<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9618
NAVISTAR INTERNATIONAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
-------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 4, 1996, the number of shares outstanding of the
registrant's common stock was 49,385,552 and the Class B Common was
24,292,206.
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<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX
---------
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months and Nine Months Ended July 31, 1996 and 1995 3
Statement of Financial Condition --
July 31, 1996, October 31, 1995 and July 31, 1995 ....... 5
Statement of Cash Flow --
Nine Months Ended July 31, 1996 and 1995 ................ 6
Notes to Financial Statements ............................. 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............... 10
Part II. Other Information:
Item 1. Legal Proceedings ................................ 14
Item 6. Exhibits and Reports on Form 8-K ................. 14
Signature ................................................. 15
Exhibit 11 .................................................. E-1
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<PAGE 3>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF INCOME (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Millions of dollars, except per share data
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended July 31
---------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ------------------ ------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products ..... $1,325 $1,455 $1,325 $1,455 $ - $ -
Finance and insurance revenue ...... 53 50 - - 66 66
Other income ....................... 13 9 11 10 3 -
------ ------ ------ ------ ------ ------
Total sales and revenues ......... 1,391 1,514 1,336 1,465 69 66
------ ------ ------ ------ ------ ------
Costs and expenses
Cost of products and services sold . 1,159 1,253 1,158 1,251 1 2
Postretirement benefits ............ 52 50 52 50 - -
Engineering and research expense ... 29 30 29 30 - -
Marketing and administrative expense 84 79 75 72 9 7
Interest expense ................... 22 22 2 1 21 22
Financing charges on sold receivables 5 5 18 21 - -
Insurance claims
and underwriting expense ......... 12 12 - - 12 12
------ ------ ------ ------ ------ ------
Total costs and expenses ......... 1,363 1,451 1,334 1,425 43 43
------ ------ ------ ------ ------ ------
Income before income taxes
Manufacturing .................... - - 2 40 - -
Financial Services ............... - - 26 23 - -
------ ------ ------ ------ ------ ------
Income before income taxes ..... 28 63 28 63 26 23
Income tax expense ............. (11) (24) (11) (24) (10) (9)
------ ------ ------ ------ ------ ------
Net income .......................... 17 39 $ 17 $ 39 $ 16 $ 14
====== ====== ====== ======
Less dividends on Series G
preferred stock 8 8
------ ------
Net income applicable to common stock $ 9 $ 31
====== ======
Net income per common share ......... $ .13 $ .43
====== ======
Average number of common and dilutive
common equivalent shares outstanding
(millions) ........................ 73.8 74.3
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 4>
<TABLE>
<CAPTION>
Nine Months Ended July 31
- ----------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
- ------------------------- ------------------ -------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C>
$4,110 $4,408 $4,110 $4,408 $ - $ -
154 125 - - 192 168
39 37 34 33 9 8
------ ------ ------ ------ ------ ------
4,303 4,570 4,144 4,441 201 176
------ ------ ------ ------ ------ ------
3,588 3,817 3,582 3,812 6 5
163 155 163 154 - 1
93 80 93 80 - -
232 221 207 200 25 21
63 65 4 6 63 63
21 20 59 63 - -
38 39 - - 38 39
------ ------ ------ ------ ------ ------
4,198 4,397 4,108 4,315 132 129
------ ------ ------ ------ ------ ------
- - 36 126 - -
- - 69 47 - -
------ ------ ------ ------ ------ ------
105 173 105 173 69 47
(40) (65) (40) (65) (26) (17)
------ ------ ------ ------ ------ ------
65 108 $ 65 $ 108 $ 43 $ 30
====== ====== ====== ======
22 22
------ ------
$ 43 $ 86
====== ======
$ .59 $ 1.17
====== ======
73.8 74.4
<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. The basis
of consolidation is described in Note A.
</TABLE>
<PAGE>
<PAGE 5>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Millions of dollars
- --------------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------------ ------------------------------ ------------------------------
July 31 October 31 July 31 July 31 October 31 July 31 July 31 October 31 July 31
1996 1995 1995 1996 1995 1995 1996 1995 1995
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- -----------------------------------
Cash and cash equivalents ......... $ 201 $ 485 $ 298 $ 155 $ 461 $ 223 $ 46 $ 24 $ 75
Marketable securities ............. 386 555 431 252 415 292 134 140 139
------ ------ ------ ------ ------ ------ ------ ------ ------
587 1,040 729 407 876 515 180 164 214
Receivables, net .................. 1,503 1,854 1,305 261 274 276 1,348 1,672 1,149
Inventories ....................... 549 416 477 549 416 477 - - -
Property, net of accumulated
depreciation and amortization
of $824, $764 and $739 .......... 703 683 617 643 642 582 60 41 35
Equity in Financial Services
subsidiaries .................... - - - 303 282 277 - - -
Investments and other assets ...... 188 166 177 142 122 141 46 44 36
Prepaid and intangible pension
assets ......................... 323 320 365 322 319 364 1 1 1
Deferred tax asset ................ 1,055 1,087 1,075 1,055 1,087 1,075 - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total assets ...................... $4,908 $5,566 $4,745 $3,682 $4,018 $3,707 $1,635 $1,922 $1,435
====== ====== ====== ====== ====== ====== ====== ====== ======
LIABILITIES AND
SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable .................. $ 750 $ 933 $ 737 $ 675 $ 876 $ 683 $ 176 $ 146 $ 170
Debt .............................. 1,118 1,457 939 122 127 122 996 1,330 817
Postretirement benefits liability . 1,323 1,341 1,236 1,316 1,334 1,229 7 7 7
Other liabilities ................. 811 965 920 663 811 760 153 157 164
------ ------ ------ ------ ------ ------ ------ ------ ------
Total liabilities ............. 4,002 4,696 3,832 2,776 3,148 2,794 1,332 1,640 1,158
------ ------ ------ ------ ------ ------ ------ ------ ------
Shareowners' equity
Series G convertible preferred
stock (liquidation preference
$240 million) ................... 240 240 240 240 240 240 - - -
Series D convertible junior
preference stock (liquidation
preference $4 million) .......... 4 4 4 4 4 4 - - -
Common stock (51.0, 50.9 and
50.5 million shares issued) ..... 1,642 1,641 1,635 1,642 1,641 1,635 178 178 178
Class B Common stock (24.3, 24.3
and 24.7 million shares issued). 491 491 496 491 491 496 - - -
Retained earnings (deficit) -
balance accumulated after the
deficit reclassification ........ (1,441) (1,478) (1,439) (1,441) (1,478) (1,439) 125 104 99
Common stock held in treasury,
at cost ......................... (30) (28) (23) (30) (28) (23) - - -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total shareowners' equity ..... 906 870 913 906 870 913 303 282 277
------ ------ ------ ------ ------ ------ ------ ------ ------
Total liabilities
and shareowners' equity ......... $4,908 $5,566 $4,745 $3,682 $4,018 $3,707 $1,635 $1,922 $1,435
====== ====== ====== ====== ====== ====== ====== ====== ======
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of the company's manufacturing
operations with its wholly owned financial services subsidiaries included under the equity
method of accounting. "Financial Services" includes the company's wholly owned subsidiary,
Navistar Financial Corporation, and other wholly owned finance and insurance subsidiaries.
Transactions between Manufacturing and Financial Services have been eliminated from the
"Navistar International Corporation and Consolidated Subsidiaries" columns. The basis of
consolidation is described in Note A.
</TABLE>
<PAGE>
<PAGE 6>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Nine Months Ended July 31 (Millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries Manufacturing* Financial Services*
------------------------- ------------------ ------------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operations
Net income ............................... $ 65 $ 108 $ 65 $ 108 $ 43 $ 30
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation and amortization .......... 75 63 68 59 7 4
Equity in earnings of Financial Services,
net of dividends received ............ - - (23) (24) - -
Deferred income taxes .................. 35 58 35 58 - -
Additional pension funding .............. - (72) - (72) - -
Change in operating assets and liabilities:
Receivables .......................... 189 146 85 (3) - -
Inventories .......................... (134) (48) (134) (48) - -
Prepaid and other current assets ..... (13) - (13) - - -
Accounts payable ..................... (187) (103) (198) (95) (50) (3)
Other liabilities .................... (164) 77 (158) 76 (5) 7
Other, net ............................. (25) (5) (5) 4 (20) (9)
------ ------ ------ ------ ------ ------
Cash provided by (used in) operations ... (159) 224 (278) 63 (25) 29
------ ------ ------ ------ ------ ------
Cash flow from investment programs
Purchase of retail notes and lease
receivables ............................ (844) (748) - - (844) (748)
Collections/sales of retail notes
and lease receivables ................. 1,016 805 - - 1,016 805
Cash collections in excess of acquisitions
of wholesale notes and accounts
receivable ............................ - - - - 164 138
Purchase of marketable securities ........ (519) (473) (456) (419) (63) (54)
Sales or maturities of marketable
securities ............................. 684 352 616 293 68 59
Proceeds from property sold
under sale/leaseback ................... 7 - 7 - - -
Capital expenditures ..................... (72) (91) (72) (91) - -
Advance to Navistar Financial ............ - - (82) (99) 82 99
Other investment programs, net ........... (32) 4 (7) 13 (25) (9)
------ ------ ------ ------ ------ ------
Cash provided by (used in) investment
programs ............................... 240 (151) 6 (303) 398 290
------ ------ ------ ------ ------ ------
Cash flow from financing activities
Principal payments on debt ............... (129) (409) (12) (9) (117) (400)
Net increase (decrease) in notes and
debt outstanding under bank revolving
credit facility and asset-backed
and other commercial paper programs .... (214) 104 - - (214) 104
Dividends paid ........................... (22) (22) (22) (22) (20) (6)
Repurchase of Class B Common stock ....... - (5) - (5) - -
------ ------ ------ ------ ------ ------
Cash used in financing activities ....... (365) (332) (34) (36) (351) (302)
------ ------ ------ ------ ------ ------
Cash and cash equivalents
Increase (decrease) during the period .. (284) (259) (306) (276) 22 17
At beginning of the year ............... 485 557 461 499 24 58
------ ------ ------ ------ ------ ------
Cash and cash equivalents
at end of the period ................... $ 201 $ 298 $ 155 $ 223 $ 46 $ 75
====== ====== ====== ====== ====== ======
<FN>
See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of the company's
manufacturing operations with its wholly owned financial services subsidiaries
included under the equity method of accounting. "Financial Services" includes
the company's wholly owned subsidiary, Navistar Financial Corporation, and
other wholly owned finance and insurance subsidiaries. Transactions between
Manufacturing and Financial Services have been eliminated from the "Navistar
International Corporation and Consolidated Subsidiaries" columns. The basis
of consolidation is described in Note A.
</TABLE>
<PAGE>
<PAGE 7>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note A. Summary of Accounting Policies
Navistar International Corporation is a holding company whose principal
operating subsidiary is Navistar International Transportation Corp.
("Transportation"). As used hereafter, "company" refers to Navistar
International Corporation and its consolidated subsidiaries.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1995 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In addition to the consolidated financial statements, the company has
elected to provide financial information in a format that presents the
operating results, financial condition and cash flow from operations
designated as "Manufacturing" and "Financial Services." As used herein and
in the 1995 Annual Report on Form 10-K, Manufacturing includes the
consolidated financial results of the company's manufacturing operations
with its wholly owned financial services subsidiaries included on a one-line
basis under the equity method of accounting. Financial Services includes
the consolidated financial results of Navistar Financial Corporation
("Navistar Financial"), its domestic insurance subsidiary and foreign
finance and insurance subsidiaries.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position, results of operations and cash
flow for the periods presented. Interim results are not necessarily
indicative of results for the full year. Certain 1995 amounts have been
reclassified to conform with the presentation used in the 1996 financial
statements.
Note B. Supplemental Cash Flow Information
On the Statement of Cash Flow, "Cash collections in excess of
acquisitions" 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 during the first nine months of 1996 and
1995 were $67 million and $65 million, respectively. Consolidated tax
payments made during the first nine months of 1996 and 1995, were $3 million
and $5 million, respectively.
<PAGE>
<PAGE 8>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note C. Income Taxes
The benefit of Net Operating Loss (NOL) carryforwards is recognized as
a deferred tax asset in the Statement of Financial Condition, while the
Statement of Income includes income taxes calculated at the statutory rate.
The amount reported does not represent cash payment of income taxes except
for certain state income, foreign withholding and federal alternative
minimum taxes which are not material. In the Statement of Financial
Condition, the deferred tax asset is reduced by the amount of deferred tax
expense or increased by a deferred tax benefit recorded during the year.
Until the company has utilized its significant NOL carryforwards, the cash
payment of federal income taxes will be minimal.
Note D. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1996 1995 1995
- -------------------------------------------------------------------------
Finished products .................. $ 302 $ 167 $ 215
Work in process .................... 111 91 100
Raw materials and supplies ......... 136 158 162
------- ------- -------
Total inventories .................. $ 549 $ 416 $ 477
======= ======= ========
Note E. Financial Instruments
Navistar Financial enters into forward interest rate contracts to
manage its exposures to fluctuations in funding costs from the anticipated
securitization and sale of retail notes. Gains or losses incurred with the
closing of these agreements are included as a component of the gain or loss
on the sale of receivables.
In February and May 1996, Navistar Financial entered into short-term
forward interest rate lock agreements totalling $450 million on Treasury
securities maturing in 1998 related to the sale of retail receivables in May
1996. These hedge agreements were closed in May 1996 in conjunction with
the sale of $460 million of retail notes receivable.
In August and September 1996, Navistar Financial entered into $300
million of forward interest rate lock agreements on a Treasury security
maturing in 1998 related to the anticipated sale of retail receivables
sometime in November 1996.
<PAGE>
<PAGE 9>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note F. 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.
Transportation 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 then appealed to the Oklahoma Supreme Court.
On June 10, 1996, the Oklahoma Supreme Court dismissed its review of
the Court of Appeals decision and left standing the Court of Appeals
decision reversing the jury verdict. The company has made the appropriate
motions for return of its bond and expects the bond to be returned in due
course.
Note G. Environmental Matters
In the fourth quarter of 1994, Transportation recorded a charge for
potential clean-up costs related to two formerly owned businesses, Wisconsin
Steel and Solar Turbines, Inc. (Solar), as disclosed in Note 5 to the
company's Annual Report on Form 10-K. During the third quarter of 1995,
Transportation and Solar entered into an agreement providing for the joint
funding of future site studies and necessary corrective action at the
facility. The agreement also provides for arbitration to revolve a dispute
over past remediation costs incurred by Solar.
There has been no change in Transportation's estimate of the
anticipated clean-up costs of the Wisconsin Steel and Solar sites reported
at October 31, 1995.
Note H. Subsequent Event
During the third quarter of 1996, the company announced plans for the
production of the Next Generation Truck (NGT) at its Springfield, Ohio
assembly facility. To achieve the necessary financial returns for the new
program, the company made proposals to the UAW (United Automobile, Aerospace
and Agricultural Implement Workers of America) to obtain modifications to
the existing labor contract and will continue to fund the NGT program as
long as rapid and significant progress is being made toward reaching an
acceptable agreement with the UAW. If negotiations are unsuccessful, the
company's Board of Directors has authorized management to halt development
of the NGT program and to evaluate various strategy alternatives aimed at
improving the company's competitiveness. Management estimates that as of
August 31, 1996 a complete termination of the NGT program would have
resulted in a charge to earnings of approximately $30 million.
<PAGE>
<PAGE 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated
The company reported net income of $17 million, or $0.13 per common
share for the third quarter ended July 31, 1996, compared with net income of
$39 million, or $0.43 per common share for the comparable quarter last year.
For the first nine months of 1996, the company reported net income of $65
million, a decrease from the $108 million reported for the same period in
1995.
Consolidated sales and revenues for the third quarter of 1996 totaled
$1,391 million compared with $1,514 million reported in 1995. During the
first nine months of 1996, consolidated sales and revenues declined 6% to
$4,303 million from $4,570 million.
Manufacturing
Third Quarter Ended July 31, 1996
---------------------------------
Manufacturing, excluding Financial Services, reported income before
income taxes of $2 million compared with pretax income of $40 million in
the third quarter of 1995. The change reflects a decline in demand for
trucks partially offset by the effect of ongoing cost improvement
initiatives and continued strong sales of mid-range diesel engines and
service parts.
Third quarter 1996 industry retail sales of Class 5 through 8 trucks
totaled 91,900 units, a decrease of 8% over 1995. Class 8 heavy truck sales
of 50,400 units during the third quarter of 1996 were 16% lower than the
1995 level of 60,000 units. Industry sales of Class 5, 6 and 7 medium
trucks, including school buses, increased 3% to 41,500 units. Industry
sales of school buses, which accounted for 22% of the medium truck market,
increased 4%.
Manufacturing's sales of trucks, diesel engines and service parts for
the third quarter of 1996 totaled $1,325 million compared with $1,455
million reported for the same period in 1995. The company maintained its
position as sales leader in the combined United States and Canadian Class 5
through 8 truck market with a 28.2% market share for the third quarter of
1996, an improvement from the 26.9% market share reported in 1995.
Shipments of mid-range diesel engines by the company to other original
equipment manufacturers during the third quarter of 1996 totaled 36,100
units, a 6% decrease from the same period of 1995. Lower shipments to a
major automotive manufacturer for use in the light trucks and vans which use
this engine was the primary reason for the decrease.
Service parts sales of $185 million in the third quarter of 1996 were
4% higher than the $178 million reported in 1995.
Operating Costs and Expenses. Manufacturing gross margin was 12.6% of sales
for the third quarter of 1996 compared with 14.0% for the same period in
1995. The decrease in gross margin is primarily the result of lower sales
volumes and more competitive pricing partially offset by improved operating
efficiency.
<PAGE>
<PAGE 11>
Marketing and administrative expense increased to $75 million in the
third quarter of 1996 from $72 million in 1995 reflecting investment in the
company's strategy for the manufacture of the next generation of medium
trucks.
Nine Months Ended July 31, 1996
-------------------------------
Pretax income, excluding Financial Services, for the first nine months
of 1996 was $36 million compared with $126 million reported for the same
period of 1995.
Manufacturing's sales and revenues during this period totaled $4,144
million, 7% lower than the first three quarters of 1995. During the first
nine months of 1996, sales of trucks declined 11% while sales of diesel
engines to other original equipment manufacturers increased 4%. Service
parts sales were 5% higher than in the same period of 1995.
Industry retail sales of Class 5 through 8 trucks during the first nine
months of fiscal 1996 totaled 259,800 units, a decrease from the 287,200
units sold during this period in 1995. The company remained the sales
leader in the combined United States and Canadian Class 5 through 8 truck
market for the first three quarters of the fiscal year with a 26.9% market
share, a slight increase over the 26.2% market share reported for the same
period last year.
Manufacturing gross margin for the first nine months of 1996 was 12.8%
compared with 13.5% in 1995. The factors which influenced gross margin
during the third quarter of 1996 were also responsible for the change during
the first nine months of the year.
Marketing and administrative expense increased to $232 million for the
first three quarters of 1996 from $221 million in 1995 reflecting investment
in the company's strategy for the manufacture of the next generation of
medium trucks.
Financial Services
Financial Services' pretax income for the third quarter of 1996 was $26
million, an improvement from the $23 million reported in 1995. Navistar
Financial was responsible for the change which reflects higher income on
sales of retail receivables and higher retail note balances.
The increase in pretax income from $47 million for the first nine
months of 1995 to $69 million in 1996 reflects higher income on sales of
retail notes and higher levels of wholesale note financing. During the
first three quarters of 1996, sales of receivables totaled $985 million with
a gain of $20 million compared with $740 million sold a year ago with a gain
of $5 million. The improved gains on sales resulted from higher margins on
retail notes reflecting declining market 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 $587
million at July 31, 1996, $1,040 million at October 31, 1995 and $729
million at July 31, 1995.
<PAGE>
<PAGE 12>
Manufacturing
Cash used in operations during the first nine months of 1996 totaled
$278 million, primarily from a net change in operating assets and
liabilities of $418 million. The net change in operating assets and
liabilities includes an $85 million decrease in receivables offset by a
reduction in accounts payable of $198 million resulting from lower
production, higher inventories and a $158 million decrease in other
liabilities. The decline in other liabilities is the result of the payment
to employees as required by the company's profit sharing agreements as well
as the timing of planned pension funding.
Investment programs provided $6 million in cash as sales of marketable
securities exceeded purchases by $160 million. This cash was used to fund
capital expenditures for truck product improvement, to increase diesel
engine capacity and to improve cost performance as well as for an $82
million advance to Navistar Financial. Financing programs used cash to pay
$22 million in dividends on the Series G Preferred Stock and to reduce debt
by $12 million.
At July 31, 1996, the company had outstanding capital commitments of
$42 million. The commitments include truck and engine product development
and ongoing facility maintenance programs. The company finances capital
expenditures principally through internally generated cash. Capital leasing
is used to fund selected projects based on economic and operating factors.
It is the opinion of management that, in the absence of significant
unanticipated cash demands, current and forecasted cash flow will provide a
basis for financing operating requirements, capital expenditures and
anticipated payments of preferred dividends.
Financial Services
Operations used $25 million in cash through the third quarter of 1996
primarily reflecting a payment to Manufacturing. Cash from investment
programs funded Financial Services' operations and financing activities.
Investment programs provided $398 million during this period principally as
a result of a net decrease of $336 million in retail and wholesale finance
notes and receivables and $82 million in funds advanced to Navistar
Financial by Transportation. Financing activities used $351 million
primarily to reduce debt.
Receivable sales were a significant source of funding in 1996 and 1995.
During the first nine months of 1996, Navistar Financial sold $985 million
of retail notes, net of unearned finance income, through Navistar Financial
Retail Receivables Corporation (NFRRC), realizing net proceeds from the
sales of $935 million. During the same period in 1995, Navistar Financial
sold $740 million of retail notes receivables with net proceeds of $693
million. In both years, the net proceeds were used for general working
capital purposes.
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.
This registration statement, along with two previously issued registrations,
allow NFRRC to issue up to $5,000 million of asset-backed securities. At
July 31, 1996, the remaining shelf registration available to NFRRC was
$2,400 million.
<PAGE>
<PAGE 13>
Effective March 29, 1996, Navistar Financial amended and restated its
$900 million bank revolving credit facility and its $300 million asset-
backed commercial paper (ABCP) program, extending the maturity date of each
facility to March 2001. In addition, the commitment of the bank revolving
credit facility was expanded to $925 million, the ABCP facility was
increased to $400 million and a new pricing and fee schedule was
established.
At July 31, 1996, available funding under the amended and restated
credit facility and the asset-backed commercial paper facility was $551
million, of which $118 million was used to back short-term debt at July 31,
1996. The remaining $433 million, when combined with unrestricted cash and
cash equivalents made $453 million available to fund the general business
purposes of Navistar Financial at July 31, 1996.
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.
Business Outlook
During the first three quarters of 1996, the Class 5 through 8 truck
market experienced a significant decline in the rate of new truck orders and
an increase in the cancellation of some existing orders. Accordingly,
retail deliveries in 1996 will be highly dependent on the rate at which new
truck orders are received. Anticipating lower year-over-year truck demand
levels, management will balance production with demand as appropriate to
assure that the company's operating and financial objectives for the year
are met.
As a result of a decline in truck orders which reflect a softening of
certain key economic indicators in the truck industry, the company currently
projects 1996 United States and Canadian Class 8 heavy truck demand to be
190,000 units, a 17% decrease from 1995. Class 5, 6 and 7 medium truck
demand, including school buses, is forecast at 147,500 units, a 3% decrease
from 1995. Diesel engine shipments by the company to other original
equipment manufacturers in 1996 are expected to be approximately 162,400
units, a 4% increase from 1995. The company's parts sales are expected to
grow 6% to $773 million.
During the third quarter of 1996, the company announced plans for the
production of the Next Generation Truck (NGT) at its Springfield, Ohio
assembly facility. To achieve the necessary financial returns for the new
program, the company made proposals to the UAW (United Automobile, Aerospace
and Agricultural Implement Workers of America) to obtain modifications to
the existing labor contract and will continue to fund the NGT program as
long as rapid and significant progress is being made toward reaching an
acceptable agreement with the UAW. If these negotiations are unsuccessful,
the company's Board of Directors has authorized management to halt
development of the NGT program and to evaluate various strategy alternatives
aimed at improving the company's competitiveness. Management estimates that
as of August 31, 1996, a complete termination of the NGT program would have
resulted in a charge to earnings of approximately $30 million.
<PAGE>
<PAGE 14>
Navistar International Corporation and Consolidated Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal Proceedings"
in the company's definitive Form 10-K dated January 26, 1996,
Commission File No. 1-9618.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 10-Q Page
---------
11. Computation of Net Income Per Share E-1
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the three months
ended July 31, 1996.
<PAGE>
<PAGE 15>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NAVISTAR INTERNATIONAL CORPORATION
- ----------------------------------
(Registrant)
/s/ J. Steven Keate
- ----------------------------------
J. Steven Keate
Vice President and Controller
September 11, 1996
<PAGE 1>
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
A. Primary: See the Statement of Income of this Form 10-Q.
B. Full Dilution: Net income per common share assuming full dilution is
computed by assuming that all options and warrants which are exercisable
below market prices are exercised and the proceeds applied to reduce
common stock outstanding. The computations assume that convertible
preferred and preference stock are converted to common stock. Income is
divided by the average number of common shares outstanding and
unconditionally issuable at the end of each month during the period,
adjusted for the net effects of the exercise of options and warrants and
the conversion of convertible preferred and preference stocks.
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31 JULY 31
------------------ -------------------
Millions of Dollars 1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income ............... $ 17 $ 39 $ 65 $ 108
======== ======== ======== ========
Average Common and
common equivalent
shares (millions):
Average common shares
outstanding as adjusted
per primary calculations
(millions) .............. 73.8 74.3 73.8 74.4
Assuming conversion of
Series G Preferred Stock .6 .6 .6 .6
-------- -------- -------- --------
Average common and dilutive
common equivalent shares
as adjusted ............ 74.4 74.9 74.4 75.0
======== ======== ======== ========
Income per common share
assuming full dilution
(dollars):
Net income ............... $ .22 # $ .53 # $ .87 # $ 1.45 #
======== ======== ======== ========
- ---------------
<FN>
# This calculation is submitted in accordance with Regulation S-K item
601(b)(11) of the Securities Exchange Act although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
</TABLE>
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 201
<SECURITIES> 386
<RECEIVABLES> 1,527
<ALLOWANCES> (24)
<INVENTORY> 549
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,527
<DEPRECIATION> (824)
<TOTAL-ASSETS> 4,908
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,118
0
244
<COMMON> 2,133
<OTHER-SE> (1,471)
<TOTAL-LIABILITY-AND-EQUITY> 4,908
<SALES> 1,325
<TOTAL-REVENUES> 1,391
<CGS> 1,159
<TOTAL-COSTS> 1,363
<OTHER-EXPENSES> 52
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 28
<INCOME-TAX> (11)
<INCOME-CONTINUING> 17
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<FN>
<F1>The company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
