 46
Financing activities ............... - 7
-------- --------
Change in cash and cash equivalents ... $ - $ -
======== ========
<PAGE>
<PAGE 9>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note C Information Related to the Statement of Cash Flow
The following provides information related to the change in operating
assets and liabilities included in cash and cash equivalents provided by (used
in) operations:
Three Months Ended
January 31
---------------------
Millions of dollars 1995 1994
- --------------------------------------------------------------
MANUFACTURING
Decrease in receivables ............ $ 14 $ 16
Increase in inventories ............ (49) (52)
Increase in prepaid
and other current assets ......... (12) (15)
Decrease in accounts payable ....... (38) (37)
Increase (decrease)
in accrued liabilities ........... 16 (2)
Increase in advances
to Navistar Financial ............ (84) (100)
-------- --------
Manufacturing change in
operating assets and liabilities . (153) (190)
-------- --------
FINANCIAL SERVICES
Increase in receivables ............ - (24)
Increase (decrease)
in accounts payable .............. (15) 20
Increase in accrued liabilities .... 6 4
Increase in advances
from Transportation .............. 84 100
-------- --------
Financial Services change in
operating assets and liabilities . 75 100
-------- --------
Eliminations/reclassifications (a) ... 23 (46)
-------- --------
Change in operating assets
and liabilities .................... $ (55) $ (136)
======== ========
(a) Eliminations and reclassifications to the Statement of Cash Flow
primarily consist of "Acquisitions (over) under cash collections"
relating to Navistar Financial's wholesale notes and accounts. These
amounts are included on a consolidated basis as a change in operating
assets and liabilities under cash flow from operations which differs
from the Financial Services classification in which net changes in
wholesale notes and accounts are classified as cash flow from
investment programs.
Consolidated interest payments during the first three months of 1995 and
1994 were $18 million and $25 million, respectively.
<PAGE>
<PAGE 10>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note D. Postretirement Benefits
The Company provides other postretirement benefits to substantially all
of its employees. Expenses associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses; postretirement
health care and life insurance coverage for employees, retirees, surviving
spouses and dependents; as well as a provision for payment of profit sharing
to a separate independent retiree Supplemental Trust. This Trust was
established under the terms of a Settlement Agreement which restructured
postretirement health care and life insurance benefits. The assets held in
the Supplemental Trust can be used to potentially reduce retiree premiums, co-
payments and deductibles and provide additional benefits in the future.
The costs of postretirement benefits are segregated as a separate
component in the Statement of Income as follows:
Three Months Ended
January 31
---------------------
Millions of dollars 1995 1994
- --------------------------------------------------------------
Pension expense ..................... $ 29 $ 28
Health care and life insurance ...... 17 16
Profit sharing Trust contribution ... 4 2
-------- --------
Total postretirement benefits expense $ 50 $ 46
======== ========
On the Statement of Financial Condition, postretirement benefits
liabilities includes the following:
January 31 October 31 January 31
Millions of dollars 1995 1994 1994
- ----------------------------------------------------------------------------
Pension .......................... $ 568 $ 549 $ 608
Health care and life insurance ... 745 750 752
-------- -------- --------
Postretirement benefits
liabilities .................... $ 1,313 $ 1,299 $ 1,360
======== ======== ========
<PAGE>
<PAGE 11>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note E Income Taxes
Under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," deferred tax assets and liabilities are generally
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates in effect for the
years in which the differences are expected to reverse. Recognition of a net
deferred tax asset is allowed if future realization is more-likely-than-not.
Because the benefit of Net Operating Loss (NOL) carryforwards is
recognized as a deferred tax asset in the Statement of Financial Condition,
the Statement of Income includes income taxes calculated at the statutory
rate. The amount reported does not represent cash payment of income taxes
except for certain state income, foreign withholding and federal alternative
minimum taxes which are not material. In the Statement of Financial
Condition, the deferred tax asset is reduced by the amount of deferred tax
expense or increased by a deferred tax benefit recorded during the year.
Until the Company has utilized its significant NOL carryforwards, the cash
payment of income taxes will be minimal.
Note F Inventories
Inventories are as follows:
January 31 October 31 January 31
Millions of dollars 1995 1994 1994
- ----------------------------------------------------------------------------
Finished products ................... $ 202 $ 169 $ 215
Work in process ..................... 112 103 98
Raw materials and supplies .......... 161 157 149
-------- -------- --------
Total inventories ................... $ 475 $ 429 $ 462
======== ======== ========
Note G Retained Earnings
Retained earnings (deficit) are as follows:
January 31 October 31 January 31
Millions of dollars 1995 1994 1994
- ----------------------------------------------------------------------------
Retained earnings (deficit)
at beginning of year .............. $ (1,532) $ (1,588) $ (1,588)
Net income .......................... 23 82 16
Preferred dividends declared ........ - (36) (7)
Adjustment for excess additional
pension liability over intangible
pension assets, net of tax expense. - 10 -
-------- -------- --------
Retained earnings (deficit)
at end of period .................. $ (1,509) $ (1,532) $ (1,579)
======== ======== ========
<PAGE>
<PAGE 12>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements--(Unaudited)
Note H Financial Instruments
Derivatives are used by the Company to transfer or reduce risks in
foreign exchange and purchase transactions, reduce interest rate risks and
potentially increase the return on invested funds.
The use of derivatives by Manufacturing is generally not material as
disclosed in the Company's Annual Report on Form 10-K at October 31, 1994. At
January 31, 1995, Manufacturing had $11 million of collateralized mortgage
obligations in its investment portfolio and there were no hedging instruments
in effect which is unchanged from October 31, 1994.
Navistar Financial uses interest rate caps and swaps when needed to
convert floating rate funds to fixed and vice versa to match its receivable
asset portfolio and a variety of contracts to lock in interest rates during
the period in which retail receivables are being sold. In addition to the
instruments disclosed in the Annual Report on Form 10-K at October 31, 1994,
in February 1995, Navistar Financial entered into two short-term forward
interest rate lock agreements related to the future sale of retail
receivables. Navistar Financial, in anticipation of selling receivables at
some time prior to June 1, 1995, hedged, until that date, a total of $150
million against two U.S. Treasury notes maturing in 1997.
The Financial Services' insurance companies use CMO's and foreign
exchange future contracts to increase the yield on their investment
portfolios. These instruments totalled $24 million at January 31, 1995.
<PAGE>
<PAGE 13>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Consolidated
The Company reported net income of $23 million, or $.21 per common share,
for the first quarter ended January 31, 1995, an increase from the net income
of $16 million, or $.12 per common share, reported for the same period last
year.
Consolidated sales and revenues for the first quarter of 1995 totalled
$1,416 million, an increase of 24% from the $1,139 million reported for the
comparable quarter in 1994, a result of continued strong demand for trucks,
diesel engines and service parts.
Manufacturing
Manufacturing, excluding Financial Services, reported income before
income taxes of $25 million compared with pretax income of $5 million in the
first quarter of 1994. The improvement in 1995 operating results over 1994
reflects increased demand in each of the Company's businesses.
As a result of the continuing strength of the economies of the United
States and Canada, first quarter 1995 industry retail sales of Class 5 through
8 trucks totalled 90,000 units, an increase of 19% over 1994. Class 8 heavy
truck industry sales of 55,100 units during the first quarter of 1995 were 21%
higher than the 1994 level of 45,400 units. Industry sales of Class 5, 6 and
7 medium trucks, including school bus chassis, were up 17% to 34,900 units.
Industry sales of school bus chassis, which accounted for about 19% of the
medium truck market, increased 9%.
The Company's sales of trucks, diesel engines and service parts for the
first quarter of 1995 totalled $1,367 million, 26% above the $1,087 million
reported for the same period in 1994. The Company maintained its position as
sales leader in the combined United States and Canadian Class 5 through 8
truck market with a 26.1% market share, up from the 25.4% market share
reported for the first quarter of fiscal 1994.
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during the first quarter of fiscal 1995 totalled
33,400 units, an increase of 22% from the same period of fiscal 1994. Higher
shipments to a major automotive manufacturer to meet consumer demand for the
light trucks and vans which use this engine was the primary reason for the
increase.
Service parts sales of $180 million in the first quarter of fiscal 1995
improved 10% from the prior year's level.
Other income was $11 million in 1995, up from $5 million in the first
quarter of 1994 as a result of increased earnings on higher cash, cash
equivalent and marketable securities balances.
<PAGE>
<PAGE 14>
Manufacturing gross margin (sales less cost of sales) was 12.5% of sales
for the first quarter of 1995 compared with 13.0% for the same period in
fiscal 1994. The impact on gross margin from the increase in sales volume,
performance improvement programs and higher price realization was more than
offset by an increase in material costs, adverse Canadian foreign exchange and
higher operating costs associated with increased levels of production at both
the truck and engine operations.
Marketing and administrative expense increased to $62 million in 1995
from $56 million in the first quarter of 1994 primarily as a result of higher
sales and distribution expense. Finance service charges on sold receivables
were $19 million, up 27% over the same period in 1994, as a result of higher
truck sales and increased interest rates.
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended
January 31
---------------------
1995 1994
-------- --------
Income before income taxes:
Navistar Financial Corporation ...... $ 10 $ 18
Foreign Subsidiaries ................ 1 1
-------- --------
Total ............................. 11 19
Income tax expense .................. (4) (7)
-------- --------
Net income .......................... $ 7 $ 12
======== ========
Navistar Financial's income before income taxes for the first quarter of
fiscal 1995 was $10 million, a decrease from the $18 million reported in 1994.
The change was primarily a result of lower margins on retail financing as
rising interest costs could not be offset fully by increased retail note
pricing. During the first quarter of 1995, sales of receivables totalled $315
million with a small loss compared with $538 million sold a year ago with a
gain of $10 million. The decline in retail note income was offset in part by
an increased volume of wholesale financing to support the higher demand for
trucks.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated
Consolidated cash flow is generated from the manufacture, sale and
financing of trucks, diesel engines and service parts. Total cash, cash
equivalents and marketable securities of the Company amounted to $709 million
at January 31, 1995, $861 million at October 31, 1994 and $518 million at
January 31, 1994.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services operations.
<PAGE>
<PAGE 15>
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $538 million at January 31,
1995, $665 million at October 31, 1994 and $330 million at January 31, 1994.
The following is a summary of cash flow for the three months ended January 31,
1995.
Three Months Ended
Millions of dollars January 31, 1995
- -----------------------------------------------------------------------------
Cash and cash equivalents used in:
Operations ........................ $ (106)
Investment programs ............... (76)
Financing activities .............. (6)
--------
Decrease in cash
and cash equivalents .......... $ (188)
========
Operations used $106 million in cash during the first quarter of 1995 as
follows:
Three Months Ended
Millions of dollars January 31, 1995
- -----------------------------------------------------------------------------
Net income .......................... $ 23
Items not affecting cash,
principally depreciation .......... 13
Non-cash income tax expense ......... 11
Change in operating assets
and liabilities:
Decrease in receivables ......... $ 14
Increase in inventories ......... (49)
Decrease in accounts payable .... (38)
Increase in advance
to Navistar Financial ......... (84)
Increase in accrued
liabilities/other ............. 4 (153)
-------- --------
Cash used in operations ............. $ (106)
========
The $153 million net change in operating assets and liabilities consists
primarily of a $49 million increase in inventories reflecting the impact of
higher sales volume and production, a $38 million decrease in accounts payable
between October 31, 1994 and January 31, 1995 reflecting a normal seasonal
pattern resulting from a scheduled Christmas plant shutdown and an advance to
Navistar Financial of $84 million.
Investment programs used $76 million in cash during the first three
months of fiscal 1995 as a result of a $61 million net increase in marketable
securities and capital expenditures of $18 million.
Cash used for financing programs consisted of $7 million in cash
dividends paid on the Series G Preferred Stock offset by a $1 million net
increase in debt.
At January 31, 1995, the Company had outstanding capital commitments of
$37 million. The commitments include truck and engine product development and
ongoing facility maintenance programs. The Company finances capital
expenditures principally through internally generated cash. Capital leasing
is used to fund selected projects based on economic and operating factors.
<PAGE>
<PAGE 16>
Management's discussion of the future liquidity of manufacturing's
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
Financial Services
Total cash, cash equivalents and marketable securities of Financial
Services were $171 million at January 31, 1995, $196 million at October 31,
1994 and $188 million at January 31, 1994. The cash flow for Financial
Services for the three months ended January 31, 1995 is summarized as follows:
Three Months Ended
Millions of dollars January 31, 1995
- -----------------------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ....................... $ 81
Investment programs .............. 139
Financing activities ............. (243)
--------
Decrease in cash
and cash equivalents ......... $ (23)
========
Operations provided $81 million in cash in the first quarter of 1995
primarily from $84 million in funds advanced to Navistar Financial by
Transportation.
The Financial Services investment programs provided $139 million in cash
principally as a result of collections on and sales of retail notes.
Financial Services used cash generated from operations and investment
programs during the first quarter of 1995 to reduce debt by a net amount of
$243 million.
During the first three months of fiscal 1995, Navistar Financial supplied
92% of the wholesale financing of new trucks to Transportation's dealers,
unchanged from the comparable period in 1994. Navistar Financial's share of
the retail financing of new trucks sold to customers in the United States was
12% during the first quarter of 1995, a decrease from 15% in 1994. Navistar
Financial's reduced level of retail financing is a result of competition and
liquidity in the commercial financing markets.
At January 31, 1995, available funding under Navistar Financial's amended
and restated credit facility and the asset-backed commercial paper facility
was $712 million, of which $59 million provided funding backup for the
outstanding short-term debt. The remaining $653 million when combined with
unrestricted cash and cash equivalents made $657 million available to fund the
general business purposes of Navistar Financial. In addition to the committed
credit facilities, Navistar Financial also utilizes a $300 million revolving
wholesale note sales trust providing for the continuous sale of eligible
wholesale notes on a daily basis. The sales trust is composed of three $100
million pools of notes maturing serially from 1997 to 1999.
Management's discussion of the future liquidity of financial services
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
<PAGE>
<PAGE 17>
BUSINESS OUTLOOK
Based on continuing strong demand, key market indicators and record order
backlogs, the Company currently projects 1995 United States and Canadian Class
5, 6 and 7 medium truck demand, including school bus chassis, to be 154,500
units, up from the previous estimate of 150,500 units and 15% above 1994 unit
sales. In addition, the Company projects heavy truck demand at 215,000 units,
an increase from the previous estimate of 205,000 units and 5% above 1994 unit
sales.
The Company's diesel engine shipments to original equipment manufacturers
are expected to be 153,800 units, 18% higher in 1995 than in 1994. Sales of
service parts by the Company are forecast to grow 6% in 1995 to $757 million.
It is the opinion of management that, in the absence of significant
unanticipated cash demands, current and forecasted cash flow will provide a
basis for financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. In addition, management believes
that collections on the outstanding receivables portfolios as well as funds
available from various funding sources will permit the Financial Services
subsidiaries to meet the financing requirements of the Company's dealers and
customers.
<PAGE>
<PAGE 18>
Navistar International Corporation and Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal Proceedings"
in the Company's definitive Form 10-K dated January 27, 1995,
Commission File No. 1-9618.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 10-Q Page
---------
11. Computation of Net Income Per Share E-1
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed for the three months
ended January 31, 1995.
<PAGE>
<PAGE 19>
SIGNATURE
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NAVISTAR INTERNATIONAL CORPORATION
- ----------------------------------
(Registrant)
/s/ R. I. Morrison
- ----------------------------------
R. I. Morrison
Vice President and Controller
March 13, 1995
<PAGE 1>
<TABLE>
<CAPTION>
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED)
A. Primary: See the Statement of Income of this Form 10-Q.
B. Full Dilution: Net income per common share assuming full dilution is computed by
assuming that all options and warrants which are exercisable below market prices are
assumed to be exercised and the proceeds applied to reduce common stock outstanding. The
computations assume that convertible preferred and preference stock are converted to
common stock. Income is divided by the average number of common shares outstanding and
unconditionally issuable at the end of each month during the period, adjusted for the net
effects of the exercise of options and warrants and the conversion of convertible
preferred and preference stocks.
Three Months Ended
January 31
--------------------
Millions of dollars 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net income ................................................. $ 23 $ 16
======== ========
Average Common and common equivalent shares (millions):
Average common shares outstanding
as adjusted per primary calculations ..................... 74.5 74.8
Assuming conversion of Series G ............................ .6 .6
-------- --------
Average common and dilutive common equivalent shares
as adjusted .............................................. 75.1 75.4
======== ========
Net income per common share assuming full dilution (dollars):
Net income ................................................. $ .31 # $ .21 #
======== ========
- -----------------
<FN>
# This calculation is submitted in accordance with Regulation S-K item 601(b)(11) of the
Securities Exchange Act although it is contrary to paragraph 40 of APB Opinion No. 15 because
it produces an anti-dilutive result.
</TABLE>
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 346
<SECURITIES> 363
<RECEIVABLES> 1,377
<ALLOWANCES> (23)
<INVENTORY> 475
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,286
<DEPRECIATION> (703)
<TOTAL-ASSETS> 4,794
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 820
<COMMON> 2,129
0
244
<OTHER-SE> (1,533)
<TOTAL-LIABILITY-AND-EQUITY> 4,794
<SALES> 1,367
<TOTAL-REVENUES> 1,416
<CGS> 1,198
<TOTAL-COSTS> 1,309
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 36
<INCOME-TAX> (13)
<INCOME-CONTINUING> 23
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<FN>
<F1>The Company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
