<PAGE 1>
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, 1995
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 16, 1996, the aggregate market value of Common Stock
(excluding Class B Common Stock) held by non-affiliates of the registrant was
$548,099,758.
As of January 16, 1996, the number of shares outstanding of the
registrant's Common Stock was 50,986,024 and the Class B Common Stock was
24,292,206.
Documents Incorporated by Reference
-----------------------------------
1995 Annual Report to Shareowners (Parts I, II and IV)
1995 Proxy Statement (Parts I and III)
Navistar Financial Corporation 1995 Annual Report on Form 10-K (Part IV)
<PAGE>
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
FORM 10-K
Year Ended October 31, 1995
INDEX
10-K Page
---------
PART I
Item 1. Business .............................................. 3
Item 2. Properties ............................................ 11
Item 3. Legal Proceedings ..................................... 12
Executive Officers of the Registrant .................. 13
Item 4. Submission of Matters to a Vote of Security Holders ... 14
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ..................... 14
Item 6. Selected Financial Data ............................... 14
Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition .... 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. 14
PART III
Item 10. Directors and Executive Officers of the Registrant ... 14
Item 11. Executive Compensation ............................... 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management ..................................... 14
Item 13. Certain Relationships and Related Transactions ....... 14
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K ............................ 15
SIGNATURES
Principal Accounting Officer ................................... 17
Directors ...................................................... 18
POWER OF ATTORNEY ................................................ 18
INDEPENDENT AUDITORS' REPORT ..................................... 20
INDEPENDENT AUDITORS' CONSENT .................................... 20
SCHEDULES ........................................................ F-1
EXHIBITS ......................................................... E-1
<PAGE>
<PAGE 3>
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 (GVW 16,001 lbs. and greater), including school buses,
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 958 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 industry retail deliveries in the combined
United States and Canadian markets for the five years ended October 31, 1995,
in thousands of units:
YEARS ENDED OCTOBER 31,
-----------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Class 5, 6 and 7 medium trucks and
school buses ...................... 151.8 134.2 122.5 118.3 120.1
Class 8 heavy trucks ................ 228.8 205.4 166.4 125.2 109.0
----- ----- ----- ----- -----
Total ............................. 380.6 339.6 288.9 243.5 229.1
===== ===== ===== ===== =====
Source: Based upon monthly data by the American Automobile Manufacturers
Associations (AAMA) in the United States and Canada, and other sources.
The Class 5 through 8 diesel 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 competition 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,
utility and distribution.
<PAGE>
<PAGE 4>
TRANSPORTATION MARKET SHARE
Transportation delivered 101,700 Class 5 through 8 trucks, including
school buses, in the United States and Canada in fiscal 1995, an 11% increase
from the 91,600 in 1994. Navistar's combined share of the Class 5 through 8
truck market in 1995 was 26.7%. Transportation has been the leader in
combined market share for Class 5 through 8 trucks, including school buses, in
the United States and Canada in each of its last 15 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,
-----------------------
1995 1994 1993
----- ----- -----
PRODUCT CLASS
- -------------
Class 5, 6 and 7 medium trucks and
school buses ..................... 32% 32% 31%
Class 8 heavy trucks ............... 42 42 44
Service parts ...................... 12 14 14
Engines ............................ 14 12 11
----- ----- -----
Total ........................... 100% 100% 100%
===== ===== =====
Transportation offers a full line of Class 5 through 8 trucks, with the
objective of serving the customer by addressing requirements for performance
and value. In 1995, Transportation solidified its market leadership position
in the cabover market segment with the introduction of the 9800 Pro Sleeper,
an industry first with a totally flat floor design. The T444E and DT466E
electronically controlled diesel engines, which were introduced in 1994,
enhance Class 5, 6 and 7 medium truck operating performance and life. In
addition, new interiors and a hydraulic anti-lock brake system were introduced
in 1995 in the Company's Class 5 through 7 medium trucks.
Transportation was recognized as possessing the best overall dealer
franchise organization according to the most recent American Truck Dealers
(ATD) Dealer Attitude Survey (May 1995). In 1995, Heavy Duty Trucking
magazine recognized Transportation for two products. The "9800 Pro Sleeper
with Flat Floor" and the "International HEUI Engine" were selected as two of
the most significant 50 new truck-related products of 1995. According to the
annual survey conducted by J. D. Power and Associates on 1995 Medium-Duty
Truck Customer Satisfaction, Navistar ranked number one in customer
satisfaction in product for Class 5, 6 and 7 medium conventional trucks for
the third consecutive year.
For over two decades, Transportation has been the leading supplier of
school bus chassis in the United States. Transportation manufactures chassis
for conventional school buses as well as for use in small capacity buses,
designed to meet the needs of disabled students. Chassis are sold through
dealers and national account managers for delivery to the ultimate customers:
school districts and contractors. In addition to its traditional chassis
business, Transportation's wholly-owned subsidiary, American Transportation
Corporation (AmTran), manufactures school bus bodies. In 1995, Transportation
acquired the remaining interests in AmTran. Through its relationship with
AmTran, Transportation participates in the trend toward the integrated design
and manufacture of school buses, which offers improved production and
marketing efficiencies, and a reduction in the school bus order cycle.
<PAGE>
<PAGE 5>
Transportation offers 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 while Class 5, 6 and 7
medium trucks are powered by a proprietary line of mid-range diesel engines
manufactured by Transportation. In 1994, Transportation launched its all new
series of V-8 and in-line six-cylinder diesel engines for bus and Class 5
through 8 truck models. In 1995, the HEUI (Hydraulically actuated,
Electronically controlled Unit Injection) fuel system extended
Transportation's leadership position as the only truck and engine manufacturer
to offer a fully electronic mid-range diesel engine line. Based upon
information published by R.L. Polk & Company, diesel-powered Class 5, 6 and 7
medium truck shipments represented 80% of all medium truck shipments for
fiscal year 1995 in the United States and Canada.
Transportation's truck and bus 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, 1995:
YEARS ENDED OCTOBER 31,
-----------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Production units ............. 110,633 94,993 88,274 73,901 70,502
Total production capacity .... 112,952 112,966 106,032 106,088 106,762
Capacity utilization ......... 97.9% 84.1% 83.3% 69.7% 66.0%
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. The capacity utilization information excludes AmTran which was
acquired during the fourth quarter of 1995.
In 1995, Transportation reached an agreement with Spartan Motors to
jointly develop, market and manufacture diesel-powered rear-engine
recreational vehicle chassis. Spartan Motors is the world's largest engineer
and manufacturer of custom chassis for recreational vehicles, fire trucks,
airport tankers and other specialty vehicles.
ENGINE AND 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 in the United States and Canada.
Transportation also sells engines for industrial, agricultural and marine
applications. Transportation is the leading supplier of mid-range diesel
engines in the 160-300 horsepower range according to data supplied by a
private research firm, Power Systems Research of Minneapolis, Minnesota.
Production in 1995 totalled 228,600 units, an increase of 19% from the
192,400 units produced in 1994.
Transportation has completed an engine program which began with a major
capital investment in its engine products and facilities to manufacture a new
generation of V-8 and in-line six cylinder diesel engines. The implementation
of this program began in 1993 with the introduction of a new in-line six-
cylinder diesel engine family, equipped with a special mechanical fuel
injection system, that replaced the long-standing DT family of engines.
<PAGE>
<PAGE 6>
In February 1994, Transportation introduced the V-8 T444E, the industry's
first full-featured electronic diesel engine designed specifically for the
medium truck market. This engine offers a 10 to 15 percent improvement in
fuel economy, 30 to 40 percent enhancement in durability, and improved power
and torque when compared to the former 7.3 Liter V-8 product. In addition,
this engine meets current emissions requirements and includes such optional
features as electronic cruise control, electronically controlled power-take-
off and diagnostic capabilities.
In 1995, Transportation became the first North American truck
manufacturer to offer a complete line of fully electronic diesel engines. All
of Transportation's electronic diesel engines are equipped with HEUI, the new
fuel injection technology first introduced in 1994. All International brand
diesel truck engines are able to meet emission standards without the use of a
catalytic converter or exhaust after treatment device, unlike Transportation's
competitors. This new generation of engines is designed to respond to
customer demands for engines that have more power, improved fuel economy, long
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.
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, the light truck version, marketed as the 7.3
Liter Direct Injection Diesel, has realized significant external sales.
Transportation has an agreement to supply this V-8 product to a domestic
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 account for approximately 87% of Transportation's T444E sales.
Shipments to all original equipment manufacturers totalled a record 156,100
units in 1995, an increase of 20% from the 130,600 units shipped in 1994.
The International 530/530E offers high horsepower and torque, as well as
a lower initial price, considerable weight savings and reduced operating
costs. The International 530 is well-suited for customers using their trucks
in "hub and spoke" freight hauling applications, such as beverage or
refrigerated delivery, and construction applications, such as material
hauling, redi-mix and roll off refuse.
The following is a summary of Transportation's engine capacity
utilization for the five years ended October 31, 1995.
YEARS ENDED OCTOBER 31,
-----------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Engine production units ..... 228,638 192,446 175,464 148,991 126,103
Total production capacity ... 198,000 188,000 166,260 166,260 166,720
Capacity utilization ........ 115.5% 102.4% 105.5% 89.6% 75.6%
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, and has 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.
<PAGE>
<PAGE 7>
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 7 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 1995, service parts sales
increased as a result of growth in dealer and national accounts, as well as in
its export business.
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 958, 949 and 950 dealers and retail outlets at October 31, 1995, 1994 and
1993, respectively. Included in these totals were 490, 473 and 467 secondary
and associate locations at October 31, 1995, 1994 and 1993, respectively.
Retail dealer activity is supported by 5 regional operations in the
United States and a general office in Canada. Transportation has a national
account sales group responsible for its 130 major national account customers.
Transportation's 8 retail and 3 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 1995, 5,000 trucks were exported while 5,100 trucks were exported
in 1994. Cumulatively, from 1986 through 1995, Transportation was the leading
North American exporter of Class 6 through 8 trucks according to data provided
by the AAMA.
In 1995, the Company established new regional sales offices in
Johannesburg, South Africa, and in Dubai, United Arab Emirates, to oversee the
distribution of Class 5 through 8 diesel trucks and service parts. 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. Transportation also sells its in-line six-cylinder family
of mid-range diesel engines to Perkins Group, Ltd. (Perkins) of Peterborough,
England, for worldwide distribution and to Detroit Diesel Corporation, the
North American distributor of Perkins.
<PAGE>
<PAGE 8>
NAVISTAR FINANCIAL CORPORATION
Navistar Financial is engaged in the wholesale, retail and 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 1994 and 1995, Navistar Financial provided wholesale
financing for 93% of the new truck units sold by Transportation to its dealers
and distributors in the United States. Navistar Financial also provided retail
financing in 1995 and 1994 for approximately 14% and 15%, respectively, of the
new truck units sold by Transportation and its dealers and distributors in the
United States.
Navistar Financial's wholly-owned domestic 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 1995, Associates provided 7%
of the wholesale financing utilized by Transportation's dealers and
distributors, unchanged from fiscal 1994.
Navistar International Corporation Canada has an agreement with a
subsidiary of General Electric Canadian Holdings Limited to provide financing
for Canadian dealers and customers.
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. Research and development activities are directed toward the
introduction of new products and improvements of existing products and
processes used in their manufacture, and spending for these activities
totalled $91 million, $88 million, and $86 million for 1995, 1994 and 1993,
respectively.
<PAGE>
<PAGE 9>
During 1995, 1994 and 1993, capital expenditures totalled $139 million,
$87 million and $110 million, respectively. Major program expenditures in
1995 and 1994 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
produced 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.
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
----------------- ------------------- -----
1995 .......... $ 3,226 47,119
1994 .......... $ 4,197 64,841
1993 .......... $ 1,353 23,939
Although the backlog of unfilled orders is one of many indicators of
market demand, other factors such as changes in production rates, available
capacity, new product introductions and competitive pricing actions may affect
point-in-time comparisons.
EMPLOYEES
The following table summarizes employment levels as of the end of fiscal
years 1993 through 1995:
TOTAL
AT OCTOBER 31 EMPLOYMENT
----------------- ----------
1995 ............................... 16,079
1994 ............................... 14,910
1993 ............................... 13,612
LABOR RELATIONS
At October 31, 1995, the United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW) represented 8,199 of the Company's active
employees in the United States, and the Canadian Auto Workers (CAW)
represented 1,968 of the Company's active employees in Canada. Other unions
represented 1,246 of the Company's active employees in the United States, and
Canada. The Company entered into a collective bargaining agreement with the
UAW in 1995 which expires on October 1, 1998. The 1993 collective bargaining
agreement with the CAW expires on October 24, 1996. The new UAW contract
increases the Company's pension costs but provides greater operating
flexibility.
<PAGE>
<PAGE 10>
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 are an important part of its worldwide
sales and marketing efforts, and provide instant identification of its
products and services in the marketplace. 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.
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 1995, several suppliers experienced labor
problems or capacity constraints, as a result of industry wide-growth and
demand, which created interruptions in the flow of supplies to the Company.
As the truck and automotive market demand decreases, the strain on suppliers'
production capacity will be reduced.
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.
<PAGE>
<PAGE 11>
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. In addition to the 1998 standard, the
Company, along with other engine manufacturers, has signed an unprecedented
voluntary agreement (Statement of Principles) with U.S. EPA and CARB to
achieve dramatic new reductions in ozone-causing exhaust emissions by 2004.
Complying with the resulting new emission standards represent a significant
engineering challenge that will require a major outlay of resources. The
Company faces further challenges in satisfying California's emission standards
in 1996 and 2002 for engines used in medium-size vehicles (which includes
vehicles up to 14,000 lbs. Gross Vehicle Weight Rating. The Company expects
that its diesel engines will be able to meet all of these standards in the
required timeframe.
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. Canada has announced its intention to
conform its heavy-duty engine emission standards to the U.S. EPA standards in
1998 and to require low-sulfur diesel fuel, as in the U.S., beginning October
1, 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 no later than
early 1996.
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 two sites formerly owned by the Company, Wisconsin
Steel and Solar Turbine. In 1994, Transportation recorded a $20 million
after-tax charge as a loss of discontinued operations for environmental
liabilities and cleanup cost.
ITEM 2. PROPERTIES
Transportation has 8 manufacturing and assembly plants in the United
States and 1 in Canada which are owned by Transportation. The aggregate floor
space of these 9 plants is approximately 9 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.
<PAGE>
<PAGE 12>
ITEM 3. LEGAL PROCEEDINGS
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. (Klein Truck) 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. Klein Truck
appealed to the Oklahoma Supreme Court, where the case is now pending. The
bond and related collateral will be released when the order of the Oklahoma
Supreme Court 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.
Transportation and Solar Turbines Incorporated (Solar), a wholly-owned
subsidiary of Caterpillar, Inc., executed an agreement in June 1995, wherein
Transportation agreed to pay for 65% of future costs associated with
environmental cleanup at Solar's facility in San Diego, California. In
addition, Transportation agreed to pay for a yet undetermined portion of past
environmental costs. Transportation owned and operated this facility from
1961 to 1981 and sold it to Caterpillar Inc. in 1981. As part of the
agreement, Transportation will control the site investigation and any cleanup
work that may be necessary.
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 13>
EXECUTIVE OFFICERS
The following selected information for each of the Company's current
executive officers was prepared as of January 16, 1995.
OFFICERS AND POSITIONS WITH
NAME AGE NAVISTAR AND OTHER INFORMATION
- ------------------ --- -------------------------------------------------
John R. Horne .... 57 President and Chief Executive Officer in 1995 and
a Director since 1990. Mr. Horne also
is Chairman, President and Chief Executive
Officer of Transportation in 1995 and a Director
since 1987. Prior to this, Mr. Horne served as
President and Chief Operating Officer, 1990-1995,
Group Vice President and General Manager, Engine
and Foundry, 1990, and Vice President and General
Manager, Engine and Foundry, 1983-1990.
Robert C. Lannert. 55 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 48 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 .. 50 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.
J. Steven Keate .. 39 Vice President and Controller since December 1995.
Mr. Keate is also Vice President and Controller
of Transportation since March 1995. Prior to
this, Mr. Keate served as Vice President and
Controller of General Dynamics Corporation,
1991-1995, and Corporate Manager, Financial
Planning and Analysis, 1989-1991.
Steven K. Covey .. 44 Corporate Secretary since 1990. Mr. Covey also
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 14>
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 1995 Annual Report to Shareowners, filed as Exhibit 13 to this Form
10-K as follows:
1995
Annual
Report
Page
------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS ......................... 50
ITEM 6. SELECTED FINANCIAL DATA ................................. 48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION ................... 4
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............. 13
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 1995
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 20, 1996 Annual Meeting of Shareowners.
<PAGE>
<PAGE 15>
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 1995 Annual
Report to Shareowners, filed as Exhibit 13 to this Form 10-K as follows:
1995
Annual
Report
Page
-------
Financial Statements
- --------------------
Independent Auditors' Report .................................... 12
Statement of Income
for the years ended October 31, 1995, 1994 and 1993 ........... 13
Statement of Financial Condition as of October 31, 1995 and 1994. 15
Statement of Cash Flow
for the years ended October 31, 1995, 1994 and 1993 ........... 17
Statement of Non-Redeemable Preferred, Preference
and Common Shareowners' Equity
for the years ended October 31, 1995, 1994 and 1993 ........... 19
Notes to Financial Statements ................................... 20
Form
10-K
Schedule Page
- -------- ----
II - 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 1995 Annual Report to
Shareowners.
Finance and Insurance Subsidiaries:
The financial statements of Navistar Financial Corporation for the years
ended October 31, 1995, 1994 and 1993 appearing on pages 10 through 39 in
Annual Report on Form 10-K for Navistar Financial Corporation for the fiscal
year ended October 31, 1995, Commission File 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 1995 Annual Report to Shareowners and is incorporated herein by
reference.
<PAGE>
<PAGE 16>
Form
10-K
Exhibits, Including Those Incorporated by Reference 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 1995 Annual Report
to Shareowners ......................................... N/A
(21) Subsidiaries of the Registrant .......................... E-6
(23) Independent Auditors' Consent ........................... 20
(24) Power of Attorney ....................................... 18
(27) Financial Data Schedule ................................. N/A
(28) Navistar Financial Corporation Annual Report
on Form 10-K for the fiscal year ended October 31, 1995 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 1995 Annual Report to Shareowners.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed for the three months ended October 31,
1995.
<PAGE>
<PAGE 17>
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/ J. Steven Keate
- -----------------------------------
J. Steven Keate January 26, 1996
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE 18>
EXHIBIT 24
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute
and appoint John R. Horne 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 26, 1996
and Director
/s/ John R. Horne
- ---------------------------
John R. Horne President and January 26, 1996
Chief Executive Officer,
and Director
(Principal Executive Officer)
/s/ J. Steven Keate
- ---------------------------
J. Steven Keate Vice President and Controller January 26, 1996
(Principal Accounting Officer)
/s/ William F. Andrews
- ---------------------------
William F. Andrews Director January 26, 1996
/s/ Wallace W. Booth
- ---------------------------
Wallace W. Booth Director January 26, 1996
/s/ Andrew F. Brimmer
- ---------------------------
Andrew F. Brimmer Director January 26, 1996
<PAGE>
<PAGE 19>
EXHIBIT 24 (CONTINUED)
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SIGNATURES (Continued)
/s/ Richard F. Celeste
- ---------------------------
Richard F. Celeste Director January 26, 1996
/s/ John D. Correnti
- ---------------------------
John D. Correnti Director January 26, 1996
/s/ William C. Craig
- ---------------------------
William C. Craig Director January 26, 1996
/s/ Jerry E. Dempsey
- ---------------------------
Jerry E. Dempsey Director January 26, 1996
/s/ Mary Garst
- ---------------------------
Mary Garst Director January 26, 1996
/s/ Charles A. Haggerty
- ---------------------------
Charles A. Haggerty Director January 26, 1996
/s/ Arthur G. Hansen
- ---------------------------
Arthur G. Hansen Director January 26, 1996
/s/ Robert C. Lannert
- ---------------------------
Robert C. Lannert Director January 26, 1996
/s/ Walter J. Laskowski
- ---------------------------
Walter J. Laskowski Director January 26, 1996
<PAGE>
<PAGE 20>
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, 1995
and 1994, and the related Statement of Income, 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, 1995, and have issued our
report thereon, dated December 18, 1995 (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 1995 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 18, 1995
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 on Navistar
International Corporation and Navistar Financial Corporation, dated
December 18, 1995, appearing and incorporated by reference in this Annual
Report on Form 10-K of Navistar International Corporation for the year ended
October 31, 1995.
Deloitte & Touche LLP
January 26, 1996
Chicago, Illinois
<PAGE>
<PAGE 21>
<TABLE> SCHEDULE II
<CAPTION>
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
============
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(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
----------- ------------- --------- ----------------- ----------- ------ -------
<S> <S> <C> <C> <S> <C> <C>
Reserves deducted from
assets to which they
apply:
1995
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustments,
receivables .... receivable .... $ 25 $ 4 less recoveries ... $ 1 $ 28
===== ===== ===== =====
1994
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustments,
receivables .... receivable .... $ 36 $ 2 less recoveries ... $ 13 $ 25
===== ===== ===== =====
1993
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustments,
receivables .... receivable .... $ 34 $ 6 less recoveries ... $ 4 $ 36
===== ===== ===== =====
</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 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
April 14, 1995, filed as Exhibit 3.2 on Annual Report on Form 10-K
dated October 31, 1995, which was filed on January 26, 1996, 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 February 14, 1995)
- -----------------------------------------------------------------------------
<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 Chair of the Board 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 Chair of the Board;
(b) the Chief Executive 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 () 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.
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
<PAGE>
<PAGE 4>
(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.
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.
<PAGE>
<PAGE 5>
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 not exceed eighteen (18). 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.
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 its last
meeting before, or first meeting after, the Annual Meeting of Stockholders
the Board of Directors shall elect one of its members to be Chair of the
Board. The Chair of the Board may be but does not have to be an officer,
executive or employee of the Corporation. The Chair of the Board shall
preside at meetings of the Board, lead the Board in carrying out its
responsibilities to manage the business and affairs of the Corporation and
perform other duties as requested by the Board of Directors.
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 Chair of the Board;
(b) the Chief Executive Officer; or
(c) 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 Chair of the Board
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.
<PAGE>
<PAGE 6>
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.
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 Chair of the Board, the 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.
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.
<PAGE>
<PAGE 7>
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
Chair of the Board and the Chief Executive Officer shall be members 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. A vacancy in a regular
membership may be filled by the Board at any time.
Any appointed regular 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.
<PAGE>
<PAGE 8>
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 Chair of the
Board, the 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.
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 Chair of the Board shall serve as
Chair of the Executive Committee. The Chair of the Board, or in his or her
absence, the Chief Executive Officer shall preside at meetings of the
Executive Committee. If the Chair of the Board and the Chief Executive
Officer are absent, the Committee shall appoint a temporary Chair 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 Chief Executive
Officer, a President 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.
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. Chief Executive Officer. The Chief Executive
Officer 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 Bylaws.
<PAGE>
<PAGE 9>
Section 3. President. The President shall have such powers
and perform such duties as may 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 Chief Executive Officer or
the Board of Directors.
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 Chief
Executive 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 Chief Executive Officer
or the Board of Directors.
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 Chief Executive 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 Chief Executive
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 Chief Executive 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 Chief Executive
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 10>
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 Chief Executive Officer or an
Executive Officer and by the person who was at the time of signing 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.
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.
<PAGE>
<PAGE 11>
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.
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.
<PAGE>
<PAGE 12>
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.
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 13>
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 14>
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.
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.
<PAGE>
<PAGE 15>
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 Directors 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.
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. Chair of the Board and Executive Officers. If
during the existence of a national emergency, the Chair of the Board becomes
incapacitated, cannot by reasonable effort be located or otherwise is unable
or unavailable to perform the duties of his or her office, the Board shall
elect one of its members to be Chair of the Board. The Chair of the Board
may, but need not be an officer of or employed in an executive or any other
capacity by the Corporation. If, during the existence of a national
emergency, the Chief Executive Officer becomes incapacitated or unavailable
to perform the duties of his or her office, the Chair of the Board is hereby
designated also as Chief Executive Officer and will act as both Chair of the
Board and Chief Executive Officer.
<PAGE>
<PAGE 16>
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 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.
4.3 Indenture, dated as of September 22, 1989, between Navistar
Financial Corporation and 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.
4.4 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 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.
10.7 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.
10.8 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.
10.9 Navistar 1994 Performance Incentive Plan. Filed as Appendix to
Proxy Statement dated January 27, 1994. Commission
File No. 1-9618.
10.10 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.
E-3
<PAGE>
PAGE 2
EXHIBIT 10 (CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
MATERIAL CONTRACTS
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 Indenture dated as of May 25, 1995 between Navistar Financial
1995-A Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1995-A Owner Trust. Filed on
Registration No. 33-55865.
10.16 Indenture dated as of November 1, 1995 between Navistar Financial
1995-B Owner Trust and The Bank of New York, as Indenture Trustee,
with respect to Navistar Financial 1995-B Owner Trust. Filed on
Registration No. 33-55865.
E-4
<PAGE>
<PAGE 1>
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
A. Primary: See the Statement of Income contained in the Navistar
International Corporation 1995 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.
YEARS ENDED OCTOBER 31
Millions of Dollars 1995 1994 1993
- -------------------------------------- -------- -------- --------
Income (loss) of continuing operations $ 164 $ 102 $ (273)
Loss of discontinued operations ...... - (20) -
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy..... 164 82 (273)
Cumulative effect of changes
in accounting policy ............... - - (228)
-------- -------- --------
Net income (loss) .................... $ 164 $ 82 $ (501)
======== ======== ========
Average common and common equivalent shares (millions):
Average common shares outstanding
as adjusted per primary computation 74.3 74.6 34.9
Assuming conversion of Series G ..... .6 .6 .6
Assuming conversion of Series D ..... - - .1
-------- -------- --------
Average common and dilutive
common equivalent shares as adjusted 74.9 75.2 35.6
======== ======== ========
Income (loss) per common share assuming
full dilution (dollars):
Continuing operations .......... $ 2.20 # $ 1.36 # $ (7.64)#
Discontinued operations ........ - (.27) -
Cumulative effect of changes in
accounting policy .......... - - (6.42)#
-------- -------- --------
Net income (loss) ................ $ 2.20 # $ 1.09 # $ (14.06)#
======== ======== ========
# 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.
E-5
<PAGE 1>
EXHIBIT 13
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED OCTOBER 31, 1995
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 1995 1994
- ----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
Sales and revenues ............................ $ 6,342 $ 5,337
Income before income taxes .................... $ 262 $ 158
Net income .................................... $ 164 $ 82
Net income per common share ................... $ 1.83 $ .72
Manufacturing gross margin .................... 13.8% 12.8%
Return on equity (a) .......................... 18.9% 12.5%
Cash and marketable securities ................ $ 1,040 $ 861
(a) Calculated using income of continuing operations.
- ----------------------------------------------------------------------------
<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 ..................... 11
Independent Auditors' Report ........................................ 12
Financial Statements
Statement of Income ............................................... 13
Statement of Financial Condition .................................. 15
Statement of Cash Flow ............................................ 17
Statement of Non-Redeemable Preferred, Preference and
Common Shareowners' Equity ...................................... 19
Notes to Financial Statements
1 Summary of accounting policies ................................. 20
2 Supplemental cash flow information ............................ 22
3 Postretirement benefits ........................................ 23
4 Income taxes ................................................... 26
5 Discontinued operations ........................................ 30
6 Marketable securities .......................................... 30
7 Receivables .................................................... 32
8 Property ....................................................... 34
9 Inventories .................................................... 34
10 Leases ........................................................ 35
11 Accounts payable .............................................. 36
12 Other liabilities ............................................. 36
13 Debt .......................................................... 37
14 Financial instruments ......................................... 40
15 Commitments, contingent liabilities and restrictions on assets. 42
16 Legal proceedings ............................................. 42
17 Environmental matters ......................................... 43
18 Preferred and preference stocks ............................... 44
19 Common stock .................................................. 45
20 Stock compensation plans ...................................... 46
21 Selected quarterly financial data (unaudited) ................. 47
Ten-Year Summary of Selected Financial and Statistical Data ......... 48
<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 buses, mid-range diesel engines and service parts in the United
States and Canada. These products are also 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 an independent insurance agency system.
The discussion and analysis reviews separately the operating and
financial results and liquidity and capital resources 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 its domestic insurance subsidiary as
well as foreign finance and insurance companies. See Note 1 to the
Financial Statements.
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
Consolidated
The Company reported net income of $164 million for 1995, or $1.83 per
common share, on increased sales and revenues. This was a substantial
improvement over the $82 million, or $.72 per common share, reported in 1994
which included a $20 million charge to discontinued operations, net of $13
million of income taxes, related to environmental liabilities. See Notes 5
and 17 to the Financial Statements. The net loss of $501 million for 1993
included a one-time charge of $513 million ($318 million after taxes) for
common stock contributed to an independent retiree Trust and a $228 million
charge for the cumulative effect of accounting changes.
As a result of the strong demand for trucks and diesel engines, sales
and revenues of $6,342 million in 1995 were 19% higher than the $5,337
million reported in 1994 and 34% above the $4,721 million reported in 1993.
Manufacturing
Manufacturing, excluding Financial Services, reported income before
income taxes of $200 million in 1995, double the $98 million reported in
1994. The 1995 operating results reflect a second consecutive record year
of Class 8 heavy truck, mid-range diesel engine and truck service parts
sales. Sales of Class 5, 6 and 7 medium trucks also increased. The 1995
operating results reflect the effects of improved pricing and various cost
improvement initiatives. Pretax income of $98 million in 1994 was $91
million higher than the $7 million reported in 1993 before the one-time $509
million contribution to an independent retiree Trust. The improvement of
1994 over 1993 reflects higher sales of trucks, diesel engines and service
parts as well as a $33 million reduction in postretirement benefits expense.
<PAGE>
<PAGE 5>
Sales and Revenues. As a result of continued favorable economic conditions
in both the United States and Canada, 1995 industry retail sales of Class 5
through 8 trucks totalled 380,600 units, a 12% improvement over 1994 and 32%
greater than the 288,900 units sold in 1993. Class 8 heavy truck sales
increased 11% from the 1994 level to 228,800 units as a result of demand
from large fleet customers. Industry sales of Class 5, 6 and 7 medium
trucks, including school buses, were up 13% to 151,800 units in 1995
reflecting demand across a wide variety of vocations including maintenance
leasing, local governments, and wholesale, retail and service related
businesses. Industry sales of school buses, which accounted for 20% of the
medium truck market, increased slightly over 1994 to 30,400 units.
Manufacturing's sales of trucks, diesel engines and service parts for
1995 totalled $6,125 million, 19% over the $5,153 million reported for 1994
and 36% higher than the $4,510 million recorded in 1993. Truck shipments
totalled 110,200 units in 1995, increases of 16% and 26% from 1994 and 1993,
respectively. The Company maintained its position as sales leader in the
combined United States and Canadian Class 5 through 8 truck market in 1995
with a 26.7% market share, a slight decline from the 27.0% share in 1994.
This change reflects a decrease in the Company's Class 8 heavy truck market
share as the Company was unable to produce sufficient quantities of those
models most in demand by its customers as a result of capacity limitations
at its assembly facilities.
Shipments of mid-range diesel engines by the Company to original
equipment manufacturers during 1995 were a record 156,100 units, a 20%
increase from 1994 and a 32% improvement over 1993. Higher shipments to a
domestic automotive manufacturer to meet consumer demand for the light
trucks and vans which use this engine were the primary reason for the
increase.
Service parts sales of $730 million in 1995 were slightly higher than
the $714 million in 1994 and 16% higher than the $632 million reported in
1993 as a result of dealer and national account volume growth.
Other income increased to $43 million in 1995 from $25 million in 1994
and $16 million in 1993 as a result of increased income on higher cash, cash
equivalents and marketable securities balances.
Operating Costs and Expenses. Manufacturing gross margin was 13.8% of sales
in 1995 compared with 12.8% in 1994 and 13.1% in 1993. The increase in
gross margin is primarily the result of higher sales volumes, improved
pricing and an increase in operating efficiency. These improvements were
partially offset by higher material costs, overtime costs to meet demand for
the Company's products and a $62 million provision for payment to employees
as required by the Company's profit sharing agreements, an increase of $38
million. Factors which contributed to the change in gross margin between
1994 and 1993 included higher sales volumes offset by an increase in the
provision for profit sharing, additional costs to meet customer delivery
commitments and additional costs incurred with the introduction of new truck
and engine products.
Engineering and research expense increased to $113 million in 1995 from
$97 million in 1994 and $94 million in 1993 reflecting investment in the
next generation of trucks and diesel engines as well as improvements to
existing products.
Marketing and administrative expense of $277 million was 4% of sales
in 1995, down from 5% in 1994 and 1993. This expense was $238 million and
$230 million, respectively, in those years. The $39 million increase in the
expense between 1994 and 1995 reflects higher sales and distribution
expense, an increase in the provision for payment to employees as provided
by the Company's performance based incentive programs and an investment in
the development of systems and processes which support the Company's
business strategy.
<PAGE>
<PAGE 6>
Finance service charges on sold receivables increased to $84 million, a
27% increase over 1994 and 50% higher than 1993, as a result of higher truck
sales and increased interest rates.
Financial Services
Financial Services, which consists of Navistar Financial, its domestic
insurance subsidiary and the Company's foreign finance and insurance
subsidiaries, had income before income taxes of $62 million, $60 million and
$61 million in 1995, 1994 and 1993, respectively.
Navistar Financial's pretax income in 1995 was $59 million, a 6%
increase from $55 million in 1994. The change is a result of higher income
from an increased volume of wholesale financing to support the demand for
trucks, and improvement in Navistar Financial's interest cost over market
interest rates. The increase was offset by a reduction in margins on retail
financing as a result of increased competition in the commercial financing
markets and rising interest costs which could not be fully offset by
increased retail note pricing.
Navistar Financial's pretax income increased $6 million in 1994 from
the $49 million reported in 1993. The improvement reflects higher income
from Navistar Financial's insurance subsidiary and an increased volume of
wholesale financing partially offset by lower margins on retail financing.
In addition, 1993 pretax income included a one-time $4 million charge for
the contribution to an independent retiree Trust.
Earnings from the foreign finance and insurance subsidiaries were $3
million and $5 million in 1995 and 1994, respectively. Earnings in 1993 of
$12 million included a one-time benefit of $6 million resulting from lower
loss reserve requirements.
Navistar Financial's revenue for 1995 was $228 million, 8% higher than
the $211 million reported in 1994. The change reflects an increased volume
of wholesale and retail financing to support the demand for trucks, and
higher average yields on wholesale notes and accounts as a result of a
higher prime interest rate. The increase was partially offset by lower
revenues from Navistar Financial's insurance subsidiary reflecting a
reduction in written premiums of truck liability lines as a result of
adverse loss experience in those lines. Navistar Financial's revenues
declined 9% between 1993 and 1994 following a decline in retail note and
lease revenue.
Interest expense for Navistar Financial increased to $84 million in
1995 from $70 million in 1994 and $79 million in 1993. The change between
1995 and 1994 was the result of higher debt balances required to finance the
increased wholesale note and account balances and higher market interest
rates. 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.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated
Consolidated cash flow is generated from the manufacture, sale and
financing of trucks, diesel engines and service parts. Total cash, cash
equivalents and marketable securities of the Company amounted to $1,040
million at October 31, 1995 and $861 million at October 31, 1994. At
October 31, 1995 and 1994, approximately $140 million and $138 million in
marketable securities, respectively, were held by the Company's insurance
subsidiaries and not available for general corporate purposes.
<PAGE>
<PAGE 7>
Manufacturing
Manufacturing's cash, cash equivalents and marketable securities
amounted to $876 million at October 31, 1995 and $665 million at October 31,
1994. This included cash and cash equivalents of $461 million at October
31, 1995 and $499 million at October 31, 1994.
Cash generated by operations during 1995 totalled $400 million
primarily from net income of $164 million, a net change in operating assets
and liabilities of $166 million as well as $89 million of non-cash deferred
income taxes and $53 million of other non-cash items, principally
depreciation. These amounts were partially offset by a $72 million pension
contribution in excess of normal funding. Consolidated income tax expense
for 1995 was $98 million, of which $9 million was cash payments to federal,
and certain state and local governments while the remaining $89 million of
federal and other taxes reduced the deferred tax asset.
The net change in operating assets and liabilities of $166 million
includes a $72 million increase in accounts payable as a result of higher
production schedules at the Company's assembly facilities, the $137 million
increase in other liabilities attributed principally to the provision for
payment to employees as required by the Company's profit sharing and
performance incentive programs and to the timing of such payments. These
changes were partially offset by an $88 million increase in outstanding
receivables primarily reflecting the timing of payments from Navistar
Financial.
The cash generated by operations was used to fund Manufacturing's
investment and financing activities. Investment programs used $139 million
in cash to fund capital expenditures for truck product improvements, to
increase diesel engine production capacity and for programs to improve cost
performance. In addition, purchases of marketable securities exceeded
proceeds from sales by $247 million. Financing programs used cash of $29
million for dividends on the Series G Preferred shares, $21 million for
principal payments on debt and $10 million to repurchase Class B Common
shares.
Financial Services
The Financial Services subsidiaries provide product financing and
insurance coverage to Transportation's dealers and retail customers. During
1995 and 1994, Navistar Financial supplied 93% of the wholesale financing of
new trucks to Transportation's dealers, up from 90% in 1993. Navistar
Financial's share of the retail financing of new trucks sold in the United
States was 14% in 1995 compared with 15% in 1994 and 1993. The reduced
share of retail financing is a result of competition and high levels of
liquidity in the commercial financing markets.
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 finance receivables and equity capital.
Navistar Financial's current debt ratings have made bank borrowings and
sales of finance receivables the most economic sources of cash. Insurance
operations are funded from premiums and income from investments.
Operations provided $115 million in cash in 1995 primarily from net
income of $40 million and an increase in accounts payable of $68 million
reflecting the timing of payments to Manufacturing. Investment programs
used $349 million during this period principally as a result of a net
increase of $335 million in retail and wholesale finance receivables.
Financing activities provided $200 million reflecting a net increase in debt
of $212 million and the payment of $12 million in dividends to
Transportation.
<PAGE>
<PAGE 8>
Receivable sales were a significant source of funding in 1995 and 1994.
During 1995, Navistar Financial sold $740 million of retail notes, net of
unearned finance income, through Navistar Financial Retail Receivables
Corporation (NFRRC), a wholly-owned subsidiary, to two owner trusts which,
in turn, sold $714 million of notes and $26 million of certificates to
investors. The net proceeds from these sales were $693 million. During
1994, Navistar Financial sold $1,033 million of retail notes receivable.
Net proceeds from these sales were $952 million. In both years, the net
proceeds were used for general working capital purposes. At October 31,
1995, the remaining shelf registration available to NFRRC for issuance of
asset-backed securities was $1,430 million. On November 14, 1995, 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. See also Note 13 to the
Financial Statements.
Navistar Financial utilizes a revolving wholesale note sales trust
which provides for the continuous sale of eligible wholesale notes on a
daily basis. In June 1995, the Navistar Financial Dealer Note Master Trust
issued an additional $200 million of certificates increasing the revolving
wholesale note sales trusts from $300 million to $500 million. These sales
trusts are comprised of three $100 million pools of notes maturing serially
from 1997 to 1999 and the $200 million pool maturing in 2004.
Management's discussion of the future liquidity of Manufacturing and
Financial Services operations is included in Business Environment of
Management's Discussion and Analysis.
Environmental Matters
As disclosed in Notes 5 and 17 to the Financial Statements,
Transportation recorded a $20 million charge, net of $13 million of income
taxes, in the fourth quarter of 1994 as a loss of discontinued operations
for environmental liabilities at production facilities of two formerly owned
businesses: Wisconsin Steel located in Chicago, Illinois and Solar Turbine,
Inc. located in San Diego, California. The $33 million pretax charge
consisted of an $11 million payment to be made to the Economic Development
Administration and a $22 million charge for potential cleanup costs for the
Wisconsin Steel and Solar sites.
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.
Based on information available to the Company, a reasonable estimate is
calculated of the Company's share, if any, of the costs for the
investigation and cleanup of these sites and is provided for in the
Financial Statements. The Company believes that, based on these
calculations, its share of the potential additional 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, 1995,
including the environmental cleanup costs of the Wisconsin Steel and Solar
sites, are reflected in the Company's $25 million environmental liability.
The Company reviews its environmental liability on a regular basis.
Derivative Financial Instruments
As disclosed in Notes 1 and 14 to the Financial Statements, the Company
uses derivative financial instruments to transfer or reduce the risks of
foreign exchange and interest rate volatility, and potentially increase the
return on invested funds. Company policy does not allow the use of
derivatives for speculative purposes.
<PAGE>
<PAGE 9>
Manufacturing, as conditions warrant, has hedged its foreign exchange
exposure on the purchase of parts and materials from foreign countries and
its exposure from sales of manufactured products in other countries.
Contracted purchases of commodities for manufacturing may be hedged up to
one year. During 1995, Manufacturing entered into forward contracts to
hedge its forward exchange exposure to the Canadian dollar on firm
commitments. These foreign currency contracts generally mature within three
months of origination.
Navistar Financial uses interest rate caps, interest rate swaps and
forward interest rate contracts when needed to convert floating rate funds
to fixed and vice versa to match its asset portfolio. Navistar Financial
also uses forward interest rate contracts to manage its exposure to
fluctuations in funding costs from the anticipated securitization and sale
of retail notes.
Both Manufacturing and Navistar Financial purchase collateralized
mortgage obligations that have relatively stable cash flow patterns in
relation to interest rate changes.
Income Taxes
The Statement of Financial Condition at October 31, 1995 and 1994
includes a deferred tax asset of $1,087 million and $1,134 million,
respectively, net of a valuation allowance of $307 million and $297 million,
respectively, related to future tax benefits. The deferred tax assets 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 deferred tax asset includes the tax benefits associated with
cumulative tax losses of $2,020 million and temporary differences, which
represent the cumulative expense of $1,620 million recorded in the Statement
of Income that has not been deducted on the Company's tax returns. The
valuation allowances assume that it is more likely than not that
approximately $810 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 $2,900 million of future
taxable income, of which an average of approximately $90 million would need
to be generated annually for the 14-year period 1996 through 2009. The
remaining taxable income, which represents the realization of tax benefits
associated with temporary differences, does not need to be generated until
subsequent to 2009. See Note 4 to the Financial Statements.
Extensive analysis is performed to determine the amount of the deferred
tax asset. Such analysis is based on the 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. Management reviews all available evidence, both positive
and negative, to assess the long-term earnings potential of the Company
using a number of alternatives to evaluate financial results in economic
cycles at various industry volume conditions. Other factors considered are
the Company's 15 consecutive year leadership in the combined market share of
Class 5 through 8 trucks, recognition as a worldwide leading producer of
mid-range diesel engines and projected revenue enhancements and operating
cost reductions from manufacturing and product quality improvements as well
as design and material cost reduction programs. The projected availability
of taxable income to realize the tax benefit from net operating loss
carryforwards and the reversal of temporary differences before expiration of
these benefits is also considered. Management believes that with the
combination of available tax planning strategies, the Company's plan to
reduce its cost structure and the maintenance of significant market share,
earnings are achievable in order to realize the net deferred tax asset of
$1,087 million.
<PAGE>
<PAGE 10>
Reconciliation of the Company's United States income before income
taxes for financial statement purposes to taxable income for the years ended
October 31 is as follows:
Millions of dollars 1995 1994
- ----------------------------------------------------------------------------
Income of continuing operations
before income taxes ........................ $ 262 $ 158
Exclusion of income of foreign subsidiaries .. (11)
(13)
Loss of discontinued operations
before income tax benefits ................. -
(33)
State income taxes ........................... (2)
(2)
Temporary differences ........................ 67 24
Other ........................................ 1 2
-------- --------
Taxable income ............................... $ 317 $ 136
======== ========
The Company undertook significant restructuring actions in 1993. Since
these actions resulted in a substantial loss, management believes that the
information which would be presented in the above table for that year is not
meaningful.
Business Environment
Sales of Class 5 through 8 trucks are cyclical, with demand affected by
such economic factors as industrial production, construction, demand for
consumer durable goods, interest rates and the earnings and cash flow of
dealers and customers. As a result of a general slowdown in economic
activity in the United States, the Class 5 through 8 truck market has
experienced a significant decline in the rate of new truck orders. During
the latter half of 1995, this slowdown has also been responsible for an
increase in the cancellation of some existing orders which were originally
placed during 1994 and early 1995 in anticipation of continued growth in the
economy. The decline in the number of new orders, in combination with high
retail delivery rates throughout 1995, has reduced the Company's backlog of
unfilled truck orders by 27% to 47,100 units at October 31, 1995 from 64,800
units at October 31, 1994. Accordingly, retail deliveries in 1996 will be
highly dependent on the rate at which new truck orders are received. The
Company will evaluate order receipts and backlog throughout the year and
will balance production with demand as appropriate.
The Company currently projects 1996 United States and Canadian Class 8
heavy truck demand to be 175,000 units, a 24% decrease from 1995. Class 5,
6 and 7 medium truck demand is forecast at 115,000 units, a decline from
1995. Demand for school buses is expected to increase 7% in 1996 to 32,500
units. These demand levels, while consistent with other industry forecasts,
will require a significant increase in new order receipts over the levels
experienced during the second half of 1995 in order to be achieved. Diesel
engine shipments by the Company to original equipment manufacturers in 1996
are expected to be approximately 156,000 units, unchanged from 1995. The
Company's service parts sales are projected to grow 3% to $755 million.
It is the opinion of management that current cash, cash equivalents and
marketable securities 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 11>
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 & Touch 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 six 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 Chair, in a timely manner, any matter deemed
appropriate to the discharge of the Committee's responsibility.
John R. Horne
President and
Chief Executive Officer
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
<PAGE>
<PAGE 12>
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,
1995 and 1994, and the related Statement of Income, 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, 1995. 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, 1995
and 1994, and the results of their operations and their cash flow for each
of the three years in the period ended October 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes 3 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 18, 1995
Chicago, Illinois
<PAGE>
<PAGE 13>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars, except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and revenues
Sales of manufactured products ............... $ 6,125 $ 5,153 $ 4,510
Finance and insurance revenue ................ 167 152 181
Other income ................................. 50 32 30
-------- -------- --------
Total sales and revenues ................... 6,342 5,337 4,721
-------- -------- --------
Costs and expenses
Cost of products and services sold ........... 5,288 4,496 3,925
Postretirement benefits ...................... 206 176 209
Supplemental Trust contribution .............. - - 513
Engineering and research expense ............. 113 97 94
Marketing and administrative expense ......... 307 265 257
Interest expense ............................. 87 75 91
Financing charges on sold receivables ........ 29 16 14
Insurance claims and underwriting expense .... 50 54 59
-------- -------- --------
Total costs and expenses ................... 6,080 5,179 5,162
-------- -------- --------
Income (loss) before income taxes
Manufacturing .............................. - - -
Financial Services ......................... - - -
-------- -------- --------
Income (loss) before income taxes ........ 262 158 (441)
Income tax benefit (expense) ............. (98) (56) 168
-------- -------- --------
Income (loss) of continuing operations ....... 164 102 (273)
Loss of discontinued operations .............. - (20) -
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy ............. 164 82 (273)
Cumulative effect of changes
in accounting policy ....................... - - (228)
-------- -------- --------
Net income (loss) ............................ 164 82 (501)
Less dividends on Series G preferred stock ... 29 29 29
-------- -------- --------
Net income (loss) applicable to common stock . $ 135 $ 53 $ (530)
======== ======== ========
- ------------------------------------------------------------------------------------
Income (loss) per common share:
Continuing operations ...................... $ 1.83 $ .99 $ (8.63)
Discontinued operations .................... - (.27) -
Cumulative effect of changes
in accounting policy ..................... - - (6.56)
-------- -------- --------
Net income (loss) per common share ........... $ 1.83 $ .72 $ (15.19)
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding (millions) ... 74.3 74.6 34.9
- -----------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 14>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
---------------------------------- ----------------------------------
1995 1994 1993 1995 1994 1993
----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 6,125 $ 5,153 $ 4,510 $ - $ - $ -
- - - 222 202 223
43 25 16 13 12 14
-------- -------- -------- -------- -------- --------
6,168 5,178 4,526 235 214 237
-------- -------- -------- -------- -------- --------
5,280 4,494 3,919 8 2 6
205 175 208 1 1 1
- - 509 - - 4
113 97 94 - - -
277 238 230 30 27 27
9 10 12 84 70 79
84 66 56 - - -
- - - 50 54 59
-------- -------- -------- -------- -------- --------
5,968 5,080 5,028 173 154 176
-------- -------- -------- -------- -------- --------
200 98 (502) - - -
62 60 61 - - -
-------- -------- -------- -------- -------- --------
262 158 (441) 62 60 61
(98) (56) 168 (22) (22) (22)
-------- -------- -------- -------- -------- --------
164 102 (273) 40 38 39
- (20) - - - -
-------- -------- -------- -------- -------- --------
164 82 (273) 40 38 39
- - (228) - - (9)
-------- -------- -------- -------- -------- --------
$ 164 $ 82 $ (501) $ 40 $ 38 $ 30
======== ======== ======== ======== ======== ========
----------------------------------------------------------------------------
<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.
</TABLE>
<PAGE>
<PAGE 15>
<TABLE>
<CAPTI0N>
STATEMENT OF FINANCIAL CONDITION
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
As of October 31 (Millions of dollars) 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................... $ 485 $ 557
Marketable securities .............................. 555 304
-------- -------
1,040 861
Receivables, net ................................... 1,854 1,508
Inventories ........................................ 416 429
Property and equipment, net ........................ 683 578
Equity in Financial Services subsidiaries .......... - -
Investments and other assets ....................... 166 165
Prepaid and intangible pension assets .............. 320 372
Deferred tax asset ................................. 1,087 1,134
-------- --------
Total assets ....................................... $ 5,566 $ 5,047
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable ................................... $ 933 $ 836
Debt ............................................... 1,457 1,218
Postretirement benefits liability .................. 1,341 1,299
Other liabilities .................................. 965 877
-------- --------
Total liabilities .............................. 4,696 4,230
-------- --------
Shareowners' equity
Series G convertible preferred stock
(liquidation preference $240 million) ............ 240 240
Series D convertible junior preference stock
(liquidation preference $4 million) .............. 4 4
Common stock (50.9 million and 50.0 million shares
issued)........................................... 1,641 1,628
Class B Common stock (24.3 million and 25.0 million
shares issued) 491 501
Retained earnings (deficit) - balance accumulated
after the deficit reclassification as of
October 31, 1987 ................................. (1,478) (1,538)
Common stock held in treasury, at cost ............. (28) (18)
-------- --------
Total shareowners' equity ...................... 870 817
-------- --------
Total liabilities and shareowners' equity .......... $ 5,566 $ 5,047
======== ========
- -----------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 16>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
---------------------- ---------------------
1995 1994 1995 1994
----------------------------------------------------------------------------
<C> <C> <C> <C>
$ 461 $ 499 $ 24 $ 58
415 166 140 138
-------- -------- -------- --------
876 665 164 196
274 176 1,672 1,342
416 429 - -
642 549 41 29
282 249 - -
122 151 44 14
319 371 1 1
1,087 1,134 - -
-------- -------- -------- --------
$ 4,018 $ 3,724 $ 1,922 $ 1,582
======== ======== ======== ========
$ 876 $ 779 $ 146 $ 70
127 127 1,330 1,091
1,334 1,292 7 7
811 709 157 165
-------- -------- -------- --------
3,148 2,907 1,640 1,333
-------- -------- -------- --------
240 240 - -
4 4 - -
1,641 1,628 178 178
491 501 - -
(1,478) (1,538) 104 71
(28) (18) - -
-------- -------- -------- --------
870 817 282 249
-------- -------- -------- --------
$ 4,018 $ 3,724 $ 1,922 $ 1,582
======== ======== ======== ========
----------------------------------------------------------------------------
<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.
</TABLE>
<PAGE>
<PAGE 17>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operations
Net income (loss) ............................... $ 164 $ 82 $ (501)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Depreciation and amortization ................. 81 72 75
Supplemental Trust contribution ............... - - 513
Equity in earnings of Financial Services,
net of dividends received ................... - - -
Deferred income taxes ......................... 89 51 (170)
Additional pension funding .................... (72) - -
Provision for loss of discontinued operations . - 20 -
Cumulative effect of changes
in accounting policy ........................ - - 228
Other, net .................................... (4) (26) (2)
Change in operating assets and liabilities:
Receivables ................................. (91) (173) (164)
Inventories ................................. 35 (19) (51)
Prepaid and other current assets ............ 10 (4) (10)
Accounts payable ............................ 63 99 107
Other liabilities ........................... 142 52 10
-------- -------- --------
Cash provided by operations ................... 417 154 35
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (1,099) (916) (770)
Collections/sales of retail notes
and lease receivables ......................... 850 1,176 895
Acquisitions in excess of cash collections
of wholesale notes and accounts receivable .... - - -
Purchase of marketable securities ............... (722) (710) (371)
Sales or maturities of marketable securities .... 480 621 326
Proceeds from property sold under sale/leaseback. - 87 -
Capital expenditures ............................ (139) (87) (110)
Base Program Trust pre-funding .................. - - (300)
Other investment programs, net .................. (11) 31 (57)
-------- -------- --------
Cash provided by (used in) investment programs. (641) 202 (387)
-------- -------- --------
Cash flow from financing activities
Principal payments on debt ...................... (121) (222) (117)
Issuance of debt ................................ - 100 -
Net increase (decrease)in notes and debt
outstanding under bank revolving credit
facility and asset-backed and other
commercial paper programs ..................... 312 (28) 75
Net proceeds from issuance of Common stock ...... - - 492
Dividends paid .................................. (29) (58) -
Repurchase of Class B Common stock .............. (10) (12) (2)
-------- -------- --------
Cash provided by (used in) financing activities 152 (220) 448
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... (72) 136 96
At beginning of the year ...................... 557 421 325
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 485 $ 557 $ 421
======== ======== ========
- ------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 18>
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
---------------------------------- ----------------------------------
1995 1994 1993 1995 1994 1993
----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 164 $ 82 $ (501) $ 40 $ 38 $ 30
75 68 69 6 4 6
- - 509 - - 4
(28) (10) (10) - - -
89 51 (170) - 3 4
(72) - - - - -
- 20 - - - -
- - 228 - - 9
6 (12) 3 (10) (17) (9)
(88) (49) 7 1 (1) 2
35 (19) (51) - - -
10 (4) (10) - - -
72 103 106 68 (7) 19
137 50 12 10 - (2)
-------- -------- -------- -------- -------- --------
400 280 192 115 20 63
-------- -------- -------- -------- -------- --------
- - - (1,099) (916) (770)
- - - 850 1,176 895
- - - (86) (118) (187)
(646) (651) (296) (76) (59) (75)
399 569 240 81 52 86
- 87 - - - -
(139) (87) (110) - - -
- - (300) - - -
8 36 (43) (19) (5) (14)
-------- -------- -------- -------- -------- --------
(378) (46) (509) (349) 130 (65)
-------- -------- -------- -------- -------- --------
(21) (42) (18) (100) (180) (99)
- - - - 100 -
- - - 312 (28) 75
- - 492 - - -
(29) (58) - (12) (28) (33)
(10) (12) (2) - - -
-------- -------- -------- -------- -------- --------
(60) (112) 472 200 (136) (57)
-------- -------- -------- -------- -------- --------
(38) 122 155 (34) 14 (59)
499 377 222 58 44 103
-------- -------- -------- -------- -------- --------
$ 461 $ 499 $ 377 $ 24 $ 58 $ 44
======== ======== ======== ======== ======== ========
-----------------------------------------------------------------------------
<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.
</TABLE>
<PAGE>
<PAGE 19>
<TABLE>
<CAPTION>
STATEMENT OF NON-REDEEMABLE PREFERRED,
PREFERENCE AND COMMON SHAREOWNERS' EQUITY
Non-Redeemable Convertible
--------------------------
Preferred Preference Class B
SHARES OUTSTANDING Stock Stock Common Common
(Thousands) Series G Series D Stock Stock Warrants
- ----------------------------------------------- -------- ---------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1992 ................... 4,800 179 25,410 - 14,834
Public stock offering ......................... - - 23,600 - -
Issuance of Class B Common stock .............. - - - 25,642 -
Repurchase of stock and other additions/
(conversions) ............................... - (1) 9 (96) -
Stock accumulation fund settlement ............ - - 136 - -
Expiration of warrants ........................ - - - - (4,000)
------ ------ ------ ------ ------
Balance at October 31, 1993 ................... 4,800 178 49,155 25,546 10,834
Repurchase of stock and other additions/
(conversions) ............................... - (1) 164 (511) -
Expiration of warrants ........................ - - - - (10,834)
Balance at October 31, 1994 ................... 4,800 177 49,319 25,035 -
Repurchase of stock and other additons/
(conversions) ............................... - - 162 (742) -
------ ------ ------ ------ ------
Balance at October 31, 1995 ................... 4,800 177 49,481 24,293 -
====== ====== ====== ====== ======
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EQUITY
(Millions of dollars) 1995 1994 1993
- ----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Preferred Stock Series G ...................... $ 240 $ 240 $ 240
-------- -------- --------
Preference Stock Series D ..................... 4 4 4
-------- -------- --------
Common Stock
Balance at beginning of the year .............. 1,628 1,615 508
Public stock offering ......................... - - 492
Reclassification of NOL (a) ................... - - 618
Conversion of Class B Common stock and other .. 13 13 (3)
-------- -------- --------
Balance at end of the year .................... 1,641 1,628 1,615
-------- -------- --------
Class B Common Stock
Balance at beginning of the year .............. 501 513 -
Issuance of stock ............................. - - 513
Repurchase of stock ........................... (10) (12) -
-------- -------- --------
Balance at end of the year .................... 491 501 513
-------- -------- --------
Retained Earnings
Balance at beginning of the year .............. (1,538) (1,592) (404)
Reclassification of NOL (a) ................... - - (618)
Net income (loss) ............................. 164 82 (501)
Preferred dividends ........................... (22) (36) (29)
Minimum pension liability adjustment/other .... (82) 8 (40)
-------- -------- --------
Balance at end of the year .................... (1,478 (1,538) (1,592)
-------- -------- --------
Common Stock Held in Treasury
Balance at beginning of the year .............. (18) (5) (11)
Repurchase of Common stock and other .......... (10) (13) 6
-------- -------- --------
Balance at end of the year .................... (28) (18) (5)
-------- -------- --------
Total shareowners' equity ..................... $ 870 $ 817 $ 775
======== ======== ========
<FN>
See Notes to Financial Statements.
(a) Reclassification required as a result of the 1987 deficit reclassification and
adoption of SFAS 109 in 1993.
</TABLE>
<PAGE>
<PAGE 20>
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
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
buses, 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 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 the
consolidated financial results of Navistar Financial Corporation (Navistar
Financial), its domestic insurance subsidiary and 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. 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 1994 and 1993 amounts have been
reclassified to conform with the presentation used in the 1995 financial
statements.
Revenue Recognition
Manufacturing recognizes shipments of new trucks and service parts to
independent dealers and retail customers as sales. Price allowances,
expected in the normal course of business, and the cost of special incentive
programs are recorded at the time of sale. Engine sales are recognized at
the time of shipment to original equipment manufacturers. An allowance for
losses on receivables is maintained at an amount that management considers
appropriate in relation to the outstanding receivables portfolio and it is
charged when receivables are determined to be uncollectible.
Financial Services recognizes finance charges on retail notes and
finance leases as income over the term of the receivables on the accrual
basis utilizing the interest method. Interest due from interest bearing
notes and accounts is recognized on the accrual basis. Selected receivables
are sold and securitized to public and private investors with limited
recourse. Gains or losses on sales of receivables are credited or charged to
revenue in the period in which the sale occurs. Financial Services continues
to service the sold receivables and receives a fee for such services from the
investor. An allowance for losses is maintained at a level deemed
appropriate based on loss experience and other factors and it is charged when
receivables are determined to be uncollectible.
Insurance premiums are earned 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.
<PAGE>
<PAGE 21>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
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 are classified as available-for-sale securities
and are reported at fair value.
Inventories
Inventories are valued at the lower of average cost or market.
Property and Other Long-Lived Assets
Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally provided on the straight-line
basis over the estimated useful lives of the assets which average 35 years
for buildings and improvements and 8 years for machinery and equipment.
Gains and losses on property disposals are included in other income and
expense. The carrying amount of all long-lived assets is evaluated annually
to determine if adjustment to the depreciation and amortization period or to
the unamortized balance is warranted.
Engineering and Research Expense
Engineering and research expense includes routine ongoing costs
associated with improving existing products and manufacturing processes.
Included are expenditures for research, manufacturing and product engineering
and development activities for the introduction of new truck and diesel
engine products and major improvements to existing products and processes.
These costs are expensed as incurred and are classified as research and
development expenses. Research and development expenditures totalled $91
million, $88 million and $86 million in 1995, 1994 and 1993, respectively.
Product Related Costs
The Company accrues warranty expense at the time of end product sale.
Product liability expense is accrued based on the estimate of total future
payments to settle all product liability claims.
<PAGE>
<PAGE 22>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Derivative Financial Instruments
The Company uses derivatives to transfer or reduce risks of foreign
exchange and interest rate volatility and to potentially increase the return
on invested funds. Navistar Financial uses a variety of contracts to manage
its exposure to fluctuations in funding costs from the anticipated
securitization and sale of retail notes. All derivatives are held for
purposes other than trading and Company policy does not allow the use of
derivatives for speculative purposes. Gains and losses on hedges of existing
assets or liabilities, firm commitments or anticipated transactions are
included in the carrying amounts of the related asset or liability and
recognized in income when the hedged event occurs. Gains or losses related
to qualifying hedges of anticipated sales of receivables are deferred and are
recognized in income when the receivables are sold.
Changes in Accounting Policy
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), which the Company must adopt by fiscal 1997.
This Statement allows for, and the Company intends to, retain the current
method of accounting for employee stock-based compensation arrangements with
certain additional disclosures. The new standard is not expected to have a
material effect on the Company's net income or financial position.
2. SUPPLEMENTAL CASH FLOW INFORMATION
On the Statement of Cash Flow, "Acquisitions in excess of cash
collections" relating to Financial Services' wholesale notes and accounts
receivable are included on a consolidated basis as a change in operating
assets and liabilities under cash flow from operations and in Financial
Services as cash flow from investment programs.
Consolidated interest payments were $82 million, $76 million and $91
million in 1995, 1994 and 1993, respectively. Consolidated tax payments
during 1995, 1994 and 1993 were $9 million, $5 million and $2 million,
respectively.
<PAGE>
<PAGE 23>
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. 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. In addition, as part of the 1993 restructured
retiree health care and life insurance plans, profit sharing payments to an
independent retiree Trust are required. The cost of postretirement benefits
is segregated as a separate component in the Statement of Income and is as
follows:
Millions of dollars 1995 1994 1993
- ----------------------------------------------------------------------------
Pension expense .............................. $ 110 $ 108 $ 107
Health/life insurance ........................ 70 64 102
Profit sharing provision to Trust ............ 26 4 -
------ ------ ------
Total postretirement benefits expense ........ $ 206 $ 176 $ 209
====== ====== ======
In the Statement of Financial Condition, the postretirement benefits
liability of $1,341 million in 1995 and $1,299 million in 1994 includes $587
million and $549 million, respectively, for pension and $754 million and $750
million, respectively, for postretirement health care and life insurance
benefits.
Pension 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 year, all legal funding
requirements have been met. During 1995, the Company contributed $72 million
in excess of its normal funding requirement. Plan assets are invested
primarily in dedicated portfolios of long-term fixed income securities with
more recent contributions invested in equity securities.
Pension Expense
Net pension expense included in the Statement of Income is composed of
the following:
Millions of dollars 1995 1994 1993
- ----------------------------------------------------------------------------
Service cost for benefits earned
during the period .......................... $ 24 $ 34 $ 27
Interest on projected benefit obligation ..... 232 211 220
Other pension costs .......................... 57 50 43
Less expected return on assets ............... (203) (187) (183)
------ ------ ------
Net pension expense .......................... $ 110 $ 108 $ 107
====== ====== ======
Actual return on assets ...................... $ 398 $ (127) $ 427
====== ====== ======
"Other pension costs" in the above table include principally the
amortization of the net transition obligation and amortization of the cost of
plan amendments.
<PAGE>
<PAGE 24>
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. 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 $219 million, net of
deferred income taxes of $124 million as of October 31, 1995 and $132
million, net of deferred income taxes of $81 million as of October 31, 1994.
The change in the minimum pension liability at October 31, 1995 resulted
primarily from settlement rate changes, offset partially by investment gains.
The funded status of the Company's plans as of October 31, 1995 and 1994
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
------------------- -------------------
Millions of dollars 1995 1994 1995 1994
- ----------------------------------------------------------------------------
Actuarial present value of:
Vested benefits .............. $ (51) $ (81) $ (2,612) $ (2,282)
Non-vested benefits .......... (5) (5) (270) (223)
-------- -------- -------- --------
Accumulated benefit
obligation ............... (56) (86) (2,882) (2,505)
Effect of projected future
compensation levels ........ (4) (2) (27) (21)
-------- -------- -------- --------
Projected benefit obligation ... (60) (88) (2,909) (2,526)
Plan assets at fair value ...... 87 118 2,295 1,968
-------- -------- -------- --------
Funded status at October 31 .... 27 30 (614) (558)
Unamortized pension costs:
Net losses ................... 9 7 372 235
Prior service costs .......... 1 14 50 43
(Asset) liability
at date of transition ...... (1) (1) 233 266
Adjustment for the minimum
liability .................... - - (628) (522)
-------- -------- -------- --------
Net asset (liability) .......... $ 36 $ 50 $ (587) $ (536)
======== ======== ======== ========
The weighted average rate assumptions used in determining pension costs
and the projected benefit obligation were:
1995 1994 1993
- ----------------------------------------------------------------------------
Discount rate used to determine present
value of projected benefit obligation
at end of year ......................... 7.8% 9.3% 7.3%
Expected long-term rate of return on
plan assets for the year ............... 9.9% 8.1% 8.8%
Expected rate of increase in future
compensation levels .................... 3.5% 3.5% 3.5%
<PAGE>
<PAGE 25>
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits
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. Under the terms of an
agreement between the Company and its employees, retirees and collective
bargaining organizations, a Plan was implemented in fiscal 1993 which
provided for cost sharing between the Company and participants in the form of
premiums, co-payments and deductibles. A Trust was established to provide a
vehicle for funding the health care liability through Company contributions
and retiree premiums. In October 1993, the Company pre-funded $300 million
of this liability from the partial proceeds of a public offering of Common
Stock. The funds in this Trust are invested primarily in equity securities.
The Company is required to make an additional pre-funding contribution of
$200 million on or prior to June 30, 1998. See also Note 19.
The Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," for its United States and Canadian plans in
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 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 4.
The components of expense for other postretirement benefits included in
the Statement of Income are as follows:
Millions of dollars 1995 1994 1993
- ----------------------------------------------------------------------------
Service cost for benefits earned during
the year .................................... $ 10 $ 10 $ 12
Interest cost on the accumulated benefit
obligation ................................. 90 81 91
Expected return on assets ..................... (30) (27) (1)
------ ------ ------
Net other postretirement benefits expense ..... $ 70 $ 64 $ 102
====== ====== ======
Actual return on assets ....................... $ 65 $ 12 $ -
====== ====== ======
The funded status of other postretirement benefits as of October 31 is
as follows:
Millions of dollars 1995 1994
- ----------------------------------------------------------------------------
Accumulated other postretirement benefit
obligation (APBO):
Retirees and their dependents ............. $ (729) $ (662)
Active employees eligible to retire ....... (201) (198)
Other active participants ................. (227) (178)
------ ------
Total APBO ................................ (1,157) (1,038)
Plan assets at fair value ................. 364 308
------ ------
APBO in excess of plan assets ............. (793) (730)
Unrecognized net (gain) loss .............. 39 (20)
------ ------
Net liability ............................. $ (754) $ (750)
====== ======
<PAGE>
<PAGE 26>
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The expected return on plan assets was 10% for 1995 and 9% for 1994 and
1993. The weighted average of discount rates used to determine the
accumulated postretirement benefit obligation was 7.8% and 9.0% at October
31, 1995 and 1994, respectively. For 1996, the weighted average rate of
increase in the per capita cost of covered health care benefits is projected
to be 9.8%. The rate is projected to decrease to 5.0% 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
$150 million and the associated expense recognized for the year ended
October 31, 1995 would increase by an estimated $13 million.
4. INCOME TAXES
The Company adopted SFAS 109, "Accounting for Income Taxes," in 1993.
The $228 million cumulative charge for the changes in accounting policy
reported in the 1993 Statement of Income includes a $501 million benefit from
the adoption of SFAS 109. 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 1995 1994 1993
- ----------------------------------------------------------------------------
Tax benefit (expense) on income (loss)
of continuing operations:
Manufacturing .............................. $ (76) $ (34) $ 190
Financial Services ......................... (22) (22) (22)
------ ------ ------
Total income tax benefit (expense) of
continuing operations ...................... $ (98) $ (56) $ 168
====== ====== ======
Taxes on income (loss) of continuing operations are analyzed by categories as
follows:
Millions of dollars 1995 1994 1993
- ----------------------------------------------------------------------------
Current:
Federal .................................... $ (7) $ (3) $ -
State and local ............................ (2) (2) (2)
------ ------ ------
Total current (expense) .................. (9) (5) (2)
------ ------ ------
Deferred:
Federal .................................... (77) (44) 149
State and local ............................ (12) (7) 21
------ ------ ------
Total deferred benefit (expense) ......... (89) (51) 170
------ ------ ------
Total income tax benefit (expense)
of continuing operations ................... $ (98) $ (56) $ 168
====== ====== ======
<PAGE>
<PAGE 27>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES (continued)
The deferred tax expense does not represent cash payment of income taxes
and was primarily generated by the utilization of net operating loss (NOL)
carryforwards and the increase of temporary differences and will not require
future cash payments.
The domestic and foreign components of income (loss) from continuing
operations before income taxes and the cumulative effect of changes in
accounting policy consist of the following:
Millions of dollars 1995 1994 1993
- ----------------------------------------------------------------------------
Domestic ..................................... $ 251 $ 145 $ (453)
Foreign ...................................... 11 13 12
------ ------ ------
Total income (loss) .......................... $ 262 $ 158 $ (441)
====== ====== ======
The relationship of the tax (expense) benefit to the income (loss) of
continuing operations for 1995, 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 1995, 1994 and 1993 were 37.4%, 35.4% and 38.1%,
respectively.
Undistributed earnings of foreign subsidiaries were $28 million and $16
million at October 31, 1995 and 1994, 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.
The following is a summary of deferred tax assets and liabilities at
October 31:
Millions of dollars 1995 1994
- ----------------------------------------------------------------------------
Deferred tax assets:
Total deferred tax assets .................. $1,394 $1,431
Less valuation allowances .................. (307) (297)
------ ------
Net deferred tax assets .................. $1,087 $1,134
====== ======
Deferred tax liabilities,
included in Other Liabilities .............. $ (16) $ (16)
====== ======
<PAGE>
<PAGE 28>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES (continued)
The components of the deferred tax asset (liability) at October 31 are
as follows:
Millions of dollars 1995 1994
- ----------------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards .......... $ 768 $ 872
Alternative minimum tax ................... 10 3
Product liability .......................... 60 63
Warranty ................................... 42 38
Other liabilities .......................... 170 138
Postretirement benefits .................... 390 347
-------- -------
Total deferred tax assets .............. 1,440 1,461
-------- -------
Deferred tax liabilities:
Prepaid pension assets ..................... (23) (10)
Depreciation ............................... (42) (39)
-------- -------
Total deferred tax liabilities ......... (65) (49)
-------- -------
Total .................................. 1,375 1,412
Less valuation allowance ..................... (288) (278)
-------- -------
Net deferred tax asset ................. $ 1,087 $ 1,134
======== =======
Millions of dollars 1995 1994
- ---------------------------------------------------------------------------
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards .......... $ - $ 3
Postretirement benefits ................... 19 16
-------- --------
Total deferred tax assets ............... 19 19
Less valuation allowance ...................... (19) (19)
-------- --------
Net deferred tax assets ................... - -
Deferred tax liabilities - prepaid
pension assets .............................. (16) (16)
-------- --------
Net deferred tax liabilities .............. $ (16) $ (16)
======== ========
<PAGE>
<PAGE 29>
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES (continued)
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 increased $10 million during 1995 resulting
from tax benefits associated with a stock acquisition which are not expected
to be realized.
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 net U.S.
deferred tax asset is shown in the Statement of Financial Condition as a
deferred tax asset, whereas the net foreign deferred tax liability is
included in the amount shown for Other Liabilities.
At October 31, 1995, the Company had $2,020 million of domestic NOL
carryforwards available to offset future taxable income. Such carryforwards
reflect income tax losses incurred which will expire as follows, in millions
of dollars:
1998 ...................... $ 236
1999 ...................... 29
2000 ...................... 300
2001 ...................... 143
2002 ...................... 47
2004 ...................... 238
2005 ...................... 7
2006 ...................... 128
2007 ...................... 56
2008 ...................... 817
2009 ...................... 19
--------
Total ................ $ 2,020
========
Additionally, the estimated reversal of net temporary differences of
$1,620 million as of October 31, 1995 will create net tax deductions which,
if not utilized previously, will expire subsequent to 2009, as indicated, in
millions of dollars:
Estimated Year Estimated Year
of Reversal Amount of Expiration
-------------- ------ --------------
United States:
1996 ................................... $ 393 2011
1997 ................................... 214 2012
1998 ................................... 17 2013
1999-2003 .............................. 24 2014-2018
2004 and thereafter .................... 924 2019 and thereafter
--------
Total United States .................. 1,572
Canada:
2001 and thereafter .................... 48 2009 and thereafter
--------
$ 1,620
========
<PAGE>
<PAGE 30>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. 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. The $33
million pretax charge, which included an $11 million settlement for various
environmental related commercial issues and a $22 million charge for cleanup
costs for these sites, was included in Other Liabilities. See also Note 17.
6. MARKETABLE SECURITIES
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.
Information related to the Company's marketable securities at October 31
is as follows:
1995 1994
------------------ ------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ---------------------------------------------------------------------------
MANUFACTURING
Corporate securities ............... $ 23 $ 23 $ 31 $ 31
U.S. government securities ......... 358 359 125 124
Mortgage and asset-backed securities 33 33 11 11
------ ------ ------ ------
Manufacturing debt securities ...... 414 415 167 166
FINANCIAL SERVICES
Corporate securities ............... 33 33 28 28
U.S. government securities ......... 53 54 67 65
Mortgage and asset-backed securities 32 33 28 28
Foreign government securities ...... 9 9 9 8
------ ------ ------ ------
Financial Services
debt securities .................. 127 129 132 129
Financial Services equity securities 10 11 9 9
------ ------ ------ ------
Financial Services
marketable securities ............ 137 140 141 138
------ ------ ------ ------
Total marketable securities .......... $ 551 $ 555 $ 308 $ 304
====== ====== ====== ======
Gross unrealized gains and losses on marketable securities at
October 31, 1995 and 1994 are not material.
<PAGE>
<PAGE 31>
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. MARKETABLE SECURITIES (Continued)
Contractual maturities of marketable debt securities at October 31 are
as follows:
1995 1994
------------------ ------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ---------------------------------------------------------------------------
MANUFACTURING
Due in one year or less ........... $ 98 $ 98 $ 32 $ 32
Due after one year
through five years .............. 283 284 124 123
------ ------ ------ ------
381 382 156 155
Mortgage and asset-backed securities 33 33 11 11
------ ------ ------ ------
Manufacturing debt securities 414 415 167 166
------ ------ ------ ------
FINANCIAL SERVICES
Due in one year or less ........... 22 22 17 17
Due after one year through five years 35 36 61 60
Due after five years through ten years 27 27 17 16
Due after ten years ............... 11 11 9 8
------ ------ ------ ------
95 96 104 101
Mortgage and asset-backed securities 32 33 28 28
------ ------ ------ ------
Financial Services
debt securities ........... 127 129 132 129
------ ------ ------ ------
Total debt securities ............. $ 541 $ 544 $ 299 $ 295
====== ====== ====== ======
Proceeds from sales or maturities of investments in securities were $480
million during 1995 and $621 million during 1994. Gross gains and losses
realized on such sales or maturities were not material for each of the two
years. Shareowners' equity includes an unrealized holding gain of $3
million, net of income taxes, at October 31, 1995 and a loss of $3 million,
net of income taxes, at October 31, 1994. At October 31, 1995 and 1994,
Financial Services' domestic insurance subsidiary had $23 million and $30
million, respectively, of marketable securities on deposit with various state
departments of insurance or otherwise not available. These securities are
included in total marketable securities balances at October 31, 1995 and
1994.
<PAGE>
<PAGE 32>
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. RECEIVABLES
Receivables at October 31 are summarized by major classification as
follows:
Millions of dollars 1995 1994
- -------------------------------------------------------------------------
MANUFACTURING
Customers .......................................... $ 200 $ 180
Financial Services ................................. 92 13
Allowance for losses ............................... (18) (17)
-------- --------
Manufacturing receivables, net ................... 274 176
-------- --------
FINANCIAL SERVICES
Retail notes and lease financing ................... 747 514
Wholesale notes .................................... 268 231
Accounts receivable ................................ 388 370
Amounts due from sales of receivables .............. 248 193
Reinsurance balance receivables .................... 31 42
Allowance for losses ............................... (10) (8)
-------- --------
Financial Services receivables, net .............. 1,672 1,342
-------- --------
Eliminations ..................................... (92) (10)
-------- --------
Total receivables, net ............................... $ 1,854 $ 1,508
======== ========
The allowance for losses of Manufacturing includes amounts associated
with receivables financed by Navistar Financial and receivables on products
sold to distributors in export markets.
Reflecting higher consumer demand for light trucks and vans, sales of
mid-range diesel engines to a domestic automobile manufacturer have increased
from 9% of consolidated sales and revenues in 1993 to 10% in 1994 and 12% in
1995.
Financial Services
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.
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 $727
million in 1995, $995 million in 1994 and $558 million in 1993. Uncollected
sold retail and wholesale receivable balances totalled $1,673 million and
$1,347 million as of October 31, 1995 and 1994, respectively. Navistar
Financial's maximum exposure under all receivable sale recourse provisions at
October 31, 1995 is $210 million which includes holdback reserves of $44
million, subordinated retained interest in securitized receivable sales of
$99 million and $67 million of certain cash deposits established as a
result of the securitized receivables recourse provisions.
<PAGE>
<PAGE 33>
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. RECEIVABLES (continued)
Contractual maturities of finance receivables including unearned finance
income at October 31, 1995 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:
1996 ........................ $ 239 $ 181 $ 388
1997 ........................ 203 87 -
1998 ........................ 184 - -
1999 ........................ 140 - -
2000 ........................ 92 - -
2001 and thereafter ......... 8 - -
-------- -------- --------
Gross finance receivables ..... 866 268 388
Unearned finance charges ...... 119 - -
-------- -------- --------
Total finance receivables ..... $ 747 $ 268 $ 388
======== ======== ========
<PAGE>
<PAGE 34>
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. PROPERTY
At October 31, property includes the following:
Millions of dollars 1995 1994
- -------------------------------------------------------------------------
MANUFACTURING
Land ............................................... $ 11 $ 8
-------- --------
Buildings, machinery and equipment at cost:
Plants ........................................... 1,223 1,070
Distribution ..................................... 75 71
Other ............................................ 90 78
-------- --------
Subtotal ....................................... 1,388 1,219
-------- --------
Total property ..................................... 1,399 1,227
Less accumulated depreciation and amortization ..... (757) (678)
-------- --------
Manufacturing property, net .................... 642 549
-------- --------
FINANCIAL SERVICES
Total property ..................................... 48 35
Less accumulated depreciation and amortization ..... (7) (6)
-------- --------
Financial Services property, net ................. 41 29
-------- --------
Total property and equipment, net .................... $ 683 $ 578
======== ========
Included in the gross property of Manufacturing is property under
capitalized lease obligations of $24 million at October 31, 1995 and $27
million at October 31, 1994.
9. INVENTORIES
Inventories at October 31 are as follows:
Millions of dollars 1995 1994
- -------------------------------------------------------------------------
Finished products .................................... $ 167 $ 169
Work in process ...................................... 91 103
Raw materials and supplies ........................... 158 157
-------- --------
Total inventories .................................... $ 416 $ 429
======== ========
<PAGE>
<PAGE 35>
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. 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 $42 million in 1995, $38 million in 1994 and $35 million in
1993. Income received from sublease rentals was $6 million in 1995, 1994
and 1993.
At October 31, 1995, 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
- -------------------------------------------------------------------------
1996 ................................................. $ 3 $ 35
1997 ................................................. 3 32
1998 ................................................. 3 31
1999 ................................................. 3 30
2000 ................................................. 3 30
Thereafter ........................................... 5 78
-------- --------
Total minimum payments ............................... 20 $ 236
Less imputed interest ................................ (7) ========
--------
Present value of minimum lease payments ............ $ 13
========
Future income from subleases ...................... $ 26
========
<PAGE>
<PAGE 36>
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. ACCOUNTS PAYABLE
Major classifications of accounts payable at October 31 are as follows:
Millions of dollars 1995 1994
- -------------------------------------------------------------------------
MANUFACTURING
Trade .............................................. $ 857 $ 776
Other .............................................. 19 3
-------- --------
Manufacturing accounts payable ................... 876 779
-------- --------
FINANCIAL SERVICES
Other .............................................. 57 57
Manufacturing ...................................... 89 13
-------- --------
Financial Services accounts payable .............. 146 70
-------- --------
Eliminations ......................................... (89) (13)
-------- --------
Total accounts payable ............................... $ 933 $ 836
======== ========
12. OTHER LIABILITIES
Major classifications of other liabilities at October 31 are as follows:
Millions of dollars 1995 1994
- -------------------------------------------------------------------------
MANUFACTURING
Product liability and warranty .................... $ 294 $ 288
Employee incentive programs ....................... 104 35
Payroll, commissions and employee related benefits. 91 94
Long-term disability .............................. 55 46
Taxes ............................................. 45 44
Environmental ..................................... 25 31
Other ............................................. 197 171
-------- --------
Manufacturing other liabilities ................. 811 709
-------- --------
FINANCIAL SERVICES
Loss reserves and unearned premiums ............... 118 136
Interest .......................................... 12 11
Other ............................................. 27 18
-------- --------
Financial Services other liabilities ............ 157 165
-------- --------
Eliminations ........................................ (3) 3
-------- --------
Total other liabilities ............................. $ 965 $ 877
======== ========
<PAGE>
<PAGE 37>
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. DEBT
Millions of dollars 1995 1994
- -------------------------------------------------------------------------
MANUFACTURING
Notes payable and current maturities
of long-term debt ............................... $ 10 $ 3
-------- --------
6 1/4% Sinking Fund Debentures, due 1998 .......... 6 7
9% Sinking Fund Debentures, due 2004 .............. 60 65
8% Secured Note, due 2002 secured by plant assets . 31 37
Capitalized leases/other .......................... 20 15
-------- --------
Total long-term debt ............................ 117 124
-------- --------
Manufacturing debt .................................. 127 127
-------- --------
FINANCIAL SERVICES
Commercial paper ................................. 50 19
Bank borrowings .................................. - 400
Current maturities of long-term debt ............. 118 100
-------- --------
Total short-term debt ........................ 168 519
-------- --------
Senior Debentures and Notes
9.5% medium-term, due 1996 ..................... - 117
Asset-backed commercial paper program,
variable rate, due October 1998 ................ 302 -
Bank revolver, variable rate, due October 1998 ... 760 355
-------- --------
Total senior debt .............................. 1,062 472
-------- --------
Subordinated Term Debt - Senior notes, 8 7/8%,
due November 1998 .............................. 100 100
-------- --------
Total long-term debt ........................... 1,162 572
-------- --------
Financial Services debt .......................... 1,330 1,091
-------- --------
Total debt ......................................... $ 1,457 $ 1,218
======== ========
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.
<PAGE>
<PAGE 38>
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. DEBT (continued)
The aggregate annual maturities and sinking fund requirements for debt
for the years ended October 31 are as follows:
Financial
Millions of dollars Manufacturing Services Total
- ------------------------------------------------------------------------
1996 .......................... $ 10 $ 168 $ 178
1997 .......................... 19 - 19
1998 .......................... 20 1,062 1,082
1999 .......................... 17 100 117
2000 .......................... 16 - 16
Thereafter .................... 45 - 45
-------- -------- --------
Weighted average interest rate on debt including the effect of
discounts and related amortization:
1995 ...................... 9.0% 7.4% 7.6%
1994 ...................... 8.7% 7.1% 7.3%
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 (ABCP)
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.
Under the terms of the ABCP 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 ABCP liquidity facility.
Available funding under the amended and restated credit agreement and
ABCP program was $148 million, of which $50 million was used to back short-
term debt at October 31, 1995. The remaining $98 million when combined with
unrestricted cash and cash equivalents made $101 million available to fund
the general business purposes of Navistar Financial at October 31, 1995.
<PAGE>
<PAGE 39>
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. DEBT (continued)
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 transferring an undivided ownership interest
in such notes to investors in exchange for pass-through notes and
certificates. 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.
NFSC utilizes a revolving wholesale note sales trust providing for the
continuous sale of wholesale notes on a daily basis. In June 1995, the
Navistar Financial Dealer Note Master Trust issued an additional $200 million
of 9.3 year asset-backed certificates to the public increasing the sales
trust from $300 million to $500 million. The net proceeds of $195 million
were used by Navistar Financial for general working capital purposes. Under
the terms of the sale, the amount subordinated to the investors' interest
increased from $47 million to $87 million. These sales trusts comprise three
$100 million pools of notes maturing serially from 1997 to 1999 and a $200
million pool maturing in 2004.
During 1995, Navistar Financial sold $740 million of retail notes, net
of unearned finance income, through NFRRC in two separate sales to two
individual owner trusts which, in turn, sold $714 million of notes and $26
million of certificates to investors. The net proceeds of $738 million were
used by Navistar Financial for general working capital purposes and to
establish a $45 million reserve account with the trust. At October 31, 1995,
the remaining shelf registration available to NFRRC for issuance of asset-
backed securities was $1,430 million.
In November 1995, Navistar Financial sold $525 million of retail notes
through NFRRC. The net proceeds of $524 million were used for general
working capital purposes and to establish a $25 million reserve account with
the trust. On November 14, 1995, NFRRC filed an additional registration with
the Securities and Exchange Commission providing for the issuance from time
to time of an additional $2,000 million of asset-backed securities.
<PAGE>
<PAGE 40>
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts of financial instruments, as reported in the
Statement of Financial Condition and described in various Notes to the
Financial Statements, and their fair values at October 31, are as follows:
1995 1994
------------------ ------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- ---------------------------------------------------------------------------
Receivables, net .................. $1,854 $1,867 $1,508 $1,504
Investments and other assets ...... 166 166 165 187
Debt .............................. 1,457 1,460 1,218 1,215
Cash and cash equivalents approximate fair value. The cost and fair
value of marketable securities are disclosed in Note 6.
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 by
discounting expected cash flows at estimated current market rates.
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.
<PAGE>
<PAGE 41>
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. FINANCIAL INSTRUMENTS (continued)
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.
During the fourth quarter of 1995, Manufacturing entered into three
forward contracts to hedge its foreign exchange exposure to the Canadian
dollar on firm commitments. These foreign currency contracts were valued at
$33 million as of October 31, 1995 and mature within three months of
origination. Gains or losses on these contracts are recognized at the
completion of the related contract. In addition, collateralized mortgage
obligations (CMOs) are purchased that have pre-determined fixed-principal
payment patterns that are relatively certain. Manufacturing had $33 million
of CMOs in its investment portfolio at October 31, 1995. At October 31,
1995, the unrecognized loss on the three forward contracts and the CMOs was
not material.
Navistar Financial manages its exposure to fluctuations in interest
rates by limiting the amount of fixed rate assets funded with variable rate
debt, by selling fixed rate retail receivables on a fixed rate basis and, to
a lesser extent, by utilizing financial derivative instruments. These
instruments may include interest rate swaps, interest rate caps and forward
interest rate contracts. Navistar Financial enters into forward interest
rate contracts to manage its exposure to fluctuations in funding costs from
the anticipated securitization and sale of retail notes.
During 1995, 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 hedge the interest cost of variable rate debt. The premium
paid for this interest rate cap agreement has been fully amortized to
interest expense. The effect of this cap on Navistar Financial's interest
expense was not material.
Between June and October 1995, Navistar Financial entered into $325
million of forward interest rate lock agreements on a Treasury note maturing
in 1997 related to the anticipated November 1995 sale of retail receivables.
These hedge agreements were closed on October 18, 1995, and the loss, which
was not material, was deferred and included in the gain recognized on the
sale of receivables in November 1995.
Financial Services' insurance companies use CMOs and foreign exchange
future contracts to increase the yield on their investment portfolio. These
instruments totalled $37 million at October 31, 1995. At October 31, 1995,
the unrecognized gain on the CMOs and the foreign exchange future contracts
was not material.
<PAGE>
<PAGE 42>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
At October 31, 1995, commitments for capital expenditures in progress
were approximately $56 million.
At October 31, 1995, 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 $150 million on retail
contracts and $11 million on retail leases. In addition, as of October 31,
1995, the Company is contingently liable for approximately $47 million for
various guarantees, buyback programs and performance bonds; however, based on
historical loss trends, the Company's exposure 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, 1995, these subsidiaries had
$410 million of net assets of which $212 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, 1995.
16. LEGAL PROCEEDINGS
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. (Klein Truck) and against Transportation in the amount of $11
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. Klein Truck
appealed to the Oklahoma Supreme Court where the case is now pending. The
bond and the related collateral will be released when the order of the
Oklahoma Supreme Court is filed.
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 is material to the
business or the financial condition of the Company.
<PAGE>
<PAGE 43>
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. ENVIRONMENTAL MATTERS
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. The $33 million pretax charge consists of an $11 million
payment to be made to the Economic Development Administration (EDA) and a $22
million charge for cleanup costs at production facilities of two formerly
owned businesses: Wisconsin Steel and Solar Turbine, Inc.
Transportation and the 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 U.S.
Department of Justice must approve the final settlement before the interest
in the trust, or the property, is transferred to Transportation. At October
31, 1995, a final consent decree remained subject to approval by the U.S.
Department of Justice and by Transportation.
An agreement with Solar was signed during the third quarter of 1995.
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 known as the Superfund law. These cases involve
sites which allegedly have received wastes from current or former Company
locations. 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 PRPs
and/or Federal or State regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the Company's share, if any, of the
costs and is provided for in the financial statements. The Company believes
that, based on these calculations, its share of the potential additional
costs for the cleanup of each site, other than the Wisconsin Steel and Solar
sites, will not have a material effect on the Company's financial results.
The Company reviews its accruals on a regular basis.
<PAGE>
<PAGE 44>
NOTES TO FINANCIAL STATEMENTS
(Continued)
18. PREFERRED AND PREFERENCE STOCKS
The Company's Nonconvertible Junior Preference Stock Series A is held
for the Retiree Supplemental Benefit Program by the 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 Nonconvertible Junior Preference Stock
Series B and is currently entitled to elect one member of the Company's Board
of Directors. At October 31, 1995, 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 Convertible Series D Convertible
Cumulative Preferred Junior Preference
- ----------------------------------------------------------------------------
Number authorized ............ 4,800,000 3,000,000
Number issued ................ 4,800,000 3,000,000
Optional redemption price and $50 per share $25 per share
liquidation preference ..... plus accrued plus accrued
dividends 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 $6.00 120% of the cash
per share, dividends on
payable quarterly Common Stock as
declared on a
common equivalent
basis
Dividends may be paid out of surplus as defined under Delaware corporation
law. At October 31, 1995, the Company had such defined surplus of $857
million.
- ----------------------------------------------------------------------------
<PAGE>
<PAGE 45>
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. COMMON STOCK
Common Stock
The Company has authorized 110 million shares of Common Stock with a par
value of $.10 per share. Common shares outstanding exclude Common Stock held
in treasury in the amount of 1,424,038 and 667,241 shares at October 31, 1995
and 1994, respectively. Included in the shares of Common Stock outstanding
are 319,332 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 $4
million and $3 million at October 31, 1995 and 1994, respectively.
In October 1993, the Company completed a public offering of 23,600,000
Common shares which realized gross and net proceeds of $516 million and $492
million, respectively.
Class B Common Stock
The Company has authorized 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
Common Stock has a par value of $.10 per share and also has restricted voting
rights and transfer provisions. The per share value 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% reflecting restrictions on
voting and transfer rights and for a control premium.
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 on June 30,
1998. During 1995 and 1994, the Company repurchased 742,255 and 511,173,
respectively, of Class B Common shares which were converted to Common Stock
and are held in treasury.
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.
<PAGE>
<PAGE 46>
NOTES TO FINANCIAL STATEMENTS
(Continued)
20. STOCK COMPENSATION PLANS
The Navistar 1994 Performance Incentive Plan (Incentive Plan), which
replaced the Navistar 1988 Performance 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 as of the end of the preceding year are reserved for issue 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 of the grant. Generally, these options
are not exercisable during the first year. Payment for the exercise of any of
the options may be made by cash or by delivering, at fair market value,
shares of Common Stock already owned by the option-owner or by a combination
of cash and shares.
The following table summarizes changes in Common Stock under option
plans for the years ended October 31:
Number of shares 1995 1994 1993
- ----------------------------------------------------------------------------
Outstanding at beginning of the year ..... 1,146,154 639,234 675,269
Granted .................................. 635,900 614,560 2,500
Exercised ................................ - (8,850) (13,340)
Terminated ............................... (43,750) (98,790) (25,195)
--------- --------- --------
Outstanding at end of the year ........... 1,738,304 1,146,154 639,234
========= ========= ========
Exercisable at October 31 ................ 1,122,804 554,374 636,984
========= ========= =======
Available for grant ...................... - 146,406 346,839
========= ========= =======
Average price per share
- ----------------------------------------------------------------------------
Outstanding at October 31 ................ $ 51 $ 52 $ 56
Granted .................................. $ 12 $ 19 $ 25
Exercised ................................ $ - $ 22 $ 22
<PAGE>
<PAGE 47>
NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
21. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------- ------------- ------------- -------------
(Millions of dollars,
except per share data) 1995 1994 1995 1994 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues .... $1,416 $1,139 $1,640 $1,395 $1,514 $1,254 $1,772 $1,549
====== ====== ====== ====== ====== ====== ====== ======
Manufacturing
gross margin ........ 12.4% 13.1% 14.0% 11.9% 14.0% 12.7% 14.4% 13.5%
====== ====== ====== ====== ====== ====== ====== ======
Net income ............ $ 23 $ 16 $ 46 $ 23 $ 39 $ 20 $ 56 $ 23
Net income
per common share..... $ .21 $ .12 $ .52 $ .21 $ .43 $ .17 $ .66 $ .22
Market price range
- Common stock
High ............ $17 1/2 $27 5/8 $16 3/8 $26 $16 5/8 $19 1/4 $15 1/8 $16 5/8
Low ............. $12 3/4 $22 3/8 $12 1/4 $19 3/8 $13 7/8 $12 3/8 $ 9 1/4 $12 1/2
</TABLE>
Transactions between Manufacturing and Financial Services
operations have been eliminated from the consolidated financial
results. See also Note 1. Net income per common share is
computed independently based on the weighted average number of
Common and Class B Common shares at the end of each quarter.
Therefore, the sum of the quarterly earnings per share does not
equal the total for the year.
<PAGE>
<PAGE 48>
<TABLE>
<CAPTION>
TEN YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
-------------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1995 1994 1993 1992
-------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C>
Total sales and revenues ......................... $ 6,342 $ 5,337 $ 4,721 $ 3,897
Net income (loss) of continuing operations ....... $ 164 $ 102 $ (273) $ (147)
Net income (loss) ................................ $ 164 $ 82 $ (501) $ (212)
Income (loss) per common share
of continuing operations ....................... $ 1.83 $ .99 $ (8.63) $ (6.97)
Net income (loss) per common share ............... $ 1.83 $ .72 $(15.19) $ (9.55)
Average number of Common, Class B Common
and dilutive common equivalent shares
outstanding (millions) ......................... 74.3 74.6 34.9 25.3
------------------------------------------------------------------------------------------------
FINANCIAL DATA
Total assets ..................................... $ 5,566 $ 5,047 $ 5,060 $ 3,627
Debt
Manufacturing ................................. $ 127 $ 127 $ 175 $ 187
Financial Services ............................ 1,330 1,091 1,199 1,218
------- ------- ------- -------
Total debt ....................................... $ 1,457 $ 1,218 $ 1,374 $ 1,405
Shareowners' equity .............................. $ 870 $ 817 $ 775 $ 338
Total Manufacturing debt as a percent of total
Manufacturing capitalization ................... 12.7% 13.4% 18.4% 35.6%
Return on equity (a) ............................. 18.9% 12.5% (35.2)% (43.5)%
------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Capital expenditures ............................. $ 139 $ 87 $ 110 $ 55
Engineering and research expense ................. $ 113 $ 97 $ 94 $ 92
------------------------------------------------------------------------------------------------
OPERATING DATA
North American market share (b) .................. 26.7% 27.0% 27.6% 28.4%
Unit shipments
Trucks ......................................... 110,200 95,000 87,200 73,200
OEM engines .................................... 156,100 130,600 118,200 97,400
Service parts sales .............................. $ 730 $ 714 $ 632 $ 571
<FN>
(a) Return on equity is calculated based on income of continuing operations.
(b) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including school buses,
and heavy trucks (Class 8) in the United States and Canada.
</TABLE>
<PAGE>
<PAGE 49>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1991 1990 1989 1988 1987 1986
- ---------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 3,496 $ 3,903 $ 4,296 $ 4,321 $ 3,752 $ 3,632
$ (165) $ (11) $ 87 $ 259 $ 146 $ 2
$ (165) $ (11) $ 87 $ 244 $ 33 $ 2
$ (7.71) $ (1.56) $ 2.28 $ 8.94 $ 5.00 $ (1.40)
$ (7.71) $ (1.56) $ 2.28 $ 8.36 $ .30 $ (1.40)
25.1 25.2 25.6 25.7 23.9 8.9
- ---------------------------------------------------------------------
$ 3,443 $ 3,795 $ 3,609 $ 4,037 $ 3,287 $ 3,372
$ 154 $ 164 $ 176 $ 194 $ 206 $ 758
1,052 1,217 1,199 1,303 1,048 1,081
------- ------- ------- ------- ------- -------
$ 1,206 $ 1,381 $ 1,375 $ 1,497 $ 1,254 $ 1,839
$ 577 $ 815 $ 914 $ 866 $ 643 $ 53
21.1% 16.8% 16.1% 18.2% 24.2% 93.5%
(28.6)% (1.3)% 9.5% 29.9% 22.7% 3.8%
- ---------------------------------------------------------------------
$ 77 $ 182 $ 118 $ 127 $ 110 $ 70
$ 87 $ 84 $ 91 $ 80 $ 79 $ 62
- ---------------------------------------------------------------------
29.3% 27.2% 27.1% 26.7% 25.8% 26.8%
70,200 80,200 90,200 95,900 84,900 82,200
74,800 100,900 106,700 95,400 81,700 90,700
$ 530 $ 558 $ 544 $ 540 $ 480 $ 450
</TABLE>
<PAGE>
<PAGE 50>
INFORMATION FOR OUR INVESTORS
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 such as name changes, changes of
address or missing certificates is: Harris Trust and Savings Bank, 311 West
Monroe Street, 11th Floor, Chicago, Illinois 60606; Telephone: (312) 461-
3932.
For information about other shareowner matters, contact: Investor
Relations, Navistar International Corporation, 455 North Cityfront Plaza
Drive, Chicago, Illinois 60611; Telephone: (312) 836-2143.
There were approximately 66,284 owners of Common Stock at October 31,
1995.
Annual Meeting
The 1996 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 20, 1996, 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 26, 1996.
Commitment to Equal Employment Opportunity
Navistar International Corporation has a longstanding 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 comply with all federal, state and local
employment laws; provides equal opportunity to all employees and applicants
for employment; and prohibits discrimination in all employment practices
because of age, race, sex, religion, national origin, disability, or veteran
status.
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 51>
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 1995 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, 1996.
In order to provide shareowners with immediate access to financial
information and news about the Company, Navistar distributes its corporate
news releases through PR Newswire, an electronic news service, and files its
financial statements with the Securities and Exchange Commission
electronically through the EDGAR system. PR Newswire and EDGAR can be
accessed by computer via the Internet, and through such services as America
On-Line and CompuServe. In addition, this information can be accessed
through such databases and information services as Lexis/Nexus, Dow Jones and
Bloomberg, which frequently are available at libraries and brokerage firms.
Navistar also offers a toll-free, "Company News on Call" service, which
allows shareowners to receive copies of recent Navistar corporate news
releases via telefax. To access this service, call (800) 758-5804, and enter
Navistar's six digit code when prompted: 103895. Using a touch-tone phone,
shareowners can select from a menu of news releases and request specific news
releases to be faxed directly to them.
Navistar encourages shareowners to take advantage of these electronic
databases and the Company News on Call" service to access the Company's
quarterly financial results on the same day that the results are announced.
Navistar's fiscal 1996 quarterly financial results will be announced on the
following dates:
First quarter February 14, 1996
Second quarter May 15, 1996
Third quarter August 14, 1996
Fourth quarter December 4, 1996
News releases, Form 10-Qs, Navistar's Annual Environmental Health &
Safety Report, and other publications are available by writing:
Corporate Communications
Navistar International Corporation
455 North Cityfront Plaza Drive
Chicago, Illinois 60611
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.
<PAGE>
Directors and Officers
(As of December 31, 1995)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
NAVISTAR INTERNATIONAL
NAVISTAR INTERNATIONAL CORPORATION TRANSPORTATION CORP.
- -------------------------------------------------------------------------------------------------------------------------------
Board of Directors Principal Officers Principal Officers
- ------------------------------------------------------------------ ---------------------------- -----------------------------
<S> <S> <S> <S>
James C. Cotting Jerry E. Dempsey John R. Horne John R. Horne
Chairman of the Board Chairman President Chairman, President
Navistar International and Chief Executive Officer and Chief Executive Officer and Chief Executive Officer
Corporation PPG Industries Inc. Robert C. Lannert Robert C. Lannert
William F. Andrews Diversified Global Manufacturer Executive Vice President Executive Vice President
Chairman of Glass, Protective Coatings and Chief Financial Office and Chief Financial Officer
Schrader Inc. and Chemicals Robert A. Boardman
Manufacturer of Tire Valves John F. Fiedler Senior Vice President
and Automotive Accessories President and General Counsel Group Vice Presidents
Chairman and Chief Executive Officer Thomas M. Hough
Scovill Fasteners, Inc. Borg Warner Automotive, Inc. Vice President John J. Bongiorno
Manufacturer of Apparel Supplier of Engineered and Treasurer General Manager
and Industrial Fasteners Components and Systems, J. Steven Keate Financial Services
Wallace W. Booth primarily for Automotive Vice President David J. Johanneson
Retired Chairman Drivetrain Applications and Controller Truck Businesses
and Chief Executive Officer Mary Garst Steven K. Covey James T. O'Dare, Jr.
Ducommun Incorporated Manager, Cattle Division Corporate Secretary Sales and Distribution
Manufacturer of Garst Company Daniel C. Ustian
Components and Assemblies Agri-Business Company General Manager
for the Aerospace Industry Charles A. Haggerty Engine and Foundry
Dr. Andrew F. Brimmer Chairman Dennis W. Webb
President and Chief Executive Officer International Operations
Brimmer & Company, Inc. Western Digital Corporation
Economic and Financial Manufacturer of Disk Drives
Consulting and Integrated Circuits Senior Vice Presidents
Richard F. Celeste Dr. Arthur G. Hansen
Managing General Partner Educational Consultant Robert A. Boardman
Celeste & Sabety, Ltd. President Emeritus General Counsel
Public Policy Consulting Firm Purdue University John M. Sheahin
John D. Correnti John R. Horne Employee Relations
Chief Executive Officer, President and Administration
President and Vice Chairman and Chief Executive Officer
Nucor Corporation Navistar International
Steel Manufacturer Corporation Vice Presidents
William C. Craig Robert C. Lannert
Former Executive Vice President Executive Vice President Kirk A. Gutmann
Mack Trucks and Chief Financial Officer Truck Engineering
Manufacturer of Trucks Navistar International Thomas M. Hough
Corporation Treasurer
Walter J. Laskowski J. Steven Keate
International Vice President Controller
of the UAW Robert I. Morrison
Corporate Development
Thomas E. Rigsby
Truck Manufacturing
James L. Simonton
Materials Management
Dean P. Stanley
Quality Management
and Technology
Brian B. Whalen
Public Affairs
Secretary
<CAPTION> Gregory Lennes
Committees of the Board
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <S> <S>
Executive Committee Finance Committee Public Policy Committee
James C. Cotting, Chair Jerry E. Dempsey, Chair Mary Garst, Chair
Wallace W. Booth Wallace W. Booth William F. Andrews
Andrew F. Brimmer Andrew F. Brimmer Andrew F. Brimmer
William C. Craig James C. Cotting Richard F. Celeste
Jerry E. Dempsey William C. Craig Walter J. Laskowski
Mary Garst Walter J. Laskowski
John R. Horne
Walter J. Laskowski
Committee on Organization Audit Committee
Wallace W. Booth, Chair Andrew F. Brimmer, Chair
William F. Andrews Richard F. Celeste
John D. Correnti John D. Correnti
William C. Craig Mary Garst
Jerry E. Dempsey Charles A. Haggerty
Charles A. Haggerty Arthur G. Hansen
Arthur G. Hansen
</TABLE>
<PAGE 1>
EXHIBIT 21
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SUBSIDIARIES OF THE REGISTRANT
AS OF OCTOBER 31, 1995
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
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, Statement of Financial Condition and Statement of Cash Flow in the
1995 Annual Report to Shareowners.
E-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 485
<SECURITIES> 555
<RECEIVABLES> 1,882
<ALLOWANCES> (28)
<INVENTORY> 416
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,447
<DEPRECIATION> (764)
<TOTAL-ASSETS> 5,566
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,457
<COMMON> 2,132
0
244
<OTHER-SE> (1,506)
<TOTAL-LIABILITY-AND-EQUITY> 5,566
<SALES> 6,125
<TOTAL-REVENUES> 6,342
<CGS> 5,288
<TOTAL-COSTS> 5,782
<OTHER-EXPENSES> 206
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 262
<INCOME-TAX> (98)
<INCOME-CONTINUING> 164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 2.20
<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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
-----------------
Commission File Number 1-4146-1
-----------------
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 847-734-4275
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, 1995, 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, 1995
<TABLE>
<CAPTION>
INDEX
10-K Page
PART I
<S> <C> <C>
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 9
Independent Auditors' Report 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of the
Registrant (A) 40
Item 11. Executive Compensation (A) 40
Item 12. Security Ownership of Certain Beneficial Owners
and Management (A) 40
Item 13. Certain Relationships and Related
Transactions (A) 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 40
SIGNATURES - Principal Accounting Officer 41
- Directors 42
POWER OF ATTORNEY 42
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.
</TABLE>
<PAGE>
PART I
Item 1. Business
The registrant, Navistar Financial Corporation ("NFC"), was
incorporated in Delaware in 1949 and is a wholly-owned subsidiary
of Navistar International Transportation Corp.
("Transportation"), which is wholly-owned by Navistar
International Corporation ("Navistar"). As used herein, the
"Corporation" refers to Navistar Financial Corporation and its
wholly-owned subsidiaries unless the context otherwise requires.
The Corporation provides wholesale, retail, and to a lesser
extent, lease financing in the United States for sales of new and
used trucks sold by Transportation and Transportation's dealers.
The Corporation also finances wholesale accounts and selected
retail accounts receivable of Transportation. Sales of new
products (including trailers) of other manufacturers are also
financed regardless of whether designed or customarily sold for
use with Transportation's truck products. Harco National
Insurance Company, NFC's wholly-owned insurance subsidiary,
provides commercial physical damage and liability insurance
coverage to Transportation's dealers and retail customers, and to
the general public through 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. ("Klein Truck") 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. Klein Truck appealed to the Oklahoma
Supreme Court where the case is now pending.
Item 4. Submission of Matters to a Vote of Security Holders
Intentionally omitted. See the index page of this Report
for explanation.
<PAGE>
PART II
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 29
</TABLE>
Item 6. Selected Financial Data
Intentionally omitted. See the index page to this Report for
explanation.
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Customer demand for Class 5 through 8 trucks remained high
in 1995, as the strength in the U.S. economy experienced during
fiscal 1994 continued during fiscal 1995. As a result of the
strong truck industry and economy, the financial strength and
cash flows of many NFC customers continued to improve and NFC's
delinquencies and losses remained low. The strong economy also
contributed to high liquidity in the commercial financing markets
during 1995. As a result, many financial institutions have
increased their loan activity which gives NFC's customers more
financing alternatives than normal. This competition has caused
NFC to increase marketing efforts of its retail financing
products and services and to reduce finance rates during the
fiscal year.
Financing Volume
The Corporation's serviced receivables portfolio, which
includes sold receivables, totaled $3.2 billion at October 31,
1995, up from $2.5 billion and $2.2 billion at October 31, 1994
and 1993, respectively. The increases year over year reflect the
continued growth in the truck industry. During 1995, the
Corporation supplied 93% of the wholesale financing of new trucks
sold to Transportation's dealers, unchanged from 1994 and up from
90% in 1993. Acquisitions of wholesale notes increased $672
million, 29%, to $2,979 million in 1995 after a 17% increase to
$2,307 million in 1994 from 1993. Serviced wholesale note
balances were $854 million at October 31, 1995, up from $577
million and $559 million at October 31, 1994 and 1993,
respectively.
Acquisitions of retail notes and leases, net of unearned
finance income, increased 20% to $1.1 billion in 1995 after a 19%
increase to $.9 billion in 1994 from $.8 billion in 1993. The
higher level of financing activity reflects 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 14.4% in 1995
compared with 15.3% in 1994 and 1993. The Corporation's reduced
penetration level of retail financing of Transportation's sales
in 1995 was a result of competition and liquidity in the
commercial financing markets. Serviced retail notes and lease
financing balances were $1.9 billion at October 31, 1995,
compared with $1.6 billion and $1.4 billion at October 31, 1994
and 1993, respectively.
Owned net finance receivables balances, including
subordinated interests in retail and wholesale receivables,
increased to $1.5 billion at October 31, 1995, from $1.2 billion
at October 31, 1994, and $1.3 billion at October 31, 1993. The
increase in owned receivable balances resulted from higher
financing volumes, partially offset by increases in sold note
balances. Sold retail receivables balances increased to $1.2
billion at October 31, 1995, from $1.0 billion and $.5 billion at
October 31, 1994 and 1993, respectively. Sold wholesale note
balances were $500 million at October 31, 1995, a $200 million
increase over 1994 and 1993.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations
The components of net income for the three years ended
October 31 are as follows:
<TABLE>
<CAPTION>
($ Millions) 1995 1994 1993
<S> <C> <C> <C>
Income before income taxes:
Finance operations $53.1 $49.9 $51.6
Insurance operations 5.6 5.3 1.1
Supplemental Trust contribution - - (3.7)
Income before taxes
and cumulative effect 58.7 55.2 49.0
Taxes on income 22.5 21.2 17.7
Cumulative effect of changes in
accounting policy - - 8.8
Net income $36.2 $34.0 $22.5
</TABLE>
Income before taxes in 1995 was $58.7 million, a 6% increase
from $55.2 million in 1994. Finance operations' income in 1995
was $3.2 million higher than 1994 as a result of higher finance
receivables to support the demand for Transportation truck
products and improvement in the Corporation's borrowing spread
over market interest rates. This increase was partially offset
by lower gains on sales of retail notes. Gains on sales of
retail note receivables during 1995 were $5.2 million on sales of
$740 million compared with gains of $11.8 million on sales of
$1,033 million in 1994. Lower gains on sales resulted from
reduced sales volumes and lower margins on retail note
acquisitions from the second half of fiscal 1994 through the
first quarter of fiscal 1995, as rising interest costs to fund
retail note acquisitions could not be offset fully by increased
retail note pricing. In a rising interest rate environment, this
margin contraction is a typical occurrence for NFC as retail
truck customers generally require finance rate commitments on
purchases of trucks 30 to 90 days in advance of delivery. In
addition, the Corporation funds the majority of its retail notes
by selling the notes in the public market and the effective
interest rate for each sale is based on a market interest rate at
the time of sale which may be up to six months after the truck
delivery date. The gains on sales in fiscal 1994 were primarily
on sales in November and December, prior to the increase in
market interest rates. During the last half of fiscal 1995,
margins on retail note acquisitions have improved as market
interest rates have declined; however, margins remain below
historical levels due to increased competition in the commercial
financing markets.
Income before taxes of $55.2 million in 1994 increased 13%
from $49.0 million in 1993, which included a $3.7 million pretax
charge for the Corporation's portion of the Supplemental Trust
contribution. See note 10 to the Consolidated Financial
Statements. Finance operations' income in 1994 was $1.7 million
lower than 1993 as a result of lower margins on retail financing
and gains of $2.4 million less than those on 1993 sales of retail
receivables offset in part by the increased volume of wholesale
financing to support the increased demand for trucks. The
Corporation's insurance subsidiary's 1994 income increased $4.2
million over 1993 as a result of improved
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations (Continued)
underwriting results on truck liability insurance. The more
significant elements of revenue and expense impacting net income
for these years are discussed in the following paragraphs.
Total revenue for 1995 was $228 million compared with $211
million and $232 million in 1994 and 1993, respectively. Retail
note and lease financing revenue was $73 million in 1995 compared
with $71 million and $102 million in 1994 and 1993, respectively.
The 1995 improvement over 1994 is due to higher financing volume
offset in part by lower gains on sold notes. Revenue in 1994 was
30% below 1993 as a higher proportion of retail notes was
financed through the sale of receivables as the Corporation
gained access to the asset-backed securitized market. 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.
Wholesale note revenue increased 38% in 1995 to $54 million
and increased 22% in 1994 from 1993 as a result of higher average
outstanding note balances in support of increased demand for
Transportation truck products. In addition, revenue in 1995
increased from higher average yields relating to a higher prime
interest rate.
Revenue from accounts increased in 1995 to $29 million from
$22 million and $18 million in 1994 and 1993, respectively. The
increase in 1995 and 1994 resulted from higher average
outstanding balances in support of increased demand for
Transportation truck products. In addition, revenue in 1995
increased from higher average yields relating to a higher prime
interest rate.
Servicing fee income increased to $18 million in 1995 from
$17 million in 1994 and $11 million in 1993 as a result of higher
levels of sold note receivable balances which the Corporation
continues to service.
Insurance premiums earned by Harco decreased 12% to $45
million in 1995 from $51 million in 1994 and 11% in 1994 from
1993. The decreases in 1995 and 1994 reflect reductions in
written premiums of truck liability lines in response to adverse
loss experience in those lines and to increased competition.
Borrowing costs increased 20% in 1995 to $84 million from
$70 million and $79 million in 1994 and 1993, respectively. The
increase in 1995 from 1994 is primarily the result of higher debt
balances to support increased wholesale note and account balances
and higher market interest rates. These increased borrowing
costs were offset by an improvement in the Corporation's
borrowing spread over market interest rates as a result of the
amended revolving debt agreement and the asset-backed commercial
paper ("ABCP") program. See note 9 to the Consolidated Financial
Statements. 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 ratio
of debt to equity was 5.2:1, 4.8:1 and 5.5:1 at October 31, 1995,
1994 and 1993, respectively.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations (Continued)
On July 1, 1993, Navistar implemented a restructured retiree
health care and life insurance plan (the "Plan"), as discussed in
note 10 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.
Credit, collection and administrative expenses of $28
million were $2 million higher than 1994 primarily as a result of
the provision for payments to employees as provided by
Transportation's profit sharing agreement and the Corporation's
management incentive programs. In addition, costs were higher
due to increased retail note marketing efforts.
The provision for losses on receivables totaled $2.6 million
in 1995 compared with $2.3 million in 1994 and $1.5 million in
1993. Truck note and account write-offs (recoveries), including
those on sold notes, totaled $(.8) million in 1995, $.9 million
in 1994, and $.7 million in 1993. The provision amount exceeded
the write-offs (recoveries) due to growth of receivables
financed. At October 31, 1995, the Corporation's allowance for
losses equaled .62% of net financing receivables, including sold
receivables, compared with .65% and .69% as of October 31, 1994
and 1993, respectively.
Insurance claims and underwriting expenses decreased to $47
million in 1995 from $54 million and $65 million in 1994 and
1993, respectively. The decline resulted from decreases in
losses incurred in Harco's truck liability insurance lines.
Additionally, insurance operating expenses were lower as a result
of decreased commission costs associated with lower volumes of
premiums written through general agents.
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.
Receivable sales were a significant source of funding in
1995 and 1994. Through the asset-backed public market, the
Corporation has been able to fund fixed rate retail note
receivables at rates offered to companies with investment grade
ratings. During fiscal 1995, the Corporation sold $740 million
of retail notes, net of unearned finance income, through Navistar
Financial Retail Receivables Corporation ("NFRRC"), a wholly-
owned subsidiary,
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Liquidity and Funds Management (Continued)
to two owner trusts. The owner trusts, in turn, sold $714
million of notes and $26 million of certificates to investors.
Net proceeds from these sales were $693 million, after deducting
$2 million for underwriting fees and $45 million to establish
reserve accounts with the trusts as credit enhancement for the
public sales. During 1994, the Corporation sold $1,033 million
of retail notes receivable, $203 million through its bank
receivable purchase facility and $830 million through NFRRC and
owner trusts to public investors. Net proceeds from these sales
were $952 million after the reduction of holdback reserves and
credit enhancement. The net proceeds were used by the
Corporation for general working capital purposes. At October 31,
1995, the remaining shelf registration available to NFRRC for
issuance of asset-backed securities was $1,430 million. On
November 14, 1995, NFRRC filed an additional registration with
the Securities and Exchange Commission providing for the issuance
from time to time of an additional $2,000 million of asset-backed
securities.
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. On
June 8, 1995, a new Navistar Financial Dealer Note Master Trust
issued $200 million of 9.3 year asset-backed certificates to the
public. The proceeds of $195 million, net of $2 million of
expenses and underwriting fees and $3 million to fund a reserve
account, were used by the Corporation for general working capital
purposes. This issuance of $200 million of certificates during
fiscal 1995 increased NFSC's revolving wholesale note sales
trusts to $500 million. The sales trusts are comprised of three
$100 million pools of notes maturing serially from 1997 to 1999
and the $200 million pool maturing in 2004.
See note 9 to the Consolidated Financial Statements for a
discussion of the Corporation's revolving credit agreement and
asset-backed commercial paper program.
In March 1995, ratings on the Corporation's debt were
upgraded by Moody's Investors Service, Inc. ("Moody's").
Moody's raised its ratings for the Corporation's debt from Ba3 to
Ba2 for senior debt and from B2 to B1 for subordinated debt. In
March 1995, Duff & Phelps confirmed its debt ratings of BB+ for
senior debt and BB for subordinated debt. In October 1993,
ratings on the Corporation's debt were reviewed by Standard and
Poor's Corporation ("Standard and Poor'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. The
Corporation's commercial paper is rated "not prime" by Moody's.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Liquidity and Funds Management (Continued)
In November 1995, the Corporation sold $525 million of
retail notes, net of unearned finance income, through NFRRC to an
owner trust which, in turn, sold $507 million of notes and $18
million of certificates to investors. The proceeds of $499
million, after deducting $1 million for underwriting fees and $25
million to establish a reserve account with the trust as credit
enhancement, were used by the Corporation for general working
capital purposes.
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 and, to a lesser extent, by
utilizing derivative financial instruments. See notes 1 and 13
to the Consolidated Financial Statements. Corporate policy does
not allow the use of derivatives for speculative purposes.
Business Outlook
The demand for heavy trucks is forecast to soften during
fiscal 1996 and correspondingly NFC's wholesale and retail
financing activity is anticipated to be lower in 1996. The
decline in the heavy truck industry may impact the financial
strength of dealers and customers and NFC's ability to maintain
the current level of portfolio quality. Competition will
continue to put pressure on the Corporation's retail note
acquisition activity and retail note margins.
Management believes that collections on the outstanding
receivables portfolio plus 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 1996 and beyond.
<PAGE>
Page
Item 8. Financial Statements and Supplementary Data
Navistar Financial Corporation and Subsidiaries:
Statement of Consolidated Income and Retained Earnings
for the years ended October 31, 1995, 1994 and 1993 10
Statement of Consolidated Financial Condition as of
October 31, 1995 and 1994 11
Statement of Consolidated Cash Flow for the years ended
October 31, 1995, 1994 and 1993 12
Notes to Consolidated Financial Statements 13
Supplementary Financial Data 34
Independent Auditors' Report 39
<PAGE>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Income and Retained Earnings
Millions of dollars
<TABLE>
<CAPTION>
Note
For the years ended October 31 1995 1994 1993 Reference
<S> <C> <C> <C> <C>
Revenues
Retail notes and lease financing $ 73.3 $ 71.4 $101.9
Wholesale notes 54.1 39.2 32.0
Accounts 29.2 22.2 17.5
Servicing fee income 18.3 17.3 10.6
Insurance premiums earned 44.6 51.1 57.4
Marketable securities 8.7 9.6 12.5
Total 228.2 210.8 231.9
Expenses
Cost of borrowing:
Interest expense 75.1 62.7 74.6 8, 9
Other 9.1 7.1 4.7
Total 84.2 69.8 79.3
Supplemental Trust expense - - 3.7 10
Credit, collection and administrative 27.9 25.9 26.1
Provision for losses on receivables 2.6 2.3 1.5 6
Insurance claims and underwriting 46.7 54.0 65.2
Other expense, net 8.1 3.6 7.1
Total 169.5 155.6 182.9
Income Before Taxes on Income and
Cumulative
Effect of Changes in Accounting Policy 58.7 55.2 49.0
Taxes on Income 22.5 21.2 17.7 7
Income Before Cumulative Effect of Changes
in Accounting Policy 36.2 34.0 31.3
Cumulative Effect of Changes in Accounting - - 8.8 10
Policy
Net Income 36.2 34.0 22.5
Retained Earnings
Beginning of year 56.8 48.4 48.5
Dividends paid (9.0) (25.6) (22.6)
End of year $ 84.0 $ 56.8 $ 48.4 12
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Financial Condition
Millions of dollars
<TABLE>
<CAPTION>
Note
As of October 31 1995 1994 Reference
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents $ 2.9 $ 28.3
Marketable Securities 131.8 130.5 4
Receivables
Finance receivables 1,381.3 1,102.2 5
Allowance for losses (10.4) (8.2) 6
Receivables, net 1,370.9 1,094.0
Amounts Due from Sales of Receivables 247.8 193.0 5
Equipment on Operating Leases, Net 39.3 26.6
Repossessions 5.8 1.8
Reinsurance Receivables 24.8 33.7
Other Assets 51.4 26.9
Total Assets $1,874.7 $1,534.8
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Debt $ 50.5 $ 419.2 8
Accounts Payable 138.8 63.6
Accrued Income Taxes 12.0 2.3
Accrued Interest 12.1 11.3
Senior and Subordinated Debt 1,279.8 672.3 9
Dealers' Reserves 21.0 18.8
Unpaid Insurance Claims and Unearned Premiums 103.8 121.7
Shareowner's Equity 12
Capital stock (Par value $1.00, 1,600,000
shares issued and outstanding) and
paid-in capital 171.0 171.0
Retained Earnings 84.0 56.8
Unrealized gains (losses) on marketable
securities 1.7 (2.2) 4
Total 256.7 225.6
Total Liabilities and Shareowner's Equity $1,874.7 $1,534.8
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Cash Flow
Millions of dollars
<TABLE>
<CAPTION>
Note
For the years ended October 31 1995 1994 1993 Reference
<S> <C> <C> <C> <C>
Cash Flow From Operations
Net income $ 36.2 $ 34.0 $ 22.5
Adjustments to reconcile net income to
cash provided from operations:
Gains on sales of receivables (5.2) (11.8) (14.2) 5
Depreciation and amortization 11.1 8.7 9.7
Provision for losses on receivables 2.6 2.3 1.5 6
Cumulative effect of changes in
accounting policy - - 8.8
Supplemental Trust expense - - 3.7
Increase (decrease) in accounts payable
and accrued liabilities 5.3 (3.5) (1.8)
Increase in deferred income taxes .5 3.1 3.7
Increase (decrease) in accounts payable
to affiliated companies 73.2 (0.9) 14.3
Increase (decrease) in unpaid insurance
claims and unearned premiums, net of
reinsurance receivables (8.9) (6.5) 10.7
Other (3.6) (5.4) (3.6)
Total 111.2 20.0 55.3
Cash Flow From Investing Activities
Purchase of retail notes and lease
receivables (1,099.5) (915.9) (770.2)
Principal collections on retail notes
and lease receivables 123.4 180.9 337.4
Proceeds from sold retail notes 726.8 994.8 558.2
Acquisitions over cash collections of
wholesale notes and accounts
receivable (77.1) (140.0) (171.9)
Purchase of marketable securities (61.9) (51.8) (58.1)
Proceeds from sales of marketable
securities 67.3 45.1 64.8
Increase in property and equipment
leased to others (18.7) (5.3) (14.2)
Total (339.7) 107.8 (54.0)
Cash Flow From Financing Activities
Net increase in commercial paper 31.3 19.2 -
Net increase (decrease) in
short-term bank borrowings (400.0) 325.0 75.0
Net increase (decrease) in bank
revolving credit facility usage 405.0 (372.0) -
Net increase in asset-backed commercial
paper facility usage 275.8 - -
Principal payments on term debt (100.0) (80.0) (99.0)
Principal payments on subordinated debt - (100.0) -
Proceeds from issuance of subordinated
debt - 100.0 -
Dividends paid to Transportation (9.0) (25.6) (22.6)
Total 203.1 (133.4) (46.6)
Decrease in Cash and Cash Equivalents (25.4) (5.6) (45.3)
Cash and Cash Equivalents at Beginning of
Year 28.3 33.9 79.2
Cash and Cash Equivalents at End of Year $ 2.9 $ 28.3 $ 33.9
Supplementary disclosure of cash flow
information:
Interest paid $ 74.3 $ 64.8 $ 79.3
Income taxes paid $ 14.6 $ 22.1 $ 13.5
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
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 terms of the receivables using the
interest 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 securitizes and sells receivables to public
and private investors with limited recourse. The Corporation
continues to service the receivables, for which a servicing fee
is received. Servicing fees are earned on a level yield basis
over the terms of the related sold receivables and are included
in servicing fee income. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
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 liability for unpaid
insurance claims includes provisions for reported claims and an
estimate of unreported claims based on past experience. Such
provisions include an estimate of loss adjustment expense. The
estimated liability for unpaid insurance claims is regularly
reviewed and updated. Any change in such estimate is reflected
in current operations.
The Corporation's wholly-owned insurance subsidiary, Harco
National Insurance Company ("Harco"), limits its exposure on any
single loss occurrence by ceding reinsurance to other insurance
enterprises. Reinsurance receivables including amounts related
to unpaid insurance claims and prepaid reinsurance premiums are
reported as assets in the Statement of Consolidated Financial
Condition.
Income Taxes
Navistar and its subsidiaries file a consolidated Federal income
tax return which includes Transportation and the Corporation. Federal
income taxes for the Corporation are computed on a separate consolidated
return basis and are payable to Transportation.
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and marketable
securities with original maturities of three months or less, except for
such securities held by the insurance operations which are included in
marketable securities.
Marketable Securities
Marketable securities, which are classified as available-for-sale,
are reported at fair value. Unrealized gains or losses, net of deferred
income taxes, are included as a separate component of shareowner's
equity in the Statement of Consolidated Financial Condition.
Derivative Financial Instruments
The Corporation uses derivatives to reduce risks of interest rate
volatility. All derivative financial instruments are held for
purposes other than trading, and the Corporation's policy does not allow
the use of derivatives for speculative purposes. Gains or losses
related to hedges of anticipated sales of receivables are deferred and are
recognized in income when the receivables are sold.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
Reclassification
Certain amounts for prior years have been reclassified to conform
with the presentation used in the 1995 financial statements.
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 $55.7
in 1995, $50.7 in 1994 and $41.2 in 1993.
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 $2.4 in 1995, $2.5 in 1994 and $2.3
in 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
2. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)
Short-Term Borrowings
The Corporation had daily average short-term borrowings from
Transportation of $93 in 1995 and $83 in 1994 on which interest
accrued at the Corporation's incremental short-term borrowing rate.
These borrowings, including $6 and $4 of interest expense in 1995 and 1994,
respectively, were repaid during each of the fiscal years.
Accounts Payable
Accounts payable include $89.5 and $16.3 payable to Transportation
at October 31, 1995 and 1994, respectively.
3. INDUSTRY SEGMENTS
Information by industry segment is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Finance operations $ 175.1 $ 150.6 $ 164.2
Insurance operations 53.1 60.2 67.7
Total revenue $ 228.2 $ 210.8 $ 231.9
Income before taxes on income and
cumulative effect of changes in
accounting policy:
Finance operations $ 53.1 $ 49.9 $ 47.9
Insurance operations 5.6 5.3 1.1
Total income before taxes on income
and cumulative effect of changes
in accounting policy $ 58.7 $ 55.2 $ 49.0
Assets at end of year:
Finance operations $1,701.9 $1,354.1 $1,473.5
Insurance operations 172.8 180.7 151.7
Total assets at end of year $1,874.7 $1,534.8 $1,625.2
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. MARKETABLE SECURITIES
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 difference between
amortized cost and fair value, net of deferred income taxes, is
reflected as a separate component of shareowner's equity.
Shareowner's equity was increased by net unrealized holding gains
of $1.7 as of October 31, 1995, and decreased by net unrealized
holding losses of $2.2 at October 31, 1994. The following table
sets forth, by type of security issuer, the amortized cost and
estimated market values at October 31, 1995 and 1994:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Gains Losses Value
<S>
October 31, 1995 <C> <C> <C> <C>
U.S. government securities $ 52.8 $ 1.2 $ .1 $ 53.9
Corporate debt securities 32.0 .2 .2 32.0
Mortgage- and
asset-backed securities 32.7 .5 .1 33.1
Foreign governments 1.7 - - 1.7
Total debt securities $119.2 $ 1.9 $ .4 $120.7
Equity securities 10.0 1.7 .6 11.1
Total $129.2 $ 3.6 $ 1.0 $131.8
October 31, 1994
U.S. government 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
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. MARKETABLE SECURITIES (Continued)
Contractual maturities of marketable debt securities at
October 31, 1995, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 21.9 $ 21.9
Due after one year through five years 32.1 32.8
Due after five years through ten years 21.2 21.5
Due after ten years 11.3 11.4
86.5 87.6
Mortgage- and asset-backed securities 32.7 33.1
Total $ 119.2 $ 120.7
</TABLE>
Proceeds from sales or maturities of marketable securities
available for sale were $67.3 during 1995 and $45.1 during 1994.
Gross gains of $.8 and $.9 and gross losses of $.6 and $.2 were
realized on those sales in 1995 and 1994, respectively.
All marketable securities at October 31, 1995 and 1994, were
held by Harco, of which $23.2 and $29.5, 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>
1995 1994
<S> <C> <C>
Retail notes and lease financing $ 747.2 $ 513.9
Wholesale notes 268.2 230.6
Accounts:
Retail 316.7 308.2
Wholesale 49.2 49.5
Total 365.9 357.7
Total finance receivables $1,381.3 $1,102.2
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
Contractual maturities of finance receivables including
unearned finance income at October 31, 1995, are summarized as
follows:
<TABLE>
<CAPTION>
Retail Wholesale Accounts
<S> <C> <C> <C>
Due in:
1996 $238.6 $181.3 $365.9
1997 203.0 86.9 -
1998 184.5 - -
1999 139.8 - -
2000 92.5 - -
Due after 2000 7.7 - -
Gross finance receivables 866.1 268.2 365.9
Unearned finance income 118.9 - -
Total finance receivables $747.2 $268.2 $365.9
</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. Outstanding
sold receivable net balances at October 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Retail notes $1,173.2 $1,046.8
Wholesale notes 500.0 300.0
Total $1,673.2 $1,346.8
</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 $5.2, $11.8 and $14.2 on retail note
receivable sales of $740, $1,033 and $576 for the fiscal years
ended October 31, 1995, 1994 and 1993, 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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
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. During fiscal 1995, in two
separate sales, the Corporation sold a total of $740 of retail
notes, net of unearned finance income, through NFRRC to two
individual owner trusts. The owner trusts, in turn, sold $714 of
notes and $26 of certificates to investors. The proceeds of
$693, after deducting $2 for underwriting fees and $45 to
establish reserve accounts with the trusts as credit enhancement,
were used by the Corporation for general working capital
purposes. At October 31, 1995, the remaining shelf registration
available to NFRRC for issuance of asset-backed securities was
$1,430. On November 14, 1995, 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.
At October 31, 1994, NFSC had in place a $300 revolving
wholesale note sales trust providing for the continuous sale of
eligible wholesale notes on a daily basis. On June 8, 1995, a
new Navistar Financial Dealer Note Master Trust issued $200 of
9.3 year asset-backed certificates to the public. The proceeds
of $195, net of $2 of expenses and underwriting fees and $3 to
fund a reserve account, were used by the Corporation for general
working capital purposes. Under the terms of the sale, the
Corporation increased the amount subordinated to the investor's
interest from $46.5 to $86.5. This issuance of $200 of
certificates during fiscal 1995 increased NFSC's revolving
wholesale note sales trusts to $500. The sales trusts are
comprised of three $100 pools of notes maturing serially from
1997 to 1999 and the $200 pool maturing in 2004.
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 retail 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
The following is a summary of amounts included in "Amounts Due
from Sales of Receivables":
<TABLE>
<CAPTION>
October 31
1995 1994
<S> <C> <C>
Cash held and invested by trusts $ 66.8 $ 51.5
Subordinated retained interests in wholesale
receivables 86.3 46.5
Subordinated retained interests in retail
receivables 12.2 14.1
Holdback reserves 43.7 64.4
Excess servicing fee and other 48.0 24.5
Allowance for credit losses (9.2) (8.0)
Total $247.8 $193.0
</TABLE>
6. ALLOWANCE FOR LOSSES
The allowance for losses on receivables is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Total allowance for losses at beginning of
year $16.2 $14.8 $14.0
Provision for losses 2.6 2.3 1.5
Net (losses) recoveries (charged)
credited to allowance .8 (.9) (.7)
Total allowance for losses at end of
year $19.6 $16.2 $14.8
Allowance pertaining to:
Owned notes $10.4 $ 8.2 $10.9
Sold notes 9.2 8.0 3.9
Total $19.6 $16.2 $14.8
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
7. TAXES ON INCOME
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.
Recognition of deferred tax assets is allowed if future
realization is more likely than not.
Taxes on income are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $18.9 $15.1 $12.0
State and local 3.1 3.0 2.0
Total current 22.0 18.1 14.0
Deferred (primarily Federal) .5 3.1 3.7
Total $22.5 $21.2 $17.7
</TABLE>
The effective tax rate of 38% in 1995 and 1994 and 36% in
1993 differs from the statutory United States Federal tax rate of
35% primarily because of state and local income taxes. Deferred
tax assets and liabilities at October 31, 1995 and 1994,
comprised the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Other postretirement benefits $2.8 $2.7
Unrealized losses on marketable securities - 1.2
Total deferred tax assets 2.8 3.9
Deferred tax liabilities:
Depreciation and other 6.4 5.9
Unrealized gains on marketable securities 1.0 -
Total deferred tax liabilities 7.4 5.9
Net deferred tax liabilities $4.6 $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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
8. 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.
Short-Term Debt at October 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial paper $50.5 $ 19.2
Short-term bank borrowings - 400.0
Total $50.5 $419.2
</TABLE>
Information regarding short-term borrowings is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Aggregate obligations outstanding:
Daily average $ 37.8 $ 11.7 $ .6
Maximum month-end balance 81.1 419.2 75.0
Weighted average interest rate:
On average daily borrowing 6.4% 5.4% 6.5%
At October 31 6.3% 5.6% 6.5%
</TABLE>
Unused commitments under the Corporation's bank revolving
credit facility and bank liquidity facility supporting the asset-
backed commercial paper program are used as backup for
outstanding short-term borrowings. See also note 9 to the
Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. SENIOR AND SUBORDINATED DEBT
Senior and Subordinated Debt outstanding at October 31 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Bank revolving credit, at variable rates,
due October 1998 $ 760.0 $ 355.0
Funding under asset-backed commercial
paper program, at variable rates,
maturing October 1998 302.3 -
Senior term debt:
Notes, medium-term, 9.50%, due 1996 117.5 217.5
Unamortized discount - (.2)
Total senior term debt 117.5 217.3
Subordinated term debt:
Senior Notes, 8 7/8%, due November 1998 100.0 100.0
Total senior and subordinated debt $1,279.8 $ 672.3
</TABLE>
The weighted average interest rate on total debt, including
short-term debt and the effect of discounts and related
amortization, was 7.4%, 7.1% and 6.6% in 1995, 1994 and 1993,
respectively. The aggregate annual maturities and required
payments of debt are as follows: 1996, $117.5; 1998, $1,062.3
and 1999, $100.0.
Effective November 9, 1994, the Corporation amended and
restated its $727 bank revolving credit agreement, extending the
maturity date to October 31, 1998 and expanding the commitment to
$900. In addition, the purchasers' commitments under the $600
retail notes purchase facility agreement were terminated and the
Corporation established a $300 asset-backed commercial paper
("ABCP") program supported by a bank liquidity facility with a
maturity date of October 31, 1998. Under the terms of the ABCP
program, a special purpose wholly-owned subsidiary of NFC
purchases eligible receivables from NFC. All assets of the
subsidiary are pledged to a Trust that funds the receivables with
A1/P1 rated commercial paper. In addition, the assets may be
sold to the Trust.
Available funding under the amended and restated credit
facility and the ABCP program was $148, of which $50 provided
funding backup for the outstanding short-term debt at October 31,
1995. The remaining $98 when combined with unrestricted cash and
cash equivalents made $101 available to fund the general business
purposes of the Corporation at October 31, 1995. While the
amended revolving credit facility removed certain dividend
restrictions, the Corporation is required to maintain tangible
net worth at a minimum of $175 and a debt to tangible net worth
ratio of no greater than 7 to 1. Consistent with the previous
revolving credit agreement, the restated agreement grants
security interests in substantially all of the Corporation's
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. SENIOR AND SUBORDINATED DEBT (Continued)
assets to the Corporation's debtholders. Compensating cash
balances are not required under the restated revolving credit
facility. Facility fees are paid quarterly regardless of usage.
As of October 31, 1995, approximately $208 of sold notes was
outstanding under the $600 retail notes purchase facility.
Participants of the facility will continue to own the receivables
during the run-off.
10. 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.
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 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. RETIREMENT BENEFITS (Continued)
Pension Expense
Net pension cost includes the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ .5 $ 1.0 $ .6
Interest cost on projected benefit
obligation 2.8 2.7 2.8
Return on assets - actual (gain) loss (9.1) 3.3 (8.4)
- deferred gain (loss) 5.8 (6.8) 5.2
Other costs (including amortization of
transition amount) - .1 .1
Net pension cost $ - $ .3 $ .3
</TABLE>
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
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $(31.8) $(25.8) $ (2.2) $ (1.8)
Non-vested benefits (4.0) (3.0) (.1) (.1)
Accumulated benefit
obligation (35.8) (28.8) (2.3) (1.9)
Effect of projected future
compensation levels (.9) (.6) - -
Total projected benefit
obligation (36.7) (29.4) (2.3) (1.9)
Plan assets at fair value 41.5 34.5 - -
Funded status at October 31 4.8 5.1 (2.3) (1.9)
Unrecognized net losses (gains) (4.2) (4.8) .6 .2
Unrecognized plan amendments .5 .5 - -
Unrecognized net obligation
as of transition date .1 .2 - -
Net asset (liability) $ 1.2 $ 1.0 $ (1.7) $ (1.7)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. RETIREMENT BENEFITS (Continued)
The weighted average rate assumptions used in determining
the projected benefit obligation and pension expense were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate used to determine the present
value of the projected benefit obligations 7.5% 9.2% 6.7%
Expected long-term rate of return on plan
assets 9.9% 9.0% 10.0%
Expected rate of increase in future
compensation levels 3.5% 3.5% 3.5%
</TABLE>
Other Postretirement Benefits
During 1993, the Corporation adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and
recognized the 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 for other postretirement benefits
that are included in the Statement of Consolidated Income and
Retained Earnings include the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during
the year $ .3 $ .2 $ .3
Interest cost on the accumulated benefit
obligation .8 .7 .6
Expected return on assets - actual (gain)/loss (1.5) (.2) -
- deferred gain/(loss) 1.2 - -
Total cost of postretirement benefits other
than pension $ .8 $ .7 $ .9
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. RETIREMENT BENEFITS (Continued)
The components of the liability for other postretirement
benefits as of October 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Retirees and their dependents $(4.9) $(4.2)
Active employees eligible to retire (2.4) (2.2)
Other active participants (3.3) (2.6)
Accumulated postretirement benefit obligation (APBO) (10.6) (9.0)
Plan assets at fair value 4.5 2.8
APBO in excess of plan assets (6.1) (6.2)
Unrecognized net loss .4 .7
Net liability $(5.7) $(5.5)
</TABLE>
The expected return on plan assets was 10% for 1995 and 9%
for 1994 and 1993. The weighted average of discount rates used
to determine the accumulated postretirement benefit obligation
was 7.7% and 8.9% at October 31, 1995 and 1994, respectively.
For 1996, the weighted average rate of increase in the per capita
cost of covered health care benefits is projected to be 9.8%.
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 $1.7 and the associated expense
recognized for the year ended October 31, 1995, would increase by
an estimated $.2.
11. 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, 1995, future minimum lease commitments under
noncancelable operating leases with remaining terms in excess of
one year are as follows:
<TABLE>
<S> <C> <C>
Year Ended October 31,
1996 $1.7
1997 1.6
1998 1.6
1999 1.5
2000 1.2
Thereafter .2
Total $7.8
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
12. SHAREOWNER'S EQUITY
The number of authorized shares of capital stock as of
October 31, 1995 and 1994, 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 9,
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.
13. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the
Corporation's financial instruments were as follows:
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Finance receivables:
Retail notes $ 680.8 $ 707.2 $ 452.0 $ 458.1
Wholesale notes 268.2 268.2 230.6 230.6
Accounts 365.9 365.9 357.7 357.7
Amounts due from sales of
receivables 247.8 234.6 193.0 183.0
Financial liabilities:
Senior and subordinated debt $1,279.8 $1,282.9 $ 672.3 $ 673.9
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
13. FINANCIAL INSTRUMENTS (Continued)
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 as a result of the
short maturity of these instruments.
Marketable Securities
Fair value is estimated based on quoted market price. The cost
and fair value of marketable securities is disclosed in note 4.
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 as a result of the short term nature of the
receivables.
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
13. FINANCIAL INSTRUMENTS (Continued)
Derivative Financial Instruments
The Corporation manages its exposure to fluctuations in
interest rate changes by limiting the amount of fixed rate assets
funded with variable rate debt by selling fixed rate retail
receivables on a fixed rate basis and, to a lesser extent, by
utilizing derivative financial instruments. These derivative
financial instruments may include interest rate swaps, interest
rate caps and forward interest rate contracts. The Corporation
manages exposure to counterparty credit risk by entering into
derivative financial instruments with major financial
institutions that can be expected to fully perform under the
terms of such agreements. Notional amounts are used to measure
the volume of derivative financial instruments and do not
represent exposure to credit loss.
The Corporation enters into forward interest rate contracts
to manage its exposure to fluctuations in funding costs from the
anticipated securitization and sale of retail notes. The
Corporation locks into an interest rate by entering into a
forward contract on a U.S. Treasury security whose terms
approximate those used to determine the selling price of the
anticipated sale of receivables. Gains or losses incurred with
the closing of these agreements are included as a component of
the gain on sale of receivables.
During June through October 1995, the Corporation entered
into $325 of forward interest rate lock agreements on a Treasury
maturing in 1997 related to the anticipated November 1995 sale of
retail receivables. See also note 15. These hedge agreements,
which were closed on October 18, 1995, in conjunction with the
pricing of the sale, resulted in an immaterial loss which was
deferred at October 31, 1995, and included in the gain on the
sale of receivables recognized in November 1995.
During fiscal 1994 and 1995, there were no swap agreements
outstanding and only one interest rate cap purchased in 1985 for
a notional amount of $50 which serves to hedge the interest cost
of variable rate debt. The premium paid for this interest rate
cap agreement has been fully amortized to interest expense. The
effect of this cap on the Corporation's interest expense was not
material.
The Corporation's wholly-owned insurance subsidiary has
investments in Collateralized Mortgage Obligations ("CMO's") of
$33 which are included in the Corporation's marketable securities
at October 31, 1995.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. LEGAL PROCEEDINGS
In May 1993, a jury issued a verdict in favor of Vernon
Klein & Equipment, Inc. ("Klein Truck") 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 of Oklahoma reversed the verdict and entered
judgment in favor of Transportation on virtually all aspects of
the case. Klein Truck appealed to the Oklahoma Supreme Court
where the case is now pending.
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.
15. SUBSEQUENT EVENT
In November 1995, the Corporation sold $525 of retail notes,
net of unearned finance income, through NFRRC to an owner trust
which, in turn, sold $507 of notes and $18 of certificates to
investors. The Corporation initially sold $455 of retail notes
receivable on November 1, 1995, and via a pre-funding feature in
the agreement, subsequently sold an additional $70 of retail
receivables on November 10, 1995. The proceeds of $499, after
deducting $1 for underwriting fees and $25 to establish a reserve
account with the trust as credit enhancement for the public sale,
were used by the Corporation for general working capital
purposes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
16. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
1995
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Revenues $50.9 $56.5 $64.1 $56.7 $228.2
Interest expense 17.1 20.4 19.1 18.5 75.1
Provision for losses
on receivables .1 .5 .4 1.6 2.6
Net income 6.3 7.5 13.3 9.1 36.2
</TABLE>
<TABLE>
<CAPTION>
1994
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Revenues $58.8 $50.2 $50.6 $51.2 $210.8
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
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
Five Year Summary of Financial and Operating Data
Dollar amounts in millions
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues and net income
retained
Revenues $ 228.2 $ 210.8 $ 231.9 $ 228.3 $ 235.9
Provision for losses on
receivables 2.6 2.3 1.5 3.6 5.8
Interest expense 75.1 62.7 74.6 82.2 90.3
Other charges, net 91.8 90.6 106.8 96.1 86.6
Taxes on income 22.5 21.2 17.7 16.9 20.2
Cumulative effect of changes
in accounting policy, net
of income taxes - - 8.8 - -
Net income 36.2 34.0 22.5 29.5 33.0
Dividends paid 9.0 25.6 22.6 16.0 74.0
Net income retained $ 27.2 $ 8.4 $ (.1) $ 13.5 $(41.0)
Percent of net income to
average shareowner's equity 15.0% 15.1% 10.3% 13.8% 15.0%
Assets at end of year
Cash and cash equivalents $ 2.9 $ 28.3 $ 33.9 $ 79.2 $ 16.0
Marketable securities 131.8 130.5 125.6 130.5 119.1
Finance receivables:
Truck retail notes and
lease financing 747.2 513.9 823.5 955.1 928.0
Wholesale notes 268.2 230.6 212.5 81.5 37.8
Accounts 365.9 357.7 245.1 204.3 162.9
Total 1,381.3 1,102.2 1,281.1 1,240.9 1,128.7
Allowance for losses (10.4) (8.2) (10.9) (12.4) (11.7)
Finance receivables,net 1,370.9 1,094.0 1,270.2 1,228.5 1,117.0
Other assets 369.1 282.0 195.5 170.5 196.0
Total assets $1,874.7 $1,534.8 $1,625.2 $1,608.7 $1,448.1
Liabilities and shareowner's
equity at end of year
Commercial paper $ 50.5 $ 19.2 $ - $ - $ 143.8
Short-term bank borrowings - 400.0 75.0 - 40.0
Bank revolving credit 760.0 355.0 727.0 727.0 220.0
Asset-backed commercial paper
facility 302.3 - - - -
Medium-term notes 117.5 217.3 222.2 261.1 419.4
Long-term notes and debentures - - 75.0 135.0 135.0
Subordinated debt 100.0 100.0 100.0 94.9 93.7
Total debt 1,330.3 1,091.5 1,199.2 1,218.0 1,051.9
Other liabilities 287.7 217.7 206.6 171.2 190.2
Shareowner's equity 256.7 225.6 219.4 219.5 206.0
Total liabilities and
shareowner's equity $1,874.7 $1,534.8 $1,625.2 $1,608.7 $1,448.1
Debt to equity ratio 5.2:1 4.8:1 5.5:1 5.5:1 5.1:1
Senior debt to capital funds
ratio 3.4:1 3.0:1 3.4:1 3.6:1 3.2:1
Gross insurance premiums
written $ 52.0 $ 59.0 $ 65.8 $ 69.2 $ 66.3
Number of employees at
October 31 360 353 339 364 353
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Gross Finance Receivables and Leases Acquired
<TABLE>
<CAPTION>
Dollar amounts in millions 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Wholesale notes $2,979.4 $2,306.6 $1,977.6 $1,547.7 $1,461.0
Retail notes and leases:
New 1,075.0 861.9 730.0 591.8 554.4
Used 242.3 217.2 168.4 185.9 192.8
Total 1,317.3 1,079.1 898.4 777.7 747.2
Total $4,296.7 $3,385.7 $2,876.0 $2,325.4 $2,208.2
</TABLE>
Analysis of Finance Retail Notes Acquired
<TABLE>
<CAPTION>
Average Down Payment
Contractual as a Percent Average
Terms of Retail Monthy
in Months Sales Price Installment
Number of
Year Units New Used New Used New Used
<S> <C> <C> <C> <C> <C> <C> <C>
1995 18,286 55 39 8.0% 16.7% $1,514 $1,003
1994 17,331 54 38 6.6 13.9 1,311 921
1993 15,879 53 34 6.2 17.0 1,248 786
1992 14,227 52 35 6.6 14.1 1,239 845
1991 13,768 52 37 7.2 13.5 1,286 875
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Analysis of Gross Retail Notes and Lease Financing
With Installments Past Due Over 60 Days
<TABLE>
<CAPTION>
At October 31 ($ Millions) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Original amount of notes
and leases $ 1.2 $ 1.3 $ 2.6 $ 4.3 $ 3.9
Balance of notes and leases .5 .5 .7 2.1 1.9
Balance as a percent of
total outstanding .06% .09% .08% .19% .18%
</TABLE>
Analysis of Retail Note Repossessions
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Retail note repossessions
acquired as a perrcentage
of average retail note
gross balance .92% .97% 1.95% 3.70% 4.45%
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Analysis of Loss Experience
<TABLE>
<CAPTION>
($ Millions) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net losses (recoveries):
Retail notes and leases $ .3 $ .6 $(.1) $2.4 $3.0
Wholesale notes (.9) .1 .8 .8 2.8
Accounts (.2) .2 - - -
Total $(.8) $ .9 $ .7 $3.2 $5.8
Percent net losses (recoveries)
to liquidations:
Retail notes and leases .03% .07% (.01)% .27% .41%
Wholesale notes (.03) .01 .04 .06 .19
Total (.02)% .03% .03% .13% .26%
Percent net losses (recoveries)
to related average gross
receivables outstanding:
Retail notes and leases .02% .04% - .17% .21%
Wholesale notes (.13) .03 .16 .20 .66
Accounts (.05) .08 - - -
Total (.03)% .04% .03% .16% .29%
</TABLE>
Includes loss experience on sold notes.
<PAGE>
Navistar Financial Corporation and Subsidiaries
Statement of Financial Reporting Responsibility
Management of Navistar Financial Corporation and its
subsidiaries is responsible for the preparation and for the
integrity and objectivity of the accompanying financial
statements and other financial information in this report. The
financial statements have been prepared in accordance with
generally accepted accounting principles and include amounts
that are based on management's estimates and judgments.
The accompanying financial statements have been audited by
Deloitte & Touche LLP, independent auditors. Management has
made available to Deloitte & Touche LLP all the Corporation's
financial records and related data, as well as the minutes of
Directors' meetings. Management believes that all
representations made to Deloitte & Touche LLP during its audit
were valid and appropriate.
Management is responsible for establishing and maintaining a
system of internal controls throughout its operations that
provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of
assets from unauthorized use and the execution and recording of
transactions in accordance with management's authorization.
The system of internal controls which provides for appropriate
division of responsibility is supported by written policies and
procedures that are updated by management as necessary. The
system is tested and evaluated regularly by the parent
Company's internal auditors as well as by the independent
auditors in connection with their annual audit of the financial
statements. The independent auditors conduct their audit in
accordance with generally accepted auditing standards and
perform such tests of transactions and balances as they deem
necessary. Management considers the recommendations of its
internal auditors and independent auditors concerning the
Corporation's system of internal controls and takes the
necessary actions that are cost-effective in the circumstances
to respond appropriately to the recommendations presented.
Management believes that the Corporation's system of internal
controls accomplishes the objectives set forth in the first
sentence of this paragraph.
John J. Bongiorno
President and Chief Executive Officer
Phyllis E. Cochran
Vice President and Controller
<PAGE>
Navistar Financial Corporation and Subsidiaries
Independent Auditors' Report
Navistar Financial Corporation:
We have audited the 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, 1995 and 1994 and the results of their operations
and their cash flow for each of the three years in
the period ended October 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 10 to the consolidated
financial statements, effective November 1, 1992,
Navistar Financial Corporation changed its method of
accounting for postretirement benefits other than
pensions.
/s/ DELOITTE & TOUCHE LLP
--------------------------
Deloitte & Touche LLP
December 18, 1995
Chicago, Illinois
<PAGE>
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None
PART III
Items 10, 11, 12 and 13
Intentionally omitted. See the index page of this Report
for explanation.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Financial Statements
See Index to Financial Statements in Item 8.
Financial Statement Schedules
All schedules are omitted because of the absence of the
conditions under which they are required or because information
called for is shown in the financial statements and notes thereto.
Exhibits, Including Those Incorporated By Reference
<TABLE>
<CAPTION>
Exhibit Form 10-K
Number Description
Page
<S> <C> <C>
(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 42
(27) Financial Data Schedule E-9
</TABLE>
Reports on Form 8-K
No reports on Form 8-K were filed for the three months
ended October 31, 1995.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
NAVISTAR FINANCIAL CORPORATION
(Registrant)
By: /s/PHYLLIS E. COCHRAN January 26, 1996
Phyllis E. Cochran
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below does hereby make,
constitute and appoint John J. Bongiorno, Phyllis E. Cochran
and William W. Jones and each of them acting individually, true
and lawful attorneys-in-fact and agents with power to act with-
out 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:
<TABLE>
<CAPTION>
Signature Title Date
<S><C> <C> <C>
/s/JOHN J. BONGIORNO President and Chief Executive January 26, 1996
John J. Bongiorno Officer; Director
(Principal Executive Officer)
/s/R. WAYNE CAIN Vice President and Treasurer; January 26, 1996
R. Wayne Cain Director
(Principal Financial Officer)
/s/PHYLLIS E. COCHRAN Vice President and Controller; January 26, 1996
Phyllis E. Cochran Director
(Principal Accounting Officer)
/s/JORDAN H. FEIGER Vice President, Operations; January 26, 1996
Jordan H. Feiger Director
/s/JOHN R. HORNE Director January 26, 1996
John R. Horne
/s/THOMAS M. HOUGH Director January 26, 1996
Thomas M. Hough
</TABLE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIGNATURES (Continued)
Signature Title Date
<S><C> <C> <C>
/s/ROBERT C. LANNERT Director January 26, 1996
Robert C. Lannert
/s/ROBERT I. MORRISON Director January 26, 1996
Robert I. Morrison
/s/THOMAS D. SILVER Director January 26, 1996
Thomas D. Silver
</TABLE>
<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, among 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 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
E-3
<PAGE>
Exhibit 10 (Continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
E-4
<PAGE>
Exhibit 10 (Continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.18 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.
10.19 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.
10.20 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.
10.21 Appendix A to Liquidity Agreement at Exhibit 10.20. Filed
on Form 8-K dated November 4, 1994. Commission File No. 1-
4146-1.
10.22 Collateral Trust Agreement dated as of November 7, 1994,
between NFC Asset Trust and Bankers Trust Company, as
Trustee. Filed on Form 8-K dated November 4, 1994.
Commission File No. 1-4146-1.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
E-5
<PAGE>
Exhibit 10 (Continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 Purchase Agreement dated as of May 25, 1995, between the
Corporation and Navistar Financial Retail Receivables
Corporation, as Purchaser, with respect to Navistar
Financial 1995-A Owner Trust. Filed on Registration No.
33-55865.
10.35 Pooling and Servicing Agreement dated as of May 25, 1995,
among the Corporation, as Servicer, and Navistar Financial
Retail Receivables Corporation, as Seller, and Navistar
Financial 1995-A 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 May 25, 1995, between Navistar
Financial Retail Receivables Corporation, as Seller, and
Chemical Bank Delaware, as Owner Trustee, with respect to
Navistar Financial 1995-A Owner Trust. Filed on
Registration No. 33-55865.
10.37 Indenture dated as of May 25, 1995, between Navistar
Financial 1995-A Owner Trust and The Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1995-
A Owner Trust. Filed on Registration No. 33-55865.
10.38 Pooling and Servicing Agreement dated as of June 8, 1995,
among the Corporation, as Servicer, Navistar Financial
Securities Corporation, as Seller, Chemical Bank, as 1990
Trust Trustee, and The Bank of New York, as Master Trust
Trustee. Filed on Registration No. 33-87374.
10.39 Series 1995-1 Supplement to the Pooling and Servicing
Agreement dated as of June 8, 1995, among the Corporation,
as Servicer, Navistar Financial Securities Corporation, as
Seller, and The Bank of New York, as Master Trust Trustee
on behalf of the Series 1995-1 Certificateholders. Filed
on Registration No. 33-87374.
10.40 Class A-4 Supplement to the 1990 Pooling and Servicing
Agreement dated June 8, 1995, among the Corporation, as
Servicer, Navistar Financial Securities Corporation, as
Seller, and Chemical Bank (Successor to Manufacturers
Hanover Trust Company), as Trustee. Filed on Registration
No. 33-87374.
10.41 Purchase Agreement dated as of June 8, 1995, between the
Corporation and Navistar Financial Securities Corporation,
as Purchaser, with respect to the Dealer Note Master
Trust. Filed on Registration No. 33-87374.
10.42 Purchase Agreement dated as of November 1, 1995, between
the Corporation and Navistar Financial Retail Receivables
Corporation, as Purchaser, with respect to Navistar
Financial 1995-B Owner Trust. Filed on Registration No.
33-55865.
10.43 Pooling and Servicing Agreement dated as of November 1,
1995, among the Corporation, as Servicer, and Navistar
Financial Retail Receivables Corporation, as Seller, and
Navistar Financial 1995-B Owner Trust, as Issuer. Filed
on Registration No. 33-55865.
E-7
<PAGE>
Exhibit 10 (Continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.44 Trust Agreement dated as of November 1, 1995, between
Navistar Financial Retail Receivables Corporation, as
Seller, and Chemical Bank Delaware, as Owner Trustee, with
respect to Navistar Financial 1995-B Owner Trust. Filed
on Registration No. 33-55865.
10.45 Indenture dated as of November 1, 1995, between Navistar
Financial 1995-B Owner Trust and The Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1995-
B Owner Trust. Filed on Registration No. 33-55865.
E-8
