<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 July 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 September 5, 1995, the number of shares outstanding of the
registrant's common stock was 50,520,455 and the Class B Common was 24,676,976.
<PAGE>
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEX
----------
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months and Nine Months
Ended July 31, 1995 and 1994 ...................... 3
Statement of Financial Condition --
July 31, 1995, October 31, 1994 and July 31, 1994 . 5
Statement of Cash Flow --
Nine Months Ended July 31, 1995 and 1994 .......... 7
Notes to Financial Statements ........................ 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 12
Part II. Other Information:
Item 1. Legal Proceedings .............................. 17
Item 6. Exhibits and Reports on Form 8-K ............... 17
Signature ............................................... 18
Exhibit 11 ................................................. E-1
<PAGE>
<PAGE 3>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF INCOME (Unaudited)
----------------------------------------------------------------------------------
Millions of dollars, except per share data
----------------------------------------------------------------------------------
Three Months Ended July 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 products ............. $ 1,455 $ 1,211 $ 1,455 $ 1,211 $ - $ -
Finance and insurance revenue .............. 50 38 - - 66 50
Other income ............................... 9 5 10 7 - 2
-------- -------- -------- -------- -------- --------
Total sales and revenues ................. 1,514 1,254 1,465 1,218 66 52
-------- -------- -------- -------- -------- --------
Costs and expenses
Cost of products and services sold ......... 1,253 1,059 1,251 1,057 2 2
Postretirement benefits .................... 50 40 Note C 50 40 - -
Engineering expense ........................ 30 25 30 25 - -
Marketing and administrative expense ....... 79 65 72 59 7 6
Interest expense ........................... 22 17 1 3 22 18
Financing charges on sold receivables ...... 5 4 21 16 - -
Insurance claims and underwriting expense .. 12 12 - - 12 12
-------- -------- -------- -------- -------- --------
Total costs and expenses ................. 1,451 1,222 1,425 1,200 43 38
-------- -------- -------- -------- -------- --------
Income before income taxes
Manufacturing ............................ - - 40 18 - -
Financial Services ....................... - - 23 14 - -
-------- -------- -------- -------- -------- --------
Income before income taxes ............. 63 32 63 32 23 14
Income tax expense ..................... (24) (12) Note D (24) (12) (9) (4)
-------- -------- -------- -------- -------- --------
Net income ................................. $ 39 $ 20 $ 39 $ 20 $ 14 $ 10
======== ======== ======== ========
Less dividends on Series G preferred stock . 8 8
-------- --------
Net income applicable to common stock ...... $ 31 $ 12
======== ========
Net income per common share ................ $ .43 $ .17
======== ========
Average number of common and dilutive
common equivalent shares outstanding
(millions) ............................... 74.3 74.4
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 4>
<TABLE>
<CAPTION>
Nine Months Ended July 31
---------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ------------------------- -------------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 4,408 $ 3,648 $ 4,408 $ 3,648 $ - $ -
125 118 - - 168 155
37 22 33 19 8 7
-------- -------- -------- -------- -------- --------
4,570 3,788 4,441 3,667 176 162
-------- -------- -------- -------- -------- --------
3,817 3,196 3,812 3,192 5 4
155 130 154 129 1 1
80 69 80 69 - -
221 195 200 176 21 19
65 56 6 8 63 52
20 10 63 47 - -
39 41 - - 39 41
-------- -------- -------- -------- -------- --------
4,397 3,697 4,315 3,621 129 117
-------- -------- -------- -------- -------- --------
- - 126 46 - -
- - 47 45 - -
-------- -------- -------- -------- -------- --------
173 91 173 91 47 45
(65) (32) (65) (32) (17) (15)
-------- -------- -------- -------- -------- --------
$ 108 $ 59 $ 108 $ 59 $ 30 $ 30
======== ======== ======== ========
22 22
-------- --------
$ 86 $ 37
======== ========
$ 1.17 $ .50
======== ========
74.4 74.6
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries 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.
</TABLE>
<PAGE>
<PAGE 5>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
------------------------------------------------------------------------------------------------------------------------
Millions of dollars
------------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
--------------------------------------
July 31 October 31 July 31 Note
1995 1994 1994 Reference
-------- ---------- -------- ---------
<S> <C> <C> <C> <S>
ASSETS
-----------------------------------
Cash and cash equivalents ....................................... $ 298 $ 557 $ 361
Marketable securities ........................................... 431 304 193
Receivables, net ................................................ 1,305 1,508 1,380
Inventories ..................................................... 477 429 444 Note E
Prepaid pension assets .......................................... 56 63 95
Property, net of accumulated depreciation
and amortization of $739, $684 and $647 ....................... 617 578 549
Equity in Financial Services subsidiaries ....................... - - -
Investments and other assets .................................... 177 165 223
Intangible pension assets ....................................... 309 309 340
Deferred tax asset .............................................. 1,075 1,134 1,150 Note D
-------- -------- --------
Total assets .................................................... $ 4,745 $ 5,047 $ 4,735
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Liabilities
Accounts payable ................................................ $ 737 $ 836 $ 690
Accrued liabilities ............................................. 494 443 407
Short-term debt ................................................. 366 522 80
Long-term debt .................................................. 573 696 958
Other long-term liabilities ..................................... 303 298 299
Loss reserves and unearned premiums ............................. 123 136 138
Postretirement benefits liabilities ............................. 1,236 1,299 1,362 Note C
-------- -------- --------
Total liabilities ............................................. 3,832 4,230 3,934
-------- -------- --------
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 4
Common stock (50.5, 50.0 and 49.2 million shares issued) ........ 1,635 1,628 1,628
Class B Common (24.7, 25.0 and 25.5 million shares issued) ...... 496 501 501
Retained earnings (deficit) - balance accumulated
after the deficit reclassification ............................ (1,438) (1,532) (1,551)
Accumulated foreign currency translation adjustments and
net unrealized holding gains (losses) on marketable securities. (1) (6) (3)
Common stock held in treasury, at cost .......................... (23) (18) (18)
-------- -------- --------
Total shareowners' equity ..................................... 913 817 801
-------- -------- --------
Total liabilities and shareowners' equity ....................... $ 4,745 $ 5,047 $ 4,735
======== ======== ========
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 6>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
------------------------------------------ ------------------------------------------
July 31 October 31 July 31 July 31 October 31 July 31
1995 1994 1994 1995 1994 1994
-------- ---------- -------- -------- ---------- --------
<C> <C> <C> <C> <C> <C>
$ 223 $ 499 $ 313 $ 75 $ 58 $ 48
292 166 46 139 138 147
276 176 209 1,149 1,342 1,222
477 429 444 - - -
55 62 94 1 1 1
582 549 529 35 29 20
277 249 250 - - -
141 151 207 36 14 16
309 309 340 - - -
1,075 1,134 1,150 - - -
-------- -------- -------- -------- -------- --------
$ 3,707 $ 3,724 $ 3,582 $ 1,435 $ 1,582 $ 1,454
======== ======== ======== ======== ======== ========
$ 683 $ 779 $ 627 $ 170 $ 70 $ 114
466 420 381 32 20 26
5 3 3 361 519 77
117 124 125 456 572 833
294 289 291 9 9 8
- - - 123 136 138
1,229 1,292 1,354 7 7 8
-------- -------- -------- -------- -------- --------
2,794 2,907 2,781 1,158 1,333 1,204
-------- -------- -------- -------- -------- --------
240 240 240 - - -
4 4 4 - - -
1,635 1,628 1,628 178 178 178
496 501 501 - - -
(1,438) (1,532) (1,551) 97 73 72
(1) (6) (3) 2 (2) -
(23) (18) (18) - - -
-------- -------- -------- -------- -------- --------
913 817 801 277 249 250
-------- -------- -------- -------- -------- --------
$ 3,707 $ 3,724 $ 3,582 $ 1,435 $ 1,582 $ 1,454
======== ======== ======== ======== ======== ========
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries 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.
</TABLE>
<PAGE>
<PAGE 7>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW (Unaudited)
----------------------------------------------------------------------------------
Nine Months Ended July 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 .................................... $ 108 $ 59 $ 108 $ 59 $ 30 $ 30
Adjustments to reconcile net income to cash
provided by (used in) operations:
Depreciation and amortization ............... 63 58 59 55 4 3
Equity in earnings of Financial
Services, net of dividends received ....... - - (24) (8) - -
Non-cash income tax expense ................. 58 28 58 28 - -
Additional pension funding .................... (72) - (72) - - -
Other, net .................................... (3) (13) 5 1 (8) (14)
Change in operating assets and liabilities:
(Increase) decrease in receivables .......... 146 (37) Note B (3) (37) - -
Increase in inventories ..................... (48) (36) (48) (36) - -
Decrease in accounts payable ................ (103) (40) (95) (47) (3) (6)
Increase (decrease) in accrued liabilities/
other ..................................... 71 - 71 (3) 6 3
------ ------ ------ ------ ------ ------
Cash provided by (used in) operations ......... 220 19 59 12 29 16
------ ------ ------ ------ ------ ------
Cash flow from investment programs
Purchase of retail notes
and lease receivables ....................... (748) (676) - - (748) (676)
Collections/sales of retail notes
and lease receivables ....................... 805 920 - - 805 920
Cash collections in excess of acquisitions
of wholesale notes and accounts receivable .. - - Note B - - 138 13
Purchase of marketable securities ............. (473) (545) (419) (489) (54) (56)
Sales or maturities of marketable securities .. 352 572 293 528 59 44
Proceeds from property sold under
sale/leaseback .............................. - 87 - 87 - -
Capital expenditures .......................... (91) (53) (91) (53) - -
Advance to Navistar Financial ................. - - (99) (49) 99 49
Other investment programs, net ................ 4 7 13 2 (9) 5
------ ------ ------ ------ ------ ------
Cash provided by (used in) investment programs (151) 312 (303) 26 290 299
------ ------ ------ ------ ------ ------
Cash flow from financing activities
Principal payments on debt .................... (410) (117) (10) (39) (400) (78)
Net increase in notes and commercial paper debt 211 - 5 - 206 -
Decrease in debt outstanding under
bank revolving credit facility .............. (102) (211) - - (102) (211)
Dividends paid ................................ (22) (50) (22) (50) (6) (22)
Repurchase of Class B Common stock ............ (5) (13) (5) (13) - -
------ ------ ------ ------ ------ ------
Cash used in financing activities ............. (328) (391) (32) (102) (302) (311)
------ ------ ------ ------ ------ ------
Cash and cash equivalents
Increase (decrease) during the period ....... (259) (60) (276) (64) 17 4
At beginning of the year .................... 557 421 499 377 58 44
------ ------ ------ ------ ------ ------
Cash and cash equivalents at end of the period. $ 298 $ 361 $ 223 $ 313 $ 75 $ 48
====== ====== ====== ====== ====== ======
<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.
</TABLE>
<PAGE>
<PAGE 8>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note A. Summary of Accounting Policies
Navistar International Corporation is a holding company and its 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 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 of Transportation.
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. Supplemental Cash Flow Information
On the Statement of Cash Flow, there is a reclassification of "Cash
collections in excess of acquisitions" 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 nine months of 1995 and
1994 were $61 million and $60 million, respectively. Consolidated tax
payments during the first nine months of 1995 and 1994 were $5 million and $2
million, respectively.
Note C. 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 and
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 reduce retiree premiums,
co-payments and deductibles and provide additional benefits in the future.
<PAGE>
<PAGE 9>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note C. Postretirement Benefits (Continued)
The costs of postretirement benefits are segregated as a separate
component in the Statement of Income as follows:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ ----------------
Millions of dollars 1995 1994 1995 1994
----------------------------------------------------------------------------
Pension expense ..................... $ 26 $ 26 $ 83 $ 81
Health care and life insurance ...... 18 14 53 47
Profit sharing Trust contribution ... 6 - 19 2
------ ------ ------ ------
Total postretirement benefits expense $ 50 $ 40 $ 155 $ 130
====== ====== ====== ======
On the Statement of Financial Condition, the postretirement benefits
liabilities include the following:
July 31 October 31 July 31
Millions of dollars 1995 1994 1994
-----------------------------------------------------------------------------
Pension ............................. $ 484 $ 549 $ 620
Health care and life insurance ...... 752 750 742
------ ------ ------
Postretirement benefits liabilities . $1,236 $1,299 $1,362
====== ====== ======
Note D. 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 deferred tax
asset is allowed if future realization is more likely than not.
The benefit of Net Operating Loss (NOL) carryforwards has been recognized
as a deferred tax asset, net of a valuation allowance, in the Statement of
Financial Condition. In addition, 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. These NOL carryforwards will expire between 1997 and 2008, as
disclosed in Note 5 to the Company's 1994 Annual Report on Form 10-K.
The domestic component of income before income taxes for the nine months
ended July 31, 1995 and 1994 was $172 million and $86 million, respectively.
The foreign component of pretax income for the nine months ended July 31, 1995
and 1994 was $1 million and $5 million, respectively.
<PAGE>
<PAGE 10>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note E. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1995 1994 1994
-----------------------------------------------------------------------------
Finished products ................... $ 215 $ 169 $ 181
Work in process ..................... 100 103 97
Raw materials and supplies .......... 162 157 166
------ ------ ------
Total inventories ................... $ 477 $ 429 $ 444
====== ====== ======
Note F. Financial Instruments
Derivatives are used by the Company to transfer or reduce risks of
foreign exchange and interest rate volatility and potentially increase the
return on invested funds.
During the third quarter of 1995, Manufacturing entered into four forward
contracts to hedge its foreign exchange exposure to the Canadian dollar on
firm commitments. These foreign currency contracts were valued at $47 million
as of July 31, 1995 and mature within three months of origination. Gains or
losses on these contracts will be recognized at the completion of the related
contract. In addition, Manufacturing had $44 million of collateralized
mortgage obligations in its investment portfolio at July 31, 1995. At
July 31, 1995, the unrecognized loss on the four forward contracts and the
collateralized mortgage obligations was less than $1 million.
Navistar Financial uses a variety of contracts to lock in interest rates
during the period in which retail notes are being sold. During the second
quarter of 1995, Navistar Financial entered into four short-term forward
interest rate lock agreements related to the future sale of retail
receivables. Navistar Financial hedged a total of $300 million against three
U.S. Treasury notes maturing in 1997. These agreements were closed during May
1995 in conjunction with the sale of $425 million of retail notes receivable.
In June and July 1995, Navistar Financial entered into four short-term
forward interest rate lock agreements related to the future sale of retail
receivables. Navistar Financial, in anticipation of selling receivables in
late October or early November, hedged until that time, a total of $225
million against a U.S. Treasury note maturing in 1997.
Navistar Financial's insurance subsidiary had $29 million of
collateralized mortgage obligations in its investment portfolio at July 31,
1995.
Note G. Legal Proceedings
During the fourth quarter of 1994, Transportation reached an agreement
with the Economic Development Administration in settlement of commercial and
environmental disputes related to the Wisconsin Steel property as disclosed in
Note 19 to the Company's 1994 Annual Report on Form 10-K. At July 31, 1995, a
final consent decree remained subject to approval by the U.S. Department of
Justice and Transportation.
<PAGE>
<PAGE 11>
Navistar International Corporation and Subsidiaries
Notes to Financial Statements
(Unaudited)
Note H. Environmental Matters
In the fourth quarter of 1994, Transportation recorded a charge for
potential clean-up costs related to the former Solar Division as disclosed in
Note 6 to the Company's 1994 Annual Report on Form 10-K. In June 1995,
Transportation and Solar Turbines, Inc. (Solar) entered into an agreement
providing for the joint funding of future site studies and necessary
corrective action at the facility. The agreement also provides for
arbitration to resolve a dispute over past remediation costs incurred by
Solar.
There has been no change in the Company's estimate of the anticipated
clean-up costs of the Wisconsin Steel and Solar sites reported at October 31,
1994.
<PAGE>
<PAGE 12>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Consolidated
The Company reported net income of $39 million, or $.43 per common share,
for the third quarter ended July 31, 1995. This is almost double the net
income for the same period last year of $20 million, or $.17 per common share.
For the first nine months of 1995, the Company reported net income of $108
million, an increase from the $59 million reported for the same period in
1994.
Consolidated sales and revenues for the third quarter of 1995 totalled
$1,514 million, an increase of 21% from the $1,254 million reported for the
comparable quarter in 1994. During the first nine months of 1995,
consolidated sales and revenues increased to $4,570 million from $3,788
million. The increase in sales and revenues was the result of continued
strong demand for trucks and diesel engines.
Manufacturing
Third Quarter Ended July 31, 1995
---------------------------------
Manufacturing, excluding Financial Services, reported income before
income taxes of $63 million compared with pretax income of $32 million in the
third quarter of 1994. The increase in 1995 operating results over 1994
reflects the effects of margin improvements which were achieved through
continued strong sales of the Company's truck and engine products, improved
pricing and various cost improvement initiatives.
Although certain key economic indicators of the truck industry have
slowed, they continue to demonstrate year-over-year growth and, as a result,
third quarter 1995 industry retail sales in the United States and Canada of
Class 5 through 8 trucks totalled 100,600 units, an increase of 14% over 1994.
Class 8 heavy truck industry sales of 60,200 units during the third quarter of
1995 were 13% higher than the 1994 level of 53,100 units. Industry sales of
Class 5, 6 and 7 medium trucks, including school bus chassis, were up 14% to
40,400 units. Industry sales of school bus chassis account for about 22% of
the medium truck market.
The Company's sales of trucks, diesel engines and service parts for the
third quarter of 1995 totalled $1,455 million, 20% above the $1,211 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 26.9% market share, unchanged from the same period last
year.
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during the third quarter of fiscal 1995 totalled
38,800 units, an increase of 11% 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.
<PAGE>
<PAGE 13>
Service parts sales of $178 million in the third quarter of 1995 were
unchanged from the prior year's level.
Other income was $9 million in 1995, up from $5 million in the third
quarter of 1994 as a result of increased interest income on higher cash, cash
equivalent and marketable securities balances.
Manufacturing gross margin (sales less cost of sales) was 14.0% of sales
for the third quarter of 1995 compared with 12.7% for the same period in
fiscal 1994. The higher gross margin is primarily a result of improved
operating efficiency and better net price realization, partially offset by
higher material costs, additional overtime costs to meet demand for the
Company's products and the impact of profit sharing on increased earnings.
Postretirement benefits, which include pension expense and postretirement
health care and life insurance coverage for employees, retirees, surviving
spouses and dependents, increased to $50 million in 1995 from $40 million in
the third quarter of 1994. This increase reflects a provision under the terms
of a retiree Settlement Agreement which requires payment of profit sharing to
an independent retiree Supplemental Trust.
Marketing and administrative expense increased to $72 million in the
third quarter of 1995 from $59 million in 1994 primarily as a result of higher
sales and distribution expense and the provision for payment to employees as
provided by the Company's management incentive program.
Nine Months Ended July 31, 1995
-------------------------------
Pretax income, excluding Financial Services, for the first nine months of
1995 was $173 million, an increase from the $91 million reported for the same
period of 1994.
Manufacturing's sales and revenues during this period totalled $4,441
million, 21% higher than the first three quarters of 1994. During the first
nine months of 1995, sales of trucks improved 22% while sales of diesel
engines to original equipment manufacturers increased 34%. Service parts
sales increased slightly over the same period in 1994.
Industry retail sales of Class 5 through 8 trucks during the first nine
months of fiscal 1995 totalled 287,500 units, an increase from the 247,000
units sold during this period in 1994. The Company remained the sales leader
in the combined United States and Canadian Class 5 through 8 truck market for
the first three quarters of the fiscal year, although its market share
declined slightly to 26.1% from 26.5% for the same period last year.
During the first three quarters of 1995, other income totalled $33
million, up from $19 million in 1994 as a result of increased interest income
on higher cash, cash equivalents and marketable securities balances.
Manufacturing gross margin for the first nine months of 1995 was 13.5% of
sales, an improvement from 12.5% during the same period of 1994. The factors
which influenced gross margin during the third quarter of 1995 were also
responsible for the change during the first three quarters of the year.
<PAGE>
<PAGE 14>
Financial Services
Net income, in millions of dollars, of the subsidiaries comprising
Financial Services is as follows:
Three Months Ended Nine Months Ended
July 31 July 31
------------------ ----------------
Millions of dollars 1995 1994 1995 1994
----------------------------------------------------------------------------
Income before income taxes:
Navistar Financial Corporation .... $ 22 $ 13 $ 44 $ 43
Foreign Subsidiaries .............. 1 1 3 2
------ ------ ------ ------
Total ........................... 23 14 47 45
Income tax expense ................ (9) (4) (17) (15)
------ ------ ------ ------
Net income .......................... $ 14 $ 10 $ 30 $ 30
====== ====== ====== ======
The $9 million increase in Navistar Financial's income before income
taxes for the third quarter of fiscal 1995 reflects improved margins on retail
financing resulting in higher gains on sales of retail notes. Income also
increased as a result of the higher volume of wholesale financing to support
the demand for trucks and a $2 million gain on the sale of $200 million of
wholesale note backed certificates to the public.
Navistar Financial's income before income taxes for the first nine months
of 1995 was $1 million higher than the same period in 1994. The change is a
result of higher income from an increased volume of wholesale financing to
support the demand for trucks and improvement in Navistar Financial's
borrowing spread over market interest rates. The increase was offset by lower
gains on sales of retail notes and lower income from Navistar Financial's
insurance subsidiary, reflecting higher liability loss experience and lower
written premium volume.
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 $729 million
at July 31, 1995, $861 million at October 31, 1994 and $554 million at July
31, 1994.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services operations.
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $515 million at July 31, 1995,
$665 million at October 31, 1994 and $359 million at July 31, 1994. This
included cash and cash equivalents of $223 million at July 31, 1995, $499
million at October 31, 1994 and $313 million at July 31, 1994.
<PAGE>
<PAGE 15>
Cash generated by operations during the first nine months of 1995
totalled $59 million. Cash was provided by net income of $108 million and $98
million of reconciling non-cash items. These amounts were offset by
additional pension funding of $72 million and a net change in operating assets
and liabilities which resulted in a cash outflow of $75 million.
The net change in other operating assets and liabilities of $75 million,
includes a $48 million increase in inventories and a $95 million decrease in
accounts payable primarily reflecting the effects of third quarter
manufacturing production schedules and a $71 million increase in other
liabilities as a result of the timing of miscellaneous payments.
The Company used cash and cash equivalents to fund its investment and
financing activities. Investment activities principally included capital
expenditures of $91 million for truck product improvement, to increase diesel
engine capacity and to improve cost performance, a net increase in marketable
securities of $126 million and a $99 million advance to Navistar Financial.
Financing programs used cash primarily to pay $22 million in dividends on the
Series G preferred stock.
At July 31, 1995, the Company had outstanding capital commitments of $52
million. The commitments include truck and engine product development,
expansion of production facilities and ongoing 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.
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 $214 million at July 31, 1995, $196 million at October 31, 1994
and $195 million at July 31, 1994. These balances included cash and cash
equivalents of $75 million at July 31, 1995, $58 million at October 31, 1994
and $48 million at July 31, 1994.
Operations provided $29 million in cash during the first nine months of
1995 primarily from net income of $30 million. Cash from operations and from
investment programs funded Financial Services' financing activities.
Investment programs provided $290 million in cash during this period as a
result of a net decrease of $195 million in retail and wholesale finance
receivables and $99 million in funds advanced to Navistar Financial by
Transportation. Financing activities used $302 million during the first three
quarters of 1995 reflecting a net decrease in debt of $296 million.
During the first nine months of 1995, Navistar Financial supplied 93% 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 in the United States was 13% during the first
three quarters of 1995, a decrease from 16% in 1994. Navistar Financial's
reduced level of retail financing is a result of competition and liquidity in
the commercial financing markets.
At July 31, 1995, available funding under Navistar Financial's amended
and restated credit facility and the asset-backed commercial paper facility
was $748 million, of which $43 million provided funding backup for the
outstanding short-term debt. The remaining $705 million, when combined with
unrestricted cash and cash equivalents, made $748 million available to fund
the general business purposes of Navistar Financial.
<PAGE>
<PAGE 16>
In addition to the committed credit facilities, Navistar Financial also
utilizes a $500 million revolving wholesale note sales trust providing for the
continuous sale of eligible wholesale notes on a daily basis. During the
third quarter of 1995, Navistar Financial sold $200 million of medium term
floating rate pass through certificates securitized by wholesale notes
receivable to public investors. This sale increased Navistar Financial's
revolving wholesale note sales trust from $300 million to $500 million. The
sales trust is composed of three $100 million pools of notes maturing serially
from 1997 to 1999 and the $200 million pool maturing in 2004.
BUSINESS OUTLOOK
Based on current demand, key market indicators and order backlog, the
Company currently projects 1995 United States and Canadian Class 5, 6 and 7
medium truck demand, including school bus chassis, to be 157,000 units, 17%
above 1994 unit sales. In addition, the Company projects Class 8 heavy truck
demand will reach 225,000 units, more than 9% above 1994 unit sales. There
are, however, indications that the Class 8 heavy truck market is beginning to
turn downward based on a slowdown in truck orders across the industry in
recent weeks.
A labor slowdown at one of the Company's suppliers has caused disruption
in the supply of frame rails to the Company and many of its competitors in the
Class 8 heavy truck industry. Although the supplier has not resolved its
labor problems, the Company has been advised that the supplier will meet the
Company's needs for the foreseeable future. Provided the supplier meets its
production commitments, the Company does not anticipate a material impact on
its fourth quarter results.
The Company's diesel engine shipments to original equipment manufacturers
are expected to be 159,500 units, 22% higher in 1995 than in 1994. Sales of
service parts by the Company are forecast to grow 2% in 1995.
Demand for Class 5, 6 and 7 medium trucks, Class 8 heavy trucks and mid-
range diesel engines is cyclical. These markets are affected by such economic
factors as industrial production, construction, demand for consumer durable
goods, interest rates and the earnings and cash flow of U.S. and Canadian
corporations. Demand for service parts and revenues from finance and
insurance operations tend to follow the truck industry cycle but are more
stable. The cyclical nature of these markets affects the Company's net income
and its ability to generate cash from operations.
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 17>
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
July 31, 1995.
<PAGE>
<PAGE 18>
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/ Robert I. Morrison
----------------------------------
Robert I. Morrison
Vice President and Controller
September 12, 1995
<PAGE 1>
Exhibit 11
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31 July 31
------------------ --------------------
Millions of dollars 1995 1994 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income ............................ $ 45 $ 20 $ 114 $ 59
======== ======== ======== ========
Average common and common
equivalent shares (millions):
Average common and dilutive common
equivalent shares per primary
computation (millions) .............. 74.2 74.3 74.3 74.5
Assuming conversion of Series G ....... .6 .6 .6 .6
Assuming conversion of Series D ....... - .1 .1 .1
Assuming exercise of options reduced
by the number of shares which could
have been purchased with the proceeds
from exercise of such options ....... .1 - - -
-------- -------- -------- --------
Average common and dilutive common
equivalent shares as adjusted ....... 74.9 75.0 75.0 75.2
======== ======== ======== ========
Income per common share assuming
full dilution (dollars):
Net income ............................ $ .60 # $ .26 # $ 1.52 # $ .78 #
======== ======== ======== ========
----------------
<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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 298
<SECURITIES> 431
<RECEIVABLES> 1,328
<ALLOWANCES> (23)
<INVENTORY> 477
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,356
<DEPRECIATION> (739)
<TOTAL-ASSETS> 4,745
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 939
<COMMON> 2,131
0
244
<OTHER-SE> (1,462)
<TOTAL-LIABILITY-AND-EQUITY> 4,745
<SALES> 4,408
<TOTAL-REVENUES> 4,570
<CGS> 3,817
<TOTAL-COSTS> 4,174
<OTHER-EXPENSES> 155
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 173
<INCOME-TAX> (65)
<INCOME-CONTINUING> 108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.52
<FN>
<F1>The Company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
