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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 (FEE REQUIRED)
For the fiscal year ended October 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
---------------------------------------------- -----------------------
Common stock, par value $0.10 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
$6.00 cumulative convertible preferred stock,
Series G (with $1.00 par value) New York Stock Exchange
Cumulative convertible junior preference stock,
Series D (with $1.00 par value) New York Stock Exchange
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 January 20, 1995, the aggregate market value of Common Stock
(excluding Class B Common Stock) held by non-affiliates of the registrant
was $790,281,440.
As of January 20, 1995, the number of shares outstanding of the
registrant's Common Stock was 49,392,590 and the Class B Common was
25,034,861.
Documents Incorporated by Reference
-----------------------------------
1994 Annual Report to Shareowners (Parts I, II and IV)
1994 Proxy Statement (Parts I and III)
Navistar Financial Corporation 1994 Annual Report on Form 10-K (Part IV)
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NAVISTAR INTERNATIONAL CORPORATION
FORM 10-K
Year Ended October 31, 1994
INDEX
10-K Page
---------
PART I
Item 1. Business .......................................... 3
Item 2. Properties ........................................ 12
Item 3. Legal Proceedings ................................. 12
Executive Officers of the Registrant .............. 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ................. 15
Item 6. Selected Financial Data ........................... 15
Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition. 15
Item 8. Financial Statements and Supplementary Data ....... 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......... 15
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation ........................... 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management ................................. 15
Item 13. Certain Relationships and Related Transactions ... 15
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K ........................ 16
SIGNATURES
Principal Accounting Officer ............................... 18
Directors .................................................. 19
POWER OF ATTORNEY .......................................... 19
INDEPENDENT AUDITORS' REPORT ............................... 21
INDEPENDENT AUDITORS' CONSENT .............................. 21
SCHEDULES .................................................. F-1
EXHIBITS ................................................... E-1
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PART I
ITEM 1. BUSINESS
Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. referred to as "Transportation". As used hereafter, "Navistar" or
"Company" refers to Navistar International Corporation and its
subsidiaries and "Parent Company" refers to Navistar International
Corporation alone.
Navistar, through its wholly-owned subsidiary Transportation,
operates in one principal business segment, the manufacture and marketing
of Class 5 through 8 diesel trucks, including school bus chassis, mid-
range diesel engines and service parts in the United States and Canada and
in selected export markets. Transportation is the industry market share
leader in the combined Class 5 through 8 truck market in the United States
and Canada, offering a full line of diesel-powered products in the common
carrier, private carrier, government/service, leasing, construction,
energy/petroleum and student transportation markets. Transportation also
produces mid-range diesel engines for use in its Class 5, 6 and 7 medium
trucks and for sale to original equipment manufacturers. Transportation
markets its products through an extensive distribution network which
includes 951 dealer and distribution outlets in the United States and
Canada. Service and customer support are also supplied at these outlets.
As a further extension of its business, Transportation provides financing
and insurance for its dealers, distributors and retail customers through
its wholly-owned subsidiary, Navistar Financial Corporation, referred to
as "Navistar Financial". See "Important Supporting Operations".
THE MEDIUM AND HEAVY TRUCK INDUSTRY
The market in which Navistar competes is subject to considerable
volatility as it moves in response to cycles in the overall business
environment and is particularly sensitive to the industrial sector which
generates a significant portion of the freight tonnage hauled. Government
regulation has impacted and will continue to impact trucking operations
and efficiency and the specifications of equipment.
The following table shows retail deliveries in the combined United
States and Canadian markets for the five years ended October 31, 1994, in
thousands of units.
YEARS ENDED OCTOBER 31,
-----------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Class 5, 6 and 7 medium trucks
and school bus chassis ..... 134.2 122.5 118.3 120.1 149.8
Class 8 heavy trucks ......... 205.4 166.4 125.2 109.0 139.0
----- ----- ----- ----- -----
Total ...................... 339.6 288.9 243.5 229.1 288.8
===== ===== ===== ===== =====
Source: Based upon monthly data by the American Automobile
Manufacturers Associations (AAMA) in the United States and Canada and
other sources.
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The truck market in the United States and Canada is highly
competitive. Major domestic competitors include PACCAR, Ford and General
Motors, as well as foreign-controlled manufacturers, such as Freightliner,
Mack and Volvo GM. In addition, manufacturers from Japan (Hino, Isuzu,
Nissan and Mitsubishi) are competing in the United States and Canadian
markets. The intensity of this competitiveness, which is expected to
continue, results in price discounting and margin pressures throughout the
industry. In addition to the influence of price, market position is
driven by product quality, engineering, styling and utility and a
comprehensive distribution system.
TRANSPORTATION MARKET SHARE
Transportation delivered 91,600 Class 5 through 8 trucks in the
United States and Canada in fiscal 1994, a 15% increase from the 79,800 in
1993. Navistar's combined share of the Class 5 through 8 truck market in
1994 was 27%. Transportation has been the leader in combined market share
for Class 5 through 8 trucks, including school bus chassis, in the United
States and Canada in each of its last 14 fiscal years.
PRODUCTS AND SERVICES
The following table illustrates the percentage of Transportation's
sales by class of product based on dollar amount:
YEARS ENDED OCTOBER 31,
--------------------------
PRODUCT CLASS 1994 1993 1992
- ------------- ---- ---- ----
Class 5, 6 and 7 medium trucks
and school bus chassis ..... 32% 31% 36%
Class 8 heavy trucks ......... 42 44 39
Service parts ................ 14 14 15
Engines ...................... 12 11 10
---- ---- ----
Total ...................... 100% 100% 100%
==== ==== ====
Transportation offers a full line of Class 5 through 8 trucks, with
the objective of serving the customer better and more effectively by
addressing requirements for increased performance and value.
Transportation has made continuing improvements in its Class 8 heavy truck
image. In 1994, new products were introduced including integrated sleeper
cabs (Pro Sleeper) in four sizes, anti-lock brakes as standard equipment
on 9000 series conventionals and cabovers, and changes in the 5000 series
of trucks (Paystar) which improve weight distribution. In addition, the
new T444E diesel engine was introduced in 1994 as the first fully
electronic mid-range diesel engine produced. This engine will further
enhance Class 5, 6 and 7 medium truck operating performance and life.
Transportation was recognized at the industry's largest trade show of
the year by winning the award for the "Most Significant Powered Vehicle"
for the 9200 Premium Conventional tractor with the all-new 51" Hi-Rise Pro
Sleeper. According to a recent survey conducted by J. D. Power and
Associates on 1994 Medium-Duty Truck Customer Satisfaction, Navistar
ranked number one in customer satisfaction in product and service for
Class 5, 6 and 7 medium conventional trucks for the second consecutive
year.
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For over two decades, Transportation has been the leading supplier of
school bus chassis in the United States. Chassis are sold through dealers
and national account managers for delivery to the ultimate customers:
school districts and contractors. Transportation manufactures chassis for
conventional school buses, as well as chassis for use in small capacity
buses designed to meet the needs of disabled students. In addition to its
traditional chassis business, Transportation has invested in American
Transportation Corporation (AmTran), a manufacturer of school bus bodies.
Through its relationship with AmTran, Transportation participates in the
trend toward the integrated design and manufacture of school buses, which
offers the potential for improved production and marketing efficiencies
and a reduction in the school bus order cycle.
Transportation offers only diesel-powered trucks and buses because of
their improved fuel economy, ease of serviceability and greater durability
over gasoline-powered vehicles. Transportation's Class 8 heavy trucks
generally use diesel engines purchased from outside suppliers however, in
1994, it began offering the new T444E engine for use in its heavy trucks.
Class 5, 6 and 7 medium trucks are powered by diesel engines manufactured
by Transportation. In 1993, Transportation launched its all new world
class series of in-line six cylinder diesel engines for bus and Class 5
through 8 truck models. Transportation is the leading supplier of mid-
range diesel engines in the 150-300 horsepower range according to data
supplied by a private research firm, Power Systems Research of
Minneapolis, Minnesota. Based upon information published by R.L. Polk &
Company, diesel-powered Class 5, 6 and 7 medium truck shipments
represented 81% of all medium truck shipments for fiscal year 1994 in the
United States and Canada.
Transportation's truck manufacturing operations in the United States
and Canada consist principally of the assembly of components manufactured
by its suppliers, although Transportation produces its own mid-range
diesel truck engines, sheet metal components (including cabs) and
miscellaneous other parts.
The following is a summary of Transportation's truck manufacturing
capacity utilization for the five years ended October 31, 1994.
YEARS ENDED OCTOBER 31,
-----------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Production units ............ 94,993 88,274 73,901 70,502 80,737
Total production capacity ... 112,966 106,032 106,088 106,762 114,402
Capacity utilization ........ 84.1% 83.3% 69.7% 66.0% 70.6%
Total production capacity varies as a result of changes in the number
of days of production during a year as well as changes in production
constraints.
ENGINE & FOUNDRY
Transportation builds diesel engines for use in its Class 5, 6 and 7
medium trucks, school buses, selected Class 8 heavy truck models and for
sale to original equipment manufacturers. Production in 1994 totalled
192,400 units, an increase of 9.7% from the 175,500 units produced in
1993.
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Transportation has completed a major capital investment in its engine
products and facilities to manufacture a new generation of mid-range
diesel engines in both the in-line six cylinder and V-8 configurations.
This new generation of engines is designed to respond to customer demands
for engines that have more power, improved fuel economy, longer life, and
meet current emission requirements through 1997. The engines are offered
in a wider horsepower range than previously offered, which will give
Transportation an opportunity to expand the number of applications for its
engines and broaden its customer base. Transportation believes that its
family of diesel engines, each designed to provide superior performance in
customer applications, offers both the lowest cost of ownership and
excellent value to its customers.
In September 1993, Transportation introduced three new in-line six
cylinder engines that replaced its long-standing DT family of engines in
International Class 5, 6 and 7 medium trucks. These new engines, the DT
466 [175-230 HP], DT 466 High Torque [195-250 HP] and the International
530 [250-300 HP] offer displacements of 466 and 530 cubic inches. These
in-line six cylinder products feature 20 percent longer life as a result
of larger main and rod bearings, stronger crankshafts, and gear driven
accessories. In 1995, full electronic control of the fuel system will be
incorporated into three new six-cylinder engine models, the DT 466E, DT
466E High Torque and International 530E. These electronically controlled
engines will offer the customer a flexible array of features such as
cruise control, self diagnostics and an engine protection system.
Transportation is the first to offer a totally electronic mid-range
diesel engine family which meets emissions standards without the use of
catalytic converters. With the introduction of the 8.7 Liter 530 and 530E
engines, Transportation offers to customers who, in the past have only
been able to purchase larger 10 Liter class engines, a lighter-weight,
more cost-effective product.
In February 1994, Transportation replaced the 7.3 Liter V-8 diesel
engine with an entirely new product. The T444E is a 444 cubic inch V-8
engine with an electronically controlled fuel injection system. This new
diesel engine offers significant customer advantages, with a 10 to 15
percent improvement in fuel economy, 30 to 40 percent enhancement in
durability, and improved power and torque when compared to
Transportation's 7.3 Liter V-8 product. The new V-8 also meets current
emissions requirements cost-effectively and includes such optional
features as electronic cruise control, electronically controlled power
take-off and diagnostic capabilities.
Based on U.S. registrations published by R.L. Polk & Company, the
T444E electronically controlled diesel engine is the leading engine of its
class. In addition to its strong contribution to the market position of
Transportation's medium trucks, a light truck version, marketed as the 7.3
Liter Direct Injection Diesel, has had significant external sales.
Transportation has entered into an agreement to supply this new V-8
product to a major automotive company through the year 2000 for use in all
of its diesel-powered light trucks and vans. Sales of this engine to the
automotive company currently accounts for approximately 88% of Navistar's
444E sales. Shipments to all original equipment manufacturers totalled a
record 130,600 units in 1994, an increase of 11% from the 118,200 units
shipped in 1993.
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The following is a summary of Transportation's engine capacity
utilization for the five years ended October 31, 1994.
YEARS ENDED OCTOBER 31,
-----------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
Engine production units ..... 192,446 175,464 148,991 126,103 160,434
Total production capacity ... 188,000 166,260 166,260 166,720 166,720
Capacity utilization ........ 102.4% 105.5% 89.6% 75.6% 96.2%
Total production capacity varies as a result of changes in product
mix.
Transportation is exploring the development of alternative fuel
engines, including engines powered by compressed natural gas.
Transportation has entered into an agreement with Detroit Diesel
Corporation to develop a natural gas engine based on Transportation's new
V-8 engine and Detroit Diesel's electronic alternative fuel technology.
SERVICE PARTS
The service parts business is a significant contributor to
Transportation's sales and gross margin and to the maintenance of its
Class 5 through 8 truck and engine customer base. In the United States
and Canada, Transportation operates seven regional parts distribution
centers, which allows it to offer 24-hour availability and same day
shipment of the parts most frequently requested by customers.
Transportation is undertaking initiatives to increase parts sales outside
of the United States and Canada. As customers have explored ways to
reduce their costs and improve efficiency, Transportation and its dealers
have established programs to help them manage the parts and maintenance
aspects of their businesses more efficiently. Transportation also offers
a "Fleet Charge" program, which allows participating customers to purchase
parts on credit at all of its dealer locations at consistent and
competitive prices. In 1994, service parts sales increased as a result of
higher net selling prices, export business expansion and growth in dealer
and national accounts.
MARKETING AND DISTRIBUTION
United States and Canadian Operations. Transportation's truck
products are distributed in virtually all key markets in the United States
and Canada through the largest retail organization specializing in medium
and heavy trucks. As part of its continuing program to adapt to changing
market conditions, Transportation has been assisting dealers to expand
their operations to better serve their customer base. Transportation's
truck distribution and service network in the United States and Canada was
composed of 951, 950 and 952 dealers and retail outlets at October 31,
1994, 1993 and 1992, respectively. Included in these totals were 473, 467
and 460 secondary and associate locations at October 31, 1994, 1993 and
1992, respectively.
Retail dealer activity is supported by 5 regional operations in the
United States and a general office in Canada. A national account sales
group is responsible for 155 major national account customers.
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Transportation's 10 retail and 4 wholesale used truck centers in the
United States and Canada provide sales and trade-in benefits to its
dealers and retail customers.
International Operations. Transportation exports trucks, components
and service parts, both wholesale and retail, to more than 70 countries
around the world. In 1994, 5,100 trucks were exported while 5,300 trucks
were exported in 1993. Cumulatively, from 1986 through 1994,
Transportation was the leading North American exporter of Class 6-8
trucks, according to data provided by the AAMA.
In Mexico, Transportation has an agreement with DINA Camiones, S.A.
(DINA) to supply product technology, components and technical services for
assembly of DINA trucks and buses. In 1994, Transportation exported
almost 10,000 engines to DINA, bringing the total engines shipped to
approximately 30,000 over the past three years. Transportation also has
initiated sales of the in-line six cylinder family of mid-range diesel
engines to Perkins Group, Ltd., of Peterborough, England, for worldwide
distribution and to Detroit Diesel Corporation, the North American
distributor of Perkins.
NAVISTAR FINANCIAL CORPORATION
Navistar Financial is engaged in the wholesale, retail and to a
lesser extent lease financing of new and used trucks sold by
Transportation and its dealers in the United States. Navistar Financial
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. During
fiscal 1994 and 1993, Navistar Financial provided wholesale financing for
93% and 90%, respectively, of the new truck units sold by Transportation
to its dealers and distributors in the United States. Navistar Financial
also provided retail financing in fiscal 1994 for approximately 15% of the
new truck units sold by Transportation and its dealers and distributors in
the United States, unchanged from fiscal 1993.
Navistar Financial's wholly-owned insurance subsidiary, Harco
National Insurance Company, 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.
IMPORTANT SUPPORTING OPERATIONS
Third Party Sales Financing Agreements. In the United States,
Transportation has an agreement with Associates Commercial Corporation
(Associates) to provide wholesale financing to certain of its truck
dealers and retail financing to their customers. During fiscal 1994 and
1993, Associates provided 7% and 10%, respectively, of the wholesale
financing utilized by Transportation's dealers and distributors.
Navistar International Corporation Canada has an agreement with a
subsidiary of General Electric Canadian Holdings Limited to provide
financing for Canadian dealers and customers.
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Foreign Insurance Subsidiaries. Harbour Assurance Company of
Bermuda Limited offers a variety of programs to the Company, including
general liability insurance, ocean cargo coverage for shipments to and
from foreign distributors and reinsurance coverage for various
Transportation policies. The company writes minimal third party coverage
and provides a variety of insurance programs to Transportation, its
dealers, distributors and customers.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Transportation designs and manufactures its trucks and diesel engines
to meet or exceed specific industry requirements. New products are
introduced and improvements are made, in accordance with operating plans
and market requirements and not on a predetermined cycle.
During 1994, capital expenditures totalled $87 million. Major
program expenditures included continued investment in machinery and
equipment at the Melrose Park, Illinois and Indianapolis, Indiana engine
facilities to manufacture mid-range diesel engines used in trucks and
school bus chassis manufactured by the Company and also sold to original
equipment manufacturers. Other expenditures were made for truck product
improvements, modernization of facilities and compliance with
environmental regulations.
During 1993, capital expenditures totalled $110 million. Major
product program expenditures included investment at the Melrose Park,
Illinois and Indianapolis, Indiana engine facilities to manufacture a new
series of mid-range diesel engines for use within the Company's truck
products and for sale to original equipment manufactures. Other
expenditures were made for truck product improvements, modernization of
facilities and compliance with environmental regulations. In 1992,
capital expenditures were $55 million.
Product development is an ongoing process at Transportation.
Research and development activities are directed toward the introduction
of new products and improvements of existing products and processes used
in their manufacture. Spending for company-sponsored activities totalled
$95 million in 1994 and 1993 and $90 million in 1992.
BACKLOG
The backlog of unfilled truck orders (subject to cancellation or
return in certain events) was as follows:
AT OCTOBER 31 MILLIONS OF DOLLARS UNITS
------------- ------------------- ------
1994 ...... $ 4,197 64,841
1993 ...... $ 1,353 23,939
1992 ...... $ 1,124 20,456
Although the backlog of unfilled orders is one of many indicators of
market demand, many factors may affect point-in-time comparisons such as
changes in production rates, available capacity, new product introductions
and competitive pricing actions.
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EMPLOYEES
The following table summarizes employment levels as of the end of
fiscal years 1992 through 1994:
TOTAL
AT OCTOBER 31 EMPLOYMENT
------------- ----------
1994 ....................... 14,910
1993 ....................... 13,612
1992 ....................... 13,945
To meet the increased customer demand, additional production workers
were employed at the Chatham, Ontario and Springfield, Ohio Truck
Facilities and at the Melrose Park, Illinois and Indianapolis, Indiana
Engine Facilities.
LABOR RELATIONS
At October 31, 1994, the United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW) represented 8,278 of the
Company's active employees in the United States, and the Canadian Auto
Workers (CAW) represented 1,873 of the Company's active employees in
Canada. Other unions represented 1,015 of the Company's active employees
in the United States and Canada. The Company entered into collective
bargaining agreements with the UAW and CAW in 1993 which expire on October
1, 1995 and October 24, 1996, respectively.
PATENTS AND TRADEMARKS
Transportation continuously obtains patents on its inventions and
thus owns a significant patent portfolio. Additionally, many of the
components which Transportation purchases for its products are protected
by patents that are owned or controlled by the component manufacturer.
Transportation has licenses under third party patents relating to its
products and their manufacture, and Transportation grants licenses under
its patents. The royalties paid or received under these licenses are not
significant. No particular patent or group of patents is considered by
Transportation to be essential to its business as a whole.
Like all businesses which offer well-known products or services,
Transportation's primary trademarks symbolize the Company's goodwill and
provide instant identification of its products and services in the
marketplace and thus, are an important part of its worldwide sales and
marketing efforts. To support these efforts, Transportation maintains, or
has pending, registrations of its primary trademarks in those countries in
which it does business or expects to do business.
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RAW MATERIALS AND ENERGY SUPPLIES
Transportation purchases raw materials, parts and components from
numerous outside suppliers but relies upon some suppliers for a
substantial number of components for its truck products. Transportation's
purchasing strategies have been designed to improve access to the lowest
cost, highest quality sources of raw materials, parts and components, and
to reduce inventory carrying requirements. A portion of Transportation's
requirements for raw materials and supplies is filled by single source
suppliers.
The impact of an interruption in supply will vary by commodity. Some
parts are generic to the industry while others are of a proprietary design
requiring unique tooling which would require time to recreate. However,
the Company's exposure to a disruption in production as a result of an
interruption of raw materials and supplies is no greater than the industry
as a whole. In order to remedy any losses resulting from an interruption
in supply, the Company maintains contingent business interruption
insurance for storms, fire and water damage. In 1994, as a result of
industry-wide growth and demand, several suppliers experienced capacity
constraints which created interruptions in the flow of supplies to the
Company.
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers continue to face increasing
governmental regulation of their products, especially in the areas of
environment and safety. The Company believes its products comply with all
applicable environmental and safety regulations.
As a diesel engine manufacturer, the Company has incurred significant
research and tooling costs to totally redesign its engine product lines to
meet United States Environmental Protection Agency (U.S. EPA) and
California Air Resources Board (CARB) emission standards effective in the
1994 model year. The Company faces significant additional outlays through
1998 to meet further tightening of these standards. The Company expects
that its diesel engines will be able to meet all of these standards in the
required time-frame. However, compliance with California's 1998 Ultra-
Low-Emission Vehicle (ULEV) standards for medium-size vehicles (which
includes vehicles up to 14,000 lbs. Gross Vehicle Weight Rating - GVWR)
will require the use of alternative fuels. The Company expects to have
products available to meet these standards prior to 1998.
Emissions regulations in Canada and Mexico are similar, but not
identical, to the U.S. federal regulations. Although Canada's regulations
impose standards equivalent only to the U.S. standards for the 1990 model
year, diesel engine manufacturers, including the Company, have voluntarily
signed several memorandums of understanding with the Canadian federal
government, agreeing to sell only engines meeting the 1994 U.S. emission
standards in model years 1995 to 1997. Mexico has adopted the U.S. heavy
diesel engine emission standards as of the 1994 model year but has
conditioned compliance on the availability of low-sulfur diesel fuel. The
Mexican government is expected to complete the conversion of diesel fuel
supplies nationwide to low-sulfur fuel in mid-1995.
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Truck manufacturers are also subject to various noise standards
imposed by federal, state and local regulations. The engine is one of a
truck's primary noise sources, and the Company therefore works closely
with original equipment manufacturers to develop strategies to reduce
engine noise. The Company is also subject to the National Traffic and
Motor Vehicle Safety Act (Safety Act) and Federal Motor Vehicle Safety
Standards (Safety Standards) promulgated by the National Highway Traffic
Safety Administration. The Company believes it is in compliance with the
Safety Act and the Safety Standards.
Expenditures to comply with various environmental regulations
relating to the control of air, water and land pollution at production
facilities and to control noise levels and emissions from Transportation's
products have not been material except for the Wisconsin Steel and Solar
Turbine sites.
ITEM 2. PROPERTIES
Transportation has 7 manufacturing and assembly plants in the United
States and 1 in Canada. All plants are owned by Transportation. The
aggregate floor space of these 8 plants is approximately 8 million square
feet.
Transportation also owns or leases other significant properties in
the United States and Canada, including a paint facility, a small
component fabrication plant, vehicle and parts distribution centers, sales
offices, engineering centers and its headquarters in Chicago.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
- ---------------------
Beginning in March 1984, Transportation received several enforcement
notices from the U.S. EPA, all of which relate to Transportation's
painting activities at its Springfield, Ohio assembly and body plants.
The notices alleged that these painting activities violated the Federal
Clean Air Act because the paint contained volatile organic compounds (VOC)
in greater quantities than permitted under applicable Ohio regulations
(the VOC Regulations). In an administrative action instituted under
Section 120 of the Clean Air Act, begun in September 1984, U.S. EPA sought
to recover a noncompliance penalty, measured as the costs allegedly saved
by Transportation by not complying with the VOC Regulations at the
assembly plant.
In a court action instituted under Section 113(b) of the Clean Air
Act, the United States filed civil complaints pertaining to the assembly
plant (filed on April 30, 1985) and the body plant (filed on November 3,
1986) in the U.S. District Court in the Southern District of Ohio. These
complaints asked the judge to impose fines of up to $25,000 per violation
of the VOC Regulations per day since December 31, 1982. In November 1994,
Transportation and U.S. EPA concluded a settlement of both the
administrative action and the court action. The settlement included a
payment of $2.7 million by Transportation.
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OTHER MATTERS
- -------------
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages. The Company
appealed the verdict and in order to do so was required to post a bond
collateralized with $30 million in cash. In November 1994, the Court of
Appeals of the State of Oklahoma reversed the verdict and entered
judgement in favor of Transportation on virtually all aspects of the case.
The bond and related collateral will be released when the order of the
Court of Appeals is filed.
Transportation and the Economic Development Administration (EDA), a
division of the U.S. Department of Commerce reached an agreement in the
fourth quarter of 1994 in settlement of commercial and environmental
disputes related to the Wisconsin Steel property. EDA and Transportation
became 90% and 10% beneficiaries, respectively, of a trust which was
created after the party that purchased Wisconsin Steel filed for
bankruptcy. At the time of bankruptcy, EDA had guaranteed repayment of
90% and Transportation of 10% of loans made to Wisconsin Steel. The
settlement provides that EDA transfer its interest in the trust to
Transportation, which in turn will assume responsibility for completing
the investigation of the environmental condition at the site and for any
cleanup work that may be necessary. Transportation has agreed to pay EDA
$11 million to settle various commercial issues as well as reimburse them
for a portion of environmental response costs spent by EDA. The
Department of Justice must approve the final settlement before the
interest in the trust, or the property, is transferred to Transportation.
The Company and its subsidiaries are subject to various other claims
arising in the ordinary course of business, and are parties to various
legal proceedings which constitute ordinary routine litigation incidental
to the business of the Company and its subsidiaries. In the opinion of
the Company's management, none of these proceedings or claims are material
to the business or the financial condition of the Company.
<PAGE>
<PAGE 14>
EXECUTIVE OFFICERS
The following selected information for each of the Company's current
executive officers was prepared as of November 4, 1994.
OFFICERS AND POSITIONS WITH
NAME AGE NAVISTAR AND OTHER INFORMATION
---- --- ----------------------------------
James C. Cotting ....... 61 Chairman and Chief Executive
Officer since 1987 and a Director
since 1983. Mr. Cotting also is
Chairman and Chief Executive
Officer of Transportation since
1990 and a Director since 1987.
Prior to this, Mr. Cotting served
as Vice Chairman and Chief
Financial Officer, 1983-1987.
John R. Horne .......... 56 President and Chief Operating
Officer and a Director since
1990. Mr. Horne also is
President and Chief Operating
Officer of Transportation since
1990 and a Director since 1987.
Prior to this, Mr. Horne served
as Group Vice President and
General Manager, Engine and
Foundry, 1990 and Vice President
and General Manager, Engine and
Foundry, 1983-1990.
Robert C. Lannert ...... 54 Executive Vice President and Chief
Financial Officer and a Director
since 1990. Mr. Lannert also is
Executive Vice President and
Chief Financial Officer of
Transportation since 1990 and a
Director since 1987. Prior to
this, Mr. Lannert served as
Vice President and Treasurer,
1987-1990 and Vice President and
Treasurer of Transportation,
1979-1990.
Robert A. Boardman ...... 47 Senior Vice President and General
Counsel since 1990. Mr. Boardman
also is Senior Vice President and
General Counsel of Transportation
since 1990. Prior to this, Mr.
Boardman served as Vice President
of Manville Corporation,
1988-1990 and Corporate
Secretary, 1983-1990.
Thomas M. Hough ......... 49 Vice President and Treasurer since
1992. Mr. Hough also is
Vice President and Treasurer of
Transportation since 1992.
Prior to this, Mr. Hough served
as Assistant Treasurer 1987-1992,
and Assistant Treasurer of
Transportation, 1987-1992. Mr.
Hough also served as Assistant
Controller, Accounting and
Financial Systems, 1987 and
Controller of Navistar Financial
Corporation, 1982-1987.
Robert I. Morrison ...... 56 Vice President and Controller
since 1987. Mr. Morrison also is
a Vice President and Controller
of Transportation since 1985.
Prior to this, Mr. Morrison
served as Assistant Treasurer and
Vice President, Finance and
Planning, International Group,
1983-1985.
Steven K. Covey ......... 43 Corporate Secretary since 1990.
Mr. Covey is Associate General
Counsel of Transportation since
November 1992. Prior to this,
Mr. Covey served as General
Attorney, Finance and Securities
of Transportation, 1989-1992,
Senior Counsel, Finance and
Securities, 1986-1989 and Senior
Attorney, Corporate Operations
1984-1986.
<PAGE>
<PAGE 15>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
The information required by Items 5-8 is incorporated herein by
reference from the 1994 Annual Report to Shareowners, filed as Exhibit 13
to this Form 10-K as follows:
1994
Annual
Report
Page
------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS ......... 65
ITEM 6. SELECTED FINANCIAL DATA ................. 63
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION ................. 4
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA .................. 19
With the exception of the aforementioned information (Part II; Items
5-8) and the information specified under Items 1 and 14 of this report,
the 1994 Annual Report to Shareowners is not to be deemed filed as part of
this report.
---------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12 AND 13
Information required by Part III (Items 10, 11, 12 and 13) of this
Form is incorporated herein by reference from Navistar's definitive Proxy
Statement for the March 15, 1995 Annual Meeting of Shareowners.
<PAGE>
<PAGE 16>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Information required by Part IV (Item 14) of this form is
incorporated herein by reference from Navistar International
Corporation's 1994 Annual Report to Shareowners, filed as Exhibit 13
to this Form 10-K as follows:
1994
Annual
Report
Page
------
Financial Statements
- --------------------
Statement of Income (Loss) for the years ended
October 31, 1994, 1993 and 1992 ................ 19
Statement of Financial Condition as of
October 31, 1994 and 1993 ...................... 21
Statement of Cash Flow for the years ended
October 31, 1994, 1993 and 1992 ................ 23
Statement of Non-Redeemable Preferred, Preference
and Common Shareowners' Equity for the years
ended October 31, 1994, 1993 and 1992 .......... 25
Notes to Financial Statements .................... 27
Form
10-K
Schedules Page
- --------- ----
VIII - Valuation and Qualifying Accounts
and Reserves ......................... F-1
All other 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 in the 1994 Annual
Report to Shareowners.
Finance and Insurance Subsidiaries:
The financial statements of Navistar Financial Corporation for the
years ended October 31, 1994, 1993 and 1992 appearing on pages 9 through
11 in Annual Report on Form 10-K for Navistar Financial Corporation for
the fiscal year ended October 31, 1994, Commission No. 1-4146-1, are
incorporated herein by reference and filed as Exhibit 28 to this
Form 10-K.
Financial information regarding all Navistar subsidiaries engaged in
finance and insurance operations, including Navistar Financial
Corporation, appears as supplemental information to the Financial
Statements in the Navistar 1994 Annual Report to Shareowners and is
incorporated herein by reference.
<PAGE>
<PAGE 17>
Exhibits, Including those Incorporated by Reference Form 10-K Page
- --------------------------------------------------- --------------
(3) Articles of Incorporation and By-Laws ..... E-1
(4) Instruments Defining the Rights of
Security Holders, including Indentures E-2
(10) Material Contracts ....................... E-3
(11) Computation of Net Income (Loss)
Per Common Share ....................... E-5
(13) Navistar International Corporation
1994 Annual Report to Shareowners ...... N/A
(22) Subsidiaries of the Registrant ........... E-6
(23) Independent Auditors' Consent ............ 21
(24) Power of Attorney ........................ 19
(28) Navistar Financial Corporation Annual
Report on Form 10-K for the fiscal
year ended October 31, 1994 ............ N/A
All exhibits other than those indicated above are omitted because of
the absence of the conditions under which they are required or because the
information called for is shown in the financial statements and notes
thereto in the 1994 Annual Report to Shareowners.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed for the three months ended
October 31, 1994.
<PAGE>
<PAGE 18>
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SIGNATURE
Pursuant to the requirements of Section 13 and 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 INTERNATIONAL CORPORATION
- ----------------------------------
(Registrant)
/s/ Robert I. Morrison
- ----------------------------------
Robert I. Morrison January 27, 1995
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE 19>
SIGNATURE EXHIBIT 24
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
POWER OF ATTORNEY
Each person whose signature appears below does hereby make,
constitute and appoint James C. Cotting and Robert I. Morrison 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/ James C. Cotting
- -----------------------
James C. Cotting Chairman of the Board, January 27, 1995
and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Robert I. Morrison
- -----------------------
Robert I. Morrison Vice President and Controller January 27, 1995
(Principal Accounting Officer)
/s/ Jack R. Anderson
- -----------------------
Jack R. Anderson Director January 27, 1995
/s/ William F. Andrews
- ------------------------
William F. Andrews Director January 27, 1995
/s/ Wallace W. Booth
- ------------------------
Wallace W. Booth Director January 27, 1995
/s/ Andrew F. Brimmer
- ------------------------
Andrew F. Brimmer Director January 27, 1995
/s/ Bill Casstevens
- ------------------------
Bill Casstevens Director January 27, 1995
<PAGE>
<PAGE 20>
SIGNATURE EXHIBIT 24 (CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SIGNATURES (Continued)
/s/Richard F. Celeste
- ------------------------
Richard F. Celeste Director January 27, 1995
/s/John D. Correnti
- ------------------------
John D. Correnti Director January 27, 1995
/s/William Craig
- ------------------------
William Craig Director January 27, 1995
/s/Jerry E. Dempsey
- ------------------------
Jerry E. Dempsey Director January 27, 1995
/s/Mary Garst
- ------------------------
Mary Garst Director January 27, 1995
/s/ Arthur G. Hansen
- ------------------------
Arthur G. Hansen Director January 27, 1995
/s/ John R. Horne
- ------------------------
John R. Horne Director January 27, 1995
/s/Robert C. Lannert
- ------------------------
Robert C. Lannert Director January 27, 1995
/s/ Donald D. Lennox
- ------------------------
Donald D. Lennox Director January 27, 1995
/s/ Elmo R. Zumwalt, Jr.
- ------------------------
Elmo R. Zumwalt, Jr. Director January 27, 1995
<PAGE>
<PAGE 21>
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1994 and 1993, and the related Statement of Income (Loss), of Cash Flow,
and of Non-Redeemable Preferred, Preference and Common Shareowners' Equity
for each of the three years in the period ended October 31, 1994, and have
issued our report thereon dated December 12, 1994 (which includes an
explanatory paragraph relating to the change in methods of accounting for
postretirement benefits other than pensions and for income taxes as
required by Statements of Financial Accounting Standards No. 106 and No.
109); such consolidated financial statements and report are included in
your 1994 Annual Report to Shareowners and are incorporated herein by
reference. Our audits also included the financial statement schedule of
Navistar International Corporation and Consolidated Subsidiaries, listed
in Item 14. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
Deloitte & Touche LLP
December 12, 1994
Chicago, Illinois
----------------------------------
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Navistar International Corporation:
We consent to the incorporation by reference in Post-Effective
Amendment No. 1 to Registration No. 2-70979 on Form S-8 and in Post-
Effective Amendment No. 6 to Registration No. 2-55544 on Form S-8 and in
Post-Effective Amendment No. 1 to Registration No. 2-9604 on Form S-8 of
our reports dated December 12, 1994, appearing and incorporated by
reference in this Annual Report on Form 10-K of Navistar International
Corporation for the year ended October 31, 1994.
Deloitte & Touche LLP
January 27, 1995
Chicago, Illinois
<PAGE>
<PAGE 22>
<TABLE>
<CAPTION> SCHEDULE VIII
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
============
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
(MILLIONS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE DEDUCTIONS FROM
DESCRIPTION AT RESERVES BALANCE
DESCRIPTION BEGINNING ADDITIONS CHARGED AT END
OF RESERVES DEDUCTED FROM OF YEAR TO INCOME DESCRIPTION AMOUNT OF YEAR
----------- ------------- --------- ----------------- ----------- ------ -------
Reserves deducted from
assets to which they
apply:
<S> <S> <C> <C> <S> <C> <C>
1994
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustment,
receivables .... receivable .... $ 36 $ 2 less recoveries ... $ 13 $ 25
===== ===== ===== =====
1993
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustment,
receivables .... receivable .... $ 34 $ 6 less recoveries ... $ 4 $ 36
===== ===== ===== =====
1992
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustment,
receivables .... receivable .... $ 27 $ 21 less recoveries ... $ 14 $ 34
===== ===== ===== =====
</TABLE>
F-1
<PAGE 1>
EXHIBIT 3
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
ARTICLES OF INCORPORATION AND BY-LAWS
The following document of Navistar International Corporation is
incorporated herein by reference:
3.1 Restated Certificate of Incorporation of Navistar International
Corporation effective July 1, 1993, filed as Exhibit 3.2 to
Form 10-K dated October 31, 1993, which was filed on January 27,
1994, Commission File No. 1-9618.
The following document of Navistar International Corporation is
included herein in those executed and conformed copies of this report
provided to the Securities and Exchange Commission, the New York Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange.
3.2 The By-Laws of Navistar International Corporation effective
October 18, 1994, filed as Exhibit 3.2 on Annual Report on
Form 10-K dated October 31, 1994, which was filed on
January 27, 1995, on Commission File No. 1-9618.
E-1
<PAGE 1>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
NAVISTAR INTERNATIONAL CORPORATION
--------------------
Incorporated Under the Laws
of the State of Delaware
(Effective October 18, 1994)
<PAGE>
<PAGE 2>
AMENDED AND RESTATED
BY-LAWS
OF
NAVISTAR INTERNATIONAL CORPORATION
- -------------------------------------------------------------------------
ARTICLE I.
---------
Meetings of Stockholders
------------------------
Section 1. Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be held in
the first three (3) months of each calendar year.
Section 2. Special Meetings. A special meeting of the
stockholders for any purpose or purposes, unless otherwise prescribed by
statute, may be called at any time by the Chairman of the Board and Chief
Executive Officer or the Board of Directors.
Section 3. Time and Place of Meetings. All meetings of the
stockholders shall be held at such times and places, within or without the
State of Delaware, as may from time to time be fixed by the Board of
Directors, or as shall be specified or fixed in the respective notices or
waivers of notice thereof.
Section 4. Notice of Meetings. Except as otherwise expressly
required by law or by the Certificate of Incorporation of Navistar
International Corporation ("Corporation"), notice of each meeting of the
stockholders shall be given, at least fifteen (15) days in the case of an
annual meeting, and ten (10) days in the case of a special meeting, before
the day on which the meeting is to be held, to each stockholder of record
entitled to vote at such meeting by mailing such notice in a postage
prepaid envelope addressed to the stockholder at the stockholder's last
post office address appearing on the stock records of the Corporation.
Except as otherwise expressly required by law, no publication of any
notice of a meeting of the stockholders shall be required. At special
meetings of stockholders no business other than that specified in the
notice of the meeting or germane thereto shall be transacted at such
meeting. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given.
Section 5. Quorum. At each meeting of the stockholders, except
as otherwise expressly required by law, stockholders holding one-third
(1/3) of the shares of stock of the Corporation, issued and outstanding,
and entitled to be voted thereat, shall be present in person or by proxy
to constitute a quorum for the transaction of business. In the absence of
a quorum at any such meeting or any adjournment or adjournments thereof, a
majority in voting interest of those present in person or by proxy and
entitled to vote thereat,or in the absence therefrom of all the
stockholders, any officer entitled to preside at, or to act as secretary
of, such meeting may adjourn such meeting from time to time until
stockholders holding the amount of stock requisite for a quorum shall be
present or represented. At any such adjourned meeting at which a quorum
may be present any business may be transacted which might have been
transacted at the meeting as originally called.
<PAGE>
<PAGE 3>
Section 6. Organization. At each meeting of the stockholders,
one of the following shall chair the meeting and preside thereat, in the
following order of precedence:
(a) the Chairman of the Board and Chief Executive Officer;
(b) the President and Chief Operating Officer;
(c) an Executive Officer in order of rank of office and by
seniority within the same rank; or
(d) a stockholder of record of the Corporation who shall be
chosen to chair such meeting by a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote
thereat.
The Secretary, or, if he or she shall be absent from such meeting, the
person (who shall be an Assistant Secretary, if an Assistant Secretary
shall be present thereat) whom the chair of such meeting shall appoint,
shall act as secretary of such meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at each
meeting of the stockholders shall be determined by the chair of such
meeting, but such order of business at any meeting at which a quorum is
present may be changed by the vote of a majority in voting interest of
those present in person or by proxy at such meeting and entitled to vote
thereat.
Section 8. Notice of Stockholder Nomination and Stockholder
Business. At a meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting.
Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of
directors. Other matters to be properly brought before the meeting must
be: (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, including matters
covered by rule 14a-8 of the United States Securities and Exchange
Commission; (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors; or (c) otherwise properly brought
before the meeting by a stockholder.
A notice of the intent of a stockholder to make a nomination or
to bring any other matter before the meeting shall be made in writing and
received by the Secretary of the Corporation not more than 180 days and
not less than 120 days in advance of the annual meeting or, in the event
of a special meeting of stockholders, such notice shall be received by the
Secretary of the Corporation not later than the earlier of (i) the close
of the fifteenth day following the day on which notice of the meeting is
first mailed to stockholders, or (ii) the close of the day next preceding
the meeting.
<PAGE>
<PAGE 4>
Every such notice by a stockholder shall set forth:
(a) the name and residence address of the stockholder of the
Corporation who intends to make a nomination or bring up any other
matter;
(b) a representation that the stockholder is a holder of the
Corporation's voting stock and intends to appear in person or by
proxy at the meeting to make the nomination or bring up the matter
specified in the notice;
(c) with respect to notice of an intent to make a nomination, a
description of all arrangements or understandings among the
stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(d) with respect to notice of an intent to make a nomination,
such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated by the Board of
Directors of the Corporation; and
(e) with respect to notice of an intent to bring up any other
matter, a description of the matter, and any material interest of
the stockholder in the matter.
Notice of intent to make a nomination shall be accompanied by the
written consent of each nominee to serve as director of the Corporation if
so elected.
At the meeting of stockholders, the chair shall declare out of
order and disregard any nomination or other matter not presented in
accordance with this section.
Section 9. Voting. Each stockholder shall, at each meeting of
the stockholders, be entitled to one vote in person or by proxy for each
share of stock of the Corporation held by the stockholder and registered
in the stockholder's name on the books of the Corporation on the date
fixed or determined pursuant to the provisions of Section 5 of Article VI
of these By-laws as the record date for the determination of stockholders
who shall be entitled to receive notice of and to vote at such meeting.
Shares of its own stock belonging to the Corporation shall not be
voted directly or indirectly. Any vote on stock of the Corporation may be
given at any meeting of the stockholders by the stockholder entitled
thereto in person or by the stockholder's proxy appointed by an instrument
in writing delivered to the Secretary or an Assistant Secretary of the
Corporation or to the secretary of the meeting. The attendance at any
meeting of a stockholder who may theretofore have given a proxy shall not
have the effect of revoking the same unless the stockholder shall in
writing so notify the secretary of the meeting prior to the voting of the
proxy. At all meetings of the stockholders all matters, except as
otherwise provided in these By-laws or by law, shall be decided by the
vote of a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat, a quorum being present.
Except in the case of votes for the election of directors, the vote at any
meeting of the stockholders on any question need not be by ballot, unless
so directed by the chair of the meeting. On a vote by ballot each ballot
shall be signed by the stockholder voting, or by the stockholder's proxy,
if there be such proxy.
<PAGE>
<PAGE 5>
Section 10. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of its
stock ledger to prepare and make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled
to vote thereat, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to said
meeting either at a place within the city where said meeting is to be held
and which place shall be specified in the notice of said meeting, or, if
not so specified, at the place where said meeting is to be held, and such
list shall be produced and kept at the time and place of said meeting
during the whole time thereof, and may be inspected by any stockholder who
is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger or such list or the
books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
Section 11. Inspectors or Judges. The Board of Directors, in
advance of any meeting of stockholders, may appoint one or more inspectors
or judges to act at such meeting or any adjournment thereof. If the
inspectors or judges shall not be so appointed, or if any of them shall
fail to appear or act, the chair of such meeting shall appoint the
inspectors or judges, or such replacement or replacements therefor, as the
case may be. Such inspectors or judges, before entering on the discharge
of their duties, shall take and sign an oath or affirmation faithfully to
execute the duties of inspectors or judges at meetings for which they are
appointed. At such meeting, the inspectors or judges shall receive and
take in charge the proxies and ballots and decide all questions touching
the qualification of voters and the validity of proxies and the acceptance
or rejection of votes. An inspector or judge need not be a stockholder of
the Corporation, and any officer of the Corporation may be an inspector or
judge on any question other than a vote for or against his or her election
to any position with the Corporation.
ARTICLE II.
-----------
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by the Board of Directors.
Section 2. Number and Time of Holding office. Subject to the
requirements of the laws of the State of Delaware, the Board may from time
to time by the vote of the majority of the whole Board determine the
number of directors. Until the Board shall otherwise so determine, the
number of directors shall be fifteen (15). Each of the directors of the
Corporation shall hold office until the expiration of his or her term and
until his or her successor shall be elected. Directors need not be
stockholders.
<PAGE>
<PAGE 6>
Section 3. Election of Directors. Except as otherwise provided
in the Certificate of Incorporation of the Corporation, at each meeting of
the stockholders for the election of directors, at which a quorum is
present, the persons receiving the greatest number of votes, up to the
number of directors to be elected, shall be the directors. Such election
shall be by ballot; provided, however, a nomination shall be accepted and
votes cast for a nominee shall be counted by the inspectors or judges of
the election, only if the Secretary of the Corporation has received at
least 24 hours prior to the meeting a statement over the signature of the
nominee that he or she consents to being a nominee and, if elected,
intends to serve as a director.
Section 4. Organization and Order of Business. At each meeting
of the Board, one of the following shall chair the meeting and preside
thereat, in the following order of precedence:
(a) the Chairman of the Board and Chief Executive Officer;
(b) any director chosen by a majority of the directors present
thereat.
The Secretary, or in case of his or her absence, the person whom the chair
of such meeting shall appoint, shall act as secretary of such meeting and
keep the minutes thereof. The order of business at each meeting of the
Board of Directors shall be determined by the chair of such meeting.
Section 5. Resignations. Any director may resign at any time by
giving written notice of his or her resignation to the Chairman of the
Board and Chief Executive Officer, or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein, or,
if the time when it shall become effective shall not be specified therein,
then it shall take effect when accepted by action of the Board of
Directors. Except as aforesaid, the acceptance of such resignation shall
not be necessary to make it effective.
Section 6. Vacancies, etc. Except as otherwise provided in the
Certificate of Incorporation of the Corporation, in case of any vacancy on
the Board, or in case of any newly created directorship, a director to
fill the vacancy or the newly created directorship for the unexpired
portion of the term being filled may be elected by the holders of shares
of stock of the Corporation entitled to vote in respect thereof at an
annual or special meeting of said holders or by a majority of the
directors of the Corporation then in office though less than a quorum.
Section 7. Place of Meeting. The Board may hold its meetings at
such place or places within or without the State of Delaware as the Board
may from time to time by resolution determine or as shall be specified or
fixed in the respective notices or waivers of notice thereof; provided,
that all meetings, regular or special, shall be held at the chief
executive office of the Corporation in Chicago, Illinois, unless otherwise
ordered or approved by a majority of the whole Board.
<PAGE>
<PAGE 7>
Section 8. First Meeting. As soon as practicable after each
annual election of directors, the Board shall meet for the purpose of
organization, the election of officers and the transaction of other
business. Such meeting shall be held at the time and place theretofore
fixed by the Board for the next regular meeting of the Board and no notice
thereof need be given; provided, however, that the Board may determine
that such meeting shall be held at a different place and time but notice
thereof shall be given in the manner hereinafter provided for special
meetings of the Board.
Section 9. Regular Meetings. Regular meetings of the Board
shall be held at such times as the Board shall from time to time
determine. Notices of regular meetings need not be given. If any day
fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting which would otherwise be held
on that day shall be postponed until the same hour on the same day of the
next succeeding week in which such day shall not be a legal holiday at
such place, or at such other time and place as the Board shall determine
in which event notice thereof shall be given.
Section 10. Special Meetings; Notice. Special meetings of the
Board shall be held whenever called by the Chairman of the Board and Chief
Executive Officer or one-third (1/3) of the directors at the time in
office. The Secretary shall give notice to each director as hereinafter
in this Section provided of each such special meeting, in which shall be
stated the time and place of such meeting. Notice of each such meeting
shall be mailed to each director, addressed to the director at his or her
residence or usual place of business, at least two (2) days before the day
on which such meeting is to be held; or shall be sent addressed to him or
her at such place by telegraph, cable, wireless or other form of recorded
communication, or be delivered personally or by telephone not later than
the day before the day on which such meeting is to be held. Notice of any
meeting of the Board need not, however, be given to any director, if
waived by him or her in writing or by telegraph, cable, wireless or other
form of recorded communication, before, during or after such meeting, or
if he or she shall be present at such meeting; and any meeting of the
Board shall be a legal meeting without any notice thereof having been
given if all the directors of the Corporation then in office shall be
present thereat.
Dividends may be declared upon the stock of the Corporation at
any special meeting of the Board of Directors; provided, that the notice
of said special meeting states specifically the fact that dividend action
is to be considered. Any and all other business may be transacted at a
special meeting unless notice of the meeting specifically states that
action will be taken only upon the matters listed in the notice.
Section 11. Quorum and Manner of Acting. Except as otherwise
provided in these By-laws or by law, a majority of directors at the time
in office shall be present in person at any meeting of the Board of
Directors in order to constitute a quorum for the transaction of business
at such meeting, and the affirmative vote of at least a majority of the
directors present at any such meeting, at which a quorum is present, shall
be necessary for the passage of any resolution or act of the Board. In
the absence of a quorum from any such meeting, a majority of the directors
present thereat may adjourn such meeting from time to time until a quorum
shall be present thereat. Notice of any adjourned meeting need not be
given. The directors shall act only as a board and the individual
directors shall have no power as such.
<PAGE>
<PAGE 8>
Section 12. Action by Consent. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the Board or of such committee
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board or committee.
Section 13. Committees. The Board of Directors may appoint
standing committees of its members. Such committees shall be composed of
such number of Directors and shall have such powers as are conferred by
the By-laws or determined by the Board of Directors. The members of all
standing committees shall be appointed annually at the first meeting of
the Board of Directors after the annual meeting of the stockholders and
shall continue as members until their successors are appointed, subject to
the power of the Board to remove any member of a committee at any time and
to appoint a successor.
A majority of the members of each standing committee shall
constitute a quorum. The chair of each standing committee shall preside
at the committee's meetings. If the chair is absent, then the meeting
shall be chaired by the Committee member present at the meeting who has
been a director for the longest period of time.
Each committee chair shall report regularly to the Board as to
the committee's reviews, actions and recommendations.
Section 14. Meeting by Communication Equipment. Members of the
Board of Directors or any committee appointed by the Board of Directors,
may participate in a meeting of the Board of Directors or of such
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall constitute
presence in person at such meeting.
ARTICLE III.
------------
Executive Committee
-------------------
Section 1. Number, Appointment, Term of Office. There shall be
an Executive Committee consisting of not less than three (3) and not more
than eight (8) regular members appointed from and by the Board of
Directors. A majority of the members of the Executive Committee shall be
Independent Directors, as defined by the Board. In addition to the
regular members, the Chairman of the Board and Chief Executive Officer
shall be a member ex officio. The regular members of the Committee shall
be appointed by the affirmative vote of a majority of the whole Board and
shall hold office until the first meeting of the Board after the next
annual meeting of the stockholders until their successors are appointed.
The Board shall also designate two (2) of its members as first and second
alternates to serve as members of the Executive Committee in the absence
of a regular member or members. A vacancy in a regular or alternate
membership may be filled by the Board at any time.
<PAGE>
<PAGE 9>
Any appointed regular or alternate member of the Executive
Committee shall be subject to removal at any time by the affirmative vote
of a majority of the whole Board.
Section 2. Functions and Powers. The Executive Committee shall
represent the Board of Directors between meetings for the purpose of
consulting with the officers and giving special consideration to matters
of importance affecting the policies, financing, management and operations
of the business, and taking action thereon or making recommendations to
the Board. The Board of Directors reserves to itself alone the power to
elect and remove officers, to determine the number of directors, to fill
any vacancies on the Board of Directors, to declare dividends, issue
stock, recommend to shareholders any action requiring their approval,
change the membership of any committee at any time, and discharge any
committee either with or without cause at any time. Subject to the
foregoing limitations, the Executive Committee shall possess and may
exercise all other powers of the Board of Directors during the intervals
between meetings of the Board of Directors.
Section 3. Meetings. The Executive Committee shall meet as
often as may be deemed necessary and expedient. Meetings may be called by
standing resolution of the Committee, or at the request of the Chairman of
the Board and Chief Executive Officer or of any two (2) members of the
Committee. The Secretary shall notify each member of the Committee of
each meeting, giving at least two (2) days' notice by mail or one (1)
day's notice by telegraph or telephone, but such notice may be waived by
any member. The purposes of a meeting need not be specified in the notice
or waiver of notice of any meeting. Whenever it appears that a regular
member will be unable to attend a meeting, the Secretary shall endeavor to
obtain the attendance of an alternate member.
At each meeting of the Board of Directors the Committee shall
make a report to the Board of all action taken since its last report.
Such reports may be made orally or in writing and only such matters need
be recorded in the minutes of the Executive Committee as the Committee
deems proper or the Board of Directors may require.
Section 4. Organization. A majority of the Executive Committee
shall constitute a quorum. The Chairman of the Board and Chief Executive
Officer shall preside at meetings of the Executive Committee. If the
Chairman of the Board and Chief Executive Officer is absent, the Committee
shall appoint a temporary Chairman from among the members present. In
other respects the Committee shall fix its own rules of procedures.
ARTICLE IV.
-----------
Officers
--------
Section 1. Election, Appointment, Term of Office. The Executive
Officers of the Corporation shall consist of a Chairman of the Board and
Chief Executive Officer, a President and Chief Operating Officer and such
number of other Executive Officers as the Board of Directors may determine
from time to time. There shall also be a General Counsel, a Treasurer, a
Controller and a Secretary, any of whom may also be an Executive Officer.
<PAGE>
<PAGE 10>
The Board of Directors may also appoint such other officers and
agents as it may deem necessary, who shall have such authority and perform
such duties as may be prescribed by the Board.
All Executive Officers and other officers of the Corporation
shall be regularly elected or appointed by the majority vote of the whole
Board of Directors at its first meeting after the annual meeting of the
stockholders and shall hold office until the first meeting of the Board
after the next annual meeting of the stockholders, and until their
successors are elected or appointed.
If additional officers are elected or appointed during the year,
they shall hold office until the next annual meeting of the Board of
Directors at which officers are regularly elected or appointed and until
their successors are elected or appointed.
A vacancy in any office may be filled for the unexpired portion
of the term in the same manner as provided for election or appointment to
such office.
All officers and agents elected or appointed by the Board of
Directors shall be subject to removal at any time by the Board of
Directors.
Section 2. Chairman of the Board and Chief Executive Officer.
The Chairman of the Board and Chief Executive Officer shall be the chief
executive officer of the Corporation, and shall have the powers and
perform the duties incident to that position. Subject to the Board of
Directors, he or she shall be in general and active charge of the entire
business and all the affairs of the Corporation, and shall be its chief
policy-making officer. He or she shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or
provided in the By-laws.
Section 3. President and Chief Operating Officer. Under the
direction of the Chairman of the Board and Chief Executive Officer and
subject to the Board of Directors, the President and Chief Operating
Officer shall have general charge of the business operations. He shall
have such other powers and perform such other duties as may be prescribed
by the Chairman of the Board and Chief Executive Officer, or the Board of
Directors or as may be provided in the By-laws.
Section 4. Executive Officers. Each Executive Officer shall
have such powers, duties and titles as shall be prescribed by the Board of
Directors at the time of his or her election and such other powers and
duties as may be assigned to him or her from time to time by the Chairman
of the Board and the Chief Executive Officer, the President and Chief
Operating Officer, or the Board of Directors.
Section 5. General Counsel. The General Counsel shall have
charge of all matters of legal import concerning the Corporation and of
the department relating to such matters. He or she shall have such other
powers and duties as may be assigned to him or her by the Chairman of the
Board and Chief Executive Officer, the President and Chief Operating
Officer, or the Board of Directors.
<PAGE>
<PAGE 11>
Section 6. Treasurer. The Treasurer shall be responsible for
safeguarding the cash and securities of the Corporation and the
formulation of the investment and financial policies of the Corporation.
He or she shall have such other powers and duties as may be assigned to
him or her by the Chairman of the Board and Chief Executive Officer, the
President and Chief Operating Officer, or the Board of Directors.
Section 7. Controller. The Controller shall be in charge of the
accounts of the Corporation and the maintenance of adequate accounting
procedure and records of the Corporation. He or she shall have such other
powers and duties as may be assigned to him or her by the Chairman of the
Board and Chief Executive Officer, the President and Chief Operating
Officer, or the Board of Directors.
Section 8. Secretary. The Secretary shall keep the records of
all meetings of the stockholders and of the Board of Directors and of its
committees. He or she shall affix the seal of the Corporation to all
deeds, contracts, bonds or other instruments requiring the corporate seal
when the same have been signed on behalf of the Corporation by a duly
authorized officer. He or she shall perform such other duties as may be
assigned to him or her from time to time by the Chairman of the Board and
Chief Executive Officer, the President and Chief Operating Officer, or the
Board of Directors.
ARTICLE V.
----------
Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------
Section 1. Execution of Documents by Officers. All of the
Executive Officers of the Corporation elected as provided in Section 1 of
Article IV of the By-laws, shall have power to execute and deliver any
deeds, contracts, mortgages, bonds, debentures and other documents for and
in the name of the Corporation.
All appointed officers shall have such powers with respect to
execution and delivery of deeds, contracts, mortgages, bonds, debentures
and other documents as may be assigned to them by the Board of Directors.
Section 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of
the Corporation or otherwise as the Board of Directors, the Chairman of
the Board and Chief Executive Officer, the President and Chief Operating
Officer, or the Treasurer shall direct in such banks, trust companies or
other depositories as the Board of Directors may select or as may be
selected by any officer or officers or agent or agents of the Corporation
to whom power in that respect shall have been delegated by the Board of
Directors. For the purpose of deposit and for the purpose of collection
for the account of the Corporation, checks, drafts and other orders for
the payment of money which are payable to the order of the Corporation may
be endorsed, assigned and delivered by any officer or agent of the
Corporation.
<PAGE>
<PAGE 12>
Section 3. Proxies in Respect of Stock or Other Securities of
Other Corporations. Unless otherwise provided by resolution adopted by
the Board, each of the Executive officers of the Corporation elected as
provided in Section 1 of Article IV of the By-laws may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation to
exercise in the name and on behalf of the Corporation the powers and
rights which the Corporation may have as the holder of stock or other
securities in any other corporation to vote or consent in respect of such
stock or other securities, may instruct the person or persons so appointed
as to the manner of exercising such powers and rights, and may execute or
cause to be executed in the name and on behalf of the Corporation and
under its corporate seal, or otherwise, all such written proxies, powers
of attorney or other instruments as such Executive Officer may deem
necessary or proper in order that the Corporation may exercise its said
powers and rights.
ARTICLE VI.
-----------
Shares and Their Transfers
--------------------------
Examination of Books
--------------------
Section 1. Certificates for Stock. Every holder of stock of the
Corporation shall be entitled to have a certificate or certificates, in
such form as the Board shall prescribe, certifying the number of shares of
stock of the Corporation owned by the stockholder. The certificates
representing shares of such stock shall be numbered in the order in which
they shall be issued and shall be signed in the name of the Corporation by
the person who was at the time of signing the Chairman of the Board and
Chief Executive Officer, the President and Chief Operating Officer, or an
Executive Officer and by the person who was at the time of the Treasurer
or an Assistant Treasurer and its seal may be affixed thereto; provided,
however, that the signature of such Executive Officer of the Corporation
and of such Treasurer or Assistant Treasurer and the seal of the
Corporation may be facsimile. In case any officer or officers of the
Corporation who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates
shall cease to be such officer or officers, whether because of death,
resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates
may nevertheless be adopted by the Corporation and be issued and delivered
as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been
used thereon, had not ceased to be such officer or officers. A record
shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by certificates for stock of the
Corporation, the number of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of
cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be canceled
and a new certificate or certificates shall not be issued in exchange for
any existing certificate until such existing certificate shall have been
so canceled except in cases provided for in Section 4 of this Article VI.
<PAGE>
<PAGE 13>
Section 2. Transfers of Stock. Transfers of shares of the stock
of the Corporation shall be made only on the books of the Corporation by
the registered holder thereof, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary
of the Corporation, or with a transfer clerk or a transfer agent appointed
as in Section 3 of this Article VI provided, and upon surrender of the
certificate or certificates for such shares properly endorsed and payment
of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation.
Section 3. Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates for stock
of the Corporation. The Board may appoint or authorize any officer or
officers to appoint one or more transfer clerks, any of whom may be
employees of the Corporation, or one or more transfer agents and one or
more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them; provided, however, that the
signature of any transfer clerk, transfer agent, or registrar may be
facsimile. In case any transfer clerk, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such transfer clerk, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such transfer clerk, transfer agent, or
registrar at the date of issue.
Section 4. Lost, Destroyed and Mutilated Certificates. The
owner of any stock of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate
therefor, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been
lost or destroyed, and the Board may, in its discretion, require the owner
of the lost or destroyed certificate, or his or her legal representatives,
to give the Corporation a bond in such sum, limited or unlimited, and in
such form and with such surety or sureties, as the Board shall in its
uncontrolled discretion determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or the issuance of such new
certificate.
Section 5. Record Date. To determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. If no record date is fixed by the
Board of Directors:
(a) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice
is given.
(b) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
<PAGE>
<PAGE 14>
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors shall fix a new record date for the
adjourned meeting.
Section 6. Examination of Books by Stockholders. The Board may
determine, from time to time, whether and to what extent, at what times
and places, and under what conditions and regulations, the accounts and
books of the Corporation, or any of them, shall be open to the inspection
of the stockholders, and no stockholder shall have any right to inspect
any account or book or document of the Corporation, except as conferred by
the laws of the State of Delaware or as authorized by resolution adopted
by the Board or by the stockholders of the Corporation entitled to vote in
respect thereof.
ARTICLE VII.
------------
Offices, Etc.
-------------
Section 1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle, and the name of the resident agent in charge thereof
shall be The Corporation Trust Company.
Section 2. Other Offices. The Corporation also may have an
office or offices other than said principal office at such place or
places, either within or without the State of Delaware, as provided in
these By-laws or as the Board may from time to time appoint or as the
business of the Corporation may require.
Section 3. Books and Records. Except as otherwise required by
law, the Certificate of Incorporation or these By-laws, the Corporation
may keep the books and records of the Corporation in such place or places
within or without the State of Delaware as the Board may from time to time
by resolution determine or the business of the Corporation may require;
provided, however, the principal accounting books and records of the
Corporation, including the records of meetings of the Board of Directors,
shall be kept at the chief executive office of the Corporation in Chicago,
Illinois, unless otherwise determined by resolution of the Board of
Directors.
<PAGE>
<PAGE 15>
ARTICLE VIII.
-------------
Dividends
---------
Subject to the provisions of law, of the Certificate of
Incorporation of the Corporation and of these By-laws, the Board may
declare and pay dividends upon the shares of the stock of the Corporation
either (a) out of its net assets in excess of its capital as computed in
accordance with the provisions of the laws of the State of Delaware or (b)
in case there shall be no such excess, out of its net profits for the
fiscal year then current and/or the preceding fiscal year, whenever and in
such amounts as, in the opinion of the Board, the condition of the affairs
of the Corporation shall render it advisable. Dividends upon the shares
of stock of the Corporation may be declared at any regular meeting of the
Board of Directors and also at a special meeting, if notice of such
proposed action is given as provided Section 10 of Article II of these By-
laws.
ARTICLE IX.
-----------
Seal
----
The Board shall provide a corporate seal, which shall be in the
form of a circle and shall bear the full name of the Corporation and the
words and figures "Incorporated 1993 Delaware", or words and figures of
similar import. The seal or a facsimile thereof may be impressed or
affixed or reproduced or other use made thereof by the Secretary or any
Assistant Secretary or any other officer authorized by the Board.
ARTICLE X.
----------
Fiscal Years
------------
The fiscal year of the Corporation shall end on the thirty-first
day of October in each year.
ARTICLE XI.
------------
Waiver of Notices
-----------------
Whenever any notice whatever is required to be given by these By-
laws or by the Certificate of Incorporation of the Corporation or by the
General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto.
<PAGE>
<PAGE 16>
ARTICLE XII.
------------
Indemnification
---------------
Section 1. Coverage. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("proceeding"), by reason of the fact that he or she is or
was a director or officer of the Corporation (which term shall include any
predecessor corporation of the Corporation) or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
("indemnitee"), whether the basis of such proceeding is alleged action in
an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided however, that,
except as provided in Section 2 of this Article XII with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this Article XII shall be a contract right
and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided however, that, if the Delaware General Corporation
law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it ultimately be
determined by final judicial decision from which there is no further right
to appeal that such indemnitee is not entitled to be indemnified for such
expenses under this Article XII or otherwise.
<PAGE>
<PAGE 17>
Section 2. Claims. If a claim under Section 1 of this Article
XII is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation, except in the case of
a claim for expenses incurred in defending a proceeding in advance of its
final disposition, in which case the applicable period shall be twenty
(20) days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit or in a suit brought by the
Corporation to recover payments by the Corporation of expenses incurred by
an indemnitee in defending in his or her capacity as a director or
officer, a proceeding in advance of its final disposition, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending
such claim. In any action brought by the indemnitee to enforce a right to
indemnification hereunder (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to
the Corporation) or by the Corporation to recover payments by the
Corporation of expenses incurred by an indemnitee in defending, in his or
her capacity as a director or officer, a proceeding in advance of its
final disposition, the burden of proving that the indemnitee is not
entitled to be indemnified under this Article XII or otherwise shall be on
the Corporation. Neither the failure of the Corporation (including the
Board of Directors, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation law, nor an actual determination by the
Corporation (including the Board of Directors, independent legal counsel
or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall be a presumption that the indemnitee has not
met the applicable standard of conduct, or in the case of such an action
brought by the indemnitee, be a defense to the action.
Section 3. Rights Not Exclusive. The rights conferred on any
person by Sections 1 and 2 of this Article XII shall not be exclusive of
any other right which such person may have or hereafter acquire under any
statute, this certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or
agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation law.
Section 5. Employees. Persons who are not included as
indemnities under Section 1 of this Article XII but are employees of the
Corporation or any subsidiary may be indemnified to the extent authorized
at any time or from time to time by the Board of Directors.
<PAGE>
<PAGE 18>
ARTICLE XIII.
-------------
Amendments
----------
These By-laws as they shall be at any time may be amended,
altered or repealed by the Board of Directors at any regular meeting of
the Board of Directors or at any special meeting if the proposed
amendment, alteration or repeal is stated in the notice of the special
meeting; but any by-laws made by the Board may be altered, amended or
repealed by the stockholders in the manner provided in the Certificate of
Incorporation of the Corporation.
ARTICLE XIV.
------------
National Emergency
------------------
Section 1. Definition and Application. For the purposes of this
Article XIV the term "national emergency" is defined as an emergency
situation resulting from an attack upon the United States, a nuclear
disaster within the United States, a catastrophe, or other emergency
condition, as a result of which attack, disaster, catastrophe or emergency
condition a quorum of the Board of Directors cannot readily be convened
for action. Persons not directors of the Corporation may conclusively
rely upon the determination by the Board of Directors of the Corporation,
at a meeting held or purporting to be held pursuant to this Article XIV
that a national emergency as hereinabove defined exists regardless of the
correctness of such determination made or purporting to be made as
hereinafter provided. During the existence of a national emergency the
provisions of this Article XIV shall become operative, but, to the extent
not inconsistent with such provisions, the other provisions of these By-
laws shall remain in effect during any national emergency and upon its
termination the provisions of this Article XIV shall cease to be
operative.
Section 2. Meetings, etc. When it is determined in good faith
by any director that a national emergency exists, special meetings of the
Board of Directors may be called by such director. The director calling
any such special meeting shall make a reasonable effort to notify all
other directors of the time and place of such special meeting, and such
effort shall be deemed to constitute the giving of notice of such special
meeting, and every director shall be deemed to have waived any
requirement, of law or otherwise, that any other notice of such special
meeting be given. At any such special meeting two directors shall
constitute a quorum for the transaction of business including without
limiting the generality hereof the filling of vacancies among directors
and officers of the Corporation and the election of additional Executive
Officers, Assistant Controllers, Assistant Secretaries and Assistant
Treasurers. The act of a majority of the directors present thereat shall
be the act of the Board of Directors. If at any such special meeting of
the Board of Director there shall be only one director present, such
director present may adjourn the meeting from time to time until a quorum
is obtained, and no further notice thereof need be given of any such
adjournment.
<PAGE>
<PAGE 19>
The directors present at any such special meeting shall make
reasonable effort to notify all absent directors of any action taken
thereat, but failure to give such notice shall not affect the validity of
the action taken at any such meeting. All directors, officers, employees
and agents of, and all persons dealing with, the Corporation, if acting in
good faith, may conclusively rely upon any action taken at any such
special meeting.
Section 3. Amendment. The Board of Directors shall have the
power to alter, amend, or repeal any of these By-laws by the affirmative
vote of at least two-thirds (2/3) of the directors present at any special
meeting attended by two (2) or more directors and held in the manner
prescribed in Section 2 of this Article XIV, if it is determined in good
faith by said two-thirds (2/3) that such alteration, amendment or repeal
would be conducive to the proper direction of the Corporation's affairs.
Section 4. Chief Executive and Operating Officers. If during
the existence of a national emergency, the Chairman of the Board and Chief
Executive Officer becomes incapacitated, cannot by reasonable effort be
located or otherwise is unable or unavailable to perform the duties of his
or her office, the President and Chief Operating Officer is hereby
designated also as Chairman of the Board and Chief Executive Officer and
will act as both Chief Executive Officer and Chief Operating Officer. If,
during the existence of a national emergency, the President and Chief
Operating Officer becomes incapacitated or unavailable to perform the
duties of his office, the Chairman of the Board and Chief Executive
Officer is hereby designated also as President and Chief Operating Officer
and will act as both Chief Executive Officer and Chief Operating Officer.
If both the Chairman of the Board and Chief Executive Officer and the
President and Chief Operating Officer are unable to perform the duties of
their offices, the senior available officer of the Corporation is hereby
designated as Chairman of the Board and Chief Executive Officer and
President and Chief Operating Officer, the seniority of such officer to be
determined in order of rank of office and within the same rank by the date
on which he or she was first elected or appointed to such office.
Section 5. Substitute Directors. To the extent required to
constitute a quorum at any meeting of the Board of Directors during a
national emergency, the officers of the Corporation who are present shall
be deemed, in order of rank of office and within the same rank in order of
election or appointment of such offices, directors for such meeting.
<PAGE 1>
EXHIBIT 4
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
The following instruments of Navistar International Corporation and
its principal subsidiary Navistar International Transportation Corp. and
its principal subsidiary Navistar Financial Corporation defining the
rights of security holders are incorporated herein by reference.
4.1 Indenture, dated as of March 1, 1968, between Navistar
International Transportation Corp. and Manufacturers Hanover
Trust Company, as Trustee, and succeeded by FIDATA Trust Company
of New York, as successor Trustee, for 6 1/4% Sinking Fund
Debentures due 1998 for $50,000,000. Filed on Registration
No. 2-28150.
4.2 Indenture, dated as of September 1, 1970, between Navistar
International Transportation Corp. and Morgan Guaranty Trust
Company, as Trustee, and succeeded by Commerce Union Bank, now
known as Sovran Bank/Central South, as successor Trustee, for
8 5/8% Sinking Fund Debentures due 1995 for $100,000,000.
Filed on Registration No. 2-38164.
4.3 Indenture, dated as of June 15, 1974, between Navistar
International Transportation Corp. and Harris Trust and Savings
Bank, as Trustee, and succeeded by Commerce Union Bank, now
known as Sovran Bank/Central South, as successor Trustee, for
9% Sinking Fund Debentures due 2004 for $150,000,000.
Filed on Registration No. 2-51111.
4.4 Indenture, dated as of September 22, 1989, between Navistar
Financial Corporation, the First National Bank of Chicago, as
Trustee, succeeded by Bank One, Columbus, N.A., as successor
Trustee, for $400,000,000 of debt securities on terms to be
determined at time of sale. Filed on Registration No. 33-31003.
4.5 Indenture, dated as of November 15, 1993 between Navistar
Financial Corporation and Bank of America, Illinois formerly
known as Continental Bank, National Association, as Trustee, for
8 7/8% Senior Subordinated Notes due 1998 for $100,000,000.
Filed on Registration No. 33-50541.
======
Instruments defining the rights of holders of other unregistered
long-term debt of Navistar and its subsidiaries have been omitted from
this exhibit index because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the Registrant and
its consolidated subsidiaries. The Registrant agrees to furnish a copy of
any such instrument to the Commission upon request.
E-2
<PAGE 1>
EXHIBIT 10
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
MATERIAL CONTRACTS
The following documents of Navistar International Corporation and its
affiliate Navistar Financial Corporation are incorporated herein by
reference.
10.1 Navistar International Corporation 1975 Stock Option Plan.
Filed as Exhibit A to Registration No. 2-55544.
10.2 Navistar International Corporation 1984 Stock Option Plan.
Filed as Exhibit A to Proxy Statement dated February 6, 1984.
Commission File No. 1-5236.
10.3 Navistar 1988 Non-Employee Director Stock Option Plan.
Filed as Exhibit B to Proxy Statement dated January 25, 1988.
Commission File No. 1-9618.
10.4 Pooling and Servicing Agreement dated as of December 1, 1990,
between Navistar Financial Corporation as Servicer, Navistar
Financial Securities Corporation as Purchaser, with respect to
Dealer Note Trust 1990. Filed on Registration No. 33-36767.
10.5 Form of Executive Severance Agreement which is executed with
all executive officers dated September 14, 1992.
Commission File No. 1-9618.
10.6 Amended and Restated Credit Agreement dated as of April 26, 1993
among Navistar Financial Corporation, certain banks, and Chemical
Bank, Bank of America, Illinois formerly known as Continental Bank
N.A. and Morgan Guaranty Trust Company of New York, as Co-Agents.
Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.
10.7 Security, Pledge and Trust Agreement between Navistar Financial
Corporation and Bankers Trust Company, Trustee, dated as of
April 26, 1993. Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.
10.8 Amended and Restated Purchase Agreement among Truck Retail
Instalment Paper Corp., as Seller, Navistar Financial Corporation,
certain purchasers, Chemical Bank and Bank of America, Illinois
formerly known as Continental Bank N.A. as Co-Agents, and
J. P. Morgan Delaware as Administrative Agent, dated as of
April 26, 1993. Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.
10.9 Indenture dated as of November 10, 1993 between Navistar Financial
1993-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1993-A Owner Trust.
Filed on Registration No. 33-50291.
E-3<PAGE>
<PAGE 2>
EXHIBIT 10 (CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
MATERIAL CONTRACTS
10.10 Navistar 1994 Performance Incentive Plan. Filed as Appendix to
Proxy Statement dated January 27, 1994.
Commission File No. 1-9618.
10.11 Indenture dated as of May 3, 1994 between Navistar Financial
1994-A Owner Trust and The Bank of New York, as Indenture
Trustee, with respect to Navistar Financial 1994-A Owner Trust.
Filed on Registration No. 33-50291.
10.12 Indenture dated as of August 3, 1994 between Navistar Financial
1994-B Owner Trust and The Bank of New York, as Indenture
Trustee, with respect to Navistar Financial 1994-B Owner Trust.
Filed on Registration No. 33-50291.
10.13 Amended and Restated Credit Agreement dated as of November 4,
1994 among Navistar Financial 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.
10.14 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.
10.15 Indenture dated as of December 15, 1994 between Navistar
Financial 1994-C Owner Trust and the Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1994-C
Owner Trust. Filed on Registration No. 33-55865.
E-4
<PAGE 1>
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
A. Primary: See the Statement of Income (Loss) and Note 7 to the
Financial Statements contained in the Navistar International Corporation
1994 Annual Report to Shareowners incorporated herein by reference.
B. Full Dilution: Net income (loss) 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 (loss) is divided by the weighted 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>
YEARS ENDED OCTOBER 31
Millions of Dollars 1994 1993 1992
- -------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Income (loss) of continuing operations ........... $ 102 $ (273) $ (147)
Loss of discontinued operations .................. (20) - (65)
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy................. 82 (273) (212)
Cumulative effect of changes
in accounting policy ........................... - (228) -
-------- -------- --------
Net income (loss) ................................ $ 82 $ (501) $ (212)
======== ======== ========
Average common and common equivalent shares (millions):
Average common shares outstanding as adjusted
per primary computation ........................ 74.6 34.9 25.3
Assuming conversion of Series G .................. .6 .6 .6
Assuming conversion of Series D .................. - .1 -
Assuming exercise of options and
warrants 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 ........... 75.2 35.6 26.0
======== ======== ========
Income (loss) per common share assuming
full dilution (dollars):
Continuing operations ........................ $ 1.36 # $ (7.64)# $ (5.67)#
Discontinued operations ...................... (.27) - (2.49)#
Cumulative effect of changes in
accounting policy .......................... - (6.42)# -
-------- -------- --------
Net income (loss) ................................ $ 1.09 # $ (14.06)# $ (8.16)#
======== ======== ========
<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-5
<PAGE 1>
EXHIBIT 13
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED OCTOBER 31, 1994
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
<PAGE>
<PAGE 2>
FINANCIAL SUMMARY
Millions of dollars, except per share data 1994 1993
- -------------------------------------------------------------------------
For the Years Ended October 31
Unit shipments
Trucks ........................................... 95,000 87,200
Engines to original equipment manufacturers (OEMs) 130,600 118,200
Sales and revenues:
Sales of manufactured products
In the United States ........................... $ 4,670 $ 4,149
In Canada ...................................... 483 361
-------- --------
Total Manufacturing .......................... 5,153 4,510
Finance and insurance revenue .................... 152 181
Other income ..................................... 32 30
-------- --------
Total sales and revenues ......................... $ 5,337 $ 4,721
======== ========
Net income (loss):
Income before Supplemental Trust
contribution and taxes ......................... $ 158 $ 72
Supplemental Trust contribution .................. - (513)
Income tax benefit (expense) ..................... (56) 168
-------- --------
Income (loss) of continuing operations ........... 102 (273)
Discontinued operations .......................... (20) -
Cumulative effect of accounting changes .......... - (228)
-------- --------
Net income (loss) ................................ $ 82 $ (501)
======== ========
Income (loss) per common share:
Continuing operations ............................ $ .99 $ (8.63)
Discontinued operations .......................... (.27) -
Cumulative effect of accounting changes .......... - (6.56)
-------- --------
Net income (loss) ................................ $ .72 $ (15.19)
======== ========
Average common and dilutive common
equivalent shares outstanding (millions) ....... 74.6 34.9
Capital expenditures ............................... $ 87 $ 110
Research and development expenditures .............. $ 95 $ 95
- -------------------------------------------------------------------------
As of October 31
Consolidated
Assets ........................................... $ 5,056 $ 5,060
Liabilities other than debt ...................... $ 3,021 $ 2,911
Debt ............................................. $ 1,218 $ 1,374
Shareowners' equity .............................. $ 817 $ 775
Manufacturing
Assets ........................................... $ 3,724 $ 3,645
Liabilities other than debt ...................... $ 2,780 $ 2,695
Short-term debt .................................. $ 3 $ 25
Long-term debt ................................... $ 124 $ 150
Shareowners' equity .............................. $ 817 $ 775
Capitalization (long-term debt
and shareowners' equity) ....................... $ 941 $ 925
Long-term debt as a percent
of total capitalization ........................ 13% 16%
Financial Services
Assets ........................................... $ 1,591 $ 1,672
Liabilities other than debt ...................... $ 251 $ 232
Debt ............................................. $ 1,091 $ 1,199
Shareowner's equity .............................. $ 249 $ 241
Number of employees worldwide ...................... 14,910 13,612
<PAGE>
<PAGE 3>
FINANCIAL INFORMATION
Financial Summary ............................................. 2
Management's Discussion and Analysis of Results
of Operations and Financial Condition ....................... 4
Statement of Financial Reporting Responsibility ............... 17
Independent Auditors' Report .................................. 18
Financial Statements
Statement of Income (Loss) .................................. 19
Statement of Financial Condition ............................ 21
Statement of Cash Flow ...................................... 23
Statement of Non-Redeemable Preferred, Preference
and Common Shareowners' Equity ............................ 25
Notes to Financial Statements
1 Summary of accounting policies ..................... 27
2 Financial statement eliminations ................... 30
3 Information related to the Statement of Cash Flow 31
4 Postretirement benefits ............................ 32
5 Income taxes ....................................... 37
6 Discontinued operations ............................ 42
7 Earnings applicable to common stock ................ 42
8 Marketable securities .............................. 43
9 Receivables ........................................ 47
10 Inventories ........................................ 48
11 Property ........................................... 49
12 Leases ............................................. 50
13 Accounts payable ................................... 51
14 Accrued liabilities ................................ 51
15 Debt ............................................... 52
16 Other long-term liabilities ........................ 55
17 Financial instruments .............................. 55
18 Commitments, contingent liabilities
and restrictions on assets ....................... 56
19 Legal proceedings .................................. 57
20 Preferred and preference stocks .................... 58
21 Common stock and warrants .......................... 59
22 Stock compensation plans ........................... 60
23 Selected quarterly financial data (unaudited) ...... 61
Five-Year Summary of Selected Financial and Statistical Data .. 63
<PAGE>
<PAGE 4>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). In this discussion and analysis, "Company" refers
to Navistar International Corporation and its consolidated subsidiaries.
The Company manufactures and markets Class 5 through 8 trucks, including
school bus chassis, mid-range diesel engines and service parts in the
United States and Canada. These products also are sold to distributors in
selected export markets. The financial services subsidiaries of the
Company provide wholesale, retail and lease financing, and commercial
physical damage and liability insurance coverage to the Company's dealers
and retail customers and to the general public through the independent
insurance agency system.
As discussed in Note 1 to the Financial Statements, finance and
insurance operations are materially different from the manufacturing and
marketing of trucks, diesel engines and service parts. Therefore, this
discussion and analysis reviews separately the operating and financial
results of "Manufacturing" and "Financial Services." 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 foreign finance and insurance companies.
Management's discussion and analysis of results of operations should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements.
Results of Operations
Significant Events Affecting 1994 Results of Operations
In July 1993, the Company implemented a restructured retiree health
care and life insurance plan (the Plan) which provides retirees with
modified health care and life insurance benefits for life. As part of the
restructuring, 25.6 million Class B Common shares, originally valued at
$513 million, were contributed to an independent retiree Supplemental
Benefit Trust. In October 1993, the Company completed a public offering
of 23.6 million Common shares from which net proceeds of $492 million were
realized. Of the proceeds, $300 million was used to pre-fund a portion of
the $1,086 million postretirement health care and life insurance benefits
liability and the remainder used for working capital purposes.
Implementation of the Plan and the subsequent partial funding reduced 1993
and ongoing postretirement benefits expense.
The Company in 1993 recorded a $228 million charge for the cumulative
effect of changes in accounting policy with the adoption of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). See Notes 4 and 5 to the Financial Statements for further
information.
<PAGE>
<PAGE 5>
Consolidated
The components of net income (loss) for the three years ended October
31 are as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Income (loss) before Supplemental Trust
contribution and income taxes ......... $ 158 $ 72 $ (145)
Supplemental Trust contribution:
- Manufacturing ...................... - (509) -
- Financial Services .................. - (4) -
Income tax benefit (expense) ............ (56) 168 (2)
-------- -------- --------
Income (loss) of continuing operations .. 102 (273) (147)
Loss of discontinued operations ......... (20) - (65)
Cumulative effect of accounting changes . - (228) -
-------- -------- --------
Net income (loss) ....................... $ 82 $ (501) $ (212)
======== ======== ========
As a result of the strong demand for trucks, diesel engines and
service parts, consolidated sales and revenues of $5,337 million in 1994
were 13% higher than the $4,721 million reported in 1993 and 37% above the
$3,897 million reported in 1992.
A bar graph appears here entitled "CONSOLIDATED SALES AND
REVENUES (MILLIONS)." The X axis represents YEARS beginning
with 1990 to 1994. The Y axis represents DOLLARS in millions.
The values are listed in the following table:
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Consolidated Sales
and Revenues (millions) $3,903 $3,496 $3,897 $4,721 $5,337
Reflecting the sales and revenues increase and lower postretirement
benefits costs, the Company reported income before income taxes and
discontinued operations of $158 million for 1994, an increase from the $72
million reported in 1993 prior to the Supplemental Trust contribution, and
$303 million above the $145 million loss for 1992. Net income of $82
million in 1994 included a $20 million after-tax charge to discontinued
operations recorded in the fourth quarter for environmental liabilities at
production facilities of two formerly owned businesses. Further
discussion of this charge is provided in Note 6 to the Financial
Statements.
For 1993, the loss of continuing operations was $273 million after
the one-time charge of $513 million for the Supplemental Trust
contribution, net of an income tax benefit of $168 million. The net loss
for 1993 of $501 million included the $228 million charge for the
cumulative effect of adoption of SFAS 106 and SFAS 109. The net loss of
$212 million for 1992 included a $65 million charge to discontinued
operations for the settlement of suits brought by the Pension Benefit
Guaranty Corporation related to a previously owned business.
<PAGE>
<PAGE 6>
Manufacturing
The components of Manufacturing income (loss), excluding Financial
Services and before income taxes, are as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Income before Supplemental Trust
contribution and income taxes ......... $ 98 $ 7 $ (197)
Supplemental Trust contribution ......... - (509) -
-------- -------- --------
Income (loss) before income taxes ....... $ 98 $ (502) $ (197)
======== ======== ========
Manufacturing, excluding Financial Services, reported income before
income taxes of $98 million, a $91 million increase from the $7 million
reported in 1993 before the one-time Supplemental Trust contribution. The
improvement in 1994 operating results over 1993 reflects record sales of
Class 8 heavy trucks and mid-range diesel engines. Sales of Class 5, 6
and 7 medium trucks and service parts also increased. The year-over-year
earnings improvement includes a $37 million reduction in postretirement
benefits expense to $171 million as a result of the restructured
postretirement health care and life insurance benefit plan and a $300
million pre-funding of a portion of the remaining postretirement liability
in the 1993 fourth quarter. The increase in operating income in 1993 over
1992 is attributable to the higher sales volume, improved selling prices
and programs implemented to reduce the Company's cost structure. The $197
million loss before income taxes in 1992 included a $47 million charge for
two voluntary product recalls.
Sales and Revenues. As a result of continued improvement in the
economies of the United States and Canada, 1994 industry retail sales of
Class 5 through 8 trucks totalled 339,600 units, an 18% growth from 1993
and 39% above the 243,500 units sold in 1992. Class 8 heavy truck
industry sales increased 24% from the 1993 level to 205,400 units as a
result of broad based demand from owner/operators and large fleet
customers. Industry sales of Class 5, 6 and 7 medium trucks, including
school bus chassis, were up 10% to 134,200 units reflecting increased
demand across a wide variety of vocations including maintenance leasing,
government and beverage. Industry sales of school bus chassis, which
accounted for about 22% of the medium truck market, increased 6% from 1993
and 9% from 1992.
A bar graph appears here entitled "INDUSTRY RETAIL TRUCK
SALES CLASS 5-8 IN THE UNITED STATES AND CANADA (UNITS)."
The X axis represente YEARS beginning with 1990 to 1994.
The Y axis represents truck UNITS. The values are listed
in the following table:
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Industry Retail Truck
Sales Class 5-8
in the United States
and Canada (Units) 288,800 229,100 243,500 288,900 339,600
<PAGE>
<PAGE 7>
The Company's sales of trucks, diesel engines and service parts for
1994 totalled $5,153 million, 14% above the $4,510 million reported for
1993 and 40% higher than the $3,685 million recorded in 1992. Truck
shipments totalled 95,000 units in 1994, an increase of 9% and 30% from
1993 and 1992, respectively. The Company maintained its position as sales
leader in the combined United States and Canadian Class 5 through 8 truck
market in 1994 with a 27.0% market share.
To take advantage of current demand, the Company took several
measures to increase truck production during 1994. During the second
quarter of 1994, the Company added a second production shift at the
Chatham, Ontario truck assembly facility to increase production of its
premium conventional Class 8 heavy trucks. In the third quarter of 1994,
the Company employed additional production workers at its Springfield,
Ohio truck facilities to increase production of Class 5, 6 and 7 medium
trucks.
A bar graph appears here entitled "DIESEL ENGINE
SHIPMENTS TO OEMs (UNITS)." The X axis represents YEARS
beginning with 1990 to 1994. The Y axis represents engine UNITS.
The values are listed in the following table:
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
Diesel Engine Shipments
to OEMs (Units) 100,900 74,800 97,400 118,200 130,600
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during 1994 were a record 130,600 units, an 11%
increase from 1993 and a 34% improvement over 1992. 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.
To meet increased demand, additional production workers were employed at
both the Melrose Park, Illinois and Indianapolis, Indiana engine
facilities.
Service parts sales, following an 11% growth in 1993 to $632 million,
experienced a further increase of 13% to $714 million in 1994. The
improvement in sales during the two year period was principally driven by
higher sales to dealer and national retail accounts, export business
expansion and higher selling prices.
Other income increased to $25 million in 1994 from $16 million in
1993 and $17 million in 1992 as a result of increased earnings on higher
cash, cash equivalent and marketable securities balances.
Operating Costs and Expenses. Manufacturing gross margin (sales less
cost of sales) was 12.7% of sales in 1994 compared with 13.1% in 1993 and
13.2% in 1992, excluding one-time product recall expenses. The favorable
impact on gross margin from the higher 1994 sales volume was more than
offset by a $28 million increase in the provision for payment to employees
as required by the Company's profit sharing agreements, additional costs
to meet customer delivery commitments and excess costs incurred with the
introduction of new truck and engine products. Factors which led to the
change in gross margin between 1993 and 1992 included higher sales volume,
improved price realization and the impact of cost improvement programs
offset by increases in purchased material and labor costs and a higher
level of startup costs for new products.
<PAGE>
<PAGE 8>
Postretirement benefits, which include pension expense for employees,
retirees and surviving spouses and postretirement health care and life
insurance coverage for employees, retirees, surviving spouses and
dependents totalled $171 million in 1994. Pension expense of $107 million
in 1994 was about level with 1993 and 1992. A 37% reduction in
postretirement health care and life insurance expense from $102 million in
1993 to $64 million in 1994 was primarily the result of pre-funding $300
million of the retiree health care benefit plan liability in October 1993.
A similar 30% reduction in such costs was achieved between 1993 and 1992
as a result of the implementation of the restructured retiree benefit plan
in 1993, partially offset by an increase in expense as a result of the
adoption of SFAS 106.
A bar graph appears here entitled "POSTRETIREMENT
HEALTH CARE/LIFE INSURANCE EXPENSE (IN MILLIONS)."
The X axis represents YEARS beginning with 1991 to 1994.
The Y axis represents DOLLARS in millions. The values
are listed in the following table:
1991 1992 1993 1994
------ ------ ------ ------
Postretirement Health Care/
Life Insurance Expense
(in millions) $ 138 $ 145 $ 102 $ 64
In 1994, the Company continued its commitment to allocate resources
for improvement of existing products and processes and the development of
new truck and diesel engine products. Engineering expense increased to
$97 million in 1994 from $94 million in 1993 and $92 million in 1992
reflecting the development and introduction of new heavy truck products, a
new series of diesel engines as well as continuing development of existing
products.
Marketing and administrative expense of $238 million was 3% higher
than in 1993 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. Finance service charges on sold
receivables increased to $66 million, an 18% increase over 1993 and 27%
higher than 1992, as a result of higher truck sales and increased interest
rates.
<PAGE>
<PAGE 9>
Financial Services
Income of the subsidiaries comprising Financial Services is as
follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Navistar Financial Corporation:
Finance Operations ................... $ 50 $ 52 $ 36
Insurance Operations ................. 5 1 10
Supplemental Trust contribution ...... - (4) -
-------- -------- --------
Total Navistar Financial ........... 55 49 46
Foreign Subsidiaries ................... 5 12 6
-------- -------- --------
Total income before income taxes ..... 60 61 52
Income tax expense ....................... (22) (22) (20)
-------- -------- --------
Income before cumulative effect
of accounting changes .................. 38 39 32
Cumulative effect of accounting changes .. - (9) -
-------- -------- --------
Net income ............................... $ 38 $ 30 $ 32
======== ======== ========
Navistar Financial's income before income taxes in 1994 was $55
million, a 12% increase from $49 million in 1993, which included a $4
million one-time charge for Navistar Financial's portion of the
Supplemental Trust contribution. Finance Operations' income in 1994 was
$2 million lower than 1993 as a result of lower margins on retail
financing as rising interest costs could not be offset fully by increased
retail note pricing. The decline in retail note income was offset in part
by an increased volume of wholesale financing to support the increased
demand for trucks. Navistar Financial's insurance subsidiary's income
increased $4 million over 1993 as a result of improved underwriting
results on truck liability insurance. The increase in Navistar
Financial's income before income taxes between 1993 and 1992 was primarily
the result of higher gains on sales of retail notes, partially offset by
higher loss experience in the insurance subsidiary and the Supplemental
Trust contribution.
Earnings from the foreign finance subsidiaries decreased to $5
million in 1994 from $12 million in 1993 as earnings in 1993 included a
one-time benefit of $6 million resulting from lower loss reserve
requirements.
Navistar Financial revenue for 1994 was $210 million, 9% below 1993
as a higher proportion of retail notes were financed through the sale of
receivables. When receivables are sold only the net gains on the sales,
rather than the individual components of revenue and expense, are reported
in the Statement of Income (Loss). The decrease in retail note and lease
revenue resulting from the receivable sales was partially offset by higher
average wholesale note and account balances, improved average yields as a
result of a higher prime interest rate and increased income from servicing
fees on sold notes. Navistar Financial's revenues were unchanged between
1993 and 1992.
<PAGE>
<PAGE 10>
Interest expense for Navistar Financial declined to $63 million in
1994 from $75 million in 1993 and $82 million in 1992. The decrease
between 1994 and 1993 was the result of reduced debt required to finance
the lower level of owned retail receivables, offset in part by higher
interest rates. The decline in interest expense between 1993 and 1992 was
primarily the result of lower interest rates.
Liquidity and Capital Resources
Consolidated
Total cash, cash equivalents and marketable securities of the Company
amounted to $861 million and $639 million at October 31, 1994 and 1993,
respectively. At October 31, 1994 and 1993, approximately $138 million
and $133 million in marketable securities, respectively, were held by the
Company's insurance subsidiaries and not available for general corporate
purposes.
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 is summarized below.
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Cash and cash equivalents ................. $ 499 $ 377 $ 222
======== ======== ========
Cash, cash equivalents
and marketable securities ............... $ 665 $ 462 $ 250
======== ======== ========
The following is a summary of Manufacturing's cash flow for fiscal
1994.
Millions of dollars 1994
----------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ......................... $ 280
Investment programs ................ (46)
Financing activities ............... (112)
--------
Increase in cash and cash equivalents. $ 122
========
<PAGE>
<PAGE 11>
Operations. In 1994, operations provided $280 million in cash as
follows:
Millions of dollars 1994
- -------------------------------------------------------------------------
Net income ............................... $ 82
Items not affecting cash:
Loss of discontinued operations,
net of tax benefit ................... 20
Non-cash income tax expense ............ 51
Depreciation and other items ........... 46
Change in operating assets and liabilities:
Increase in receivables ................ $ (49)
Increase in inventories ................ (19)
Increase in accounts payable ........... 103
Increase in accrued liabilities/other .. 46 81
-------- --------
Cash provided by operations .............. $ 280
========
The loss of discontinued operations reflects a charge to income taken
in the 1994 fourth quarter for environmental liabilities at production
facilities of two formerly owned businesses, with cash expenditures to
occur in future periods. Consolidated income tax expense was $56 million,
of which $5 million was cash payments to certain federal, state and local
governments. The remaining $51 million of federal and other taxes reduced
the deferred tax asset. Receivables are higher as a result of the
increase in the Company's sales and the cessation of the sale of certain
receivables. The changes in inventories and accounts payable reflect
higher truck and engine production schedules in 1994. The increase in
accrued liabilities is a result of the provision for payment to employees
as required by the Company's profit sharing agreements as well as the
timing of the payment of other liabilities.
Investment programs. Investment programs used $46 million in cash
during 1994 primarily reflecting an $82 million net increase in marketable
securities and capital expenditures of $87 million. These items were
offset by $87 million in proceeds from a sale/leaseback agreement and the
return of $30 million used to collateralize a bond related to a legal
proceeding.
Financing programs. Cash used for financing programs in 1994
consisted of $42 million used for principal payments on long-term debt,
$58 million in cash dividends paid on the Series G Preferred Stock and $12
million for the repurchase of Class B Common shares. The Series G
Preferred dividend included $29 million of dividends in arrears paid in
the first quarter of 1994.
Management's discussion of the future liquidity of manufacturing
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
<PAGE>
<PAGE 12>
Financial Services
The Financial Services subsidiaries provide product financing and
insurance coverage to Transportation's dealers and retail customers.
Historically, funds to finance Transportation's products come from a
combination of commercial paper, short and long-term bank borrowings,
medium and long-term debt issues, sales of receivables and equity capital.
Navistar Financial's current debt ratings have made commercial paper,
short-term bank borrowings and sales of finance receivables the most
economic sources of cash. During 1994, receivable sales were a
significant source of funding for Navistar Financial. Insurance
operations are funded from premiums and income from investments.
Liquidity available to Financial Services is summarized below.
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Cash and cash equivalents ................ $ 58 $ 44 $ 103
======== ======== ========
Cash, cash equivalents
and marketable securities .............. $ 196 $ 177 $ 246
======== ======== ========
The cash flow for Financial Services for 1994 is summarized as
follows:
Millions of dollars 1994
----------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ........................ $ 20
Investment programs ............... 130
Financing activities .............. (136)
--------
Increase in cash and cash equivalents . $ 14
========
Operations. Operations provided $20 million in cash in 1994
primarily from net income of $38 million, offset by other non-cash items,
principally $12 million in gains on sales of receivables. Navistar
Financial supplied 93% of the wholesale financing of new trucks to
Transportation's dealers compared with 90% in 1993 and 89% in 1992.
Navistar Financial's share of retail financing of new trucks sold to
customers in the United States was 15.3% in 1994 and 1993 up from 13.7% in
1992.
Investment programs. The Financial Services' investment programs
provided $130 million in cash principally as a result of the sale of
retail notes.
<PAGE>
<PAGE 13>
Financing programs. Financial Services used $136 million in 1994 for
financing activities. Working capital needs are funded through a
combination of short-term bank borrowings, commercial paper and a bank
revolving credit facility. During 1994, there was a net decrease in debt
of $108 million and cash dividends of $28 million paid to Transportation.
At October 31, 1994, Navistar Financial had contractually committed
facilities of $1,327 million consisting of a bank revolving credit
facility of $727 million and a retail notes receivable purchase facility
of $600 million. Unused commitments under the credit and purchase
facilities were $595 million, $419 million of which was used to back
short-term debt at October 31, 1994. The remaining $176 million, when
combined with unrestricted cash and cash equivalents, made $204 million
available to fund the general business purposes of Navistar Financial at
October 31, 1994. In November 1994, Navistar Financial amended and
restated its $727 million bank revolving credit facility. See Note 15 to
the Financial Statements.
In addition to its committed credit facilities, Navistar Financial
also utilizes a $300 million revolving wholesale note sales trust
providing for the continuous sales 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.
Environmental Matters
As disclosed in Notes 6 and 19 to the Financial Statements, a $20
million after-tax charge was recorded as a loss of discontinued
operations. The charge was related to environmental liabilities at
production facilities of two formerly owned businesses, Wisconsin Steel in
Chicago, Illinois and Solar Turbines, Inc. in San Diego, California.
In November 1994, a settlement was reached with the United States
Environmental Protection Agency for both the administrative action and the
court action related to enforcement notices regarding emissions of
volatile organic compounds from painting activities at the Company's
Springfield, Ohio assembly and body facilities. The settlement included a
payment of $2.7 million which was accrued as of October 31, 1994.
In addition, the Company has been named a potentially responsible
party (PRP), in conjunction with other parties, in a number of cases
arising under an environmental protection law commonly known as the
Superfund law. These cases involve sites which allegedly have received
wastes from current or former Company locations. The Superfund law
requires environmental investigation and/or cleanup where waste products
from various manufacturing processes and operations have been stored,
treated or disposed.
<PAGE>
<PAGE 14>
Based on information available to the Company which in most cases
consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRP's
and/or Federal or State regulatory agencies, for the investigation and
cleanup of these sites, a reasonable estimate is calculated of the
Company's share, if any, of the costs. The Company believes that, based
on these calculations, its share of the costs for each site, other than
the Wisconsin Steel and Solar sites, is not material. The anticipated
cleanup costs of current PRP actions at October 31, 1994, and the
environmental cleanup costs of the Wisconsin Steel and Solar Turbine
sites, are reflected in the Company's $31 million accrued liability. The
Company reviews its accruals as additional information becomes available.
Income Taxes
The Statement of Financial Condition at October 31, 1994 and 1993,
includes a deferred tax asset of $1,134 million and $1,178 million,
respectively, related to future tax benefits. These amounts are net of
valuation allowances since it is more-likely-than-not that some portion of
the deferred tax asset may not be realized in the future. The valuation
allowances at October 31, 1994 and 1993 were $297 million and $305
million, respectively.
The deferred tax asset includes the tax benefits associated with
cumulative tax losses of $2,301 million and temporary differences, which
represents cumulative income tax expense recorded in the Statement of
Income (Loss) that has not been deducted on the Company's tax returns, of
$1,454 million. The valuation allowances assume that it is more-likely-
than-not that approximately $780 million of cumulative tax losses will not
be realized before their expiration date. Realization of the net deferred
tax asset is dependent on the generation of approximately $3 billion of
future taxable income of which approximately $110 million would need to be
generated annually for the 14 year period 1995 through 2008. The
remaining taxable income, which represents the realization of tax benefits
associated with temporary differences, does not need to be generated until
subsequent to the year 2008. See Note 5 to the Financial Statements.
Extensive analysis is performed to determine the amount of the
deferred tax asset. Such analysis is based on the fundamental premise
that the Company is and will continue to be a going concern and that it is
more likely-than-not that deferred tax benefits will be realized through
the generation of future taxable income. This is supported by increases
in retail sales of Class 5 through 8 trucks in the United States and
Canada by both the industry and the Company between 1992 and 1994, the
continued growth of the United States and Canadian economies, the
Company's position as market share leader in the Class 5 through 8 truck
market in the United States and Canada and changes in the Company's cost
structure, including the restructured postretirement benefit plan
implemented in 1993. Further, shipments of the Company's mid-range diesel
engines to original equipment manufacturers reached record levels in 1994
and are projected to remain strong. Other available evidence, both
positive and negative, was reviewed by management. The following are
among the factors considered:
- An assessment of the long-term earnings potential of the Company using
a number of alternatives to evaluate financial results in economic
cycles of various industry volume conditions.
<PAGE>
<PAGE 15>
- A comparison of earnings projections to the availability of net
operating loss carryforwards (NOLs) and reversing temporary
differences to assess the availability of taxable income prior to the
expiration of such benefits. The Company's assessment indicates that
although most NOLs will be utilized, certain NOLs may expire
resulting in a valuation allowance of $297 million at October 31,
1994.
- Annual savings related to the restructuring of health care and life
insurance benefits. The retiree benefit plan provisions have reduced
costs by approximately $125 million in 1994 including savings of $27
million from pre-funding $300 million of the retiree benefit
liability. Additional savings of approximately $18 million will come
from $200 million in additional funding which must be completed by
July 1, 1998. Implementation of managed care programs for active and
certain retired employees are projected to reduce costs by up to $15
million annually.
- The commitment to achieve operating cost reductions in future years
from the completion of a broad range of manufacturing and product
quality improvements, design and material cost programs as well as
administrative expense reductions.
- The underlying long-term strengths of the Company in the truck and
diesel engine business including a consistent 14 year leadership in
combined market share for Class 5 through 8 trucks, a long history of
successful competition in markets and customers served and
recognition as a worldwide leading producer of mid-range diesel
engines.
Management also considered other evidence and the risk and
uncertainty inherent in predicting future taxable income. Management
believes that with the combination of available tax planning strategies,
the implementation of a plan to further reduce its cost structure and the
maintenance of significant market share, earnings are achievable to
realize the net deferred tax asset of $1,134 million.
Reconciliation of the Company's United States income before taxes for
financial statement purposes to taxable income for the fiscal year ended
October 31, 1994 is as follows:
Millions of dollars 1994
----------------------------------------------------------
Income of continuing operations
before income taxes ......................... $ 158
Exclusion of income of foreign subsidiaries ... (13)
Loss of discontinued operations
before income tax benefit ................... (33)
State income taxes ............................ (2)
Temporary differences ......................... 18
Other ......................................... 2
--------
Taxable income ................................ $ 130
========
<PAGE>
<PAGE 16>
As discussed above and in Notes 4 and 5 to the Financial Statements,
the Company undertook significant restructuring actions in 1993. Since
these actions were not in place in 1992 and resulted in substantial
taxable losses in 1993, management believes that the information which
would be presented in the above table for those years is not meaningful.
Business Outlook
Based on current record order backlogs, order receipt trends and key
market indicators, the Company currently projects 1995 United States and
Canadian Class 5, 6 and 7 medium truck demand, including school bus
chassis, to be 151,000 units, a 12% increase from 1994, while Class 8
heavy truck demand is forecast at 205,000 units, level with 1994. Diesel
engine shipments by the Company to original equipment manufacturers in
1995 are expected to be approximately 161,600 units, or 24% higher than
1994. Sales of service parts by the Company are forecast to grow 6% to
$755 million.
The Company's focus in 1995 will be to further improve product gross
margins through increased manufacturing productivity and lower design and
material costs.
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>
STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY
Management of Navistar International 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, whose appointment is ratified by
shareowner vote at the Annual Meeting. Management has made available to
Deloitte & Touche LLP all the Company's financial records and related data,
as well as the minutes of the Board 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 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 Company'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 Company's system of internal controls accomplishes the objectives set
forth in the first sentence of this paragraph.
The Audit Committee of the Board of Directors, composed of seven non-
employee Directors, meets periodically with the independent auditors,
management, general counsel and internal auditors to satisfy itself that
such persons are properly discharging their responsibilities regarding
financial reporting and auditing. In carrying out these responsibilities,
the Committee has full access to the independent auditors, internal
auditors, general counsel and financial management in scheduled joint
sessions or private meetings as in the Committee's judgment seem
appropriate. Similarly, the Company's independent auditors, internal
auditors, general counsel and financial management have full access to the
Committee and to the Board of Directors and each is responsible for
bringing before the Committee or its Chairman, in a timely manner, any
matter deemed appropriate to the discharge of the Committee's
responsibility.
James C. Cotting
Chairman and
Chief Executive Officer
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
<PAGE>
<PAGE 18>
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation,
Its Directors and Shareowners:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1994 and 1993, and the related Statement of Income (Loss), of Cash Flow,
and of Non-Redeemable Preferred, Preference and Common Shareowners' Equity
for each of the three years in the period ended October 31, 1994. These
consolidated financial statements are the responsibility of the Company'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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 International Corporation and Consolidated Subsidiaries at
October 31, 1994 and 1993, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 4 to the Financial Statements, effective
November 1, 1992, the Company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
Deloitte & Touche LLP
December 12, 1994
Chicago, Illinois
<PAGE>
<PAGE 19>
<TABLE>
<CAPTION>
STATEMENT OF INCOME (LOSS)
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31 Note
(Millions of dollars, except per share data) 1994 1993 1992 Reference
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <S>
Sales and Revenues
Sales of manufactured product ................ $ 5,153 $ 4,510 $ 3,685
Finance and insurance revenue ................ 152 181 177
Other income ................................. 32 30 35
-------- -------- --------
Total sales and revenues ................... 5,337 4,721 3,897
-------- -------- --------
Costs and expenses
Cost of products and services sold ........... 4,500 3,925 3,248
Postretirement benefits ...................... 172 209 255 Note 4
Supplemental Trust contribution .............. - 513 - Note 21
Engineering expense .......................... 97 94 92
Marketing and administrative expense ......... 265 257 274
Interest expense ............................. 75 91 99
Financing charges on sold receivables ........ 16 14 12
Insurance claims and underwriting expense .... 54 59 62
-------- -------- --------
Total costs and expenses ................... 5,179 5,162 4,042
-------- -------- --------
Income (loss) before income taxes
Manufacturing .............................. - - -
Financial Services ......................... - - -
-------- -------- --------
Income (loss) before income taxes ........ 158 (441) (145)
Income tax benefit (expense) ............. (56) 168 (2) Note 5
-------- -------- --------
Income (loss) of continuing operations ....... 102 (273) (147)
Loss of discontinued operations .............. (20) - (65) Note 6
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy ............. 82 (273) (212)
Cumulative effect of changes
in accounting policy ....................... - (228) - Notes 4 & 5
-------- -------- --------
Net income (loss) ............................ 82 (501) (212)
Less dividends on Series G preferred stock ... 29 29 29 Note 7
-------- -------- --------
Net income (loss) applicable to common stock.. $ 53 $ (530) $ (241) Note 7
======== ======== ========
- --------------------------------------------------------------------------------------
Income (loss) per common share:
Continuing operations ...................... $ .99 $ (8.63) $ (6.97)
Discontinued operations .................... (.27) - (2.58)
Cumulative effect of changes
in accounting policy ..................... - (6.56) -
-------- -------- --------
Net income (loss) per common share ........... $ .72 $ (15.19) $ (9.55)
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding (millions) ... 74.6 34.9 25.3 Note 7
<FN>
- --------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 20>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
---------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 5,153 $ 4,510 $ 3,685 $ - $ - $ -
- - - 202 223 217
25 16 17 12 14 18
-------- -------- -------- -------- -------- --------
5,178 4,526 3,702 214 237 235
-------- -------- -------- -------- -------- --------
4,498 3,919 3,245 2 6 3
171 208 254 1 1 1
- 509 - - 4 -
97 94 92 - - -
238 230 244 27 27 30
10 12 12 70 79 87
66 56 52 - - -
- - - 54 59 62
-------- -------- -------- -------- -------- --------
5,080 5,028 3,899 154 176 183
-------- -------- -------- -------- -------- --------
98 (502) (197) - - -
60 61 52 - - -
-------- -------- -------- -------- -------- --------
158 (441) (145) 60 61 52
(56) 168 (2) (22) (22) (20)
-------- -------- -------- -------- -------- --------
102 (273) (147) 38 39 32
(20) - (65) - - -
-------- -------- -------- -------- -------- --------
82 (273) (212) 38 39 32
- (228) - - (9) -
-------- -------- -------- -------- -------- --------
$ 82 $ (501) $ (212) $ 38 $ 30 $ 32
======== ======== ======== ======== ======== ========
<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 1 while a summary of
eliminations is shown in Note 2.
</TABLE>
<PAGE>
<PAGE 21>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
Note
As of October 31 (Millions of dollars) 1994 1993 Reference
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <S>
ASSETS
Cash and cash equivalents .......................... $ 557 $ 421
Marketable securities .............................. 304 218 Note 8
Receivables, net ................................... 1,517 1,550 Note 9
Inventories ........................................ 429 411 Note 10
Prepaid pension assets ............................. 63 82 Note 4
Property and equipment, net ........................ 578 636 Note 11
Equity in Financial Services subsidiaries .......... - -
Investments and other assets ....................... 165 224
Intangible pension assets .......................... 309 340
Deferred tax asset ................................. 1,134 1,178 Note 5
-------- --------
Total assets ....................................... $ 5,056 $ 5,060
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable ................................... $ 836 $ 739 Note 13
Accrued liabilities ................................ 452 419 Note 14
Short-term debt .................................... 522 180 Note 15
Long-term debt ..................................... 696 1,194 Note 15
Other long-term liabilities ........................ 298 294 Note 16
Loss reserves and unearned premiums ................ 136 107
Postretirement benefits liability .................. 1,299 1,352 Note 4
-------- --------
Total liabilities .............................. 4,239 4,285
-------- --------
Shareowners' equity
Series G convertible preferred stock Notes 20
(liquidation preference $240 million) ............ 240 240 & 21
Series D convertible junior preference stock
(liquidation preference $4 million) .............. 4 5
Common stock (50.0 million and 49.2 million shares
issued) and warrants ............................. 1,628 1,615
Class B Common (25.0 and 25.6 million shares issued) 501 513
Retained earnings (deficit) - balance accumulated
after the deficit reclassification as of
October 31, 1987 ................................. (1,532) (1,588)
Accumulated foreign currency translation
adjustments and net unrealized holding
gains (losses) on marketable securities .......... (6) (4) Note 8
Common stock held in treasury, at cost ............. (18) (6)
-------- --------
Total shareowners' equity ...................... 817 775
-------- --------
Total liabilities and shareowners' equity .......... $ 5,056 $ 5,060
======== ========
<FN>
- ----------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 22>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
---------------------- ---------------------
1994 1993 1994 1993
----------------------------------------------------------------------------
<C> <C> <C> <C>
$ 499 $ 377 $ 58 $ 44
166 85 138 133
176 123 1,351 1,443
429 411 - -
62 81 1 1
549 608 29 28
249 241 - -
151 201 14 23
309 340 - -
1,134 1,178 - -
-------- -------- -------- --------
$ 3,724 $ 3,645 $ 1,591 $ 1,672
======== ======== ======== ========
$ 779 $ 670 $ 70 $ 85
420 395 29 24
3 25 519 155
124 150 572 1,044
289 285 9 9
- - 136 107
1,292 1,345 7 7
-------- -------- -------- --------
2,907 2,870 1,342 1,431
-------- -------- -------- --------
240 240 - -
4 5 - -
1,628 1,615 178 178
501 513 - -
(1,532) (1,588) 73 63
(6) (4) (2) -
(18) (6) - -
-------- -------- -------- --------
817 775 249 241
-------- -------- -------- --------
$ 3,724 $ 3,645 $ 1,591 $ 1,672
======== ======== ======== ========
<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 1 while a summary of eliminations is shown in Note 2.
</TABLE>
<PAGE>
<PAGE 23>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31 Note
(Millions of dollars) 1994 1993 1992 Reference
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <S>
Cash flow from operations
Net income (loss) ............................... $ 82 $ (501) $ (212)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization ................. 72 75 77
Supplemental Trust contribution ............... - 513 - Note 21
Equity in earnings of Financial Services,
net of dividends received ................... - - -
Allowance for losses on receivables
and dealer loans ............................ (2) 19 24
Non-cash income tax (benefit) expense ......... 51 (170) - Note 5
Provision for loss of discontinued operations . 20 - 65 Note 6
Cumulative effect of changes
in accounting policy ........................ - 228 - Notes 4 & 5
Other, net .................................... (24) (21) (55)
Change in operating assets and liabilities .... (45) (108) 74 Note 3
-------- -------- --------
Cash provided by (used in)
continuing operations ....................... 154 35 (27)
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (916) (770) (659)
Principal collections on retail notes
and lease receivables ......................... 181 337 409
Sale of retail notes receivables ................ 995 558 249 Note 9
Acquisitions (over) under cash collections
of wholesale notes and accounts receivable .... - - - Note 3
Purchase of marketable securities ............... (710) (371) (248)
Sales or maturities of marketable securities .... 621 326 283
Proceeds from property sold under sale/leaseback. 87 - -
Capital expenditures ............................ (87) (110) (55)
Net increase in property and equipment
leased to others .............................. (5) (14) (4)
Base Program Trust pre-funding .................. - (300) - Note 4
Other investment programs, net .................. 36 (43) (46)
-------- -------- --------
Cash provided by (used in) investment programs. 202 (387) (71)
-------- -------- --------
Cash flow from financing activities
Issuance of long-term debt ...................... 100 - -
Principal payments on long-term debt ............ (222) (117) (170)
Net increase (decrease) in short-term debt ...... 344 75 (176) Note 15
Increase (decrease) in debt outstanding under
bank revolving credit facility ................ (372) - 507
Net proceeds from issuance of Common Stock ...... - 492 - Note 21
Dividends paid .................................. (58) - (29)
Repurchase of Class B Common Stock .............. (12) (2) -
-------- -------- --------
Cash provided by (used in) financing activities (220) 448 132
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 136 96 34
At beginning of the year ...................... 421 325 291
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 557 $ 421 $ 325
======== ======== ========
<FN>
- --------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 24>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
---------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 82 $ (501) $ (212) $ 38 $ 30 $ 32
68 69 74 4 6 3
- 509 - - 4 -
(10) (10) (15) - - -
(4) 17 19 2 2 5
51 (170) - 3 4 3
20 - 65 - - -
- 228 - - 9 -
(8) (14) (41) (19) (11) (15)
81 64 159 (8) 19 (17)
-------- -------- -------- -------- -------- --------
280 192 49 20 63 11
-------- -------- -------- -------- -------- --------
- - - (916) (770) (659)
- - - 181 337 409
- - - 995 558 249
- - - (118) (187) (66)
(651) (296) (120) (59) (75) (128)
569 240 162 52 86 121
87 - - - - -
(87) (110) (55) - - -
- - - (5) (14) (4)
- (300) - - - -
36 (43) (34) - - (13)
-------- -------- -------- -------- -------- --------
(46) (509) (47) 130 (65) (91)
-------- -------- -------- -------- -------- --------
- - - 100 - -
(42) (18) (11) (180) (99) (159)
- - 8 344 75 (184)
- - - (372) - 507
- 492 - - - -
(58) - (29) (28) (33) (20)
(12) (2) - - - -
-------- -------- -------- -------- -------- --------
(112) 472 (32) (136) (57) 144
-------- -------- -------- -------- -------- --------
122 155 (30) 14 (59) 64
377 222 252 44 103 39
-------- -------- -------- -------- -------- --------
$ 499 $ 377 $ 222 $ 58 $ 44 $ 103
======== ======== ======== ======== ======== ========
<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 1 while a summary of eliminations is shown in Note 2.
</TABLE>
<PAGE>
<PAGE 25>
<TABLE>
<CAPTION>
STATEMENT OF NON-REDEEMABLE PREFERRED,
PREFERENCE AND COMMON SHAREOWNERS' EQUITY
Shares Outstanding (In thousands)
-----------------------------------------------------------------
Non-Redeemable Convertible
--------------------------
Preferred Preference
For the Years Ended Stock Stock Common Class B
October 31, 1994, 1993 and 1992 Series G Series D Stock Common Warrants
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1991 ................. 4,800 196 25,012 - 14,834
Issuance of Common Stock
Conversion of Series D preference stock ... - (17) 5 - -
Restricted stock .......................... - - 13 - -
Exercise of stock options ................. - - 23 - -
PBGC settlement shares .................... - - 357 - -
Net loss .................................... - - - - -
Preferred dividends paid .................... - - - - -
Adjustment for excess additional pension
liability over intangible pension assets . - - - - -
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1992 ................. 4,800 179 25,410 - 14,834
Issuance of Common Stock
Public stock offering ..................... - - 23,600 - -
Conversion of Series D preference stock ... - (1) - - -
Restricted stock .......................... - - 10 - -
Exercise of stock options ................. - - 2 - -
Class B Common Stock ...................... - - - 25,642 -
Reclassification of NOL (a).................. - - - - -
Repurchase of common stock .................. - - (3) (96) -
Stock accumulation fund settlement .......... - - 136 - -
Net loss .................................... - - - - -
Preferred dividends declared ................ - - - - -
Adjustment for excess additional pension
liability over intangible pension
assets, net of tax benefit ............... - - - - -
Tax benefit on previously recognized
pension liability ......................... - - - - -
Expiration of warrants ...................... - - - - (4,000)
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1993 ................. 4,800 178 49,155 25,546 10,834
Issuance of Common Stock
Conversion of Series D preference stock ... - (1) - - -
Restricted stock .......................... - - 167 - -
Exercise of stock options ................. - - 1 - -
Conversion of Class B Common Stock ........ - - - - -
Repurchase of common stock .................. - - (4) (511) -
Net income .................................. - - - - -
Preferred dividends declared ................ - - - - -
Adjustment for excess additional pension
liability over intangible pension
assets, net of tax benefit ............... - - - - -
Expiration of warrants ...................... - - - - (10,834)
Translation adjustments ..................... - - - - -
Unrealized loss - marketable securities ..... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1994 ................. 4,800 177 49,319 25,035 -
======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements.
(a) Reclassification required as a result of the 1987 deficit reclassification and adoption of SFAS 109 in
fiscal 1993.
</TABLE>
<PAGE>
<PAGE 26>
<TABLE>
<CAPTION>
Equity (Millions of dollars)
------------------------------------------------------------------------------------------------------------
Non-Redeemable Convertible Accumulated
-------------------------- Common Translation Common
Preferred Preference Stock Adjustment/ Stock
Stock Stock and Class B Retained Unrealized Held In
Series G Series D Warrants Common Earnings Gains (Losses) Treasury Total
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 240.0 $ 4.9 $ 522.0 $ - $ (157.8) $ - $ (31.6) $ 577.5
- (.4) .4 - - - - -
- - .3 - - - (.1) .2
- - 1.7 - - - (1.8) (.1)
- - (16.0) - - - 22.9 6.9
- - - - (212.4) - - (212.4)
- - - - (28.8) - - (28.8)
- - - - (.8) - - (.8)
- - - - - (4.2) - (4.2)
-------- -------- -------- -------- --------- -------- -------- --------
240.0 4.5 508.4 - (399.8) (4.2) (10.6) 338.3
- - 492.1 - - - - 492.1
- - - - - - - -
- - .3 - - - - .3
- - - - - - - -
- - - 512.8 - - - 512.8
- - 617.6 - (617.6) - - -
- - - - - - (2.5) (2.5)
- - (3.4) - - - 7.6 4.2
- - - - (501.0) - - (501.0)
- - - - (28.8) - - (28.8)
- - - - (79.4) - - (79.4)
- - - - 38.3 - - 38.3
- - - - - - - -
- - - - - .6 - .6
-------- -------- -------- -------- --------- -------- -------- --------
240.0 4.5 1,615.0 512.8 (1,588.3) (3.6) (5.5) 774.9
- (.1) .1 - - - - -
- - 1.2 - - - - 1.2
- - - - - - - -
- - 12.1 (12.1) - - - -
- - - - - - (12.6) (12.6)
- - - - 82.0 - - 82.0
- - - - (36.0) - - (36.0)
- - - - 10.0 - - 10.0
- - - - - - - -
- - - - - .1 - .1
- - - - - (2.7) - (2.7)
-------- -------- -------- -------- --------- -------- -------- --------
$ 240.0 $ 4.4 $1,628.4 $ 500.7 $(1,532.3) $ (6.2) $ (18.1) $ 816.9
======== ======== ======== ======== ========= ======== ======== ========
</TABLE>
<PAGE>
<PAGE 27>
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1994
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Consolidation
Navistar International Corporation is a holding company, whose
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). Transportation operates in one principal industry
segment, the manufacture and marketing of medium and heavy trucks,
including school bus chassis, mid-range diesel engines and service parts
in the United States and Canada and selected export markets. As used
hereafter, "Company" refers to Navistar International Corporation and its
consolidated subsidiaries.
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." 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 foreign finance and insurance companies. Navistar Financial's
primary business is the retail and wholesale financing of products sold by
Transportation and its dealers within the United States and the providing
of commercial physical damage and liability insurance to Transportation's
dealers and retail customers and to the general public through an
independent insurance agency system.
The effects of transactions between Manufacturing and Financial
Services have been eliminated to arrive at the consolidated totals. See
Note 2 to the Financial Statements. The distinction between current and
long-term assets and liabilities in the Statement of Financial Condition
is not meaningful when finance, insurance and manufacturing subsidiaries
are combined; therefore, the Company has adopted an unclassified
presentation. Certain 1993 and 1992 amounts have been reclassified to
conform with the presentation used in the 1994 financial statements.
Cash and Cash Equivalents
All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of bankers'
acceptances, commercial paper, U.S. government securities and floating
rate notes are classified as cash equivalents in the Statement of
Financial Condition and Statement of Cash Flow.
Marketable Securities
Marketable securities, which are classified as available-for-sale
securities, are reported at fair value in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities" which
the Company elected to apply as of October 31, 1994. Marketable
securities at October 31, 1993, are reported at cost or amortized cost
which approximates market value. See Note 8 to the Financial Statements.
<PAGE>
<PAGE 28>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Inventory
Inventory is valued at the lower of average cost or market.
Property
Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally computed on the straight-line
basis; gains and losses on property disposal are included in other income
and expense.
Research and Development
Activities related to new product development and major improvements
to existing products and processes are expensed as incurred and were $95
million, $95 million and $90 million in 1994, 1993 and 1992, respectively.
Engineering expense, as shown in the Statement of Income (Loss), includes
certain research and development expenses and routine ongoing costs
associated with improving existing products and processes.
Income Taxes
The Company adopted SFAS 109, "Accounting for Income Taxes" in 1993.
Under SFAS 109, recognition of a net deferred tax asset is allowed if
future realization is more-likely-than-not. A valuation allowance has
been provided for those net operating loss carryforwards which are
estimated to expire before they are utilized.
The tax effect of each item of revenue or expense reported in the
Statement of Income (Loss) is recognized in the current period regardless
of when the related tax is paid. Because the benefit of net operating
loss carryforwards is recognized as a deferred tax asset in the Statement
of Financial Condition, the Statement of Income (Loss) 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.
The Company files a consolidated federal income tax return which
includes all its U.S. subsidiaries. Federal income tax for each U.S.
subsidiary is computed separately and is payable to the Company. See Note
5 to the Financial Statements.
<PAGE>
<PAGE 29>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue on Receivables
Finance charges on retail notes and finance leases are recognized as
income by Navistar Financial over the term of the receivables on the
accrual basis utilizing the actuarial method. Interest from interest-
bearing notes and accounts is recognized on the accrual basis. Gains or
losses on sales of receivables are credited or charged to revenue in the
period in which the sale occurs.
Losses on Receivables
The allowance for losses on receivables is maintained at an amount
management considers appropriate in relation to the outstanding
receivables portfolio. Receivables are charged to the allowance for
losses when they are determined to be uncollectible.
Receivable Sales
Navistar Financial sells and securitizes receivables to public and
private investors with limited recourse but continues to service the
receivables, for which a servicing fee is received from the investors.
Insurance Premiums and Loss Reserves
Premiums and underwriting costs of insurance operations are
recognized on a pro-rata basis over the terms of the policies.
Underwriting losses and outstanding loss reserve balances are based
on individual case estimates of the ultimate cost of settlement, including
actual losses, and determinations of amounts required for losses incurred
but not reported.
Changes in Accounting Policy
In 1994, the Company adopted SFAS 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" and SFAS 119,
"Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments". In addition, the Company has elected to apply
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" as of October 31, 1994. Implementation of these standards did
not have a material effect on the Company's financial results. See Notes
8, 9 and 17 to the Financial Statements.
<PAGE>
<PAGE 30>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. 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. The
presence or absence of brackets indicates reductions or additions,
respectively, necessary to compute the consolidated amounts.
STATEMENT OF INCOME (LOSS)
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Sales and revenues
Finance and insurance income ............ $ (50) $ (42) $ (40)
Other income ............................ (5) - -
-------- -------- --------
$ (55) $ (42) $ (40)
======== ======== ========
Costs and expenses
Interest expense ........................ $ (5) $ - $ -
Financing charges on sold receivables ... (50) (42) (40)
-------- -------- --------
$ (55) $ (42) $ (40)
======== ======== ========
Income before income taxes,
Financial Services ...................... $ (60) $ (61) $ (52)
======== ======== ========
STATEMENT OF FINANCIAL CONDITION
Millions of dollars 1994 1993
- ---------------------------------------------------------------
Receivables, net .......................... $ (10) $ (16)
Equity in Financial Services subsidiaries . (249) (241)
-------- --------
Total assets .............................. $ (259) $ (257)
======== ========
Accounts payable .......................... $ (13) $ (16)
Accrued liabilities ....................... 3 -
Shareowner's equity, Financial Services ... (249) (241)
-------- --------
Total liabilities and shareowners' equity . $ (259) $ (257)
======== ========
<PAGE>
<PAGE 31>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. FINANCIAL STATEMENT ELIMINATIONS (continued)
STATEMENT OF CASH FLOW
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ............................ $ (146) $ (220) $ (87)
Investment programs ................... 118 187 67
Financing activities .................. 28 33 20
-------- -------- --------
Increase (decrease) during the year
in cash and cash equivalents ............ $ - $ - $ -
======== ======== ========
3. 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:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ...... $ (49) $ 7 $ (111)
(Increase) in inventories ............... (19) (51) (37)
(Increase) in prepaid and
other current assets .................. (4) (10) (9)
Increase in accounts payable ............ 103 106 190
Increase in accrued liabilities ......... 50 12 126
-------- -------- --------
Manufacturing change in operating assets
and liabilities ....................... 81 64 159
-------- -------- --------
FINANCIAL SERVICES
(Increase) decrease in receivables ...... (1) 2 8
Increase (decrease) in accounts payable
and accrued liabilities ............... (7) 17 (25)
-------- -------- --------
Financial Services change
in operating assets and liabilities ... (8) 19 (17)
-------- -------- --------
Eliminations/reclassifications (a) ........ (118) (191) (68)
-------- -------- --------
Change in operating assets and liabilities. $ (45) $ (108) $ 74
======== ======== ========
(a) Eliminations and reclassifications to the Statement of Cash Flow
primarily consist of "Acquisitions (over) under cash collections"
relating to Financial Services' 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.
<PAGE>
<PAGE 32>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to substantially all of
its employees. Costs associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses, and
postretirement health care and life insurance expense for employees,
retirees, surviving spouses and dependents. These costs are segregated as
a separate component in the Statement of Income (Loss) and are as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Pension expense ........................... $ 108 $ 107 $ 109
Health/life insurance ..................... 64 102 146
-------- -------- --------
Total postretirement benefits expense ..... $ 172 $ 209 $ 255
======== ======== ========
In the Statement of Financial Condition, the postretirement benefits
liability of $1,299 million in 1994 and $1,352 million in 1993 includes
$549 million and $600 million, respectively, for pension and $750 million
and $752 million, respectively, for postretirement health care and life
insurance benefits.
Generally, the pension plans are non-contributory with benefits
related to an employee's length of service and compensation rate. The
Company's policy is to fund its pension plans in accordance with
applicable United States and Canadian government regulations and to make
additional payments as funds are available to achieve full funding of the
vested accumulated benefit obligation. The pension plans vary in the
extent to which they are funded, but for plan years which ended during the
current fiscal year, all legal funding requirements have been met. Plan
assets are invested primarily in dedicated portfolios of long-term fixed
income securities.
Legislation known as the "Retirement Protection Act," was passed by
the United States Congress amending the "Employee Retirement Income
Security Act," (ERISA) and the Internal Revenue Code. The measure will
require the accelerated funding of underfunded defined benefit pension
plans and will increase the premiums paid to the Pension Benefit Guaranty
Corporation. The Company intends to fund its defined benefit plans at, or
in excess of, the government requirements.
<PAGE>
<PAGE 33>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
In addition to providing pension benefits, the Company provides
health care and life insurance for a majority of its retired employees,
spouses and certain dependents in the United States and Canada. For most
retirees in the United States, these benefits are defined by the terms of
an agreement between the Company and its employees, retirees and
collective bargaining organizations (the Settlement Agreement) which
provides such benefits (the Plan). The Plan, which was implemented on
July 1, 1993, eliminated certain benefits and provided for cost sharing
between the Company and participants in the form of premiums, co-payments
and deductibles. A Base Program Trust was established to provide a
vehicle for funding of the health care liability through Company
contributions and retiree premiums. A separate independent Retiree
Supplemental Benefit Program was also established, which included a
Company contribution of Class B Common Stock, originally valued at $513
million, to potentially reduce retiree premiums, co-payments and
deductibles and provide additional benefits in the future.
Pension Expense
Net pension expense included in the Statement of Income (Loss) is
composed of the following:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Service cost-benefits earned
during the period ....................... $ 34 $ 27 $ 25
Interest on projected benefit obligation .. 211 220 219
Other pension costs ....................... 50 43 54
Less expected return on assets ............ (187) (183) (189)
-------- -------- --------
Net pension expense ....................... $ 108 $ 107 $ 109
======== ======== ========
Actual return on assets ................... $ (127) $ 427 $ 218
"Other pension costs" in the above table include principally the
amortization of the net transition obligation and amortization of the cost
of plan amendments.
The determination of the projected benefit obligation is based on
actuarial assumptions and discount rates that reflect the current level of
interest rates. The return on assets is based on long-term expectations.
Annual differences between such expectations and actual experience are
deferred unless the cumulative amount exceeds a specified level. Since
the adoption of the standard on pension accounting in 1988, the cumulative
actual returns on plan assets exceeded cumulative expected returns by $117
million. As a result of accumulated reductions in the discount rate and
net actuarial losses, the actual projected benefit obligation exceeds the
expected liability by $359 million.
<PAGE>
<PAGE 34>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities
Included in the Statement of Financial Condition is the minimum
pension liability for certain unfunded pension obligations. The unfunded
liability in excess of the unamortized prior service cost and net
transition obligation was recorded as a reduction in shareowners' equity
of $132 million, net of deferred income taxes of $81 million as of October
31, 1994 and $142 million, net of deferred income taxes of $87 million as
of October 31, 1993. The change in the minimum pension liability at
October 31, 1994 resulted from changes in actuarial assumptions,
experience losses and settlement rate changes.
The funded status of the Company's plans as of October 31, 1994 and
1993, and a reconciliation with amounts recognized in the Statement of
Financial Condition are provided below.
Plans in Which Plans in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------- ---------------------
<TABLE>
<CAPTION>
Millions of dollars 1994 1993 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits ........... $ (81) $ (87) $ (2,282) $ (2,618)
Non-vested benefits ....... (5) (4) (223) (213)
-------- -------- -------- --------
Accumulated benefit
obligation ............ (86) (91) (2,505) (2,831)
Effect of projected future
compensation levels ..... (2) (6) (21) (40)
-------- -------- -------- --------
Projected benefit obligation. (88) (97) (2,526) (2,871)
Plan assets at fair value ... 118 122 1,968 2,262
-------- -------- -------- --------
Funded status at October 31 . 30 25 (558) (609)
Unamortized pension costs:
Net losses ................ 7 26 235 260
Prior service costs ....... 14 1 43 49
(Asset) liability at
date of transition ...... (1) (1) 266 301
Adjustment for the
minimum liability ......... - - (522) (570)
-------- -------- -------- --------
Net asset (liability) ....... $ 50 $ 51 $ (536) $ (569)
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE 35>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
As shown above, in 1994 for all plans, the sum of the $50 million net
asset and the $536 million net liability was $486 million and is the
amount recognized in the Statement of Financial Condition at October 31,
1994. This total includes $63 million of prepaid pension assets
representing advance contributions to certain plans, and $549 million of
net pension liabilities included in the $1,299 million postretirement
benefits liability in the Statement of Financial Condition.
In 1993, for all plans, the sum of the $51 million net asset and the
$569 million net liability was $518 million and is the amount recognized
in the Statement of Financial Condition at October 31, 1993. This total
includes $82 million of prepaid pension assets representing advance
contributions to certain plans and $600 million of net pension liabilities
included in the $1,352 million postretirement benefits liability in the
Statement of Financial Condition.
The weighted average rate assumptions used in determining pension
costs and the projected benefit obligation were:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Discount rate used to determine present
value of projected benefit obligation ... 9.3% 7.3% 8.8%
Expected long-term rate of return on
plan assets ............................. 8.1% 8.8% 9.2%
Expected rate of increase in future
compensation levels ..................... 3.5% 3.5% 5.5%
The Company uses a weighted average discount rate based on the
internal rate of return on its dedicated portfolio of high-quality bonds
and an estimated yield available on high-quality fixed income securities
which could be purchased to effectively settle the remaining portion of
the obligation. The increase in the discount rate to 9.3% in 1994 from
7.3% in 1993 reflects higher long-term interest rates during the past
year.
Other Postretirement Benefits
The Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," for its United States and
Canadian plans in fiscal 1993 and recognized the transition obligation as
a one-time non-cash charge to earnings. The cumulative effect of this
change in accounting policy was $729 million, net of a deferred income tax
benefit of $420 million. The $228 million cumulative charge for the
changes in accounting policy reported in the Statement of Income (Loss)
for 1993 includes the $729 million charge from the adoption of SFAS 106
offset by the $501 million benefit from the adoption of SFAS 109, as
discussed in Note 5 to the Financial Statements.
<PAGE>
<PAGE 36>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The components of expense for other postretirement benefits included
in the Statement of Income (Loss) are as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Service cost - benefits earned
during the year ......................... $ 10 $ 12
Interest cost on the accumulated
benefit obligation ...................... 81 91
Expected return on assets ................. (27) (1)
-------- --------
Net other postretirement
benefits expense ........................ $ 64 $ 102
======== ========
The funded status of other postretirement benefits as of October 31
is as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Accumulated other postretirement benefit
obligation (APBO):
Retirees and their dependents ............. $ (662) $ (753)
Active employees eligible to retire ....... (198) (160)
Other active participants ................. (178) (173)
-------- --------
Total APBO ................................ (1,038) (1,086)
Plan assets at fair value ................. 308 302
-------- --------
APBO in excess of plan assets ............. (730) (784)
Unrecognized net (gain) loss .............. (20) 32
-------- --------
Net liability ............................. $ (750) $ (752)
======== ========
In October 1993, the Company pre-funded $300 million of this
liability from the partial proceeds of a public offering of Common Stock.
The Company will be required to make additional pre-funding contributions
to the liability on or prior to July 1, 1998, such that the total of all
pre-funding contributions will equal the total net proceeds from all sales
of Common Stock through such date, but not to exceed $500 million.
Additionally, the Company is required to annually pre-fund an amount equal
to annual service cost. These funds will be used to pay a portion of
current benefits; the remainder to be invested with plan assets which
consist primarily of equity securities. The expected return on plan
assets was 9% at October 31, 1994 and 1993.
<PAGE>
<PAGE 37>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The weighted average of discount rates used in the United States and
Canada to determine the accumulated postretirement benefit obligation was
9.0% and 7.5% at October 31, 1994 and 1993, respectively, based on the
estimated income of high-quality fixed income securities which could be
purchased to effectively settle the obligation. For 1995, the weighted
average rate of increase in the per capita cost of covered health care
benefits is projected to be 10.0%. The rate is projected to decrease to
5% by the year 2003 and remain at that level each year thereafter. If the
cost trend rate assumptions were increased by one percentage point for
each year, the accumulated postretirement benefit obligation would
increase by approximately $100 million and the associated expense
recognized for the year ended October 31, 1994 would increase by an
estimated $11 million. Conversely, a decrease in the cost trend rate
would lower the accumulated postretirement benefit obligation and the
associated expense.
5. INCOME TAXES
The Company adopted SFAS 109, "Accounting for Income Taxes" in fiscal
1993. Under SFAS 109, deferred tax assets and liabilities are generally
determined based on the difference between the financial statements and
the 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 Income Tax section of Management's Discussion and Analysis
includes disclosures related to the determination of the amount of the net
deferred tax asset included in the Statement of Financial Condition.
The income tax benefit (expense) for the years ended October 31 is as
follows:
Millions of dollars 1994 1993 1992
- ------------------------------------------------------------------------
Tax benefit (expense) on income (loss)
of continuing operations:
Manufacturing ........................... $ (34) $ 190 $ 18
Financial Services ...................... (22) (22) (20)
-------- -------- --------
Total income tax benefit (expense)
of continuing operations ................ $ (56) $ 168 $ (2)
======== ======== ========
<PAGE>
<PAGE 38>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
Taxes on income (loss) of continuing operations are analyzed by
categories, as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Current:
Federal ................................. $ (3) $ - $ -
State and local ......................... (2) (2) (2)
-------- -------- --------
Total current (expense) ............... (5) (2) (2)
-------- -------- --------
Deferred:
Federal ................................. (44) 149 -
State and local ......................... (7) 21 -
-------- -------- --------
Total deferred benefit (expense) ...... (51) 170 -
-------- -------- --------
Total income tax benefit (expense)
of continuing operations ................ $ (56) $ 168 $ (2)
======== ======== ========
The deferred tax expense was primarily generated by the utilization
of NOL carryforwards and the reduction of temporary differences and will
not require future cash payments.
The relationship of the tax (expense) benefit to the income (loss) of
continuing operations for 1994 and 1993 differs from the U.S. statutory
rate (35%) because of state income taxes and benefit of NOLs in foreign
countries. The effective tax rates on the income (loss) of continuing
operations for the years 1994, 1993 and 1992 were 35.4%, 38.1% and 1.4%,
respectively. The effective income tax rate for 1992 differs from the
U.S. statutory rate because of the benefit of NOLs in the United States
and foreign countries.
Undistributed earnings of foreign subsidiaries were $16 million and
$15 million at October 31, 1994 and 1993, respectively. Taxes have not
been provided on these earnings because no withholding taxes are
applicable upon repatriation, and U.S. tax would be substantially offset
by utilization of NOL carryforwards.
<PAGE>
<PAGE 39>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
The following is a summary of deferred tax assets and liabilities at
October 31:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Deferred tax assets:
Total deferred tax assets ............... $ 1,431 $ 1,483
Less valuation allowances ............... (297) (305)
-------- --------
Net deferred tax assets ............... $ 1,134 $ 1,178
======== ========
Deferred tax liabilities, included in
other long-term liabilities ............. $ 16 $ 16
======== ========
The components of the deferred tax asset (liability) at October 31
are as follows:
Millions of dollars 1994 1993
- ------------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss
carryforwards ......... $ 872 $ 916
Alternative
minimum tax ........... 3 -
Accrued liabilities:
Product liability ..... $ 63 $ 71
Warranty .............. 38 37
Employee related
costs 62 38
Other ................. 76 239 96 242
-------- --------
Postretirement benefits:
Health care and
life insurance ...... 266 271
Pensions .............. 81 347 87 358
-------- -------- -------- --------
Total deferred
tax assets ....... 1,461 1,516
-------- --------
Deferred tax liabilities:
Prepaid pension assets .. (10) (19)
Depreciation ............ (39) (41)
-------- --------
Total deferred
tax liabilities .. (49) (60)
-------- --------
Total ............... 1,412 1,456
Less valuation allowance .. (278) (278)
-------- --------
Net deferred tax asset $ 1,134 $ 1,178
======== ========
<PAGE>
<PAGE 40>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
Millions of dollars 1994 1993
- ------------------------------------------------------------------------
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards ......... $ 3 $ 11
Postretirement benefits .................. 16 16
-------- --------
Total deferred tax assets ............ 19 27
-------- --------
Deferred tax liabilities:
Prepaid pension assets ................... (16) (16)
-------- --------
Total deferred tax liabilities ....... (16) (16)
-------- --------
Total ................................ 3 11
Less valuation allowance ................... (19) (27)
-------- --------
Net deferred tax liabilities ........ $ (16) $ (16)
======== ========
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which are estimated to expire
before they are utilized. Because the foreign tax carryforward period is
relatively short, a full allowance has been provided against the total
deferred tax assets. The valuation allowance decreased $8 million during
1994 resulting from recognizing tax benefits from the utilization of NOL
carryforwards attributable to 1994 foreign operating income and
fluctuations in foreign exchange rates.
Tax paying entities of the Company offset all deferred tax assets and
liabilities within each tax jurisdiction and present them in a single
amount in the Statement of Financial Condition. Amounts in different tax
jurisdictions cannot be offset against each other. Accordingly, the U.S.
deferred tax asset is shown in the Statement of Financial Condition as a
deferred tax asset, whereas the foreign deferred tax liability is included
in the amount shown for other long-term liabilities.
<PAGE>
<PAGE 41>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
At October 31, 1994, the Company had $2,295 million of domestic and
$6 million of foreign NOL carryforwards available to offset future taxable
income. Such carryforwards reflect income tax losses incurred which will
expire as follows, in millions of dollars:
1997 ..................... $ 182
1998 ..................... 377
1999 ..................... 35
2000 ..................... 300
2001 ..................... 143
2002 ..................... 47
2004 ..................... 234
2005 ..................... 7
2006 ..................... 126
2007 ..................... 41
2008 ..................... 809
------
Total ............... $2,301
======
Additionally, the estimated reversal of net temporary differences of
$1,454 million as of October 31, 1994, will create net tax deductions
which, if not utilized previously, will expire subsequent to 2008, as
indicated, in millions of dollars:
Estimated Year Estimated Year
of Reversal Amount of Expiration
- -------------- ------ -------------------
United States:
1995 ................................... $ 326 2010
1996 ................................... 15 2011
1997 ................................... 27 2012
1998-2002 .............................. 236 2013-2017
2003 and thereafter .................... 807 2018 and thereafter
------
Total United States................. 1,411
------
Canada
2000 and thereafter .................... 43 2008 and thereafter
------
$1,454
======
<PAGE>
<PAGE 42>
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. DISCONTINUED OPERATIONS
In the fourth quarter of 1994, Transportation recorded a $20 million
charge, net of $13 million of income taxes, as a loss of discontinued
operations for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. See
Note 19 to the Financial Statements.
Transportation reached a final agreement with the Economic
Development Administration (EDA), a division of the United States
Department of Commerce, in settlement of commercial and environmental
disputes related to the Wisconsin Steel site in Chicago, Illinois. The
terms of this agreement are described in Note 19 to the Financial
Statements. In addition, Transportation recorded a charge for potential
cleanup costs related to the former Solar Division located in San Diego,
California.
In 1992, a provision of $65 million was recorded as a loss of
discontinued operations for the settlement of litigation commonly referred
to as the Wisconsin Steel Pension Plan Cases. Since this provision pre-
dated the adoption of SFAS 109 in fiscal 1993, no income tax benefit was
recorded. The court held Transportation liable for pension liabilities to
former employees of the Wisconsin Steel Division prior to its sale to EDC
Holding Company in 1977. Under the terms of the settlement, the Company
paid the Pension Benefit Guaranty Corporation (PBGC) $20 million, issued
to the PBGC 357,000 shares of Navistar International Corporation Common
Stock and delivered to the PBGC an eight percent ten-year note with a face
amount of $36.6 million maturing August 15, 2002.
7. EARNINGS APPLICABLE TO COMMON STOCK
For computation of earnings per share, income (loss) applicable to
common stock is determined as follows:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Income (loss) of continuing operations ... $ 102 $ (273) $ (147)
Preferred dividend requirements
on Series G preferred stock ............ (29) (29) (29)
-------- -------- --------
Income (loss) of continuing operations
applicable to common stock ............. 73 (302) (176)
Loss of discontinued operations .......... (20) - (65)
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy
applicable to common stock ............. 53 (302) (241)
Cumulative effect of changes
in accounting policy ................... - (228) -
-------- -------- --------
Net income (loss) applicable
to common stock ........................ $ 53 $ (530) $ (241)
======== ======== ========
<PAGE>
<PAGE 43>
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. EARNINGS APPLICABLE TO COMMON STOCK (continued)
Average common and dilutive common equivalent shares:
Millions of dollars 1994 1993 1992
- -------------------------------------------------------------------------
Common shares outstanding
or unconditionally issuable ............ 74.5 34.9 25.3
Common share equivalents ................. .1 - -
-------- -------- --------
Total average common
and dilutive common equivalent shares .. 74.6 34.9 25.3
======== ======== ========
The increase in the weighted average number of Common and Class B
Common shares reflects the issuance and contribution of 25.6 million
shares of Class B Common Stock originally valued at $513 million to a
separate independent retiree Supplemental Trust on June 30, 1993 and the
sale of 23.6 million shares of Common Stock on October 21, 1993 from which
the Company realized net proceeds of $492 million. Through October 31,
1994, the Company has repurchased 606,684 Class B Common shares for $15
million as provided by the Settlement Agreement.
Income (loss) per common share assuming full dilution has not been
presented because the potential conversion of the Series G Preferred Stock
would not have a dilutive effect for the years presented.
8. MARKETABLE SECURITIES
The Company has elected to apply SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities" as of October 31, 1994. This
statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. In accordance with its provisions, the
statement is not retroactive to prior financial statements.
At October 31, 1994, all marketable securities are classified as
available-for-sale and reported at fair value in the Statement of
Financial Condition in accordance with SFAS 115. The fair value of
marketable securities is estimated 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. At October
31, 1993, marketable securities were reported at cost or amortized cost
which approximated market value.
<PAGE>
<PAGE 44>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (continued)
Information related to the Company's marketable securities at October
31 is as follows:
1994
- -------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Millions of dollars Cost Gains Losses Value
- -------------------------------------------------------------------------
MANUFACTURING
Corporate and other
securities ............. $ 31 $ - $ - $ 31
U.S. government securities 125 - 1 124
Mortgage and
asset-backed securities . 11 - - 11
-------- -------- -------- --------
Manufacturing debt
securities ............. 167 - 1 166
-------- -------- -------- --------
FINANCIAL SERVICES
Corporate securities ...... 28 - - 28
U.S. government securities 67 - 2 65
Mortgage and
asset-backed securities.. 28 - 1 27
Foreign government
securities .............. 9 - - 9
-------- -------- -------- --------
Financial Services
debt securities ......... 132 - 3 129
Financial Services
equity securities ....... 9 1 1 9
-------- -------- -------- --------
Financial Services
marketable securities ... 141 1 4 138
-------- -------- -------- --------
Total marketable securities . $ 308 $ 1 $ 5 $ 304
======== ======== ======== ========
<PAGE>
<PAGE 45>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (Continued)
1993
- -------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Millions of dollars Cost Gains Losses Value
- -------------------------------------------------------------------------
MANUFACTURING
Corporate and
other securities ........ $ 9 $ - $ - $ 9
U.S. government securities. 76 - - 76
-------- -------- -------- --------
Manufacturing debt
securities .............. 85 - - 85
-------- -------- -------- --------
FINANCIAL SERVICES
Corporate securities ..... 18 1 - 19
U.S. government securities. 70 5 - 75
Mortgage and
asset-backed securities . 36 1 - 37
Foreign government
securities .............. 9 - - 9
-------- -------- -------- --------
Financial Services debt
securities .............. 133 7 - 140
-------- -------- -------- --------
Total marketable securities . $ 218 $ 7 $ - $ 225
======== ======== ======== ========
<PAGE>
<PAGE 46>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (Continued)
Contractual maturities of marketable debt securities at October 31
are as follows:
1994 1993
------------------ ------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- -------------------------------------------------------------------------
MANUFACTURING
Due in one year or less .... $ 32 $ 32 $ 61 $ 61
Due after one year
through five years ....... 135 134 24 24
-------- -------- -------- --------
Manufacturing debt
securities ........... 167 166 85 85
-------- -------- -------- --------
FINANCIAL SERVICES
Due in one year or less .... 17 17 6 6
Due after one year
through five years ....... 61 60 62 65
Due after five years
through ten years ........ 17 16 26 28
Due after ten years ........ 9 8 3 3
-------- -------- -------- --------
104 101 97 102
Mortgage and
asset-backed securities .. 28 28 36 38
-------- -------- -------- --------
Financial services
debt securities ...... 132 129 133 140
-------- -------- -------- --------
Total debt securities ...... $ 299 $ 295 $ 218 $ 225
======== ======== ======== ========
Proceeds from sales or maturities of investments in securities held
by Manufacturing and Financial Services were $621 million during 1994.
Gross gains and losses were not material. Shareowners' equity includes a
net unrealized holding loss of $3 million, net of income taxes, at October
31, 1994.
At October 31, 1994 and 1993, Financial Services had $30 million and
$27 million, respectively, of marketable securities on deposit with
various state departments of insurance or otherwise restricted as to use.
These securities are included in total marketable securities balances at
October 31, 1994 and 1993.
<PAGE>
<PAGE 47>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES
Receivables at October 31 are summarized by major classification as
follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Customers .............................. $ 193 $ 147
Allowance for losses ................... (17) (24)
-------- --------
Manufacturing receivables, net ....... 176 123
-------- --------
FINANCIAL SERVICES
Retail notes and lease financing ....... 526 824
Wholesale notes ........................ 241 237
Accounts receivable .................... 370 251
Amounts due from sales of receivables .. 181 138
Reinsurance balance receivables ........ 41 5
-------- --------
Total accounts and notes receivables ... 1,359 1,455
Allowance for losses ................... (8) (12)
-------- --------
Financial Services receivables, net .. 1,351 1,443
-------- --------
Eliminations ......................... (10) (16)
-------- --------
Total receivables, net ................... $ 1,517 $ 1,550
======== ========
The allowance for losses of Manufacturing includes amounts associated
with receivables financed by the Financial Services' subsidiaries and
receivables on products sold to distributors in export markets.
Financial Services
During fiscal 1994, the Company's Financial Services' insurance
subsidiaries adopted SFAS 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts." This statement specifies
the accounting by insurance enterprises for the reinsurance (ceding) of
insurance contracts. It requires reinsurance receivables and prepaid
reinsurance premiums to be reported as assets. In accordance with the
standard, Financial Services' assets include $41 million of reinsurance
receivables at October 31, 1994. The restatement of the prior year's
Statement of Financial Condition is not required.
Navistar Financial purchases the majority of the wholesale notes
receivable and some retail notes and accounts receivable arising from
Transportation's operations in the United States.
<PAGE>
<PAGE 48>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES (continued)
A portion of Navistar Financial's funding for retail and wholesale
notes comes from sales of receivables by Navistar Financial to third
parties with limited recourse. Proceeds from sales of retail notes
receivable were $995 million in 1994, $558 million in 1993 and $249
million in 1992. Uncollected sold retail and wholesale receivable
balances totalled $1,334 million and $839 million as of October 31, 1994
and 1993, respectively. Navistar Financial's maximum exposure under all
receivable sale recourse provisions at October 31, 1994 is $177 million
which includes holdback reserves of $64 million, subordinated retained
interest in securitized receivable sales of $61 million and $52 million of
certain cash deposits established as a result of the securitized
receivables recourse provisions.
Contractual maturities of notes and lease financing outstanding at
October 31, 1994, are summarized below. Prepayments may cause the average
actual life to be shorter.
Retail Notes and Wholesale Accounts
Millions of dollars Lease Financing Notes Receivable
- --------------------------------------------------------------------------
Gross finance receivables
due in:
1995 ................... $ 165 $ 136 $ 358
1996 ................... 145 105 -
1997 ................... 116 - -
1998 and thereafter .... 161 - -
-------- -------- --------
Gross finance receivables 587 241 358
Unearned finance charges ... 61 - -
-------- -------- --------
Total finance receivables .. $ 526 $ 241 $ 358
======== ======== ========
10. INVENTORIES
Inventories at October 31 are as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
Finished products ........................ $ 169 $ 196
Work in process ......................... 103 73
Raw materials and supplies ............... 157 142
-------- --------
Total inventories ........................ $ 429 $ 411
======== ========
<PAGE>
<PAGE 49>
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. PROPERTY
At October 31, property includes the following:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Land ................................... $ 8 $ 8
-------- --------
Buildings, machinery and equipment at cost:
Plants ............................... 1,070 1,087
Distribution ......................... 71 72
Other ................................ 78 82
-------- --------
Subtotal ........................... 1,219 1,241
-------- --------
Total property ......................... 1,227 1,249
Less accumulated depreciation
and amortization ..................... (678) (641)
-------- --------
Manufacturing property, net ........ 549 608
-------- --------
FINANCIAL SERVICES
Total property ......................... 35 34
Less accumulated depreciation
and amortization ..................... (6) (6)
-------- --------
Financial Services property, net ... 29 28
-------- --------
Total property and equipment, net ........ $ 578 $ 636
======== ========
Included in the gross property of Manufacturing is property under
capitalized lease obligations of $27 million at October 31, 1994, and $28
million at October 31, 1993.
<PAGE>
<PAGE 50>
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. LEASES
The Company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for 5 to 25 years and
in many cases provide for renewal options. The Company is generally
obligated for the cost of property taxes, insurance and maintenance.
The Company leases office buildings, distribution centers, furniture
and equipment, machinery and equipment and computer equipment. Total
operating lease expense was $35 million in 1994, 1993 and 1992. Income
received from sublease rentals was $6 million in 1994, 1993 and 1992.
At October 31, 1994, consolidated future minimum lease payments
required under capital and noncancellable operating leases having lease
terms in excess of one year are as follows:
Capital Operating
Millions of dollars Leases Leases
- -------------------------------------------------------------------------
1995 ..................................... $ 4 $ 34
1996 ..................................... 3 33
1997 ..................................... 3 31
1998 ..................................... 3 29
Thereafter ............................... 11 135
-------- --------
Total minimum payments ................... 24 $ 262
========
Less imputed interest .................... (9)
--------
Present value of minimum lease payments. $ 15
========
Future income from subleases ........... $ 33
========
<PAGE>
<PAGE 51>
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. ACCOUNTS PAYABLE
Major classifications of accounts payable at October 31 are as
follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Trade .................................. $ 776 $ 669
Other .................................. 3 1
-------- --------
Manufacturing accounts payable ....... 779 670
-------- --------
FINANCIAL SERVICES
Other .................................. 57 69
Manufacturing .......................... 13 16
-------- --------
Financial Services accounts payable .. 70 85
-------- --------
Eliminations ............................. (13) (16)
-------- --------
Total accounts payable ................... $ 836 $ 739
======== ========
14. ACCRUED LIABILITIES
Major classifications of accrued liabilities at October 31 are as
follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Product liability and warranty ......... $ 117 $ 108
Payroll and commissions ................ 65 59
Employee incentive programs ............ 35 -
Taxes .................................. 32 27
Employee related benefits .............. 29 35
Environmental .......................... 11 4
Dividends declared ..................... 7 29
Other .................................. 124 133
-------- --------
Manufacturing accrued liabilities .... 420 395
-------- --------
FINANCIAL SERVICES
Interest ............................... 11 14
Other .................................. 18 10
-------- --------
Financial Services accrued liabilities 29 24
-------- --------
Eliminations ............................. 3 -
-------- --------
Total accrued liabilities ................ $ 452 $ 419
======== ========
<PAGE>
<PAGE 52>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT
Short-Term Debt
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Notes payable and current maturities
of long-term debt ...................... $ 3 $ 25
-------- --------
FINANCIAL SERVICES
Commercial paper ......................... 19 -
Bank borrowings .......................... 400 75
Current maturities of long-term debt ..... 100 80
-------- --------
Financial Services short-term debt ..... 519 155
-------- --------
Total short-term debt ...................... $ 522 $ 180
======== ========
Navistar Financial issues commercial paper with varying terms and has
short-term borrowings with various banks on a non-committed basis.
Compensating cash balances and commitment fees are not required under
these borrowings.
Long-Term Debt
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
8 5/8% Sinking Fund Debentures, due 1995 . $ - $ 9
6 1/4% Sinking Fund Debentures, due 1998 . 7 11
9% Sinking Fund Debentures, due 2004 ..... 65 75
8% Secured Note, due 2002 ................ 37 37
Capitalized leases ....................... 13 15
Other .................................... 2 3
-------- --------
Manufacturing long-term debt ........... 124 150
-------- --------
FINANCIAL SERVICES
Senior Debentures and Notes
9.35% to 9.75%, medium-term,
due 1995 to 1996 ..................... 117 217
Bank revolver, variable rate,
due November 1995 .................... 355 727
-------- --------
Total senior debt .................. 472 944
Subordinated Term Debt
Debentures, 11.95%, due December 1995 .. - 100
Senior notes, 8 7/8%, due November 1998. 100 -
-------- --------
Financial Services long-term debt ...... 572 1,044
-------- --------
Total long-term debt ....................... $ 696 $ 1,194
======== ========
<PAGE>
<PAGE 53>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
The aggregate annual maturities and sinking fund requirements for
long-term debt for the years ended October 31 are as follows:
Financial
Millions of dollars Manufacturing Services Total
- -------------------------------------------------------------------------
1996 ....................... $ 15 $ 472 $ 487
1997 ...................... 18 - 18
1998 ....................... 18 - 18
1999 ....................... 15 100 115
Thereafter ................. 58 - 58
Weighted average interest
rate on total debt
including short-term debt
and the effect of discounts
and related amortization . 8.7% 7.1% 7.3%
Manufacturing's eight percent secured note, due 2002, is secured by
certain plant assets.
At October 31, 1994, Navistar Financial had contractually committed
facilities of $1,327 million consisting of a bank revolving credit
facility of $727 million and a retail notes receivable purchase facility
of $600 million. The bank revolving credit facility grants security
interests in substantially all of Navistar Financial's assets to the
debtholders. Unused commitments under the credit and purchase facilities
were $595 million, $419 million of which was used to back short-term debt
at October 31, 1994. The remaining $176 million, when combined with
unrestricted cash and cash equivalents, made $204 million available at
October 31, 1994 to fund the general business purposes of Navistar
Financial. At October 31, 1994, $377 million of sold notes were
outstanding under the retail notes purchase facility. Compensating cash
balances are not required under the revolving credit facility, but
commitment fees are paid on the unused portions of the bank revolving
credit and retail notes receivable purchase facilities. Navistar
Financial also pays a facility fee on the $600 million retail notes
receivable purchase facility.
In November 1994, Navistar Financial amended and restated its $727
million bank revolving credit agreement extending the scheduled maturities
for 1996 to October 31, 1998 and expanding the commitment to $900 million.
In addition, the commitments to sell retail notes under the $600 million
retail notes purchase facility agreement were terminated and Navistar
Financial established a $300 million asset-backed commercial paper program
backed by a $300 million bank liquidity facility which terminates October
31, 1998. The amended revolving credit facility removes dividend
restrictions, provides that Navistar Financial maintain certain covenant
requirements and grants security interests in substantially all of its
assets consistent with the previous credit agreement. Facility fees will
be paid quarterly regardless of usage.
<PAGE>
<PAGE 54>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
Under the terms of the asset-backed commercial paper program, a
special purpose wholly-owned subsidiary of Navistar Financial will
purchase retail notes and lease receivables. All assets of the subsidiary
will be pledged or sold to a Trust that will fund the receivables with
investment grade commercial paper. Navistar Financial will pay a
commitment fee on the unused portion of the $300 million asset-backed
commercial paper liquidity facility.
Navistar Financial's wholly-owned subsidiaries, Navistar Financial
Retail Receivables Corporation (NFRRC) and Navistar Financial Securities
Corporation (NFSC), have a limited purpose of purchasing retail and
wholesale receivables, respectively, and transfer an undivided ownership
interest in such notes to investors in exchange for pass-through notes and
certificates. In addition, the subsidiaries 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 Navistar
Financial or affiliated companies.
At October 31, 1994, NFSC had in place a $300 million revolving
wholesale note sales trust providing for the continuous sale of wholesale
notes on a daily basis. The sales trust is comprised of three $100
million pools of notes maturing serially from 1997 to 1999.
On December 15, 1994, Navistar Financial sold $315 million of retail
notes, net of increased finance income, through NFRRC to an owner trust
which, in turn, sold $304 million of notes and $11 million of certificates
to investors. The net proceeds of $314 million were used by Navistar
Financial for general working capital purposes and to establish a $19
million reserve account with the trust.
During fiscal 1993, NFRRC filed a registration statement with the
Securities and Exchange Commission providing for the issuance from time to
time of $1,000 million of asset-backed securities. In fiscal 1994,
Navistar Financial sold $830 million of retail notes with net proceeds
from the sales of $828 million of which $57 million was established as a
cash reserve with the trusts as a credit enhancement. On October 7, 1994,
NFRRC filed an additional registration statement with the Securities and
Exchange Commission providing for the issuance from time to time of an
additional $2,000 million of asset-backed securities.
On November 16, 1993, Navistar Financial sold $100 million of 8 7/8%
Senior Subordinated Notes due 1998 and used the proceeds to redeem its
11.95% Subordinated Debentures due December 1995.
Consolidated interest payments were $76 million, $91 million and $92
million in 1994, 1993 and 1992, respectively.
<PAGE>
<PAGE 55>
NOTES TO FINANCIAL STATEMENTS
(Continued)
16. OTHER LONG-TERM LIABILITIES
Major classifications of other long-term liabilities at October 31
are as follows:
Millions of dollars 1994 1993
- -------------------------------------------------------------------------
MANUFACTURING
Product liability and warranty ......... $ 171 $ 170
Employee related disability ............ 46 50
Environmental .......................... 20 6
Other .................................. 52 59
-------- --------
Manufacturing other
long-term liabilities .............. 289 285
FINANCIAL SERVICES
Product liability ...................... 9 9
-------- --------
Total other long-term liabilities ........ $ 298 $ 294
======== ========
17. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts of financial instruments, as reported in the
Statement of Financial Condition and described in the various footnotes to
the Financial Statements and their fair values at October 31, are as
follows:
1994 1993
------------------ -------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- -------------------------------------------------------------------------
Marketable securities ...... $ 308 $ 304 $ 218 $ 225
Receivables, net ........... 1,517 1,513 1,550 1,557
Investments and other assets 165 187 224 269
Long-term debt ............. 696 693 1,194 1,208
Cash and cash equivalents approximate fair value. The method for
estimating the fair value of marketable securities is described in Note 8
to the Financial Statements.
Manufacturing's customer receivables and Navistar Financial's
wholesale notes and retail and wholesale accounts and other variable-rate
retail notes approximate fair value as a result of the short-term
maturities of the financial instruments. The fair value of Navistar
Financial's truck retail notes is estimated based on quoted market prices
of similar sold receivables. The fair value of amounts due from sales of
receivables is estimated using cash flow analyses based on interest rates
currently offered by Navistar Financial's finance operations.
<PAGE>
<PAGE 56>
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments (continued)
The fair value of investments and other assets is estimated based on
quoted market prices or by discounting future cash flows.
The short-term debt and variable-rate borrowings under Navistar
Financial's bank revolving credit agreement, which is repriced frequently,
approximate fair value. The fair value of long-term debt is estimated
based on quoted market prices, when available. If a quoted market price
is not available, fair value is estimated using quoted market prices for
similar financial instruments or discounting future cash flows.
Derivatives Held or Issued for Purposes Other Than Trading
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.
Collateralized Mortgage Obligations (CMO's) are purchased that have
relatively stable cash flow patterns in relation to interest rate changes.
At October 31, 1994, Manufacturing had $11 million of CMO's in its
investment portfolio. Manufacturing, as conditions warrant, has hedged
its foreign exchange exposure on the purchase of parts and materials from
foreign countries and its exposure from non-U.S. dollar foreign sales.
Contracted purchases of commodities for manufacturing may be hedged up to
one year. At October 31, 1994, there were no hedging instruments in
effect.
Navistar Financial generally acquires floating rate wholesale
receivables and fixed rate retail receivables and funds floating rate
receivables with floating rate funding and fixed rate receivables with
fixed rate funding. Interest rate caps and swaps are used when needed to
convert floating rate funds to fixed and vice versa to match the asset
portfolio. In addition, Navistar Financial will use a variety of
contracts to lock in interest rates during the period in which retail
receivables are being sold. During fiscal 1994, Navistar Financial
entered into two short-term forward interest rate lock agreements related
to two sales of receivables. At October 31, 1994, there were no swap
agreements outstanding. One interest rate cap, purchased in 1985 for a
notional amount of $50 million, which serves to partially hedge the
interest cost of variable rate debt remains outstanding. 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 October 31, 1994.
18. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
At October 31, 1994, commitments for capital expenditures in progress
were approximately $33 million.
<PAGE>
<PAGE 57>
NOTES TO FINANCIAL STATEMENTS
(Continued)
18. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
(continued)
At October 31, 1994, the Canadian operating subsidiary was
contingently liable for retail customers' contracts and leases financed by
a third party. The Company is subject to maximum recourse of $135 million
on retail contracts and $14 million on retail leases. Based on historical
loss trends however, the Company's exposure to loss is not considered
material.
The Canadian operating subsidiary and certain subsidiaries included
in Financial Services are parties to agreements which restrict the amounts
which can be distributed to Transportation in the form of dividends or
loans and advances which can be made. As of October 31, 1994, these
subsidiaries had $340 million of net assets, of which $203 million was
restricted as to distribution.
The Company and Transportation are obligated under certain agreements
with public and private lenders of Navistar Financial to maintain the
subsidiary's income before interest expense and income taxes at not less
than 125% of its total interest expense. No income maintenance payments
were required for the three years ended October 31, 1994.
19. LEGAL PROCEEDINGS
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages. The Company
appealed the verdict and in order to do so was required to post a bond
collateralized with $30 million in cash. In November 1994, the Court of
Appeals of the State of Oklahoma reversed the verdict and entered judgment
in favor of Transportation on virtually all aspects of the case. The bond
and the related collateral will be released when the order of the Court of
Appeals is filed.
Transportation and the Economic Development Administration (EDA), a
division of the U.S. Department of Commerce, reached an agreement in the
fourth quarter of 1994 in settlement of commercial and environmental
disputes related to the Wisconsin Steel property. EDA and Transportation
became 90% and 10% beneficiaries, respectively, of a trust which was
created after the party that purchased Wisconsin Steel filed for
bankruptcy. At the time of bankruptcy, EDA had guaranteed repayment of
90% and Transportation of 10% of loans made to Wisconsin Steel. The
settlement provides that EDA transfer its interest in the trust to
Transportation, who in turn will assume responsibility for completing the
investigation of the environmental condition at the site and for any
cleanup work that may be necessary. Transportation has agreed to pay EDA
$11 million to settle various commercial issues as well as reimburse them
for a portion of environmental response costs spent by EDA. The
Department of Justice must approve the final settlement before the
interest in the trust, or the property, is transferred to Transportation.
<PAGE>
<PAGE 58>
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. LEGAL PROCEEDINGS (continued)
The Company and its subsidiaries are subject to various other claims
arising in the ordinary course of business, and are parties to various
legal proceedings which constitute ordinary routine litigation incidental
to the business of the Company and its subsidiaries. In the opinion of
the Company's management, none of these proceedings or claims are material
to the business or the financial condition of the Company.
20. PREFERRED AND PREFERENCE STOCKS
In 1993, the Company's Certificate of Incorporation was amended and
restated and two new series of preference stock were created with a par
value of $1.00 per share. These stocks have been designated as
Nonconvertible Junior Preference Stock, Series A and Nonconvertible Junior
Preference Stock, Series B. The Series A Preference Stock is held for the
Retiree Supplemental Benefit Program by a Supplemental Trust which is
currently entitled to elect two members to the Company's Board of
Directors. The United Automobile, Aerospace and Agricultural Implement
Workers of America (UAW) holds the Series B Preference Stock and is
currently entitled to elect one member of the Company's Board of
Directors. At October 31, 1994, there was one share each of Series A and
Series B Preference stock authorized and outstanding. The value of the
preference shares is minimal.
Other information pertaining to preferred and preference stocks
outstanding is summarized as follows:
Series G, $6.00 Series D Convertible
Cumulative Preferred Junior Preference
- -------------------------------------------------------------------------
Number authorized ..... 4,800,000 3,000,000
Number issued ......... 4,799,979 3,000,000
Number outstanding
at October 31
1994 ................ 4,799,979 177,058
1993 ................ 4,799,979 178,129
Optional redemption
price and liquidation
preference .......... $50 per share plus $25 per share plus
accrued dividends accrued dividends
Conversion rate per
share into Common
Stock (subject
to adjustment
in certain
circumstances) ...... 0.133 shares 0.3125 shares
Ranking as to dividends
and upon liquidation. Senior to all other Senior to Common;
equity securities junior to Series G
Dividend rate ......... Annual rate of 120% of the cash
$6.00 per share, dividends on Common
payable quarterly Stock as declared
on a common
equivalent basis
Dividends may be paid out of surplus as
defined under Delaware corporation law.
At October 31, 1994, the Company had such
defined surplus of $802 million.
- -------------------------------------------------------------------------
<PAGE>
<PAGE 59>
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS
In 1993, the Company's Certificate of Incorporation (Certificate) was
amended and restated and the Company effected a one-for-ten reverse split
of its common stock. All references to the number of shares of common
stock and all per share information were adjusted to reflect the reverse
split on a retroactive basis.
Common Stock
The amended and restated Certificate increased the number of
authorized shares of Common Stock to 110,000,000 shares with a par value
of $.10 per share.
On October 21, 1993, the Company completed an offering of 23,600,000
Common shares, from which the Company realized gross proceeds of
approximately $516 million. Net proceeds to the Company were $492 million
after deducting the underwriting discount and other expenses payable by
the Company.
At October 31, 1994 and 1993, there were 49,319,200 and 49,154,621
shares of Common Stock outstanding, respectively. Common shares
outstanding exclude common stock held in treasury in the amount of 667,241
and 56,457 shares at October 31, 1994 and 1993, respectively. Included in
the shares of Common Stock outstanding are 177,246 shares of restricted
stock which have been issued in accordance with the provisions of the 1988
and 1994 Performance Incentive Plans. The market value of the restricted
stock at the date of grant is recorded as unearned stock compensation in
Shareowners' Equity and amortized to expense over the minimum periods of
restriction. Unearned stock compensation was $2.9 million and $.3 million
at October 31, 1994 and 1993, respectively.
Class B Common Stock
The Certificate authorizes 26,000,000 shares of Class B Common Stock
of which 25,641,545 shares, originally valued at $513 million, were
contributed in 1993 to a separate independent retiree Supplemental Trust.
The Class B Stock has a par value of $.10 per share and also has
restricted voting rights and transfer provisions.
The per share value of the Class B Common Stock was determined by the
closing price of the Common Stock on the New York Stock Exchange on the
contribution date, less a discount factor of 20%. The discount factor was
determined by the Company, following consultation with investment bankers,
and gives effect to restrictions on voting and transfer rights imposed by
the terms of the Settlement Agreement and for a control premium to give
effect for the number of shares contributed to the Supplemental Trust.
The circumstances are limited under which the Supplemental Trust can
transfer or sell Class B Common Stock and any Class B Common Stock
transferred or sold will convert automatically into Common Stock. Any
remaining Class B Common Stock will convert into Common Stock no later
than fiscal 1998. During 1994, the Company repurchased 511,173 Class B
Common shares which were converted to Common Stock and are held in
Treasury.
At October 31, 1994 and 1993, there were 25,034,861 and 25,546,034
shares of Class B Common Stock outstanding, respectively.
<PAGE>
<PAGE 60>
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS (continued)
Dividends on common stock
All shares of Common Stock and Class B Common Stock share equally in
dividends except that stock dividends are payable in shares of Common
Stock to holders of that class and in Class B Common Stock to holders of
that class. Upon liquidation, all shares of Common Stock and Class B
Common Stock are entitled to share equally in the assets of the Company
available for distribution to the holders of such shares. Dividends may
be paid out of surplus as defined under Delaware corporation law. At
October 31, 1994, the Company had such defined surplus of $802 million.
Warrants
At October 31, 1993, there were 10,833,890 Series A warrants
outstanding with 11,200,000 authorized and 10,846,480 issued. The Series
A warrants expired December 15, 1993. There were no warrants outstanding
at October 31, 1994.
22. STOCK COMPENSATION PLANS
The Navistar 1994 Performance Incentive Plan (Incentive Plan)
provides for the granting of stock options and restricted stock to key
employees as determined by the Committee on Organization of the Board of
Directors (Committee). Under the Incentive Plan, one percent of the
outstanding shares of Common Stock are authorized for use each year. Any
amount not used in one year may be used in the following year. Shares to
be used under the Incentive Plan will be either shares authorized, but
previously unissued, or shares reacquired by the Company.
The Incentive Plan includes the granting of two types of stock option
awards, non-qualified options and incentive options. Non-qualified and
incentive options, which may be granted by the Committee in amounts and at
times as it may determine, have a term of not more than ten years and one
day and ten years, respectively, and are exercisable at a price equal to
the fair market value of the stock on the day after the grant. Generally,
these options are not exercisable during the first year. There were
146,406 and 346,839 and 344,045 shares available for grant, and 554,374
and 636,984 and 675,519 options exercisable at October 31, 1994, 1993 and
1992, respectively. Payment for the exercise of any of the options may be
made by delivering, at fair market value, shares of Common Stock already
owned by the option-owner.
The following table summarizes changes in common stock under option
for the year ended October 31, 1994:
Number of Option Price
Shares Per Share
--------- -----------------
Outstanding options at beginning of year . 639,234 $21.88 to $ 91.25
Options - granted ........................ 614,560 13.00 to 24.81
- exercised ...................... (8,850) 21.88
- terminated ..................... (98,540) 21.88 to 91.25
---------
Outstanding options at end of year ....... 1,146,404 $13.00 to $ 91.25
=========
Options becoming exercisable
during the year ........................ 2,500
=========
<PAGE>
<PAGE 61>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
-------------- -------------- -------------- ---------------
(Millions of dollars,
except per share data) 1994 1993 1994 1993 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Operations
Total sales and revenues .. $1,550 $1,307 $1,254 $1,129 $1,394 $1,244 $1,139 $1,041
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss):
Income (loss) before
Supplemental Trust
contribution ........ $ 67 $ 31 $ 32 $ 11 $ 35 $ 26 $ 24 $ 4
Supplemental Trust
contribution .......... - - - (513) - - - -
Income tax
benefit (expense) ..... (24) (9) (12) 190 (12) (11) (8) (2)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
Continuing operations.... 43 22 20 (312) 23 15 16 2
Discontinued operations,
net of income taxes
of $13 million ........ (20) - - - - - - -
Cumulative effect of
changes in accounting
policy (a):
SFAS 106, net of
income taxes of
$420 million ...... - - - - - - - (729)
SFAS 109 ............ - - - - - - - 501
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ......... $ 23 $ 22 $ 20 $ (312) $ 23 $ 15 $ 16 $ (226)
====== ====== ====== ====== ====== ====== ====== ======
Income (loss) per
common share:
Continuing operations ... $ .49 $ .28 $ .17 $(9.99) $ .21 $ .32 $ .12 $ (.19)
Discontinued operations . (.27) - - - - - - -
Cumulative effect of
changes in accounting
policy (a):
SFAS 106, net of
income taxes of
$420 million ...... - - - - - - - (28.54)
SFAS 109 ............ - - - - - - - 19.59
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
per common share (b) .... $ .22 $ .28 $ .17 $(9.99) $ .21 $ .32 $ .12 $(9.14)
====== ====== ====== ====== ====== ====== ====== ======
Supplemental Data
Manufacturing
Sales and revenues ...... $1,511 $1,262 $1,218 $1,083 $1,357 $1,192 $1,092 $ 989
Gross margin ............ 201 170 154 134 160 161 140 126
Income (loss)
before taxes and
Financial Services .... 52 16 18 (517) 23 11 5 (12)
Financial Services
Revenues .............. 54 57 51 56 50 62 59 62
Interest expense ...... 19 19 17 19 17 19 17 22
Income before taxes ... 15 15 14 15 12 15 19 16
<FN>
Transactions between Manufacturing and Financial Services operations have
been eliminated from Consolidated Operations. See Notes 1 and 2.
- -------------------------------------------------------------------------------------------------
(a) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109
retroactive to November 1, 1992. As required, the previously reported
results for the first and second quarters of 1993 were restated.
(b) Earnings per share are calculated based on the weighted average number
of Common and Class B Common shares outstanding at the end of each
quarter. See Note 21 to the Financial Statements.
</TABLE>
<PAGE>
<PAGE 62>
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (continued)
FOURTH QUARTER 1994 RESULTS
Fourth quarter consolidated sales and revenues of $1,550 million were
19% higher than the same period a year ago. Company Class 5 through 8
truck retail deliveries increased 22%, reflecting a 20% improvement to
92,600 units in United States and Canadian industry retail sales. For the
fourth quarter, the Company maintained its leadership in the combined
Class 5 through 8 market in the United States and Canada with a market
share of 28.3%, an increase from the 27.9% reported last year. Shipments
of 34,000 mid-range diesel engines to original equipment manufacturers
were 4% higher than the same quarter of 1993 reflecting consumer demand
for the diesel-powered light trucks and vans which use this engine.
Service parts sales increased 11% from the fourth quarter of 1993.
Income from continuing operations was $43 million, an increase from
the $22 million reported for the same period in 1993. Net income of $23
million included a $20 million after-tax charge to discontinued operations
for environmental liabilities at production facilities of two formerly
owned businesses. See Note 6 to the Financial Statements.
Manufacturing gross margin for the period was 13.4%, slightly below
the 13.6% for the fourth quarter of 1993. The favorable effect of higher
sales volume and improved performance was more than offset by the
provision for payment to employees as required by the Company's profit
sharing agreements and the impact of additional costs incurred to meet
customer delivery commitments.
Financial Services income before taxes was $15 million, unchanged
from the same period in 1993.
<PAGE>
<PAGE 63>
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- -----------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products
by geographic area
United States .................... $ 4,670 $ 4,149 $ 3,392 $ 2,984 $ 3,300
Canada ........................... 483 361 293 275 343
------- ------- ------- ------- -------
Total .............................. 5,153 4,510 3,685 3,259 3,643
Revenues of Financial Services companies 202 223 217 232 245
Other income ........................... 37 30 35 47 57
Eliminations ........................... (55) (42) (40) (42) (42)
------- ------- ------- ------- -------
Total sales and revenues ............. $ 5,337 $ 4,721 $ 3,897 $ 3,496 $ 3,903
======= ======= ======= ======= =======
Net income (loss)
Income (loss) before
Supplemental Trust
contribution and taxes ............. $ 158 $ 72 $ (145) $ (162) $ (7)
Supplemental Trust
contribution (a) .................... - (513) - - -
Income tax benefit (expense) (b) ...... (56) 168 (2) (3) (4)
------- ------- ------- ------- -------
Income (loss)
Continuing operations ................. 102 (273) (147) (165) (11)
Discontinued operations (c) ........... (20) - (65) - -
Cumulative effect of
accounting changes (d) .............. - (228) - - -
------- ------- ------- ------- -------
Net income (loss) ..................... $ 82 $ (501) $ (212) $ (165) $ (11)
======= ======= ======= ======= =======
Income (loss) per common share
Continuing operations ................. $ .99 $ (8.63) $ (6.97) $ (7.71) $ (1.56)
Discontinued operations (c) ........... (.27) - (2.58) - -
Cumulative effect of
accounting changes (d) .............. - (6.56) - - -
------- ------- ------- ------- -------
Net income (loss) per common share (g). $ .72 $(15.19) $ (9.55) $ (7.71) $ (1.56)
======= ======= ======= ======= =======
<CAPTION>
- ------------------------------------------------------------------------------------------------
FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Assets
Manufacturing ......................... $ 3,724 $ 3,645 $ 2,208 $ 2,149 $ 2,339
Financial Services .................... 1,591 1,672 1,659 1,540 1,774
Eliminations .......................... (259) (257) (240) (246) (318)
------- ------- ------- ------- -------
Total ............................... $ 5,056 $ 5,060 $ 3,627 $ 3,443 $ 3,795
======= ======= ======= ======= =======
Debt
Manufacturing ......................... $ 127 $ 175 $ 187 $ 154 $ 164
Financial Services .................... 1,091 1,199 1,218 1,052 1,248
Eliminations .......................... - - - - (31)
------- ------- ------- ------- -------
Total ............................... $ 1,218 $ 1,374 $ 1,405 $ 1,206 $ 1,381
======= ======= ======= ======= =======
Consolidated shareowners' equity ........ $ 817 $ 775 $ 338 $ 577 $ 815
Financial Services
shareowner's equity ................... $ 249 $ 241 $ 240 $ 237 $ 279
Manufacturing long-term debt
as a percent of long-term debt
and shareowners' equity ............... 13% 16% 34% 20% 16%
</TABLE>
<PAGE>
<PAGE 64>
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- -----------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------
SHAREOWNER DATA
<S> <C> <C> <C> <C> <C>
Market price range (by fiscal year)
High ................................. $27 5/8 $31 3/4 $41 1/4 $41 1/4 $48 3/4
Low .................................. 12 3/8 18 3/4 17 1/2 20 21 1/4
Average number of Common,
Class B Common and dilutive
common equivalent shares
outstanding (millions) (e) ........... 74.6 34.9 25.3 25.1 25.2
Number of Common and Class B Common
shares outstanding at October 31
(millions) (e) ....................... 74.4 74.7 25.4 25.0 25.0
<CAPTION>
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Capital expenditures ................... $ 87 $ 110 $ 55 $ 77 $ 182
Research and development
expenditures ......................... $ 95 $ 95 $ 90 $ 87 $ 84
Depreciation and amortization .......... $ 72 $ 75 $ 77 $ 73 $ 67
Number of employees
Worldwide ............................ 14,910 13,612 13,945 13,472 14,071
United States ........................ 12,792 11,934 12,390 12,336 12,899
<CAPTION>
- -----------------------------------------------------------------------------------------------
OPERATING DATA
<S> <C> <C> <C> <C> <C>
North American market share (f) ........ 27.0% 27.6% 28.4% 29.3% 27.2%
Unit shipments
Trucks ............................... 95,000 87,200 73,200 70,200 80,200
OEM Engines .......................... 130,600 118,200 97,400 74,800 100,900
Service parts sales .................... $ 714 $ 632 $ 571 $ 530 $ 558
<FN>
(a) In July 1993, the Company issued approximately 25.6 million shares of
Class B Common Stock to the Supplemental Trust. See Note 21 to the
Financial Statements.
(b) Taxes for the year ended October 31, 1993 reflect the adoption of
SFAS 109. See Note 5 to the Financial Statements.
(c) The 1994 loss of discontinued operations resulted from a $20 million,
or $.27 per common share, charge for environmental liabilities at two
formerly owned production facilities. The charge is net of income
taxes of $13 million. The 1992 results include a $65 million, or
$2.58 per common share, charge on the settlement of litigation with
the Pension Benefit Guaranty Corporation. See Note 6 to the Financial
Statements.
(d) In the third quarter of 1993, the Company adopted SFAS 106 and
SFAS 109 retroactive to November 1, 1992.
(e) The common shares outstanding at October 31, 1993 include 25.6 million
Class B Common shares issued to the Supplemental Trust in July 1993
and 23.6 million Common shares sold through a public offering
completed on October 21, 1993.
(f) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school bus chassis, and heavy trucks (Class 8) in the
United States and Canada.
(g) Earnings per share are calculated based on the weighted average
number of Common and Class B Common shares outstanding at the
end of each fiscal year. See Notes 7 and 21 to the Financial
Statements.
</TABLE>
<PAGE>
<PAGE 65>
INFORMATION FOR OUR INVESTORS
Trademarks
Navistar logotype and Navistar are registered trademarks of Navistar
International Corporation. The Diamond Road symbol and International are
registered trademarks of Navistar International Transportation Corp.
Reports and Publications
This Annual Report includes a substantial portion of the financial
information and certain other data required to be filed with the
Securities and Exchange Commission.
A copy of the Company's 1994 Annual Report on Form 10-K to the
Securities and Exchange Commission will be provided, without charge, to
shareowners upon written request to the Corporate Secretary, Corporate
Headquarters, after January 31, 1995.
A Mid-Year Report containing financial information and other Company
news is mailed as soon as available after the second quarter end. A
summary of the annual meeting of shareowners is also available in the Mid-
Year Report.
Other publications, including news releases, are available by writing
Corporate Communications, Corporate Headquarters.
Annual Meeting
The 1995 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 15, 1995, at the Art Institute of Chicago in the
Arthur Rubloff Auditorium.
Shareowners are invited to attend this meeting, take part in
discussions of Company affairs and meet personally with the directors and
officers responsible for the operations of Navistar.
A Proxy Statement and Form of Proxy will be mailed to each shareowner
on or about January 27, 1995.
Corporate Headquarters
The corporate offices of Navistar International Corporation and its
principal subsidiary, Navistar International Transportation Corp., are
located at 455 North Cityfront Plaza Drive, Chicago, Illinois 60611;
Telephone: (312) 836-2000.
<PAGE>
<PAGE 66>
About Your Stock
Navistar International Corporation Common Stock is listed on the New
York, Chicago and Pacific stock exchanges and is quoted as "Navistar" in
stock table listings in daily newspapers. The abbreviated stock symbol is
"NAV".
The stock transfer agent who can answer inquiries about your Navistar
International Corporation Common Stock is: Harris Trust and Savings Bank,
311 W. Monroe, 11th Floor, Chicago, Illinois 60606; Telephone: (312) 461-
3932.
There were approximately 70,394 owners of Common Stock at October 31,
1994.
Dividend and Price Range
The accompanying table shows the range of a composite of Common Stock
prices at close of trade for the past two fiscal years.
Price Range
-------------------------------------
1994 1993
Fiscal Quarter High Low High Low
- ------------------------------------------------------------------------
1st ......................... $27 5/8 $22 3/8 $31 3/4 $18 3/4
2nd ......................... 26 19 3/8 30 25
3rd ......................... 19 1/4 12 3/8 30 21 1/4
4th ......................... 16 5/8 12 1/2 27 7/8 19 3/4
The Company pays an annual dividend of $6.00 per share on its Series
G Cumulative Preferred Stock. Dividends currently are not paid on its
Common Stock.
Commitment to Equal Employment Opportunity
Navistar International Corporation has a long standing commitment to
equal employment opportunity dating back to 1919 when the Company issued
its first written statement against discrimination in the workplace.
Today, Navistar continues to provide equal opportunity to all
employees and applicants for employment and prohibits discrimination in
all employment practices because of age, race, color, sex, marital status,
religion, ancestry, national origin, disability, medical condition,
political affiliation or veteran status.
<PAGE>
<PAGE 67>
<TABLE>
<CAPTION>
Directors and Officers
- ----------------------------------------------------------------------------------------------------------------------------------
NAVISTAR INTERNATIONAL
NAVISTAR INTERNATIONAL CORPORATION TRANSPORTATION CORP.
- --------------------------------------------------------------------------------------------------- ----------------------------
Board of Directors Principal Officers Principal Officers
- ------------------------------------------------------------------ ---------------------------- ----------------------------
<S> <S> <S> <S>
Jack R. Anderson William C. Craig James C. Cotting James C. Cotting
President Former Executive Vice President Chairman and Chairman and
Calver Corporation Mack Trucks Chief Executive Officer Chief Executive Officer
Health Care Consulting Manufacturer of Trucks John R. Horne John R. Horne
and Investments Jerry E. Dempsey President and President and
William F. Andrews Chairman and Chief Operating Officer Chief Operating Officer
Chairman and Chief Executive Officer Robert C. Lannert Robert C. Lannert
Chief Executive Officer PPG Industries Inc. Executive Vice President and Executive Vice President and
Amdura Corp. Diversified Global Manufacturer Chief Financial Officer Chief Financial Officer
Manufacturer of Waste of Glass, Protective Coatings Robert A. Boardman
Management Equipment and Chemicals Senior Vice President and
Wallace W. Booth Mary Garst General Counsel Group Vice Presidents
Retired Chairman and Manager, Cattle Division Thomas M. Hough
Chief Executive Officer Garst Company Vice President and John J. Bongiorno
Ducommun Incorporated Agri-Business Company Treasurer General Manager
Manufacturer of Dr. Arthur G. Hansen Robert I. Morrison Financial Services
Components and Assemblies Educational Consultant Vice President and David J. Johanneson
for the Aerospace Industry President Emeritus Controller Truck Businesses
Dr. Andrew F. Brimmer Purdue University Steven K. Covey James T. O'Dare, Jr.
President John R. Horne Corporate Secretary Sales and Distribution
Brimmer & Company, Inc. President and Daniel C. Ustian
Economic and Financial Chief Operating Officer General Manager
Consulting Navistar International Engine and Foundry
Bill Casstevens Corporation Dennis W. Webb
Secretary - Treasurer of the UAW Robert C. Lannert International Operations
Richard F. Celeste Executive Vice President
Managing General Partner and Chief Financial Officer Senior Vice Presidents
Celeste & Sabety, Ltd. Navistar International
Public Policy Consulting Firm Corporation Robert A. Boardman
John D. Correnti Donald D. Lennox General Counsel
President and Chairman of the Board John M. Sheahin
Chief Operating Officer International Imaging Employee Relations
and Director Materials Inc. and Administration
Nucor Corporation Manufacturer of Thermal
Steel Manufacturer Transfer Ribbons Vice Presidents
James C. Cotting Retired Chairman of the Board
Chairman and and Chief Executive Officer Kirk A. Gutmann
Chief Executive Officer Navistar International Truck Engineering
Navistar International Corporation Thomas M. Hough
Corporation Elmo R. Zumwalt, Jr. Treasurer
President Robert I. Morrison
Admiral Zumwalt & Controller
Consultants, Inc. Thomas E. Rigsby
Management Consultants Truck Manufacturing
James L. Simonton
Materials Management
Dean P. Stanley
Quality Management
and Technology
Brian B. Whalen
Public Affairs
Secretary
Gregory Lennes
<CAPTION>
Committees of the Board
- ----------------------------------------------------------------------------------------------
<S> <S> <S>
Executive Committee Finance Committee Public Policy Committee
James C. Cotting, Chairman Donald D. Lennox, Chairman Mary Garst, Chairwoman
William F. Andrews Wallace W. Booth Jack R. Anderson
Bill Casstevens Andrew F. Brimmer William F. Andrews
Jerry E. Dempsey Bill Casstevens Andrew F. Brimmer
Arthur G. Hansen James C. Cotting Bill Casstevens
John R. Horne William C. Craig Richard F. Celeste
Donald D. Lennox Jerry E. Dempsey Elmo R. Zumwalt, Jr.
Committee on Organization Audit Committee
Wallace W. Booth, Chairman Andrew F. Brimmer, Chairman
William F. Andrews Jack R. Anderson
John D. Correnti Richard F. Celeste
William C. Craig John D. Correnti
Jerry E. Dempsey Mary Garst
Arthur G. Hansen Arthur G. Hansen
Elmo R. Zumwalt, Jr. Donald D. Lennox
</TABLE>
<PAGE 1>
EXHIBIT 22
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SUBSIDIARIES OF THE REGISTRANT
AS OF OCTOBER 31, 1994
STATE OR
COUNTRY IN
WHICH
SUBSIDIARY
ORGANIZED
----------
Subsidiary included in the financial
statements, which is 100% owned:
Navistar International Transportation Corp. .... Delaware
Subsidiaries that are 100% owned by Navistar
International Transportation Corp.:
Navistar International Corporation Canada ...... Canada
Navistar Financial Corporation ................. Delaware
Harbour Assurance Company of Bermuda Limited ... Bermuda
Subsidiaries and corporate joint ventures not shown by name in the
above listing, if considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary. Financial information for
the domestic and foreign finance and insurance subsidiaries appears in the
Statement of Income (Loss), Statement of Financial Condition and Statement
of Cash Flow in the 1994 Annual Report to Shareowners.
E-6
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000808450
<NAME> NAVISTAR INTERNATIONAL
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<CASH> 557
<SECURITIES> 304
<RECEIVABLES> 1,542
<ALLOWANCES> (25)
<INVENTORY> 429
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,262
<DEPRECIATION> (684)
<TOTAL-ASSETS> 5,056
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 696
<COMMON> 2,129
0
244
<OTHER-SE> (1,556)
<TOTAL-LIABILITY-AND-EQUITY> 5,056
<SALES> 5,153
<TOTAL-REVENUES> 5,337
<CGS> 4,500
<TOTAL-COSTS> 4,934
<OTHER-EXPENSES> 172
<LOSS-PROVISION> (2)
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 158
<INCOME-TAX> (56)
<INCOME-CONTINUING> 102
<DISCONTINUED> (20)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82
<EPS-PRIMARY> .72
<EPS-DILUTED> 1.09
<FN>
<F1>The Company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
EXHIBIT 28
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, 1994
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 1-4146-1
NAVISTAR FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-2472404
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 West Golf Road
Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 708-734-4275
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 December 31, 1994, 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
J(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, 1994
INDEX
10-K 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 . . . . . . . . . . . . 2
Item 6. Selected Financial Data (A) . . . . . . . . . . . . 2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (A) . . . . . . 3
Item 8. Financial Statements and Supplementary Data . . . . 8
Independent Auditors' Report. . . . . . . . . . . . 37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 38
PART III
Item 10. Directors and Executive Officers of the
Registrant (A) . . . . . . . . . . . . . . . . . . 38
Item 11. Executive Compensation (A) . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial Owners
and Management (A). . . . . . . . . . . . . . . . . 38
Item 13. Certain Relationships and Related
Transactions (A). . . . . . . . . . . . . . . . . . 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . 38
SIGNATURES - Principal Accounting Officer . . . . . . . . 39
- Directors . . . . . . . . . . . . . . . . . . 40
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . 40
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 J(1) (a) and (b) of Form 10-K and is,
therefore, filing this Form with reduced disclosure format.
i<PAGE>
<PAGE 1>
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 provides wholesale, retail, and to a lesser extent, lease
financing in the United States for sales of new and used trucks sold by Trans-
portation and Transportation's dealers. The Corporation also finances
wholesale accounts and selected retail accounts receivable of Transportation.
To a minor extent, sales of new products (including trailers) of other
manufacturers are also financed regardless of whether designed or customarily
sold for use with Transportation 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 the independent insurance agency
system.
Item 2. Properties
The Corporation uses leased facilities to carry out most of the
administrative and finance sales activities.
Item 3. Legal Proceedings
During 1992, auditors of the Illinois Department of Revenue ("Department")
began an income tax audit of NFC for the fiscal years ended October 31, 1989,
1990 and 1991. On February 1, 1994 the Department issued a Notice of
Deficiency to NFC for approximately $11.9 million. The Department has taken
the position that nearly 100% of NFC's income during these years should be
attributed to and taxed by Illinois. NFC maintains that the Department's
interpretation and application of the law is incorrect and improper, and that
the Department's intended result is constitutionally prohibited. NFC's
outside counsel is of the opinion that it is more likely than not that NFC's
position will prevail such that the Department's action will not have a
material impact on NFC's earnings and financial position.
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation and the Corporation in the amount
of $10.8 million in compensatory damages and $15 million in punitive damages.
Transportation appealed the verdict and, in November 1994, the Court of
Appeals of the State of Oklahoma reversed the verdict and entered judgment in
favor of Transportation on virtually all aspects of the case.
Item 4. Submission of Matters to a Vote of Security Holders
Intentionally omitted. See the index page of this Report for
explanation.
<PAGE>
<PAGE 2>
PART II
Page
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . 27
Item 6. Selected Financial Data
Intentionally omitted. See the index page to this Report
for explanation. <PAGE>
<PAGE 3>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
As a result of the continued improvement in the economy during fiscal
1994, industry retail sales of Class 5 through 8 trucks surpassed 1993 by 18%.
The Corporation's financing of customers' purchases of new International
trucks during fiscal 1994 increased 18% compared to the prior year. During
1994, rising interest rates resulted in increased costs to fund retail note
acquisitions. Competition, coupled with liquidity in the commercial financing
markets, limited the Corporation's ability to increase customer finance rates
commensurate with the increase in funding costs, and as a result margins on
retail financing were lower in fiscal 1994. The strong truck industry and
economy continued to improve the financial strength of the International
dealers and customers and NFC's portfolio quality remained high during 1994.
The components of net income for the three years ended October 31 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
($ Millions)
<S> <C> <C> <C>
Income before income taxes:
Finance operations . . . . . . . . . . . . . . . . . . . . . . . $49.9 $51.6 $36.6
Insurance operations . . . . . . . . . . . . .. . . . . . . . . 5.3 1.1 9.8
Supplemental Trust contribution. . . . . . . . . . . . . . . . . - (3.7) -
Income before taxes and cumulative effect. . . . . . . . . . . 55.2 49.0 46.4
----- ----- -----
Taxes on income. . . . . . . . . . . . . . . . . . . . . . . . . . 21.2 17.7 16.9
Cumulative effect of changes in
accounting policy. . . . . . . . . . . . . . . . . . . . . . . - 8.8 -
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $34.0 $22.5 $29.5
===== ===== =====
</TABLE>
Income before taxes in 1994 was $55 million, a 12% increase from $49
million in 1993, which included a $3.7 million pretax charge for the
Corporation's portion of the Supplemental Trust contribution. Finance
operations' income in 1994 was $1.7 million lower than 1993 as a result of
lower margins on retail financing as rising interest costs could not be offset
fully by increased retail note pricing. The decline in retail note income was
offset in part by an increased volume of wholesale financing to support the
increased demand for trucks. The Corporation's insurance subsidiary's income
increased $4.2 million over 1993 as a result of improved underwriting results
on truck liability insurance. The increase in income before income taxes
between 1993 and 1992 was primarily the result of higher gains on sales of
retail notes, partially offset by higher loss experience in the insurance
subsidiary and the Supplemental Trust contribution. The more significant
elements of revenue and expense impacting net income for these years are
discussed in the following paragraphs.
Total revenue for 1994 was $210 million compared with $232 million and
$228 million in 1993 and 1992, respectively. Retail note and lease financing
revenue decreased to $69 million in 1994 from $102 million in 1993 as a higher
proportion of retail notes were financed through the sale of the receivables.
When receivables are sold only the net gains on the sales, rather than the
individual components of revenue and expense, are reported in the Statement
of Consolidated Income. During 1994, the Corporation gained access to the
strong, reliable and economically attractive asset backed securitized market<PAGE>
<PAGE 4>
and significantly increased the sales of retail notes. Retail note and lease
financing revenue was unchanged between 1993 and 1992.
Wholesale note revenue increased 22% in 1994 to $39 million and increased
13% in 1993 primarily as a result of higher average note balances in support
of increased demand for Transportation truck products. In addition, revenue
in 1994 increased from higher average yields relating to a higher prime
interest rate. In December 1990, the Corporation sold $300 million of
wholesale notes to a revolving sales trust. This revolving wholesale
arrangement provides for the continuous sale of notes by the Corporation on
a daily basis. Gains on wholesale notes sold to the trust are not material
as a result of their short maturities.
Revenue from accounts increased in 1994 to $22 million from $18 million
and $15 million in 1993 and 1992, respectively. The increase in 1994 and 1993
resulted from higher average balances in support of increased demand for
Transportation truck products. In addition, revenue in 1994 increased from
higher average yields relating to a higher prime interest rate.
Servicing fee income increased to $17 million in 1994 from $11 million
in 1993 and $9 million in 1992 as a result of higher levels of sold note
receivable balances.
Insurance premiums earned by Harco decreased 11% to $51 million in 1994
from $57 million in 1993 and 5% in 1993 from 1992. The decrease in 1994 and
1993 reflects a reduction in written premiums in response to adverse loss
experience in 1993 and to increased competition. Harco's investment income
decreased to $8 million in 1994 compared with $10 million in 1993 and $13
million in 1992. The decrease in 1994 resulted from lower yields on invested
asset balances. The decrease in 1993 resulted from lower realized gains on
sales of marketable securities caused by the stabilization of interest rates
during 1993 and a decline in the yield on investments resulting from the lower
market interest rates available on new investments.
Interest expense decreased 16% in 1994 to $63 million from $75 million
and $82 million in 1993 and 1992, respectively. The decrease between 1994 and
1993 was the result of reduced debt required to finance the lower level of
owned retail receivables, offset in part by higher interest rates. The
decline in interest expense between 1993 and 1992 was primarily the result of
lower interest rates. The ratio of debt to equity decreased to 4.8:1 at
October 31, 1994 from 5.5:1 at October 31, 1993 and 1992.
On July 1, 1993, Navistar implemented a restructured retiree health care
and life insurance plan ("the Plan"), as discussed in note 11 to the
Consolidated Financial Statements. As part of the Plan, Navistar contributed
$300 million to pre-fund Plan benefit liabilities and common stock valued at
$513 million to a Supplemental Benefit Trust to help pay for Plan benefits in
the future. The Corporation recognized $3.7 million of expense as its portion
of the Supplemental Benefit Trust contribution.
The provision for losses on receivables totaled $2.3 million in 1994
compared with $1.5 million in 1993 and $3.6 million in 1992. The increase in
the provision in 1994 reflects higher serviced portfolio balances and higher
losses on retail notes and wholesale accounts. Finance receivables are
written off against the allowance for losses as soon as they are determined
to be uncollectible based on a review of each problem obligor. Truck note and
account write-offs, including those on sold notes, totaled $.9 million in
1994, $.7 million in 1993, and $3.2 million in 1992. At October 31, 1994, the
<PAGE 5>
Corporation's allowance for losses equaled .65% of net financing receivables,
including sold receivables, compared with .69% and .77% as of October 31, 1993
and 1992, respectively. The allowance is maintained at a level which
management considers appropriate in relation to the outstanding receivables
balance, taking into consideration loss experience, current economic
conditions and other factors.
Insurance claims and underwriting expense decreased to $54 million in
1994 from $65 million and $62 million in 1993 and 1992, respectively. The
decline in expense in 1994 resulted from a $9 million decrease in losses
incurred in Harco's truck physical damage and liability insurance lines.
Additionally, insurance operating expenses decreased $3 million in 1994 over
1993, primarily as a result of decreased commission costs associated with
lower volumes of premiums written through general agents in 1994. The
increase in insurance claims and underwriting expense in 1993 resulted from
increased losses sustained in Harco's truck physical damage and liability
insurance lines.
Liquidity and Funds Management
The Corporation's operations are substantially dependent upon the
production and sale of Transportation's truck products. Navistar Financial
has traditionally obtained the funds to provide financing to Transportation's
dealers and retail customers from commercial paper, short- and long-term bank
borrowings, medium- and long-term debt issues, sales of receivables and equity
capital. The current debt ratings of the Corporation, detailed below, have
made bank borrowings and sales of finance receivables the most economical
sources of cash. The Corporation's insurance operations generate their funds
through internal operations and have no external borrowings.
The Corporation's serviced receivables portfolio, which includes sold
receivables, totaled $2.5 billion at October 31, 1994 up from $2.2 billion and
$1.8 billion at October 31, 1993 and 1992, respectively. During 1994, the
Corporation supplied 93% of the wholesale financing of new trucks sold to
Transportation's dealers, compared with 90% for 1993 and 89% for 1992.
Acquisitions of retail notes and leases, net of unearned financed, increased
19% to $916 million in 1994 after a 17% increase to $770 million in 1993 from
$659 million in 1992. The higher levels of acquisitions reflect increased
sales by Transportation, especially of heavy trucks. The Corporation's share
of the retail financing of new trucks manufactured by Transportation and sold
in the United States was 15.3% in 1994 and 1993 up from 13.7% in 1992.
Receivable sales were a significant source of funding during 1994 as
proceeds from sold retail notes were $995 million, an increase of $437 million
over 1993. Outstanding sold receivable balances totaled $1,334 million at
October 31, 1994 up from $839 million and $533 million at October 31, 1993 and
1992, respectively.
As a result of gaining access to the asset-backed public market in 1994,
the Corporation was able to fund fixed rate retail note receivables at rates
offered to companies with investment grade. In three separate receivable
sales during fiscal 1994, the Corporation sold $830 million retail notes
receivable, net of unearned finance, through its special purpose subsidiary,
Navistar Financial Retail Receivables Corporation ("NFRRC"). NFRRC
subsequently sold these notes to three individual owner trusts which, in turn,
sold interests in the notes to investors in exchange for fixed rate notes and
certificates. These three sales of retail notes, pursuant to a $1 billion
registration filed with the Securities and Exchange Commission in September
<PAGE 6>
1993, resulted in proceeds of $771 million, net of $57 million in cash
reserves with the trusts as credit enhancements, which reduced the
Corporation's short-term debt and borrowings under the revolving bank credit
facility. On October 7, 1994, NFRRC filed an additional registration with the
Securities and Exchange Commission providing for the issuance from time to
time of an additional $2 billion of asset-backed securities, bringing the
total amount available for issuance by NFRRC to $2.17 billion at fiscal year-
end.
Since December 1990, the Corporation has utilized a $300 million
revolving wholesale note sales trust providing for the continuous sale of
eligible wholesale notes on a daily basis. The sales trust sold three $100
million tranches of floating rate pass-through certificates, maturing serially
from 1997 to 1999, to the public.
At October 31, 1994, the Corporation had a contractually committed bank
revolving credit facility of $727 million and a contractually committed retail
notes receivable purchase facility of $600 million. Unused commitments under
the credit and purchase facilities were $595 million, of which $419 million
provided funding backup for the outstanding short-term debt at October 31,
1994. The remaining $176 million when combined with unrestricted cash and
cash equivalents made $204 million available to fund the general business
purposes of the Corporation.
In November 1994, as discussed in note 16 to the Consolidated Financial
Statements, the Corporation amended and restated its credit and purchase
facility agreements. The revolving credit agreement commitment was expanded
from $727 million to $900 million and the maturity date was extended to
October 31, 1998. In addition, the purchasers' commitments under the $600
million retail notes purchase facility agreement were terminated and the
Corporation established a $300 million asset-backed commercial paper program
supported by a bank liquidity facility with a maturity date of October 31,
1998. As of October 31, 1994, $377 million of sold notes were outstanding
under the retail notes purchase facility. Participants of the facility will
continue to own the receivables during the normal run-off. While the amended
revolving credit facility removes certain dividend restrictions, the
Corporation is required to maintain tangible net worth at a minimum of $175
million and a debt to tangible net worth ratio of no greater than 7 to 1.
In October 1993, ratings on the Corporation's debt were reviewed by
Standard and Poor's Corporation ("Standard and Poor's") and Moody's Investors
Service, Inc. ("Moody's"). Standard and Poor's raised its ratings for the
Corporation's debt from B- to BB for senior debt and from CCC to B+ for
subordinated debt. Moody's confirmed their previous ratings of Ba3 for senior
debt and B2 for subordinated debt. In November 1993, Duff & Phelps confirmed
their debt ratings of BB+ for senior debt and BB for subordinated debt. The
Corporation's commercial paper is rated "not prime" by Moody's.
On November 16, 1993, the Corporation sold $100 million of 8 7/8% Senior
Subordinated Notes due 1998 to the public. On December 16, 1993, the net
proceeds from the 8 7/8% subordinated issue were used to redeem the
Corporation's 11.95% Subordinated Debentures due December 1995. The
Corporation also redeemed its 7 1/2% Senior Debentures due January 1994 on
December 15, 1993.
On December 15, 1994, the Corporation sold $315 of retail notes, net of
unearned finance income, through NFRRC to an owner trust which, in turn, sold
$304 of notes and $11 of certificates to investors. The proceeds of $314, net
<PAGE 7>
of $1 of underwriting fees, were used by the Corporation for general working
capital purposes and to establish a $19 reserve account with the trust as
credit enhancement for the public sale.
The Corporation manages sensitivity to interest rate changes by funding
floating rate assets with floating rate debt, primarily borrowings under the
bank revolving credit agreement, and fixed rate assets with fixed rate debt,
equity and floating rate debt. Management has limited the amount of fixed
rate assets funded with floating rate debt by selling retail receivables on
a fixed rate basis. The Corporation will occasionally enter into a forward
interest rate lock agreement prior to a retail note receivables sale to
protect against rising interest rates.
Business Outlook
The truck industry is forecasted to continue to be strong in 1995. No
significant change from the current level of financing support for
Transportation truck product sales is anticipated by the Corporation.
Competition coupled with potentially higher interest rates will put pressure
on the Corporation's performance in 1995. Several financing institutions have
entered the truck retail financing market, and this will put pressure on the
Corporation's retail note acquisition activity. Higher funding costs will
impact retail note margins and gains on sales of retail notes compared to
1994.
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 1995 and beyond.
<PAGE>
<PAGE 8>
Financial Statements and Supplementary Data Page
Navistar Financial Corporation and Subsidiaries:
Statement of Consolidated Income and Retained Earnings
for the years ended October 31, 1994, 1993 and 1992 . . . . 9
Statement of Consolidated Financial Condition as of
October 31, 1994 and 1993 . . . . . . . . . . . . . . . . . 10
Statement of Consolidated Cash Flow for the years ended
October 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 11
Notes to Consolidated Financial Statements . . . . . . . . . 12
Supplementary Financial Data. . . . . . . . . . . . . . . . . 32
Independent Auditors' Report . . . . . . . . . . . . . . . . 37
<PAGE>
<PAGE 9>
<TABLE>
<CAPTION>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Income and Retained Earnings
Millions of dollars
Note
For the years ended October 31 1994 1993 1992 Reference
<S> <C> <C> <C> <C>
Revenues
Retail notes and lease financing . . . . . . . . . . . . . . . . . $ 69.3 $101.9 $100.7
Wholesale notes . . . . . . . . . . . . . . . . . . . . . . . . . . 39.0 32.0 28.3
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 17.5 14.8
Servicing fee income. . . . . . . . . . . . . . . . . . . . . . . . 17.3 10.6 8.6
Insurance premiums earned . . . . . . . . . . . . . . . . . . . . . 51.1 57.4 59.9
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . 11.2 12.5 16.0
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210.1 231.9 228.3
----- ----- -----
Expenses
Cost of borrowing:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 62.7 74.6 82.2 9, 10
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 4.7 4.5
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.8 79.3 86.7
Supplemental Trust expense. . . . . . . . . . . . . . . . . . . . . - 3.7 - 11
Credit, collection and administrative . . . . . . . . . . . . . . . 25.9 26.1 26.8
Provision for losses on receivables . . . . . . . . . . . . . . . . 2.3 1.5 3.6 6
Insurance claims and underwriting . . . . . . . . . . . . . . . . . 54.0 65.2 61.7
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . 2.9 7.1 3.1
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.9 182.9 181.9
----- ----- -----
Income Before Taxes on Income and Cumulative
Effect of Changes in Accounting Policy. . . . . . . . . . . . . . . 55.2 49.0 46.4
Taxes on Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.2 17.7 16.9 8
----- ----- -----
Income Before Cumulative Effect of Changes
in Accounting Policy . . . . . . . . . . . . . . . . . . . . . . . 34.0 31.3 29.5
Cumulative Effect of Changes in Accounting Policy . . . . . . . . . . - 8.8 - 11
----- ----- -----
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.0 22.5 29.5
Retained Earnings
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 48.4 48.5 35.0
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (25.6) (22.6) (16.0)
----- ----- -----
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56.8 $ 48.4 $ 48.5 13
===== ===== =====
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE 10>
<TABLE>
<CAPTION>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Financial Condition
Millions of dollars
Note
As of October 31 1994 1993 Reference
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 28.3 $ 33.9
Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 130.5 125.6 4
Receivables
Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,124.0 1,281.1 5
Allowance for losses . . . . . . . . . . . . . . . . . . . . . . . . . . (8.2) (10.9) 6
------- -------
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,115.8 1,270.2
Amounts Due from Sales of Receivables . . . . . . . . . . . . . . . . . . . 180.6 138.4 5
Equipment on Operating Leases, Net. . . . . . . . . . . . . . . . . . . . . 26.6 25.1
Repossessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 1.8
Reinsurance Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 33.7 - 7
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.9 30.2
------- -------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,544.2 $1,625.2
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 419.2 $ 75.0 9
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.0 77.3
Accrued Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 3.1
Accrued Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 14.4
Senior and Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . 672.3 1,124.2 10
Dealers' Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 17.3
Unpaid Insurance Claims and Unearned Premiums . . . . . . . . . . . . . . . 121.7 94.5 7
Shareowner's Equity 13
Capital stock (Par value $1.00, 1,600,000 shares
issued and outstanding) and paid-in capital . . . . . . . . . . . . . . 171.0 171.0
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56.8 48.4
Unrealized losses on marketable securities. . . . . . . . . . . . . . . . (2.2) - 4
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225.6 219.4
------- -------
Total Liabilities and Shareowner's Equity . . . . . . . . . . . . . . . . . $1,544.2 $1,625.2
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE 11>
<TABLE>
<CAPTION>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Cash Flow
Millions of dollars
Note
For the years ended October 31 1994 1993 1992 Reference
<S> <C> <C> <C> <C>
Cash Flow From Operations
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34.0 $ 22.5 $ 29.5
Adjustments to reconcile net income to
cash provided from operations:
Gains on sales of receivables . . . . . . . . . . . . . . . . . . (11.8) (14.2) (5.5) 5
Depreciation and amortization . . . . . . . . . . . . . . . . . . 8.7 9.7 8.1
Provision for losses on receivables . . . . . . . . . . . . . . . 2.3 1.5 3.6 6
Cumulative effect of changes in
accounting policy . . . . . . . . . . . . . . . . . . . . . . . - 8.8 -
Supplemental Trust expense. . . . . . . . . . . . . . . . . . . . - 3.7 -
Decrease in accounts payable and
accrued liabilities . . . . . . . . . . . . . . . . . . . . . . (3.5) (1.8) (22.6)
Increase in deferred income taxes . . . . . . . . . . . . . . . . 3.1 3.7 2.8
Increase (decrease) in accounts payable
to affiliated companies . . . . . . . . . . . . . . . . . . . . (0.9) 14.3 5.9
Increase (decrease) in unpaid insurance
claims and unearned premiums, net of
reinsurance receivables . . . . . . . . . . . . . . . . . . . . (6.5) 10.7 3.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.4) (3.6) (12.9)
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.0 55.3 12.5
------ ------ ------
Cash Flow From Investing Activities
Purchase of retail notes and lease receivables. . . . . . . . . . . . (915.9) (770.2) (658.6)
Principal collections on retail notes and
lease receivables . . . . . . . . . . . . . . . . . . . . . . . . . 180.9 337.4 409.3
Proceeds from sold retail notes . . . . . . . . . . . . . . . . . . . 994.8 558.2 249.2
Acquisitions over cash collections of
wholesale notes and accounts receivable . . . . . . . . . . . . . . (140.0) (171.9) (85.2)
Purchase of marketable securities . . . . . . . . . . . . . . . . . . (51.8) (58.1) (85.7)
Proceeds from sales of marketable securities . . . . . . . . . . . . 45.1 64.8 76.9
Increase in property and equipment
leased to others. . . . . . . . . . . . . . . . . . . . . . . . . . (5.3) (14.2) (3.9)
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.8 (54.0) (98.0)
------ ------ ------
Cash Flow From Financing Activities
Net increase (decrease) in bank
revolving credit facility usage . . . . . . . . . . . . . . . . . . (372.0) - 507.0
Principal payments on term debt . . . . . . . . . . . . . . . . . . . (80.0) (99.0) (158.5)
Principal payments on subordinated debt . . . . . . . . . . . . . . . (100.0) - -
Proceeds from issuance of subordinated debt . . . . . . . . . . . . . 100.0 - -
Net increase (decrease) in commercial paper . . . . . . . . . . . . . 19.2 - (143.8)
Net increase (decrease) in
short-term bank borrowings . . . . . . . . . . . . . . . . . . . . 325.0 75.0 (40.0)
Dividends paid to Transportation . . . . . . . . . . . . . . . . . . (25.6) (22.6) (16.0)
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133.4) (46.6) 148.7
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . (5.6) (45.3) 63.2
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . 33.9 79.2 16.0
------ ------ ------
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . $ 28.3 $ 33.9 $ 79.2
====== ====== ======
Supplementary disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64.8 $ 79.3 $ 79.9
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 13.5 18.9
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE 12>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1994
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").
Revenue on Receivables
Finance charges on retail notes and finance leases are recognized as
income over the term of the receivables on the accrual basis utilizing the
actuarial method. Interest from interest-bearing notes and accounts is taken
into income on the accrual basis.
Allowance for Losses on Receivables
The Corporation's allowance for losses on receivables is maintained at
an amount management considers appropriate in relation to the outstanding
receivables portfolio. Receivables are charged off to the allowance for
losses as soon as they are determined to be uncollectible based on a note-by-
note review, after all prelitigation collection efforts have been exhausted.
Repossessions are carried at the lower of the unpaid net receivable
balance or estimated realizable value of the equipment.
Receivable Sales
The Corporation sells and securitizes 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. In a subordinated capacity, the Corporation
retains excess servicing cash flows, a limited interest in the principal
balances of the sold receivables and certain cash deposits provided as credit
enhancements for investors. Gains or losses on sales of receivables are
credited or charged to financing revenue in the period in which the sales
occur.
Insurance Operations
Insurance premiums 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 such premiums are earned. The<PAGE>
<PAGE 13>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
liability for unpaid insurance claims includes provisions for reported claims
and an estimate of unreported claims based on past experience. Such provi-
sions 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.
Income Taxes
The tax effect of each item of revenue or expense reported in the
Statement of Consolidated Income and Retained Earnings is recognized in the
current period regardless of when the related tax is paid. 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.
Reclassification
Certain 1993 and 1992 amounts have been reclassified to conform with the
presentation used in the 1994 financial statements.
Changes in Accounting Policy
In the first quarter of fiscal 1994, the Corporation adopted Statement
of Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113"), which
is applicable to the Corporation's wholly-owned insurance subsidiary, Harco
National Insurance Company ("Harco"). This statement eliminates the practice
of reporting liabilities relating to reinsured contracts net of the effects
of ceded reinsurance. Disclosures relating to SFAS 113 are provided in note
7. Effective October 31, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115") and Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" ("SFAS 119"). SFAS 115 establishes financial
accounting and reporting standards for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. SFAS 119 requires disclosures about the amounts, nature, and
terms of derivative financial instruments. Disclosures relating to SFAS 115
and SFAS 119 are provided in notes 4 and 14, respectively.
<PAGE>
<PAGE 14>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
In the third quarter of fiscal 1993, the Corporation adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109") and Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
106") retroactive to November 1, 1992. The cumulative effect of adopting
these changes in accounting policy resulted in an after tax charge to income
of $8.8. Periods prior to November 1, 1992 were not required to be restated
for the changes in accounting policy.
2. TRANSACTIONS WITH AFFILIATED COMPANIES
The Corporation's primary business is the retail, wholesale, and to a
lesser extent, lease financing of products sold by Transportation and its
dealers within the United States.
Wholesale Notes, Wholesale Accounts and Retail Accounts Revenue
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 of dealers from
Transportation at the principal amount of the receivables. An acquisition fee
applicable to purchases of wholesale notes secured by new equipment is charged
to Transportation. The retail accounts are accounts of Transportation
customers. Revenue collected from Transportation for wholesale notes,
wholesale and retail accounts and leases was $50.7 in 1994, $41.2 in 1993 and
$38.6 in 1992.
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. Since
1984, no maintenance payments have been required under these agreements.
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 $2.5 in 1994, $2.3 in 1993 and $2.6 in 1992.
<PAGE>
<PAGE 15>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
2. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)
Short-Term Borrowings
During fiscal 1994, the Corporation had daily average short-term
borrowings from Transportation of $83 on which interest accrued at the
Corporation's incremental short-term borrowing rate. These borrowings,
including $4 of interest expense, were repaid during the year.
Accounts Payable
Accounts payable include $16.3 and $19.5 payable to Transportation at
October 31, 1994 and 1993, respectively.
3. INDUSTRY SEGMENTS
The Corporation is engaged in two industry segments in the United States:
finance and insurance. The Corporation provides wholesale, retail and lease
financing for the sales of new and used trucks and related equipment by
Transportation and its dealers. To a lesser extent, the Corporation also
finances other commercial vehicles, primarily trailers, sold by independent
dealers. 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 the independent insurance agency system.
Information by industry segment is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Finance operations . . . . . . . . . . . . . . . . . . . . . . $ 149.9 $ 164.2 $ 155.5
Insurance operations . . . . . . . . . . . . . . . . . . . . . 60.2 67.7 72.8
-------- -------- --------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . $ 210.1 $ 231.9 $ 228.3
======== ======== ========
Income before taxes on income and cumulative
effect of changes in accounting policy:
Finance operations . . . . . . . . . . . . . . . . . . . . . . $ 49.9 $ 47.9 $ 36.6
Insurance operations . . . . . . . . . . . . . . . . . . . . . 5.3 1.1 9.8
-------- -------- --------
Total income before taxes on income and
cumulative effect of changes in
accounting policy. . . . . . . . . . . . . . . . . . . . . $ 55.2 $ 49.0 $ 46.4
======== ======== ========
Assets at end of year:
Finance operations . . . . . . . . . . . . . . . . . . . . . . $1,363.5 $1,473.5 $1,459.2
Insurance operations . . . . . . . . . . . . . . . . . . . . . 180.7 151.7 149.5
-------- -------- --------
Total assets at end of year . . . . . . . . . . . . . . . . $1,544.2 $1,625.2 $1,608.7
======== ======== ========
</TABLE>
<PAGE>
<PAGE 16>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. MARKETABLE SECURITIES
Effective October 31, 1994, the Corporation applied SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." Marketable securities
at October 31, 1994 are classified as securities available-for-sale and are
stated at fair value. The fair value of marketable securities is estimated
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. The Corporation's retained earnings as of October 31,
1994 were decreased by $2.2 for unrealized holding losses, net of income
taxes, and are included as a separate component of shareowner's equity in the
Statement of Consolidated Financial Condition. As the restatement of prior
years' financial statements is not permitted, marketable securities at October
31, 1993, consisting of investments in debt securities, were carried at
amortized cost. The following table sets forth, by type of security issuer,
the amortized cost and estimated market values at October 31, 1994 and 1993:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
October 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government and federal
agency securities . . . . . . . . . . . $ 67.4 $ .4 $ 2.4 $ 65.4
Corporate debt securities. . . . . . . . . 27.7 - .4 27.3
Mortgage- and
asset-backed securities . . . . . . . . 28.3 .1 .7 27.7
Foreign governments. . . . . . . . . . . . 1.6 - - 1.6
------ ------ ------ ------
Total debt securities. . . . . . . . $125.0 $ .5 $ 3.5 $122.0
Equity securities. . . . . . . . . . . . . 8.8 .4 .7 8.5
------ ------ ------ ------
Total. . . . . . . . . . . . . . . . $133.8 $ .9 $ 4.2 $130.5
====== ====== ====== ======
<CAPTION>
October 31, 1993
<S> <C> <C> <C> <C>
U.S. government and federal
agency securities . . . . . . . . . . . $ 70.1 $ 4.4 $ - $ 74.5
Corporate debt securities. . . . . . . . . 17.8 .6 - 18.4
Mortgage- and
asset-backed securities . . . . . . . . 36.1 1.3 - 37.4
Foreign governments. . . . . . . . . . . . 1.6 .1 - 1.7
------ ------ ------ ------
Total debt securities. . . . . . . . $125.6 $ 6.4 $ - $132.0
====== ====== ====== ======
</TABLE>
<PAGE>
<PAGE 17>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. MARKETABLE SECURITIES (Continued)
The amortized cost and estimated market values for investments in debt
securities at October 31, 1994 by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<C> <C>
Due in one year or less. . . . . . . . . . . . . . $ 16.9 $ 16.9
Due after one year through five years. . . . . . . 61.1 60.3
Due after five years through ten years . . . . . . 12.7 11.5
Due after ten years. . . . . . . . . . . . . . . . 6.0 5.6
------ ------
96.7 94.3
Mortgage- and asset-backed securities. . . . . . . 28.3 27.7
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . $125.0 $122.0
====== ======
</TABLE>
Proceeds from sales or maturities of marketable securities available-for-
sale were $45.1 during 1994 and $64.8 during 1993. Gross gains of $.9 and
$1.3 were realized on those sales or maturities in 1994 and 1993,
respectively. There were gross losses of $.2 in 1994 and 1993.
All marketable securities at October 31, 1994 and 1993 were held by Harco
National Insurance Company, of which $29.5 and $26.5, 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:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Retail notes and lease financing:
Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 508.2 $ 802.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 20.6
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526.3 823.5
-------- --------
Wholesale notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240.0 212.5
-------- --------
Accounts:
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308.2 200.9
Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.5 44.2
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357.7 245.1
-------- --------
Total finance receivables . . . . . . . . . . . . . . . . . . . . . . $1,124.0 $1,281.1
======== ========
</TABLE>
<PAGE>
<PAGE 18>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
Contractual maturities of finance receivables including unearned finance
income at October 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
Retail Wholesale Accounts
<S> <C> <C> <C>
Due in:
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 165.3 $ 134.7 $ 357.7
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 144.9 105.0 -
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 116.2 .3 -
Due after 1997 . . . . . . . . . . . . . . . . . . . . . . 161.1 - -
-------- -------- --------
Gross finance receivables . . . . . . . . . . . . . . 587.5 240.0 357.7
Unearned finance income . . . . . . . . . . . . . . . . . 61.2 - -
-------- -------- --------
Total finance receivables . . . . . . . . . . . . . . $ 526.3 $ 240.0 $ 357.7
======== ======== ========
</TABLE>
The actual cash collections from finance receivables will 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 sells finance receivables to public and private investors
with limited recourse provisions. Uncollected sold receivable net balances
at October 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Retail notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,034.4 $539.4
Wholesale notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300.0 300.0
-------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,334.4 $839.4
======== ======
</TABLE>
Gains or losses from the sales of receivables are recognized in the
period in which such sales occur. As the allowance for credit losses is
adequately provided prior to the receivable sales, gains from receivable sales
are not reduced for expected credit losses. Included in "Retail notes and
lease financing" revenue are gains totaling $11.8, $14.2 and $5.5 for the
fiscal years ended October 31, 1994, 1993 and 1992, respectively. Gains on
sales of wholesale receivables are not material as a result of their short
maturities.
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 in exchange for pass-through notes and
certificates. These subsidiaries 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. At October 31, 1994, NFSC had in place a $300 revolving
<PAGE>
<PAGE 19>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
wholesale note sales trust providing for the continuous sale of eligible
wholesale notes on a daily basis. The sales trust is comprised of three $100
pools of notes maturing serially from 1997 to 1999. On September 16, 1993,
NFRRC filed a registration with the Securities and Exchange Commission
providing for the issuance from time to time of $1,000 of asset-backed
securities. During fiscal 1994, in three separate sales, the Corporation sold
$830 of retail notes, net of unearned finance income, through NFRRC to three
individual owner trusts. The owner trusts, in turn, sold $801 of notes and
$29 of certificates to investors. The proceeds of $828, net of $2 of
underwriting fees, were used by the Corporation for general working capital
purposes and to establish $57 in cash reserves with the trusts as credit
enhancement for the public sales. On October 7, 1994, NFRRC filed an
additional registration with the Securities and Exchange Commission providing
for the issuance from time to time of an additional $2,000 of asset-backed
securities, bringing the total amount available for issuance by NFRRC to
$2,170 at fiscal year-end.
The Corporation's retained interest in sold receivables and other related
amounts are generally restricted and subject to limited recourse provisions.
Holdback reserves were established pursuant to the limited recourse provisions
of the retail note sales to private investors. The securitized sales
structure requires the Corporation to maintain cash reserves with the trusts
as credit enhancement for public sales. The cash reserves are held by the
trusts and restricted for use by the securitized sales agreements. The
following is a summary of amounts included in "Amounts Due from Sales of
Receivables":
<TABLE>
<CAPTION>
October 31
1994 1993
<S> <C> <C>
Cash held by trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51.5 $ 9.6
Subordinated retained interests in receivables . . . . . . . . . . . . . . . 60.6 54.4
Holdback reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.4 69.4
Excess servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 8.9
Less allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . (8.0) (3.9)
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180.6 $138.4
====== ======
</TABLE>
<PAGE>
<PAGE 20>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
6. ALLOWANCE FOR LOSSES
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Total allowance for losses at beginning of year . . . . . . . . . . . . $14.8 $14.0 $13.6
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 1.5 3.6
Net losses charged to allowance . . . . . . . . . . . . . . . . . . . . (.9) (.7) (3.2)
----- ----- -----
Total allowance for losses at end of year . . . . . . . . . . . . . . $16.2 $14.8 $14.0
===== ===== =====
Allowance pertaining to:
Owned notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.2 $10.9 $12.4
Sold notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 3.9 1.6
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16.2 $14.8 $14.0
===== ===== =====
</TABLE>
7. REINSURANCE RECEIVABLES
In the normal course of business, the Corporation's wholly-owned
insurance subsidiary, Harco National Insurance Company, limits its exposure
on any single loss occurrence by ceding reinsurance to other insurance
enterprises. SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts", prescribes the accounting
standards for such reinsurance arrangements and was adopted by the Corporation
in the first quarter of fiscal 1994. This statement eliminates the practice
of reporting liabilities relating to reinsured contracts net of the effects
of reinsurance. It requires reinsurance receivables including amounts related
to unpaid insurance claims and prepaid reinsurance premiums to be reported as
assets. In accordance with SFAS 113, the Corporation's assets include $33.7
of reinsurance receivables at October 31, 1994. The adoption of SFAS 113 did
not have a material effect on the Corporation's financial results.
Restatement of prior years' financial statements is not required.
8. TAXES ON INCOME
During fiscal 1993, the Corporation adopted SFAS 109 "Accounting for
Income Taxes." Under SFAS 109, deferred tax assets and liabilities are
generally determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. SFAS 109 generally
allows recognition of deferred tax assets if future realization is more likely
than not.
<PAGE>
<PAGE 21>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
8. TAXES ON INCOME (Continued)
Taxes on income are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15.1 $12.0 $12.7
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 2.0 1.4
----- ----- -----
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 14.0 14.1
Deferred (primarily Federal) . . . . . . . . . . . . . . . . . . . . . . 3.1 3.7 2.8
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21.2 $17.7 $16.9
===== ===== =====
</TABLE>
The effective tax rate of 38% in 1994 and 36% in 1993 and 1992 differs
from the statutory United States Federal tax rate of 35% in 1994 and 1993 and
34% in 1992 primarily because of state and local income taxes. Deferred tax
assets and liabilities at October 31, 1994 and 1993 are comprised of the
following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax assets:
Other postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . $2.7 $2.7
Unrealized losses on marketable securities. . . . . . . . . . . . . . . . . . . . 1.2 -
---- ----
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 2.7
Deferred tax liabilities:
Depreciation and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 2.7
---- ----
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $2.0 $ -
==== ====
</TABLE>
During 1992, auditors of the Illinois Department of Revenue
("Department") began an income tax audit of NFC for the fiscal years ended
October 31, 1989, 1990 and 1991. On February 1, 1994 the Department issued
a Notice of Deficiency to NFC for approximately $11.9 million. The Department
has taken the position that nearly 100% of NFC's income during these years
should be attributed to and taxed by Illinois. NFC maintains that the
Department's interpretation and application of the law is incorrect and
improper, and that the Department's intended result is constitutionally
prohibited. NFC's outside counsel is of the opinion that it is more likely
than not that NFC's position will prevail such that the Department's action
will not have a material impact on NFC's earnings and financial position.
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.<PAGE>
<PAGE 22>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. SHORT-TERM DEBT (Continued)
Short-Term Debt at October 31 is summarized as follows:
1994 1993
Commercial paper . . . . . . . . . . . . . . . . . . $ 19.2 $ -
Short-term bank borrowings . . . . . . . . . . . . . 400.0 75.0
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . $419.2 $ 75.0
====== ======
Information regarding short-term borrowings is as follows:
1994 1993 1992
Aggregate obligations outstanding:
Daily average. . . . . . . . . . . . $ 11.7 $ .6 $ 56.2
Maximum month-end balance. . . . . . 419.2 75.0 203.3
Weighted average interest rate:
On average daily borrowing . . . . . 5.4% 6.5% 5.5%
At October 31. . . . . . . . . . . . 5.6% 6.5% -
Unused commitments under the Corporation's bank revolving credit facility
and retail notes receivable purchase facility are used as backup for
outstanding short-term borrowings.
10. SENIOR AND SUBORDINATED DEBT
Senior and Subordinated Debt outstanding at October 31 is summarized as
follows:
1994 1993
Bank revolving credit, at variable rates,
due November 1995. . . . . . . . . . . . . . $ 355.0 $ 727.0
Senior term debt:
7 1/2% Debentures, due January 1994 . . . . - 75.0
Notes, medium-term, 9.50% to 9.75%,
due 1995 to 1996 . . . . . . . . . . . . . 217.5 222.5
Unamortized discount . . . . . . . . . . . . (.2) (.3)
------- -------
Total senior term debt . . . . . . . . . 217.3 297.2
------- -------
Subordinated term debt:
Debentures, 11.95%, due December 1995 . . . - 100.0
Senior Notes, 8 7/8%, due November 1998. . . 100.0 -
------- -------
Total subordinated term debt . . . . . . . 100.0 100.0
------- -------
Total senior and subordinated debt . . . $ 672.3 $1,124.2
======= =======
<PAGE>
<PAGE 23>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. SENIOR AND SUBORDINATED DEBT (Continued)
The weighted average interest rate on total debt, including short-term
debt and the effect of discounts and related amortization, was 7.1%, 6.6% and
7.6% in 1994, 1993 and 1992, respectively. At October 31, 1994, all of the
Corporation's term debt was at a fixed rate of interest. The aggregate annual
maturities and required payments of debt are as follows: 1995, $100; 1996,
$472; and 1999, $100.
At October 31, 1994, the Corporation had $1,327 of committed credit
facilities. These facilities consisted of a contractually committed bank
revolving credit facility of $727 and a contractually committed retail notes
receivable purchase facility of $600. Unused commitments under the credit and
purchase facilities were $595, of which $419 provided funding backup for the
outstanding short-term debt at October 31, 1994. The remaining $176 when
combined with unrestricted cash and cash equivalents made $204 available to
fund the general business purposes of the Corporation at October 31, 1994.
Compensating cash balances are not required under the revolving credit
facility, but commitment fees are paid on the unused portions of the bank
revolving credit and retail notes receivable purchase facilities. The
Corporation also pays a facility fee on the $600 retail notes receivable
purchase facility. The bank revolving credit facility grants security
interests in substantially all of the Corporation's assets to the
Corporation's debtholders. In November 1994, the Corporation amended its
committed credit facilities. See note 16 for discussion of the subsequent
event.
On November 16, 1993, the Corporation sold $100 of 8 7/8% Senior
Subordinated Notes due 1998 and used the proceeds to redeem its 11.95%
Subordinated Debentures due December 1995 on December 16, 1993. The
Corporation also redeemed its 7 1/2% Senior Debentures due January 1994 on
December 15, 1993.
11. RETIREMENT BENEFITS
The Corporation provides 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 expense for employees, retirees,
surviving spouses and dependents.
The pension plans are non-contributory with benefits related to an
employee's length of service and compensation rate. The Corporation's policy
is to fund its qualified pension plan in accordance with applicable government
regulations and to make additional payments as necessary to maintain full
funding of the vested accumulated benefit obligation. For plan years which
ended during the current fiscal year, all legal funding requirements have been
met. Plan assets are primarily invested in a dedicated portfolio of long-term
fixed income securities.<PAGE>
<PAGE 24>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. RETIREMENT BENEFITS (Continued)
In addition to providing pension benefits, the Corporation provides
health care and life insurance for a majority of its retired employees. For
most retirees, these benefits are defined by the terms of an agreement between
Navistar and its employees, retirees and collective bargaining organizations
which provides for postretirement health care and life insurance benefits
("the Plan"). The Plan, which was implemented on July 1, 1993, provided for
cost sharing between Navistar and retirees in the form of premiums, co-
payments and deductibles. A Base Program Trust was established to provide a
vehicle for funding of the health care liability through Navistar
contributions and retiree premiums. A separate independent Retiree
Supplemental Benefit Trust was also established to potentially reduce retiree
premiums, co-payments and deductibles and provide additional benefits in the
future. During 1993, the Corporation agreed to contribute $3.7 to the
Supplemental Benefit Trust.
Pension Expense
Net pension cost includes the following:
1994 1993 1992
Service cost-benefits earned during the period . $ 1.0 $ .6 $ .6
Interest cost on projected benefit obligation. . 2.7 2.8 2.7
Return on assets - actual gain (loss) . . 3.3 (8.4) (2.8)
- deferred gain (loss) . (6.8) 5.2 (.3)
Other costs (including amortization of
transition amount) . . . . . . . . . . . . . . .1 .1 .3
----- ----- -----
Net pension cost . . . . . . . . . . . . . . $ .3 $ .3 $ .5
===== ===== =====
The unrecognized net obligation as of the transition date is being
amortized on a straight-line basis over 15 years. The effect of plan
amendments is amortized over the remaining average service life of active
employees.
<PAGE>
<PAGE 25>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. RETIREMENT BENEFITS (Continued)
Pension Assets and Liabilities
The plans' funded status and reconciliation to the Statement of
Consolidated Financial Condition as of October 31 were as follows:
<TABLE>
<CAPTION>
Plan in Which Plan in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits . . . . . . . . . . . $(25.8) $(32.8) $(1.8) $(1.9)
Non-vested benefits . . . . . . . . . (3.0) (2.4) (.1) (.1)
------ ------ ----- -----
Accumulated benefit
obligation . . . . . . . . . . . . (28.8) (35.2) (1.9) (2.0)
Effect of projected future
compensation levels . . . . . . . (.6) (3.5) - -
------ ------ ----- -----
Total projected benefit
obligation . . . . . . . . . . . . (29.4) (38.7) (1.9) (2.0)
Plan assets at fair value . . . . . . . 34.5 39.8 - -
------ ------ ----- -----
Funded status at October 31. . . . . . 5.1 1.1 (1.9) (2.0)
Unrecognized net losses (gains). . . . . (4.8) (.8) .2 .2
Unrecognized plan amendments . . . . . . .5 .6 - -
Unrecognized net obligation
as of transition date . . . . . . .2 .2 - -
------ ------ ----- -----
Net asset (liability) . . . . . . . $ 1.0 $ 1.1 $(1.7) $(1.8)
====== ====== ===== =====
</TABLE>
The weighted average rate assumptions used in determining the projected
benefit obligation and pension expense were:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate used to determine the present value
of the projected benefit obligations . . . . . . . . . . . . . . . . 9.2% 6.7% 8.1%
Expected long-term rate of return on plan assets . . . . . . . . . . . 9.0% 10.0% 10.0%
Expected rate of increase in future
compensation levels. . . . . . . . . . . . . . . . . . . . . . . . . 3.5% 3.5% 5.5%
</TABLE>
Postretirement Benefits Other Than Pensions
During 1993, the Corporation adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" retroactive to November 1, 1992.
SFAS 106 requires the accrual of the expected cost of providing postretirement
benefits during employees' active service periods. The Corporation's previous
practice was to charge the cost of these benefits against operations on a pay-
as-you-go basis. The adoption of SFAS 106 did not affect cash flow, but it
did change the timing of the recognition of costs.<PAGE>
<PAGE 26>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. RETIREMENT BENEFITS (Continued)
The Corporation elected to recognize the SFAS 106 transition obligation
as a one-time non-cash charge to earnings. The cumulative effect of this
change in accounting policy, as of November 1, 1992, was $8.8, net of income
taxes of $5.4.
The components of expense under SFAS 106 for postretirement benefits
other than pensions that are included in the Statement of Consolidated Income
and Retained Earnings for 1994 and 1993 include the following:
1994 1993
Service cost - benefits earned during the year . . . . . . $ .2 $ .3
Interest cost on the accumulated benefit obligation. . . . .7 .6
Expected return on assets. . . . . . . . . . . . . . . . . (.2) -
----- -----
Total cost of postretirement benefits other than pensions. $ .7 $ .9
===== =====
The components of the liability for postretirement benefits other than
pensions as of October 31, 1994 were as follows:
1994 1993
Retirees and their dependents. . . . . . . . . . . . . . . $(4.2) $(4.6)
Active employees eligible to retire. . . . . . . . . . . . (2.2) (1.3)
Other active participants. . . . . . . . . . . . . . . . . (2.6) (2.7)
----- -----
Accumulated postretirement benefit obligation (APBO) . . . (9.0) (8.6)
Plan assets at fair value. . . . . . . . . . . . . . . . . 2.8 2.4
----- -----
APBO in excess of plan assets. . . . . . . . . . . . . . . (6.2) (6.2)
Unrecognized net loss. . . . . . . . . . . . . . . . . . . .7 .8
----- -----
Net liability recognized on the
Statement of Consolidated Financial Condition . . . . . $(5.5) $(5.4)
===== =====
The discount rate used to determine the accumulated postretirement
benefit obligation at October 31, 1994, was 8.9%, based on the estimated
income of high-quality fixed income securities which could be purchased to
effectively settle the obligation. For 1995, the weighted average rate of
increase in the per capita cost of covered health care benefits is projected
to be 10.0%. The rate is projected to decrease to 5.0% in the year 2003 and
remain at that level each year thereafter. If the cost trend rate assumptions
were increased by one percentage point for each year, the accumulated
postretirement benefit obligation would increase by approximately $1.0 and the
associated expense recognized for the year ended October 31, 1994 would
increase by an estimated $.2. Conversely, a decrease in the cost trend rate
would lower the accumulated postretirement benefit obligation and the
associated expense.<PAGE>
<PAGE 27>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
12. LEASES
The Corporation is obligated under noncancelable 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, 1994, future minimum lease commitments under
noncancelable operating leases with remaining terms in excess of one year are
as follows:
Year Ended October 31,
1995 . . . . . . . . . . . . . . . . . . . . . . . $1.5
1996 . . . . . . . . . . . . . . . . . . . . . . . 1.5
1997 . . . . . . . . . . . . . . . . . . . . . . . 1.4
1998 . . . . . . . . . . . . . . . . . . . . . . . 1.4
1999 . . . . . . . . . . . . . . . . . . . . . . . 1.3
Thereafter . . . . . . . . . . . . . . . . . . . . 1.3
----
Total . . . . . . . . . . . . . . . . . . . . . $8.4
====
13. SHAREOWNER'S EQUITY
The number of authorized shares of capital stock as of October 31, 1994
and 1993 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. As discussed in note 16, the Corporation
amended and restated its bank credit facility in November 1994 which among
other things changed previous limitations on the Corporation's authority to
pay dividends to Transportation.
14. FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Corporation,
using available market information and valuation methodologies as described
below. However, considerable judgment is required in interpreting market data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Corporation
could realize in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts.
The methods and assumptions used to estimate the fair value of each class
of financial instruments are summarized as follows:
Cash and Cash Equivalents
The carrying amount approximates fair value.
<PAGE>
<PAGE 27>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. FINANCIAL INSTRUMENTS (Continued)
Marketable Securities
Fair value is estimated based on quoted market price, if available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar financial instruments. The fair value of
marketable securities held by insurance affiliates at October 31, 1994 is
disclosed, as required, in note 4 and included below.
Finance Receivables
The fair value of truck retail notes is estimated by discounting the future
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 other retail notes, primarily variable-rate
notes that reprice frequently, and for wholesale notes and retail and
wholesale accounts, the carrying amounts approximate fair value.
Amounts Due from Sales of Receivables
The fair values of excess servicing cash flows and other subordinated
amounts due the Corporation arising from receivable sale transactions were
derived by discounting expected cash flows at estimated current market
rates. The fair value of cash deposits approximates their carrying value.
Senior and Subordinated Debt
For variable-rate borrowings under the bank revolving credit agreement that
reprice frequently, the carrying amount approximates fair value. The fair
values of notes and debentures are estimated based on quoted market prices
where available and, where not available, on quoted market prices of debt
with similar characteristics.
<PAGE>
<PAGE 29>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. FINANCIAL INSTRUMENTS (Continued)
The carrying amounts of financial instruments as reported in the
Statement of Financial Condition and described in the various notes to the
financial statements and their fair values at October 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents. . . . . . . . . . . $ 28.3 $ 28.3 $ 33.9 $ 33.9
Marketable securities. . . . . . . . . . . . . 130.5 130.5 125.6 132.0
Finance receivables:
Retail notes . . . . . . . . . . . . . . . . 464.4 470.5 765.6 776.7
Wholesale notes. . . . . . . . . . . . . . . 240.0 240.0 212.5 212.5
Accounts . . . . . . . . . . . . . . . . . . 357.7 357.7 245.1 245.1
Amounts due from sales of
receivables. . . . . . . . . . . . . . . . . 180.6 170.6 138.4 134.9
Financing liabilities:
Senior and subordinated debt . . . . . . . . . $672.3 $673.9 $1,124.2 $1,138.0
</TABLE>
Derivative Financial Instruments
The Corporation acquires floating rate wholesale receivables and fixed
rate retail receivables and generally funds floating rate receivables with
floating rate funding and fixed rate receivables with fixed rate funding and
equity. Interest rate caps and swaps are used when needed to convert floating
rate funds to fixed and vice versa to match the asset portfolio. In addition,
the Corporation will use a variety of contracts to lock in interest rates
during the period in which retail receivables are being sold. During fiscal
1994, the Corporation entered into two short-term forward interest rate lock
agreements related to two sales of receivables. At October 31, 1994, there
were no swap agreements outstanding and only one interest rate cap purchased
in 1985 for a notional amount of $50 million which serves to partially hedge
the interest cost of variable rate debt. The Corporation's wholly-owned
insurance subsidiary has investments in Collateralized Mortgage Obligations
of $18.2 and are included in the Corporation's marketable securities at
October 31, 1994.
15. LEGAL PROCEEDINGS
In May 1993, a jury issued a verdict in favor of Vernon Klein &
Equipment, Inc. and against Transportation and the Corporation in the amount
of $10.8 in compensatory damages and $15 in punitive damages. Transportation
appealed the verdict and, in November 1994, the Court of Appeals of the State <PAGE>
<PAGE 30>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
15. LEGAL PROCEEDINGS (Continued)
of Oklahoma reversed the verdict and entered judgment in favor of
Transportation on virtually all aspects of the case.
The Corporation and its subsidiaries are subject to various other claims
arising in the ordinary course of business, and are parties to various legal
proceedings which constitute ordinary routine litigation incidental to the
business of the Corporation and its subsidiaries. In the opinion of the
Corporation's management, none of these proceedings or claims are material to
the business or the financial condition of the Corporation.
16. SUBSEQUENT EVENTS
In November 1994, the Corporation amended and restated its $727 million
bank revolving credit agreement, extending the maturity date to October 31,
1998 and expanding the commitment to $900 million. In addition, the
purchasers' commitments under the $600 million retail notes purchase facility
agreement were terminated and the Corporation established a $300 million asset
backed commercial paper ("ABCP") program supported by a bank liquidity
facility with a maturity date of October 31, 1998. While the amended
revolving credit facility removes certain dividend restrictions, the
Corporation is required to maintain tangible net worth at a minimum of $175
million and a debt to tangible net worth ratio of no greater than 7 to 1.
Consistent with the previous revolving credit agreement, the restated
agreement grants security interests in substantially all of the Corporation's
assets to the Corporation's debtholders.
As of October 31, 1994, approximately $377 million of sold notes were
outstanding under the $600 million retail notes purchase facility.
Participants of the facility will continue to own the receivables during the
run off.
Under the terms of the ABCP program, a special purpose wholly-owned
subsidiary of NFC will purchase retail and lease receivables. All assets of
the subsidiary will be pledged to a Trust that will fund the receivables with
A1/P1 rated commercial paper. In addition, the assets may be sold to the
Trust.
Compensating cash balances are not required under the restated revolving
credit facility. Facility fees are paid quarterly regardless of usage. The
Corporation also pays a commitment fee on the unused portion of the $300
million ABCP liquidity facility.
On December 15, 1994, the Corporation sold $315 of retail notes, net of
unearned finance income, through NFRRC to an owner trust which, in turn, sold
$304 of notes and $11 of certificates to investors. The proceeds of $314, net
of $1 of underwriting fees, were used by the Corporation for general working
capital purposes and to establish a $19 reserve account with the trust as
credit enhancement for the public sale.<PAGE>
<PAGE 31>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
17. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
1994
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $58.0 $48.3 $50.6 $53.2 $210.1
Interest expense . . . . . . . . . 15.7 15.7 16.7 14.6 62.7
Provision for losses
on receivables . . . . . . . . . .8 .2 .1 1.2 2.3
Net income . . . . . . . . . . . . 10.9 8.0 8.6 6.5 34.0
<CAPTION>
1993
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $60.9 $59.1 $56.4 $55.5 $231.9
Interest expense . . . . . . . . . 20.8 18.8 17.6 17.4 74.6
Provision for losses
on receivables . . . . . . . . . .9 1.1 .3 (.8) 1.5
Net income . . . . . . . . . . . . .9 8.8 5.2 7.6 22.5
</TABLE>
<PAGE>
<PAGE 32>
<TABLE>
<CAPTION>
SUPPLEMENTARY FINANCIAL DATA
Five Year Summary of Financial and Operating Data
Dollar amounts in millions
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenues and net income retained
Revenues . . . . . . . . . . . . $ 210.1 $ 231.9 $ 228.3 $ 235.9 $ 247.6
-------- -------- -------- -------- --------
Provision for losses on
receivables . . . . . . . . . . 2.3 1.5 3.6 5.8 3.5
Interest expense . . . . . . . . 62.7 74.6 82.2 90.3 110.1
Other charges, net . . . . . . . 89.9 106.8 96.1 86.6 78.6
Taxes on income . . . . . . . . . 21.2 17.7 16.9 20.2 20.4
Cumulative effect of changes in
accounting policy, net of
income taxes. . . . . . . . . . - 8.8 - - -
-------- ------- ------- ------- -------
Net income . . . . . . . . . . . 34.0 22.5 29.5 33.0 35.0
Dividends paid . . . . . . . . . 25.6 22.6 16.0 74.0 33.0
-------- ------- ------- ------- -------
Net income retained . . . . . . . $ 8.4 $ (.1) $ 13.5 $ (41.0) $ 2.0
======== ======== ======== ======== ========
Percent of net income to average
shareowner's equity . . . . . . 15.1% 10.3% 13.8% 15.0% 13.6%
Assets at end of year
Cash and cash equivalents . . . . $ 28.3 $ 33.9 $ 79.2 $ 16.0 $ 11.1
Marketable securities . . . . . . 130.5 125.6 130.5 119.1 103.3
Finance receivables:
Truck retail notes and
lease financing. . . . . 508.2 802.9 935.9 902.8 817.5
Wholesale notes . . . . . . . . 240.0 212.5 81.5 37.8 401.4
Accounts . . . . . . . . . . . 357.7 245.1 204.3 162.9 202.7
Other retail notes . . . . . . 18.1 20.6 19.2 25.2 24.5
------- ------- ------- ------- -------
Total . . . . . . . . . . . . 1,124.0 1,281.1 1,240.9 1,128.7 1,446.1
Allowance for losses . . . . . (8.2) (10.9) (12.4) (11.7) (11.7)
------- ------- ------- ------- -------
Finance receivables, net . . 1,115.8 1,270.2 1,228.5 1,117.0 1,434.4
Other assets . . . . . . . . . . 269.6 195.5 170.5 196.0 131.6
------- ------- ------- ------- -------
Total assets . . . . . . . . $1,544.2 $1,625.2 $1,608.7 $1,448.1 $1,680.4
======== ======== ======== ======== ========
Liabilities and shareowner's equity at end of year
Commercial paper. . . . . . . . . $ 19.2 $ - $ - $ 143.8 $ 558.1
Short-term bank borrowings . . . 400.0 75.0 - 40.0 70.0
Bank revolving credit . . . . . . 355.0 727.0 727.0 220.0 -
Medium-term notes . . . . . . . . 217.3 222.2 261.1 419.4 342.3
Long-term notes and debentures . - 75.0 135.0 135.0 184.9
Subordinated debt . . . . . . . . 100.0 100.0 94.9 93.7 92.6
------- ------- ------- ------- -------
Total debt . . . . . . . . . 1,091.5 1,199.2 1,218.0 1,051.9 1,247.9
Other liabilities . . . . . . . . 227.1 206.6 171.2 190.2 185.5
Shareowner's equity . . . . . . . 225.6 219.4 219.5 206.0 247.0
------- ------- ------- ------- -------
Total liabilities and
shareowner's equity . . . . $1,544.2 $1,625.2 $1,608.7 $1,448.1 $1,680.4
======== ======== ======== ======== ========
Debt to equity ratio . . . . . . 4.8:1 5.5:1 5.5:1 5.1:1 5.1:1
Senior debt to capital funds ratio 3.0:1 3.4:1 3.6:1 3.2:1 3.4:1
Gross insurance premiums written. $ 59.0 $ 65.8 $ 69.2 $ 66.3 $ 55.8
Number of employees . . . . . . . 353 339 364 353 368
</TABLE>
<PAGE>
<PAGE 33>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Gross Finance Receivables and Leases Acquired
<TABLE>
<CAPTION>
Dollar amounts in millions 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Wholesale notes . . . . . . . . . . . $2,306.6 $1,977.6 $1,547.7 $1,461.0 $1,601.4
Retail notes and leases:
New . . . . . . . . . . . . . . . 861.9 730.0 591.8 554.4 512.6
Used . . . . . . . . . . . . . . 217.2 168.4 185.9 192.8 189.7
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . 1,079.1 898.4 777.7 747.2 702.3
======= ======= ======= ======= =======
Total . . . . . . . . . . . . . . . $3,385.7 $2,876.0 $2,325.4 $2,208.2 $2,303.7
<CAPTION>
Analysis of Finance Retail Notes Acquired
Average Down Payment
Contractual as a Percent Average
Term of Retail Monthly
in Months Sales Price Installment
Number of
Year Units New Used New Used New Used
<C> <C> <C> <C> <C> <C> <C> <C>
1994. . . . . . . . . . 17,331 54 38 6.6% 13.9% $1,311 $921
1993. . . . . . . . . . 15,879 53 34 6.2 17.0 1,248 786
1992. . . . . . . . . . 14,227 52 35 6.6 14.1 1,239 845
1991 . . . . . . . . . 13,768 52 37 7.2 13.5 1,286 875
1990 . . . . . . . . . 13,950 53 37 8.8 16.5 1,327 766
</TABLE>
<PAGE>
<PAGE 34>
SUPPLEMENTARY FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
Analysis of Gross Retail Notes and Lease Financing
With Installments Past Due Over 60 Days
At October 31 ($ Millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Original amount of notes
and leases . . . . . . . . . . . . . . . . . . $ 1.3 $ 2.6 $ 4.3 $ 3.9 $ 6.1
Balance of notes and leases . . . . . . . . . . . .5 .7 2.1 1.9 3.9
Balance as a percent of
total outstanding . . . . . . . . . . . . . . . .09% .08% .19% .18% .40%
<CAPTION>
Analysis of Repossessions
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Repossessions acquired as a
percentage of average retail
note gross balance. . . . . . . . .97% 1.95% 3.70% 4.54% 5.61%
</TABLE>
<PAGE>
<PAGE 35>
SUPPLEMENTARY FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
Analysis of Loss Experience
($ Millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net losses:
Retail notes and leases . . . . . . . . . . . . . . $ .6 $(.1) $2.4 $3.0 $2.0
Wholesale notes . . . . . . . . . . . . . . . . . . .1 .8 .8 2.8 .4
Accounts. . . . . . . . . . . . . . . . . . . . . . .2 - - - -
---- ---- ---- ---- ----
Total . . . . . . . . . . . . . . . . . . . . $ .9 $ .7 $3.2 $5.8 $2.4
==== ==== ==== ==== ====
Percent net losses (recoveries) to liquidations:
Retail notes and leases . . . . . . . . . . . . . . .07% (.01)% .27% .41% .26%
Wholesale notes . . . . . . . . . . . . . . . . . . .01 .04 .06 .19 .03
Total . . . . . . . . . . . . . . . . . . . . .03% .03% .13% .26% .10%
Percent net losses to related
average gross receivables outstanding:
Retail notes and leases . . . . . . . . . . . . . . .04% -% .17% .21% .13%
Wholesale notes . . . . . . . . . . . . . . . . . . .03 .16 .20 .66 .10
Accounts. . . . . . . . . . . . . . . . . . . . . . .08 - - - -
Total . . . . . . . . . . . . . . . . . . . . .04% .03% .16% .29% .11%
<FN>
Includes loss experience on sold notes.
</TABLE>
<PAGE>
<PAGE 36>
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 protec-
tion 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 connec-
tion 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 cir-
cumstances to respond appropriately to the recommendations presented. Manage-
ment 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>
<PAGE 37>
Navistar Financial Corporation and Subsidiaries
Independent Auditors' Report
Navistar Financial Corporation:
We have audited the financial statements of Navistar Financial Corporation
and its subsidiaries 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 at October 31, 1994 and 1993, and the results
of their operations and their cash flow for each of the three years in the
period ended October 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective
November 1, 1992, Navistar Financial Corporation changed its method of
accounting for postretirement benefits other than pensions and for income
taxes.
Deloitte & Touche LLP
December 12, 1994
Chicago, Illinois
<PAGE>
<PAGE 38>
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
Exhibit Form 10-K
Number Description Page
(3) Articles of Incorporation and By-Laws
of the Registrant. . . . . . . . . . . . . . . . . . E-1
(4) Instruments Defining the Rights of Security
Holders, including Indentures. . . . . . . . . . . . . E-2
(10) Material Contracts . . . . . . . . . . . . . . . . . . E-3
(24) Power of Attorney. . . . . . . . . . . . . . . . . . . 40
Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended October 31,
1994.<PAGE>
<PAGE 39>
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 January 27,1995
Phyllis E. Cochran
Vice President and Controller
(Principal Accounting Officer)<PAGE>
<PAGE 40>
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 exe-
cute, 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 January 27, 1995
John J. Bongiorno Officer; Director
(Principal Executive Officer)
/s/ R. WAYNE CAIN Vice President and January 27, 1995
R. Wayne Cain Treasurer; Director
(Principal Financial Officer)
/s/ JAMES C. COTTING Director January 27, 1995
James C. Cotting
/s/ PHYLLIS E. COCHRAN Vice President and January 27, 1995
Phyllis E. Cochran Controller; Director
(Principal Accounting Officer)
/s/ THOMAS M. HOUGH Director January 27, 1995
Thomas M. Hough<PAGE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
SIGNATURES (Continued)
Signature Title Date
/s/ JOHN R. HORNE Director January 27, 1995
John R. Horne
/s/ ROBERT C. LANNERT Director January 27, 1995
Robert C. Lannert
/s/ ROBERT I. MORRISON Director January 27, 1995
Robert I. Morrison
/s/ THOMAS D. SILVER Director January 27, 1995
Thomas D. Silver
<PAGE>
Exhibit 3
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ARTICLES OF INCORPORATION AND BY-LAWS
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.
E-1<PAGE>
Exhibit 4
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
The following instruments of Navistar Financial Corporation defining the
rights of security holders, including indentures, are incorporated herein by
reference:
4.1 Indenture, dated as of September 22, 1989 between the Corporation
and The First National Bank of Chicago, as Trustee, succeeded by
Bank One, Columbus, NA, as successor Trustee, for $400,000,000 of
debt securities on terms determined at time of sale. Filed on
Registration No. 33-31003.
4.2 Indenture, dated as of November 15, 1993 between the Corporation
and Bank of America Illinois, formerly known as Continental Bank,
National Association, as Trustee, for 8 7/8% Senior Subordinated
Notes due 1998 for $100,000,000. Filed on Registration No. 33-
50541.
E-2<PAGE>
Exhibit 10
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
The following material contracts of Navistar Financial Corporation and
Navistar International Transportation Corp. are incorporated herein by
reference:
10.1 Pooling and Servicing Agreement dated as of December 1, 1990 between
the Corporation, as Servicer, Navistar Financial Securities
Corporation, as Seller, and Manufacturers Hanover Trust Company, as
Trustee. Filed on Registration No. 33-36767.
10.2 Purchase Agreement dated as of December 1, 1990 between the
Corporation and Navistar Financial Securities Corporation, as
Purchaser, with respect to the Dealer Note Trust 1990. Filed on
Registration No. 33-36767.
10.3 Pooling and Servicing Agreement dated as of December 1, 1991 between
the Corporation, as Servicer, Navistar Financial Retail Receivables
Corporation, as Seller, and The Bank of New York, as Trustee, with
respect to Navistar Financial 1991-1 Grantor Trust. Commission File
No. 1-4146-1.
10.4 Navistar Financial Grantor Trusts Standard Terms and Conditions of
Agreement Effective December 1, 1991 between the Corporation, as
Servicer, and Navistar Financial Retail Receivables Corporation, as
Seller, with respect to Navistar Financial Grantor Trusts formed on
or subsequent to December 1, 1991. Commission File No. 1-4146-1.
10.5 Purchase Agreement dated as of December 16, 1991 between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1991-1 Grantor
Trust. Commission File No. 1-4146-1.
10.6 Amended and Restated Credit Agreement dated as of April 26, 1993
among the Corporation, certain banks, and Chemical Bank, Bank of
America Illinois, formerly known as Continental Bank N.A. and Morgan
Guaranty Trust Company of New York, as Co-Agents. Filed on Form 8-K
dated April 30, 1993. Commission File No. 1-4146-1.
10.7 Security, Pledge and Trust Agreement between the Corporation and
Bankers Trust Company, Trustee, dated as of April 26, 1993. Filed
on Form 8-K dated April 30, 1993. Commission File No. 1-4146-1.
10.8 Amended and Restated Purchase Agreement among Truck Retail
Instalment Paper Corp., as Seller, the Corporation, certain
purchasers, Chemical Bank and Bank of America Illinois, formerly
known as Continental Bank N.A. as Co-Agents, and J.P. Morgan
Delaware as Administrative Agent, dated as of April 26, 1993.
Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.
E-3<PAGE>
Exhibit 10 (continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.9 Master Intercompany 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.
10.10 Intercompany 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.
10.11 Purchase Agreement dated as of November 10, 1993 between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1993-A Owner
Trust. Filed on Registration No. 33-50291.
10.12 Pooling and Servicing Agreement dated as of November 10, 1993 among
the Corporation, as Servicer, and Navistar Financial Retail
Receivables Corporation, as Seller, and Navistar Financial 1993-A
Owner Trust, as Issuer. Filed on Registration No. 33-50291.
10.13 Trust Agreement dated as of November 10, 1993 between Navistar
Financial Retail Receivables Corporation, as Seller, and Chemical
Bank Delaware, as Owner Trustee, with respect to Navistar Financial
1993-A Owner Trust. Filed on Registration No. 33-50291.
10.14 Indenture dated as of November 10, 1993 between Navistar Financial
1993-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1993-A Owner Trust. Filed on
Registration No. 33-50291.
10.15 Purchase Agreement dated as of May 3, 1994 between the Corporation
and Navistar Financial Retail Receivables Corporation, as Purchaser,
with respect to Navistar Financial 1994-A Owner Trust. Filed on
Registration No. 33-50291.
10.16 Pooling and Servicing Agreement dated as of May 3, 1994 among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1994-A Owner Trust,
as Issuer. Filed on Registration No. 33-50291.
10.17 Trust Agreement dated as of May 3, 1994 between Navistar Financial
Retail Receivables Corporation, as Seller, and Chemical Bank
Delaware, as Owner Trustee, with respect to Navistar Financial
1994-A Owner Trust. Filed on Registration No. 33-50291.
E-4<PAGE>
Exhibit 10 (continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.18 Indenture dated as of May 3, 1994 between Navistar Financial 1994-A
Owner Trust and The Bank of New York, as Indenture Trustee, with
respect to Navistar Financial 1994-A Owner Trust. Filed on
Registration No. 33-50291.
10.19 Purchase Agreement dated as of August 3, 1994 between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1994-B Owner Trust.
Filed on Registration No. 33-50291.
10.20 Pooling and Servicing Agreement dated as of August 3, 1994 among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1994-B Owner Trust,
as Issuer. Filed on Registration No. 33-50291.
10.21 Trust Agreement dated as of August 3, 1994 between Navistar
Financial Retail Receivables Corporation, as Seller, and Chemical
Bank Delaware, as Owner Trustee, with respect to Navistar Financial
1994-B Owner Trust. Filed on Registration No. 33-50291.
10.22 Indenture dated as of August 3, 1994 between Navistar Financial
1994-B Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1994-B Owner Trust. Filed on
Registration No. 33-50291.
10.23 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.
10.24 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.
10.25 Appendix A to Liquidity Agreement at Exhibit 10.24. Filed on Form
8-K dated November 4, 1994. Commission File No. 1-4146-1.
10.26 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.
E-5<PAGE>
Exhibit 10 (continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 Receivables 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.
10.32 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.
10.33 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.
10.34 Purchase Agreement dated as of December 15, 1994 between the
Corporation and Navistar Financial Retail Receivables Corporation,
as Purchaser, with respect to Navistar Financial 1994-C Owner Trust.
Filed on Registration No. 33-55865.
10.35 Pooling and Servicing Agreement dated as of December 15, 1994 among
the Corporation, as Servicer, and Navistar Financial Retail
Receivables Corporation, as Seller, and Navistar Financial 1994-C
Owner Trust, as Issuer. Filed on Registration No. 33-55865.
E-6<PAGE>
Exhibit 10 (continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.36 Trust Agreement dated as of December 15, 1994 between Navistar
Financial Retail Receivables Corporation, as Seller, and Chemical
Bank Delaware, as Owner Trustee, with respect to Navistar Financial
1994-C Owner Trust. Filed on Registration No. 33-55865.
10.37 Indenture dated as of December 15, 1994 between Navistar Financial
1994-C Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1994-C Owner Trust. Filed on
Registration No. 33-55865.
E-7<PAGE>
