<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, 1996
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
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
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 10, 1997, the aggregate market value of Common Stock
(excluding Class B Common Stock) held by non-affiliates of the registrant
was $474,914,546.
As of January 10, 1997, the number of shares outstanding of the
registrant's Common Stock was 49,341,771 and the Class B Common Stock was
24,292,606.
Documents Incorporated by Reference
-----------------------------------
1996 Annual Report to Shareowners (Parts I, II and IV)
1996 Proxy Statement (Parts I and III)
Navistar Financial Corporation 1996 Annual Report on Form 10-K (Part IV)
<PAGE>
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
FORM 10-K
Year Ended October 31, 1996
INDEX
10-K Page
---------
PART I
Item 1. Business .......................................... 3
Item 2. Properties ........................................ 8
Item 3. Legal Proceedings ................................. 8
Executive Officers of the Registrant .............. 9
Item 4. Submission of Matters to a Vote of
Security Holders ................................ 11
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ................. 11
Item 6. Selected Financial Data ........................... 11
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition 11
Item 8. Financial Statements and Supplementary Data ....... 11
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure ........................ 11
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation ........................... 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management .......................... 12
Item 13. Certain Relationships and Related Transactions ... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K ........................ 12
SIGNATURES
Principal Accounting Officer ............................... 14
Directors .................................................. 15
POWER OF ATTORNEY ............................................ 15
INDEPENDENT AUDITORS' REPORT ................................. 17
INDEPENDENT AUDITORS' CONSENT ................................ 17
SCHEDULE ..................................................... 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 two principal industry segments: manufacturing and financial
services. Manufacturing operations are responsible for the manufacture
and marketing of medium and heavy trucks, including school buses, mid-
range diesel engines and service parts primarily in the United States and
Canada as well as in selected export markets. Based on assets and
revenues, manufacturing operations represent the majority of
Transportation's business activities. The financial services operations
consist of Navistar Financial Corporation (Navistar Financial), its
domestic insurance subsidiary and the company's foreign finance and
insurance subsidiaries. Navistar Financial's primary business is the
retail and wholesale financing of products sold by the manufacturing
operations and its dealers within the United States and the providing of
commercial physical damage and liability insurance to the manufacturing
operations' dealers and retail customers and to the general public through
an independent insurance agency system. Industry segment data for 1996,
1995, and 1994 is summarized in Note 15 to the Financial Statements, which
is incorporated herein by reference.
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, in
thousands of units:
YEARS ENDED OCTOBER 31,
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Class 5, 6 and 7 medium
trucks and school buses .. 145.8 151.8 134.2 122.5 118.3
Class 8 heavy trucks ....... 195.4 228.8 205.4 166.4 125.2
----- ----- ----- ----- -----
Total .................... 341.2 380.6 339.6 288.9 243.5
===== ===== ===== ===== =====
Source: Monthly data provided by the American Automobile
Manufacturers Associations (AAMA) in the United States and Canada, and
other sources.
<PAGE>
<PAGE 4>
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.
TRANSPORTATION MARKET SHARE
Transportation delivered 94,000 Class 5 through 8 trucks, including
school buses, in the United States and Canada in fiscal 1996, an 8%
decrease from the 101,700 units delivered in 1995. Navistar's combined
share of the Class 5 through 8 truck market was 27.5% in 1996 and 26.7% in
1995. 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 16 fiscal years based on data obtained from the
American Automobile Manufacturer's Association, the United States Motor
Vehicle Manufacturer's Association and R.L. Polk & Company.
PRODUCTS
The following table illustrates the percentage of Transportation's
manufacturing sales by class of product based on dollar amount:
YEARS ENDED OCTOBER 31,
-----------------------
PRODUCT CLASS 1996 1995 1994
- ------------- ---- ---- ----
Class 5, 6 and 7 medium
trucks and school buses .. 35% 32% 32%
Class 8 heavy trucks ....... 35 42 42
Service parts .............. 14 12 14
Engines .................... 16 14 12
---- ---- ----
Total .................... 100% 100% 100%
==== ==== ====
Transportation manufactures a full line of products in the common
carrier, private carrier, government/service, leasing, construction,
energy/petroleum and student transportation markets. 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. Based upon information published by R.L.
Polk & Company, diesel-powered Class 5, 6 and 7 medium truck shipments
represented 87% of all medium truck shipments for fiscal year 1996 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.
<PAGE>
<PAGE 5>
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
Power Systems Research of Minneapolis, Minnesota.
Transportation has an agreement to supply its T444E electronically
controlled diesel engine 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 of V8 and I6 engines to
all original equipment manufacturers totaled a record 163,200 units in
1996, an increase of 6% from the 154,200 units shipped in 1995.
SERVICE PARTS
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.
MARKETING AND DISTRIBUTION
Transportation's truck products are distributed in virtually all key
markets in the United States and Canada. Transportation's truck
distribution and service network in these countries was composed of 957,
958 and 949 dealers and retail outlets at October 31, 1996, 1995 and 1994,
respectively. Included in these totals were 504, 490 and 473 secondary
and associate locations at October 31, 1996, 1995 and 1994, 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 110 major national
account customers. Transportation's network of 13 Used Truck Centers in
the United States provides trade-in support to the company's dealers and
national account group, and markets all makes and models of reconditioned
used trucks to owner-operators and fleet buyers. Both wholesale and
retail trucks, components and service parts are exported to more than 70
countries around the world.
FINANCIAL SERVICES
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 1996 and 1995, Navistar Financial
provided wholesale financing for 94% and 93%, respectively, of the new
truck units sold by Transportation to its dealers and distributors in the
United States.
<PAGE>
<PAGE 6>
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.
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.
IMPORTANT SUPPORTING OPERATIONS
Third Party Sales Financing Agreements. In the United States,
Transportation has an agreement with Associates Commercial Corporation to
provide wholesale financing to certain of its truck dealers and retail
financing to their customers. Navistar International Corporation Canada
also has an agreement with a subsidiary of General Electric Canadian
Holdings Limited to provide financing for Canadian dealers and customers.
RESEARCH AND DEVELOPMENT
Research and development activities, which are directed toward the
introduction of new products and improvements of existing products and
processes used in their manufacture, totaled $101 million, $91 million,
and $88 million for 1996, 1995 and 1994, respectively.
BACKLOG
The backlog of unfilled truck orders (subject to cancellation or
return in certain events) at October 31, 1996, 1995 and 1994 was $1,254
million, $2,581 million and $3,358 million, respectively.
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 company employed 14,187, 16,079 and 14,910 individuals at October
31, 1996, 1995 and 1994, respectively.
LABOR RELATIONS
At October 31, 1996, the United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW) represented 6,902 of the
company's active employees in the United States, and the Canadian Auto
Workers (CAW) represented 1,476 of the company's active employees in
Canada. Other unions represented 1,022 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. In addition, the company entered into a collective bargaining
agreement with the CAW in 1996, which expires on October 24, 1999.
<PAGE>
<PAGE 7>
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. 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.
While the company believes that it has adequate assurances of
continued supply, the inability of a supplier to deliver could have an
adverse effect on production at certain of the company's manufacturing
locations.
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers continue to face increasing
governmental regulation of their products, especially in the areas of
environment and safety. The company believes its products comply with all
applicable environmental and safety regulations.
As a diesel engine manufacturer, the company has incurred research
and tooling costs to redesign its engine product lines to meet United
States Environmental Protection Agency (U.S. EPA) and California Air
Resources Board (CARB) emission standards effective for the 1994 model
year. The company faces 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 a voluntary
agreement (Statement of Principles) with U.S. EPA and CARB to achieve new
reductions in ozone-causing exhaust emissions by 2004. As a result of the
Statement of Principles, U.S. EPA issued a Notice of Proposed Rulemaking
defining exhaust emission standards for the 2004 model year. A final rule
is expected in the early part of 1997. The company must also satisfy
California's emission standards in 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 within the required time-frame.
<PAGE>
<PAGE 8>
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 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.
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 in Chicago, Illinois, and Solar Turbine in San
Diego, California. In 1994, Transportation recorded a $20 million after-
tax charge as a loss of discontinued operations for environmental
liabilities and cleanup cost at these two sites. It is not expected that
the costs of compliance with foreseeable environmental requirements will
have a material effect on the company's financial position or operating
results.
ITEM 2. PROPERTIES
In the United States and Canada, Transportation owns and operates 9
manufacturing and assembly operations, which contain approximately 9
million square feet of floor space. Four facilities manufacture and
assemble trucks, 2 plants manufacture diesel engines, 2 locations produce
gray iron castings and 1 facility produces molded fiberglass components.
In addition, Transportation owns or leases other significant properties in
the United States and Canada including vehicle and parts distribution
centers, sales offices, an engineering center and its headquarters in
Chicago.
Transportation's principal research and engineering facilities are
located in Fort Wayne, Indiana, and Melrose Park, Illinois. In addition,
certain research is conducted at its manufacturing plants.
All of Transportation's plants are being utilized and have been
maintained adequately, are in good operating condition and are suitable
for its current needs through productive utilization of the facilities.
These facilities, together with planned capital expenditures, are expected
to meet Transportation's manufacturing needs in the foreseeable future.
A majority of the activity of the financial services operations is
conducted from its leased headquarters in Rolling Meadows, Illinois. The
financial services operations also lease 6 other office locations in the
United States and share office space with other locations.
ITEM 3. LEGAL PROCEEDINGS
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 routing 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 9>
EXECUTIVE OFFICERS
The following selected information for each of the company's current
executive officers was prepared as of January 16, 1997.
OFFICERS AND POSITIONS WITH
NAME AGE NAVISTAR AND OTHER INFORMATION
---- --- ------------------------------
John R. Horne ....... 58 Chairman, President and Chief
Executive Officer in 1996
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
Executive Officer, 1995-1996,
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.
Donald DeFosset, Jr. . 48 Executive Vice President and
President, Truck Group in 1996.
Mr. DeFosset is also Executive
Vice President, Truck Group
of Transportation in 1996.
Prior to this, Mr. DeFosset
served as President, Allied
Signal Safety Restraints
Systems of Allied Signal
Inc., 1993 - 1996, Group
Executive and General Manager,
Allied Signal Turbocharging
and Truck Brake Systems,
1992 - 1993, and Vice
President, Planning and
Business Development in 1992
and served as Executive Vice
President, Operations for Mack
Trucks, 1989 - 1992.
Robert C. Lannert ... 56 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 .. 49 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.
<PAGE>
<PAGE 10>
EXECUTIVE OFFICERS (continued)
OFFICERS AND POSITIONS WITH
NAME AGE NAVISTAR AND OTHER INFORMATION
---- --- ------------------------------
Thomas M. Hough .... 51 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 .... 40 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 .... 45 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 11>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Navistar International Corporation Common Stock is listed on the New
York, Chicago and Pacific Stock Exchanges under the abbreviated stock
symbol "NAV." Information regarding high and low market price per share
of Common Stock for each quarter of 1996 and 1995 is incorporated by
reference from the 1996 Annual Report to Shareowners, page 37, filed as
Exhibit 13 to this Form 10-K. There were approximately 62,307 owners of
Common Stock at October 31, 1996.
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.
PART III
ITEMS 6, 7 AND 8
The information required by Items 6-8 is incorporated herein by
reference from the 1996 Annual Report to Shareowners, filed as Exhibit 13
to this Form 10-K as follows:
1996
Annual
Report
Page
------
ITEM 6. SELECTED FINANCIAL DATA ....................... 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION ......... 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ... 20
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 1996 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
<PAGE>
<PAGE 12>
PART III (Continued)
ITEMS 10, 11 AND 12
Information required by Items 10, 11 and 12 of this Form is
incorporated herein by reference from Navistar's definitive Proxy
Statement for the March 19, 1997 Annual Meeting of Shareowners.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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
1996 Annual Report to Shareowners, filed as Exhibit 13 to this Form 10-K
as follows:
1996
Annual
Report
Page
------
Financial Statements
- --------------------
Independent Auditor's Report ........................... 19
Statement of Income for the years
ended October 31, 1996, 1995 and 1994 ................ 20
Statement of Financial Condition
as of October 31, 1996 and 1995 ...................... 21
Statement of Cash Flow
for the years ended October 31, 1996, 1995 and 1994 .. 22
Notes to Financial Statements .......................... 23
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 1996 Annual
Report to Shareowners.
Finance and Insurance Subsidiaries:
The financial statements of Navistar Financial Corporation for the
years ended October 31, 1996, 1995 and 1994 appearing on pages 9 through
40 in the Annual Report on Form 10-K for Navistar Financial Corporation
for the fiscal year ended October 31, 1996, Commission File No. 1-4146-1,
are incorporated herein by reference and filed as Exhibit 28 to this Form
10-K.
<PAGE>
<PAGE 13>
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 Per Common Share ..... E-5
(13) Navistar International Corporation
1996 Annual Report to Shareowners ............ N/A
(21) Subsidiaries of the Registrant ................. E-6
(23) Independent Auditors' Consent .................. 17
(24) Power of Attorney .............................. 15
(27) Financial Data Schedule N/A .................... N/A
(28) Navistar Financial Corporation Annual Report
on Form 10-K for the fiscal year ended
October 31, 1996 ............................. 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 1996 Annual Report to Shareowners.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed for the three months ended
October 31, 1996.
<PAGE>
<PAGE 14>
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED 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 22, 1997
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE 15>
EXHIBIT 24
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
POWER OF ATTORNEY
Each person whose signature appears below does hereby make,
constitute and appoint John R. Horne and J. Steven Keate 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/ John R. Horne
- ----------------------
John R. Horne Chairman of the Board, January 22, 1997
President and
Chief Executive Officer,
and Director
(Principal Executive
Officer)
/s/ Robert C. Lannert
- ----------------------
Robert C. Lannert Executive Vice President January 22, 1997
and Chief Financial
Officer and Director
(Principal Financial
Officer)
/s/ J. Steven Keate
- ----------------------
J. Steven Keate Vice President January 22, 1997
and Controller
(Principal Accounting
Officer)
/s/ William F. Andrews
- -----------------------
William F. Andrews Director January 22, 1997
<PAGE>
<PAGE 16>
EXHIBIT 24 (CONTINUED)
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
SIGNATURES (Continued)
/s/ Andrew F. Brimmer
- -----------------------
Andrew F. Brimmer Director January 22, 1997
/s/ Richard F. Celeste
- -----------------------
Richard F. Celeste Director January 22, 1997
/s/ John D. Correnti
- -----------------------
John D. Correnti Director January 22, 1997
/s/ James C. Cotting
- -----------------------
James C. Cotting Director January 22, 1997
/s/ William C. Craig
- -----------------------
William C. Craig Director January 22, 1997
/s/ Jerry E. Dempsey
- -----------------------
Jerry E. Dempsey Director January 22, 1997
/s/ John F. Fiedler
- -----------------------
John F. Fiedler Director January 22, 1997
/s/ Mary Garst
- -----------------------
Mary Garst Director January 22, 1997
/s/ Michael N. Hammes
- -----------------------
Michael N. Hammes Director January 22, 1997
/s/ Walter J. Laskowski
- ------------------------
Walter J. Laskowski Director January 22, 1997
/s/ William F. Patient
- ------------------------
William F. Patient Director January 22, 1997
<PAGE>
<PAGE 17>
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED 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,
1996 and 1995, and the related Statements of Income and Cash Flow for each
of the three years in the period ended October 31, 1996, and have issued
our report thereon, dated December 16, 1996; such consolidated financial
statements and report are included in your 1996 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 16, 1996
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 16, 1996, appearing and incorporated by
reference in this Annual Report on Form 10-K of Navistar International
Corporation for the year ended October 31, 1996.
Deloitte & Touche LLP
January 22, 1997
Chicago, Illinois
<PAGE>
<PAGE 1>
<TABLE>
<CAPTION>
SCHEDULE II
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
============
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
(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:
1996
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustment,
receivables .... receivable .... $ 28 $ 21 less recoveries ... $ 18 $ 31
===== ===== ===== =====
1995
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustment,
receivables .... receivable .... $ 25 $ 4 less recoveries ... $ 1 $ 28
===== ===== ===== =====
1994
----
Uncollectible notes
and accounts
Allowance for written off and
losses on Notes and accounts reserve adjustment,
receivables .... receivable .... $ 36 $ 2 less recoveries ... $ 13 $ 25
===== ===== ===== =====
</TABLE>
F-1
<PAGE 1>
EXHIBIT 3
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
ARTICLES OF INCORPORATION AND BY-LAWS
The following documents of Navistar International Corporation are
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.
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 4
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED 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 CONSOLIDATED 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 CONSOLIDATED 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.
10.17 Amendment No. 2 dated as of March 29, 1996, to the Amended
and Restated Credit Agreement dated as of November 4, 1994,
as amended by Amendment No. 1 dated as of December 15, 1995,
among Navistar Financial, certain banks, certain Co-Arranger
banks, and Morgan Guaranty Trust Company of New York, as
Administrative Agent filed on Form 8-K dated June 5, 1996.
Commission File No. 1-4146-1.
10.18 Indenture dated as of November 6, 1996, between Navistar
Financial 1995-B Owner Trust and The Bank of New York,
as Indenture Trustee, with respect to Navistar Financial
1996-A Owner Trust. Filed on Registration No. 33-55865.
10.19 Indenture dated as of November 6, 1996, between Navistar
Financial 1995-B Owner Trust and The Bank of New York,
as Indenture Trustee, with respect to Navistar Financial
1996-B Owner Trust. Filed on Registration No. 33-55865.
E-4
<PAGE 1>
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
A. Primary: See the Statement of Income contained in the Navistar
International Corporation 1996 Annual Report to Shareowners incorporated
herein by reference.
B. Full Dilution: Net income per common share assuming full
dilution is computed by assuming that all options and warrants which are
exercisable below market prices are assumed to be exercised, and the
proceeds applied to reduce common stock outstanding. The computations
assume that convertible preferred and preference stock are converted to
common stock. Income is divided by the 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 1996 1995 1994
- --------------------------------- -------- -------- --------
Income of
continuing operations ......... $ 65 $ 164 $ 102
Loss of
discontinued operations ....... - - (20)
-------- -------- --------
Net income ...................... $ 65 $ 164 82
-------- -------- --------
Average common and common equivalent shares (millions):
Average common shares
outstanding as adjusted
per primary computation ....... 73.8 74.3 74.6
Assuming conversion of Series G . .6 .6 .6
-------- -------- --------
Average common and dilutive
common equivalent shares
as adjusted ................... 74.4 74.9 75.2
======== ======== ========
Income per common share
assuming full dilution
(dollars):
Continuing operations ........ $ .87 # $ 2.20 # $ 1.36 #
Discontinued operations. - - (.27)
-------- -------- --------
Net income ....................... $ .87 # $ 2.20 # $ 1.09 #
======== ======== ========
# 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
1996 ANNUAL REPORT
BUSINESS OVERVIEW
TRUCK GROUP Navistar is the market share leader in the United States and
Canada in combined school bus, medium- and heavy-duty truck sales, with
27.5% share through fiscal year end. The company has unmatched
capabilities to deliver more value to customers"with more than 1,000
International dealers, eight parts distribution centers, 13 used truck
centers and a financial services organization.
- Heavy Truck (Class 8)"Navistar produces premium conventional
tractors for long-haul over-the-highway usage, regular conventional
cabover tractors for local and regional delivery, and severe service
trucks for special applications in construction, mining and oil
field applications.
- Medium Truck (Class 5-7)"Navistar is the market share leader in the
United States and Canada. Applications include regional delivery,
beverage, recycling, refrigerated, utility, construction, towing,
municipal and emergency rescue.
- School Bus"Navistar is the market share leader in the United States
and Canada and offers a range of small capacity and full-size
conventional models. In addition, through AmTran, a wholly owned
subsidiary, the company produces the Genesis and AmTran nameplates.
- Service Parts"To support customers of the truck and bus business,
Navistar has the largest truck service parts distribution network in
the United States, Canada and Mexico with more than 1,000 dealer
locations and eight parts distribution centers, offering more than
350,000 truck, engine and trailer aftermarket parts. Navistar
also offers 24-hour availability of service parts and guaranteed
national pricing on parts and service under its Fleet Charge system.
ENGINE GROUP Navistar is a leader in the production of mid-range diesel
engines, ranging from 175 to 300 horsepower. International engines are
featured in all of the company's medium trucks, school buses and some
heavy trucks. International engines are sold to other original equipment
manufacturers (OEMs) in North America and export markets for use in light
trucks and vans, and for marine, construction, agricultural and industrial
use.
FINANCIAL SERVICES Navistar Financial Corporation provides wholesale,
retail and lease financing for Navistar's dealers and retail customers,
and provides commercial physical damage and liability insurance coverage
through its wholly owned subsidiary, Harco National Insurance Company.
<PAGE>
<PAGE 2>
FINANCIAL SUMMARY
(Millions of dollars, except per share data)
1996 1995
- -----------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
Sales and revenues ................ $5,754 $6,342
Income before income taxes ........ $ 105 $ 262
Net income ........................ $ 65 $ 164
Net income per common share ....... $ .49 $ 1.83
Manufacturing gross margin ........ 12.5% 13.8%
Return on equity .................. 7.1% 18.9%
Cash and marketable securities .... $ 881 $1,040
Achievements
- Unveiled a new five-point truck strategy designed to increase
returns to shareowners by meeting 15% return on assets (ROA)
targets.
- Launched comprehensive capabilities in Mexico, including an
assembly operation, a 24-dealer network and a centralized parts
distribution operation.
- Spun off Columbus Plastics Operation to focus capital on core
truck and engine divisions.
- Became the first diesel engine manufacturer to meet federal
emission standards proposed for the year 2004.
- Created a joint venture for production of highly complex severe
service Paystar trucks at a focused operation in Garland, Texas.
- Partnered with the Canadian Auto Workers in a labor agreement that
achieves work rule changes allowing for manufacturing flexibility
and cost savings.
- Concentrated stripped chassis production at AmTran.
- Introduced the Diamond SPEC truck ordering process to improve
quality and delivery, while enhancing support services with
Diamond PLUS"a new guarantee for truck uptime.
- Delivered improvements in productivity and quality throughout the
Engine Division.
- Ranked number one for the second year in a row by American Truck
Dealers survey, where dealers rate major manufacturers on truck
product lines, service and support.
- Broke ground for a 700,000 square-foot manufacturing facility in
Escobedo, Mexico, to be completed in 1998 with annual production
capacity of 14,000 vehicles to serve that market and Latin America.
- Initiated roll out of a performance-driven culture process to
drive financial results.
<PAGE>
<PAGE 3>
LETTER TO SHAREOWNERS
At Navistar, we've set our sights on a singular vision: to be the
best truck and engine company in North America. This is a bold dream. To
achieve it, we know we must change. Business as usual won't get us there.
Being the best means creating real value for our shareowners. It
means leading our industry in customer satisfaction. And, it means
creating a climate for performance which challenges and motivates our
employees.
In 1996, we took significant steps to drive fundamental change
throughout Navistar.
- We strengthened the blend of executive management with the addition
of Don DeFosset as executive vice president and president, Truck
Group, and Bud Thompson, senior vice president, Employee Relations
& Administration.
- We also continued to change the make-up of our Board of Directors.
In 1996, we added three new directors who lead preeminent companies:
Borg-Warner Automotive, Inc., The Coleman Company, Inc. and The
Geon Company.
- We underwent an exhaustive review of our truck business, forged a
five-point strategy to drive improved performance, and began
rapidly implementing these strategies.
- In our engine division, we reinforced our technological leadership
by becoming the first in our industry to demonstrate our capability
to meet proposed 2004 emissions standards.
- And, we launched a companywide initiative to create a high
performance company culture. This has been an effort led from the
top down and created from the bottom up.
While these actions position us to achieve our vision, our financial
performance, which is reflected in our stock price, remains disappointing.
This, too, must change.
Two events in 1996 are particularly noteworthy in demonstrating our
resolve to change and our departure from business as usual.
First, for the last several years we have been working hard to
develop a next generation of world-class medium trucks. In June, we were
at the stage of the program where investment would escalate dramatically.
Unfortunately, we were unable to reach agreement with the United Auto
Workers on several issues critical to building the trucks profitably. So
we terminated the program. This required a $35 million pretax charge to
earnings and greatly disappointed our employees. Some called it a bold
decision; it had to be made. We could not invest millions of dollars in an
effort that would not deliver the kinds of operating returns that result
in increased shareowner value.
Second, we successfully negotiated a new contract in partnership with
the Canadian Auto Workers. Under this agreement, our Chatham, Ontario
assembly plant and the company overall is on the right track to becoming
more competitive. The flexible work rules, reduced job classifications,
and team assembly approach pave the way for large increases in
productivity and quality.
During the year, we also made progress on other initiatives. For
example, our new Diamond SPEC modular truck offering, which greatly
reduces product complexity, has been well received in the marketplace.
<PAGE>
<PAGE 4>
We began to focus our truck manufacturing to reduce complexity in our
plants. We are simplifying our assembly operations"from the models
produced to the systems and processes involved. During the year, stripped
chassis production was moved from our Springfield, Ohio assembly plant to
our American Transportation Corporation (AmTran) subsidiary in Conway,
Arkansas. Plans are underway to move our severe service trucks from our
Chatham facility to a new joint venture in Texas early in 1997. Our
objective is to focus these plants to achieve that 15% ROA target for our
truck business.
We aggressively expanded our presence in Mexico to take advantage of
anticipated growth in that and other Latin American markets. Navistar now
has 24 dealer locations in Mexico. During the year, we ramped up
production at a contract manufacturing assembly operation to fill the
near-term needs of these dealers, and we launched plans to build our own
facility in Mexico with a capital appropriation of $167 million. This
operation will meet our 15% ROA objective.
We moved forward with new product programs in our premium
conventional truck line which include upgrades that appeal to customers
and that allow for platform and process improvements to improve
profitability.
In our engine division, we continued to develop new technologies and
adopt electronics to improve our diesel engines' air and fuel management,
to reduce emissions, to improve fuel economy and to deliver more power,
torque and product performance features.
And our finance subsidiary, Navistar Financial Corporation, exceeded
their 15% ROA goal for the third year in a row. They also increased their
retail market share to almost 26% in the heavy truck category, and 14% in
medium truck. Yet, while Navistar Financial continues to see strong
performance, in reality, the continued growth of Navistar Financial
depends on our core truck business"in particular Class 8 trucks. These
businesses will continue to work closely together to grow and build long-
term viability.
We also are encouraged by our efforts to create alliances with our
supply base and by the long-term agreements we have forged with proven
manufacturers of component parts.
But at the end of the day, while we have many achievements to report,
our financial performance must improve. The challenges we face are
significant as pricing continues to create pressure, as we face a downturn
in demand, and as competition intensifies. We have, however, a gameplan to
address these challenges with the strategies we have in place. Combined
with management's resolve and the talent and energy of our employees, we
will achieve our dream. We will be the best truck and engine company in
North America.
John R. Horne
Chairman, President and Chief Executive Officer
<PAGE>
<PAGE 5>
REVIEW OF OPERATIONS
We established two criteria as the foundation of our strategies to
deliver acceptable returns to shareowners. Operating management must drive
a 15% return on the assets (ROA) they manage, which will lead to corporate
performance of 17.5% return on equity (ROE).
These are tough targets. They demand change and require us to
stretch. But we can no longer afford to conduct business as usual. In
1996, we reported net income of $65 million, reflecting lower truck sales
and a one-time $35 million pretax charge when we terminated development of
our next generation truck (NGT). At the same time, our manufacturing gross
margin declined to 12.5% of sales in 1996, compared to 13.8% in 1995 and
12.8% in 1994. At the end of the year, we did not achieve our ROA and ROE
objectives.
To address our shareowners' requirements, we spent a great deal of
time in 1996 developing strategies that will enable the company to achieve
these objectives, and now it's time to deliver progress against those
metrics. Only those initiatives and programs that demonstrate a potential
for adequate returns will be funded in the future. Those that do not will
be reworked, or they will not be funded.
This year, our plan to build our next generation truck was
contingent on reaching an agreement with the United Auto Workers on issues
critical to producing the trucks and meeting the 15% ROA target for the
truck business. When an agreement could not be reached, we terminated the
program instead of investing in a program that would not deliver the
targeted returns. While the initiative to produce NGT in Springfield was
the preferred option, we're continuing to pursue new product development
including working with the UAW to find ways to become more cost
competitive.
Our plan to establish operations in Mexico, on the other hand, can
generate a 15% ROA and will provide opportunities for significant revenue
growth. That's why we invested $17 million in developing our capabilities
in Mexico during 1996 and received board approval for an additional $167
million to construct a 700,000 square-foot facility in Escobedo, Mexico.
We expect to be in production by 1998"well positioned and with enough
capacity to meet demand as the Mexican economy recovers, and for export to
other Latin American markets. When we negotiated a new contract with the
Canadian Auto Workers at our Chatham, Ontario assembly plant, the
agreement also was based on achieving the 15% ROA target for the truck
business. With work-rule changes that improve productivity and
manufacturing flexibility, Chatham's ROA will improve by seven percentage
points, bringing the truck business closer to its 15% goal.
Recognizing the need to focus our capital investments on our core
truck and engine businesses, we elected to sell our Columbus Plastics
Operation, which manufactures plastic components for Navistar and other
original equipment manufacturers.
In line with our ROA and ROE metrics, we conducted an intensive
education program in shareowner value for all of our managers throughout
the Navistar organization. Our managers now are equipped with practical
formulas for use in evaluating proposed programs and projects to ensure
they meet our financial targets.
Navistar now is better positioned"with metrics and strategies firmly
established"to achieve strong financial performance. Now, it's time to
deliver.
Navistar unveiled a five-point truck strategy in 1996 that addresses
an increasingly tough competitive environment in North America and our
need to alter our cost structure to deliver strong financial performance
across the business cycle. The strategy comprises a series of initiatives
to improve quality, productivity and product development, and to drive
profitable growth. These initiatives are supported by our financial
services operations and a superior distribution system"a 1,000-location
strong dealer franchise organization in the United States, Canada and
Mexico; a comprehensive service parts network; and an expanding used truck
organization.
<PAGE>
<PAGE 6>
While the performance of the truck group was not acceptable, there
were a number of achievements that will drive improved financial
performance.
One initiative within the truck strategy"reducing product
complexity"resulted in a combination of manufacturing efficiencies and
customer benefits. In 1996, we introduced upgrades of our International
and Eagle 9200 and 9400 model premium conventional trucks featuring common
chassis and standardized componentry. These enhancements reduce complexity
in manufacturing to create efficiencies and improve quality. For
customers, significant improvements in design, styling and features were
implemented to enhance driver comfort and performance. We also introduced
our Diamond SPEC truck ordering process and our Diamond PLUS support
package at the American Trucking Association annual meeting.
We took steps to reduce complexity in our manufacturing operations,
within the framework of our union contracts, to focus our assembly plants
on efficiently producing trucks and meeting marketplace demand. We began
the transfer of stripped chassis from our Springfield, Ohio plant to our
AmTran facility in Conway, Arkansas. Production of the International 8200
heavy truck will cease in 1997, furthering Springfield's transition to a
medium-duty only facility. We also created a joint venture to focus
production of the highly complex Paystar severe service trucks. This helps
our Chatham, Ontario plant focus on building the International and Eagle
9000 models.
In new product development, we introduced the International 9100
conventional truck"built on the same platform as other 9000 series
models"to deliver a combination of benefits to local and regional
transportation companies. These include an improved driver environment,
the effective Diamond Spec and Diamond Plus systems, and a higher residual
value than comparable vehicles. Longer term, our new family of premium
conventional trucks, targeted for production in 1998, will enable us to
provide improved performance and enhancements.
We also were active in bringing new bus models to market, including
the International 3400 shuttle and the rear engine transit bus.
Over the past year, we moved aggressively to expand our presence in
Mexico, which represents an opportunity for growth as we meet customers'
needs there and in other Latin American markets. Our investment there will
allow us to meet future demand as the Mexican economy recovers, and,
within a few years, to reach out to new customers in Latin America.
Finally, we continue to address issues to improve productivity. Most
significant in 1996 was the agreement reached with the Canadian Auto
Workers. Under the terms of the current three-year contract, significant
productivity gains are possible through changes in job classifications,
work rules and training.
In all of our initiatives, we continue to focus on offering more to
our customers through our superior distribution system. The performance of
our school buses, and medium- and heavy-duty trucks drove us to the top of
the industry in dealer satisfaction, as Navistar was rated tops in the
American Truck Dealers "Dealer Attitude Survey" for two years running.
Through our new Customer Satisfaction Process, introduced in 1996, our
entire dealer network is focused on delivering measurable, continuous
improvements.
In our parts operation, we continue to be the truck industry
benchmark for total parts support. We target those customers who can
benefit from one-stop shopping for all their needs, bumper-to-bumper. We
also introduced Fleet Charge Gold to offer customers opportunities to
improve the ways they manage costs. In another effort, we've invested in
business systems to improve the processing of customer orders, speed
delivery of parts and link electronically with both customers and
suppliers.
<PAGE>
<PAGE 7>
Through innovative financing offered by Navistar Financial
Corporation, we're arming our dealers with attractive and flexible
financing choices for our customers. As we drive performance through our
initiatives, we will not lose sight of the needs of our customers and
dealers.
As a worldwide leader in mid-range diesel engines, we have a formula
for performance, combining innovative technologies with our desire to be
the low-cost producer. Evidence of our leadership was illustrated by our
achievements in shipping mid-range diesel engines to other original
equipment manufacturers. In 1996, we shipped a record 163,200 units, which
is a 6% increase from the previous year and a 25% improvement over 1994.
In addition, we exceeded the 15% ROA target in 1996, but our challenge is
to deliver these returns throughout the business cycle.
To strengthen our leadership position and deliver a 15% ROA, we must
stay in high gear, making continued gains in productivity, reducing costs,
managing our inventories and assets, and delivering quality improvements
across our entire product line. We've made significant strides in all of
these areas, including a reduction in total man-hours per engine of more
than 30% over the last two years.
Over the past five years, the market response to our 7.3DI eight-
cylinder engine has been extremely favorable. Since 1991, Ford, our
largest OEM customer, has doubled orders for these engines for use in its
full-size commercial pickup trucks. Our success with Ford, combined with
sales to other OEM customers and off-highway applications, has resulted in
solid growth.
Our focus on growth in 1997 is on serving our major OEMs, continuing
development of our I-6 business and meeting accelerating demand for our V-
8 engines.
To ensure that we can continue to provide customers the best
technology in the industry, we opened our Competitive Intelligence Center
to benchmark our engines against the competition. By conducting in-depth
analysis, we can continue to reduce costs and increase the value of our
engines. For example, we identified and implemented 15 cost-reduction
opportunities for our six-cylinder DT 466E engines to be implemented in
the 1997 model year.
On the product development front, we continue to enhance existing
technologies to add tangible, bottom-line value. This year, we applied our
HEUI (hydraulically-actuated electronically-controlled unit injector)
technology to lead the industry in meeting future emission standards.
Using our HEUI system, we became the first diesel engine manufacturer to
meet stringent government-proposed emission standards for the year 2004.
We reduced smog-producing nitrogen oxide (NOx) levels without increasing
particulate emissions or sacrificing fuel economy.
In developing winning technologies, we will continue to meet our
customers' ongoing, changing needs. This long-term outlook, combined with
an ability to deliver a 15% ROA in any business environment, will fuel
profitable growth.
We know that strategies alone won't do the job. To create an
environment in which aggressive operating strategies can flourish,
employees need to work effectively both individually and in teams. And
that expectation of strong performance must be supported by a work climate
that encourages and rewards behavior that benefits employees, customers
and shareowners.
After gathering ideas and opinions from employees at all levels
throughout the company, we have a clear picture of what is needed to build
the cultural foundation Navistar requires. They've told us, we've
listened, and we've set a course for change.
<PAGE>
<PAGE 8>
Change begins with the senior managers of the company. The old
command and control management style won't work any more. Our people want
to be involved in finding solutions for the challenges they face daily,
and they want to work in an environment characterized by trust and mutual
respect. To prepare themselves to lead the workforce toward this new
environment, senior managers themselves are learning to be more effective
team members"learning to build stronger, more effective work
relationships.
This training for managers is a small part of the development that's
needed to help everyone at Navistar achieve top performance. We've made
continuing education a requirement, not just an option. Our focus now
extends beyond personal development to helping employees see the direct
link between individual and company performance, and ultimately shareowner
value.
Management employees must now take at least 40 hours of core business
and skills education per year including the technical training that's
required to perform many jobs. We also partnered with the United Auto
Workers to introduce a program, called "Joint Focus," to educate Navistar
employees at all levels and locations about business realities. An
important part of this course is helping employees see what drives our
stock price, and how they as individuals play a role in the company's
viability. As approximately one-third of the company's common stock is
held by our employees through the Supplemental Trust, this learning can
help them understand how tightly their personal financial well-being is
intertwined with company performance.
Helping to pilot the change to a performance-driven culture are our
top 450 leaders. We established a Leadership Council with regular meetings
and communications as a means to involve all management in improving
company performance. After our first leadership conference, 98% of the
participants said they had gained a deeper understanding of the company's
strategies, vision and direction, and an appreciation for their role in
helping Navistar achieve them. These individuals are charged with forging
a common understanding of Navistar's vision and strategies throughout the
organization and for delivering on performance commitments. Moreover,
management's progress on corporate strategies will be rewarded through
their annual incentive compensation.
Navistar people have immense pride in our company and our products.
Our challenge is to create a work environment that focuses this pride on
delivering results.
International expansion adds to the growth opportunities for both our
truck and engine operations. During the past year, we moved aggressively
to strengthen our presence in Mexico, a market that affords significant
opportunities for growth and meets our 15% ROA requirement for investment.
In 1996, we quickly launched manufacturing capabilities, a dealer
network and a service parts business in Mexico with an investment of $17
million. A contract manufacturing agreement satisfies our need for short-
term production capability for the International 4700 and 4900 medium
trucks and International 9200 tractors. We produced 300 trucks in 1996,
and achieved a 6% market share in Mexico. We expect to produce 1,000
trucks for Mexico in 1997.
To serve long-range market demand, Navistar's Board of Directors
approved a $167 million appropriation for construction of our own
manufacturing facility in Escobedo, Nuevo Leon. The 700,000 square-foot
plant will start production in 1998, and will have the capacity to produce
65 units per day on one shift. Volume will be increased as demand rises
with the growing strength of the Mexican economy. Increased distribution
needs will be served by an additional 30 dealer outlets scheduled to open
by 1999.
Our Mexico operations also will serve as a launch point for other
Latin American countries, as Mexico enjoys favorable and cost effective
trade agreements with many of these countries.
<PAGE>
<PAGE 9>
Beyond this strategic initiative, we continue to grow our businesses
in South Africa and the Middle East. As the heavy-duty truck market leader
in South Africa, we forecast steady volume and sales growth, coupled with
expansion opportunities into other nations in the South Africa Customs
Union. In the Middle East, we project strong sales growth as rising oil
prices stimulate economic growth and increased regional trade and
transportation.
As we expand into new markets, our continuing challenge will be to
focus on profitable growth and invest in opportunities that will achieve a
15% ROA.
<PAGE>
<PAGE 10>
FINANCIAL INFORMATION
Financial Summary ........................................... 2
Management's Discussion and Analysis of Results
of Operations and Financial Condition ..................... 11
Statement of Financial Reporting Responsibility ............. 18
Independent Auditors' Report ................................ 19
Financial Statements
Statement of Income ....................................... 20
Statement of Financial Condition .......................... 21
Statement of Cash Flow .................................... 22
Notes to Financial Statements
1 Summary of accounting policies ......................... 23
2 Postretirement benefits ................................ 26
3 Income taxes ........................................... 29
4 Discontinued operations ................................ 31
5 Marketable securities .................................. 32
6 Receivables ............................................ 33
7 Inventories ............................................ 34
8 Property and equipment ................................. 34
9 Debt ................................................... 35
10 Other liabilities ...................................... 37
11 Financial instruments .................................. 38
12 Commitments, contingencies, restricted assets,
concentrations and leases ............................ 40
13 Legal proceedings ...................................... 41
14 Environmental matters .................................. 41
15 Industry segment data .................................. 42
16 Preferred and preference stocks ........................ 43
17 Common shareowners' equity ............................. 44
18 Stock compensation plans ............................... 45
19 Selected quarterly financial data (unaudited) .......... 46
20 Supplemental financial information (unaudited) ......... 46
Five-Year Summary of Selected Financial and Statistical Data 48
<PAGE>
<PAGE 11>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Certain statements under this caption constitute forward-looking
statements" under the Reform Act, which involve risks and uncertainties.
Navistar International Corporation's actual results may differ
significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include, but are
not limited to, those discussed under the caption "Business Environment."
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's manufacturing operations are engaged in the manufacture and
marketing of 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 operations 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 the operating and financial
results, and liquidity and capital resources of manufacturing operations
and financial services operations. Manufacturing operations include the
financial results of the financial services operations included on a one-
line basis under the equity method of accounting. Financial services
operations include Navistar Financial Corporation (Navistar Financial),
its domestic insurance subsidiary as well as the company's foreign finance
and insurance companies. See Note 1 to the Financial Statements.
RESULTS OF OPERATIONS
The company reported net income of $65 million for 1996, or $0.49 per
common share, reflecting lower sales and revenues and a one-time $35
million pretax charge for termination of its next generation truck program
in the fourth quarter of 1996. Net income was $164 million, or $1.83 per
common share, in 1995 and $82 million, or $0.72 per common share, in 1994.
Net income in 1994 included a $20 million after-tax charge to discontinued
operations related to environmental liabilities.
The company's manufacturing operations reported income before income
taxes of $22 million in 1996 compared with pretax income of $200 million
in 1995 and $98 million in 1994. The 1996 operating results reflect a
decline in demand for trucks as well as the charge for termination of the
company's next generation truck program. The increase between 1995 and
1994 reflects higher sales of trucks and diesel engines as well as the
effects of improved pricing and various cost improvement initiatives.
The company's financial services operations, which include Navistar
Financial, its domestic insurance subsidiary and the company's foreign
finance and insurance subsidiaries, had income before income taxes of $83
million, $62 million and $60 million in 1996, 1995 and 1994, respectively.
Navistar Financial's pretax income in 1996 was $81 million, a 37%
increase from $59 million in 1995. The change is a result of higher
income on sales of retail notes and increased volume of wholesale
financing during the first nine months of 1996. The improved gains on
sales resulted from higher margins on retail notes reflecting declining
market interest rates prior to the date of sale. Navistar Financial's
pretax income increased $4 million in 1995 from the $55 million reported
in 1994. The change reflects 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 offset by a
reduction in margins on retail financing.
<PAGE>
<PAGE 12>
Earnings from the foreign finance and insurance subsidiaries were $2
million, $3 million and $5 million in 1996, 1995 and 1994, respectively.
Sales and Revenues. Industry retail sales of Class 5 through 8 trucks
totaled 341,200 units in 1996, a 10% decline from the 380,600 units sold
in 1995 but comparable to the 339,600 units sold in 1994. Class 8 heavy
truck sales totaled 195,400 units, a decline of 15% from the 228,800 units
sold in 1995 and 5% from the 205,400 units sold in 1994. Industry sales
of Class 5, 6 and 7 medium trucks, including school buses, totaled 145,800
units in 1996, a 4% decrease from 1995 when 151,800 units were sold, but
9% higher than the 134,200 units sold in 1994. Industry sales of school
buses, which accounted for 22% of the medium truck market, increased 7%
over 1995 to 32,500 units.
Sales and revenues of $5,754 million in 1996 were 9% lower than the
$6,342 million reported in 1995 but 8% higher than the $5,337 million
reported in 1994. Sales of trucks, mid-range diesel engines and service
parts, for 1996 totaled $5,508 million, 10% below the $6,125 million
reported for 1995 and 7% over the $5,153 million reported in 1994.
The company maintained its position as sales leader in the combined
United States and Canadian Class 5 through 8 truck market in 1996 with a
27.5% market share, an increase from both the 26.7% share in 1995 and the
27.0% share in 1994. (Sources: American Automobile Manufacturer's
Association, the United States Motor Vehicle Manufacturer's Association
and R. L. Polk & Company.) In 1996, the company's share of the Class 8
heavy truck market declined to 17.1% from 18.4% in 1995 and 19.6% in
1994, reflecting intense competition in this market.
Shipments of mid-range diesel engines by the company to other
original equipment manufacturers during 1996 were a record 163,200 units,
a 6% increase from 1995 and a 25% improvement over 1994. Higher shipments
to a domestic automotive manufacturer to meet consumer demand for the
light trucks and vans which use this engine was the primary reason for the
increase.
Service parts sales of $760 million in 1996 increased from the $730
million reported in 1995 and were 6% higher than the $714 million reported
in 1994 as a result of dealer and national account volume growth.
Finance and insurance revenue for 1996 was $197 million, 18% higher
than the $167 million reported in 1995 primarily as a result of higher
income on sales of retail notes. Revenues from financial services
operations increased 10% between 1995 and 1994 primarily as a result of
higher wholesale and retail financing volume.
Other income was $49 million in 1996 unchanged from 1995. Other
income increased 56% between 1995 and 1994 as a result of increased
interest income from higher cash, cash equivalents and marketable
securities balances.
Costs and Expenses. Manufacturing gross margin was 12.5% of sales in
1996, compared with 13.8% in 1995 and 12.8% in 1994. The decrease in
gross margin is the result of lower sales volumes, more competitive
pricing and the costs of terminating the next generation truck program.
Factors which contributed to the change in gross margin between 1995 and
1994 included higher sales volumes and improved pricing offset by overtime
costs and a provision for employee profit sharing.
Engineering and research expense increased to $129 million in 1996
from $113 million in 1995 and $97 million in 1994 reflecting investment in
new truck and engine products as well as improvements to existing
products.
<PAGE>
<PAGE 13>
Marketing and administrative expense was $319 million in 1996
compared with $307 million in 1995 and $265 million in 1994. The $12
million increase in the expense between 1995 and 1996 reflects investment
in the implementation of the company's strategy to reduce costs and
complexity in its manufacturing processes. The change between 1994 and
1995 is the result of higher sales and distribution costs, and an increase
in the provision for payment to employees as provided by the company's
performance incentive programs.
Interest expense decreased slightly to $83 million in 1996 from $87
million in 1995 but was $8 million higher than the $75 million reported in
1994. The increase in this expense in 1996 and 1995 over 1994 was the
result of higher debt balances required by the financial services
operations to finance the increased wholesale note and account balances as
well as higher interest rates in 1995.
Finance service charges on sold receivables were $24 million in 1996,
17% lower than in 1995 but 50% higher than 1994 reflecting the pattern of
truck unit sales over this period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow is generated from the manufacture and sale of trucks, mid-
range diesel engines and service parts as well as product financing and
insurance coverage provided to Transportation's dealers and retail
customers by the financial services operations.
Historically, funds to finance Transportation's products are obtained
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 through
internal operations.
Total cash, cash equivalents and marketable securities of the company
amounted to $881 million at October 31, 1996, $1,040 million at October
31, 1995 and $861 million at October 31, 1994.
Cash provided by operations during 1996 totaled $118 million,
primarily from net income of $65 million, $37 million of noncash deferred
income taxes and $92 million of other noncash items, principally
depreciation. These amounts were partially offset by a net change in
operating assets and liabilities of $76 million. Income tax expense for
1996 was $40 million, of which $3 million were cash payments to federal
and certain state and local governments, while the remaining $37 million
of federal and other taxes reduced the deferred tax asset.
The net change in operating assets and liabilities of $76 million
includes a $186 million decrease in receivables offset by a reduction in
accounts payable of $110 million, higher inventories and a $106 million
decrease in other liabilities. The change in receivables and inventories
reflects lower demand for the company's products while the decline in
accounts payable is a result of lower production. The change in other
liabilities is the result of the payment to employees as required by the
company's profit sharing agreements.
Investment programs included a net decrease in marketable securities,
as sales of securities exceeded purchases by $167 million. During 1996,
the purchase of $1,108 million of retail notes and lease receivables was
funded with $982 million in proceeds from the sale of receivables and
principal collections of $125 million. Other investment activities used
$73 million for an increase in property and equipment leased to others and
$117 million to fund capital expenditures for truck product improvements,
to increase mid-range diesel engine capacity and for programs to improve
cost performance.<PAGE>
<PAGE 14>
Financing activities used cash to pay $29 million in dividends on the
Series G Preferred shares and $136 million for principal payments on long-
term debt offset by an $81 million increase in notes and debt outstanding
under the bank revolving credit facility and asset-backed and other
commercial paper programs.
During 1996, Navistar Financial supplied 94% of the wholesale
financing of new trucks sold to Transportation's dealers compared with 93%
in 1995 and 1994. Navistar Financial's share of the retail financing of
new trucks sold in the United States increased to 16% in 1996 compared
with 14% in 1995 and 15% in 1994.
The sale of finance receivables is a significant source of funding
for the financial services operations. During 1996 and 1995, Navistar
Financial sold $985 million and $740 million respectively, of retail notes
through Navistar Finance Retail Receivables Corporation (NFRRC), a wholly
owned subsidiary. In both years, the net proceeds were used for general
working capital purposes.
NFRRC has filed registration statements with the Securities and
Exchange Commission which provide for the issuance of up to $5,000 million
of asset-backed securities. At October 31, 1996, the remaining shelf
registration available to NFRRC for issuance of asset-backed securities
was $2,445 million. See Note 9 to the Financial Statements.
Navistar Financial has a $925 million bank revolving credit facility,
and a $400 million asset-backed commercial paper program supported by a
bank liquidity facility which mature in March 2001. Navistar Financial
also utilizes a $500 million revolving wholesale note sales trust that
provides for the continuous sale of eligible wholesale notes on a daily
basis. The sales trusts are comprised of three $100 million tranches of
investor certificates maturing serially from 1997 to 1999 and a $200
million tranche maturing in 2004.
The company finances capital expenditures principally through
internally generated cash. Capital leasing is used to fund selected
projects based on economic and operating factors. The company had
outstanding capital commitments of $38 million at October 31, 1996 which
consist of truck and engine development and ongoing facility maintenance
programs. In November 1996, the company announced plans to spend $167
million, over the next 2 years, to construct a new truck assembly
facility in Mexico.
At October 31, 1996, the Canadian operating subsidiary was subject to
maximum recourse of $164 million on retail contracts and $9 million on
retail leases financed by a third party. In addition, the company is
contingently liable for $45 million for various guarantees and buyback
programs. Based on historic trends; however, the company's exposure is
not considered material.
The Canadian operating subsidiary and certain financial services
subsidiaries had $260 million of assets which were restricted as to
distribution to Transportation in the form of dividends, or loans and
advances at October 31, 1996. The company and Transportation are
obligated under certain agreements to maintain Navistar Financial'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, 1996.
<PAGE>
<PAGE 15>
It is the opinion of management that, in the absence of significant
unanticipated cash demands, current and forecasted cash flow will provide
a basis of financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. Management also believes
that collections on the outstanding receivables portfolios as well as
funds available from various funding sources will permit the financial
services operations to meet the financing requirements of the company's
dealers and customers.
ENVIRONMENTAL MATTERS
As disclosed in Notes 4 and 14 to the Financial Statements,
Transportation recorded a $20 million charge in 1994, 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. (Solar). 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 these 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, 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 probable costs and is
provided for in the financial statements. These obligations generally are
recognized no later than completion of the remedial feasibility study and
are not discounted to their present value. The company believes that,
based on these calculations, its share of the potential 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.
DERIVATIVE FINANCIAL INSTRUMENTS
As disclosed in Notes 1 and 11 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.
The company's manufacturing operations, as conditions warrant, hedge
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. The manufacturing operations had no foreign
exchange exposure at October 31, 1996.
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. Between August and October 1996, Navistar Financial
entered into $400 million of forward interest rate lock agreements which
were closed in conjunction with the pricing of the sale of $487 million of
retail receivables in November 1996. The unrecognized loss on the
agreements at October 31, 1996, which was not material, was included in
the gain recognized on the sale of receivables.
Both manufacturing operations and Navistar Financial purchase
collateralized mortgage obligations that have relatively stable cash flow
patterns in relation to interest rate changes.
<PAGE>
<PAGE 16>
PENDING ACCOUNTING STANDARDS
The company has elected to adopt Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," in 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. Accordingly, adoption
of this standard will have no effect on the company's net income or
financial position.
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which the company must adopt for all applicable transactions
occurring after December 31, 1996. The standard is not expected to have a
material effect on the company's net income or financial position.
INCOME TAXES
The Statement of Financial Condition at October 31, 1996 and 1995
includes a deferred tax asset of $1,030 million and $1,087 million,
respectively, net of a valuation allowance of $309 million and $307
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 $1,987 million and temporary differences, which
represent the cumulative expense of $1,507 million recorded in the
Statement of Income that has not been deducted on the company's tax
returns. The valuation allowance at October 31, 1996, assumes that it is
more likely than not that approximately $815 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
$2,700 million of future taxable income, of which an average of
approximately $90 million would need to be generated annually for the 13-
year period 1997 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 3 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 16-consecutive-
year leadership in the combined market share of Class 5 through 8 trucks
and recognition as a worldwide leading producer of mid-range diesel
engines. 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 are also
considered. Management believes that, with the combination of available
tax planning strategies and the maintenance of significant market share,
earnings are achievable in order to realize the net deferred tax asset of
$1,030 million.
<PAGE>
<PAGE 17>
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 1996 1995 1994
- -----------------------------------------------------------------------
Income of continuing operations
before income taxes ............. $ 105 $ 262 $ 158
Exclusion of (income) loss
of foreign subsidiaries ......... 3 (11) (13)
Loss of discontinued operations
before income taxes ............. - - (33)
State income taxes .......... (2) (2) (2)
Temporary differences ....... (69) 69 24
Other ............................. - (4) 2
------- ------- -------
Taxable income .................... $ 37 $ 314 $ 136
------- ------- -------
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. Although the general economy remained stable in
1996, demand for new trucks declined. This change reflected over capacity
in the trucking industry as well as uncertainty over the future growth of
the economy, causing freight carriers to scale back plans for modernizing
and expanding their truck fleets. As a result, the Class 5 through 8
truck market experienced a significant decline in the rate of new truck
orders. The decline in the number of new orders has reduced the company's
order backlog to 20,900 units at October 31, 1996 from 47,100 units at
October 31, 1995. Accordingly, retail deliveries in 1997 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 1997 United States and Canadian Class
8 heavy truck demand to be 170,000 units, a 13% decrease from 1996. Class
5, 6 and 7 medium truck demand, excluding school buses, is forecast at
112,000 units, unchanged from 1996. Demand for school buses is expected
to decline slightly in 1997 to 31,500 units. Mid-range diesel engine
shipments by the company to original equipment manufacturers in 1997 are
expected to be 176,500 units, 8% higher than in 1996. The company's
service parts sales are projected to grow 6% to $809 million.
<PAGE>
<PAGE 18>
STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY
Management of Navistar International Corporation and its subsidiaries
is responsible for the preparation and for the integrity and objectivity
of the accompanying financial statements and other financial information
in this report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include amounts that are
based on management's estimates and judgments.
The accompanying financial statements have been audited by Deloitte &
Touche LLP, independent auditors, whose appointment is ratified by
shareowner vote at the Annual Meeting. Management has made available to
Deloitte & Touche LLP all the company's financial records and related data,
as well as the minutes of the Board of Directors' meetings. Management
believes that all representations made to Deloitte & Touche LLP during its
audit were valid and appropriate.
Management is responsible for establishing and maintaining a system
of internal controls throughout its operations that provides reasonable
assurance as to the integrity and reliability of the financial statements,
the protection of assets from unauthorized use and the execution and
recording of transactions in accordance with management's authorization.
The system of internal controls which provides for appropriate division of
responsibility is supported by written policies and procedures that are
updated by management, as necessary. The system is tested and evaluated
regularly by the company's internal auditors as well as by the independent
auditors in connection with their annual audit of the financial
statements. The independent auditors conduct their audit in accordance
with generally accepted auditing standards and perform such tests of
transactions and balances as they deem necessary. Management considers
the recommendations of its internal auditors and independent auditors
concerning the company's system of internal controls and takes the
necessary actions that are cost-effective in the circumstances to respond
appropriately to the recommendations presented. Management believes that
the company's system of internal controls accomplishes the objectives set
forth in the first sentence of this paragraph.
The Audit Committee of the Board of Directors, composed of 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
Chairman, President and
Chief Executive Officer
Robert C. Lannert
Executive Vice President
and Chief Financial Officer
<PAGE>
<PAGE 19>
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,
1996 and 1995, and the related Statements of Income and Cash Flow for
each of the three years in the period ended October 31, 1996. 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, 1996 and 1995, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
December 16, 1996
Chicago, Illinois<PAGE>
<PAGE 20>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and revenues
Sales of manufactured products ............... $ 5,508 $ 6,125 $ 5,153
Finance and insurance revenue ................ 197 167 152
Other income ................................. 49 50 32
-------- -------- --------
Total sales and revenues ................... 5,754 6,342 5,337
-------- -------- --------
Costs and expenses
Cost of products and services sold ........... 4,827 5,288 4,496
Postretirement benefits ...................... 220 206 176
Engineering and research expense ............. 129 113 97
Marketing and administrative expense ......... 319 307 265
Interest expense ............................. 83 87 75
Financing charges on sold receivables ........ 24 29 16
Insurance claims and underwriting expense .... 47 50 54
-------- -------- --------
Total costs and expenses ................... 5,649 6,080 5,179
-------- -------- --------
Income before income taxes ............... 105 262 158
Income tax expense ....................... 40 98 56
-------- -------- --------
Income of continuing operations .............. 65 164 102
Loss of discontinued operations .............. - - 20
-------- -------- --------
Net income ................................... 65 164 82
Less dividends on Series G preferred stock ... 29 29 29
-------- -------- --------
Net income applicable to common stock ........ $ 36 $ 135 $ 53
======== ======== ========
- --------------------------------------------------------------------------------------
Income (loss) per common share
Continuing operations ...................... $ .49 $ 1.83 $ .99
Discontinued operations .................... - - (.27)
-------- -------- --------
Net income per common share .................. $ .49 $ 1.83 $ .72
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding (millions) ... 73.8 74.3 74.6
- --------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 21>
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
As of October 31 (Millions of dollars) 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................... $ 487 $ 485
Marketable securities .............................. 394 555
-------- -------
881 1,040
Receivables, net ................................... 1,655 1,854
Inventories ........................................ 463 416
Property and equipment, net ........................ 770 683
Investments and other assets ....................... 213 202
Intangible pension assets .......................... 314 284
Deferred tax asset, net ............................ 1,030 1,087
-------- --------
Total assets ....................................... $ 5,326 $ 5,566
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable, principally trade ................ $ 820 $ 933
Debt:
Manufacturing operations ......................... 115 127
Financial services operations .................... 1,305 1,330
Postretirement benefits liability .................. 1,351 1,341
Other liabilities .................................. 819 965
-------- --------
Total liabilities .............................. 4,410 4,696
-------- --------
Commitments and contingencies
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 (51.0 million and 50.9 million shares
issued)........................................... 1,642 1,641
Class B Common stock (24.3 million shares issued) .. 491 491
Retained earnings (deficit) - balance accumulated
after the deficit reclassification as of
October 31, 1987 ................................. (1,431) (1,478)
Common stock held in treasury, at cost
(1.6 million and 1.4 million shares held) ......... (30) (28)
-------- --------
Total shareowners' equity ...................... 916 870
-------- --------
Total liabilities and shareowners' equity .......... $ 5,326 $ 5,566
======== ========
- -----------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 22>
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operations
Net income ...................................... $ 65 $ 164 $ 82
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization ............... 101 81 72
Deferred income taxes ....................... 37 89 51
Additional pension funding .................. - (72) -
Provision for loss of discontinued operations - - 20
Other, net .................................. (9) (4) (26)
Change in operating assets and liabilities:
Receivables ................................. 186 (91) (173)
Inventories ................................. (47) 35 (19)
Prepaid and other current assets ............ 1 10 (4)
Accounts payable ............................ (110) 63 99
Other liabilities ........................... (106) 142 52
-------- -------- --------
Cash provided by operations ................... 118 417 154
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (1,108) (1,099) (916)
Collections/sales of retail notes
and lease receivables ......................... 1,107 850 1,176
Purchase of marketable securities ............... (585) (722) (710)
Sales or maturities of marketable securities .... 752 480 621
Proceeds from property sold under sale/leaseback. 7 - 87
Capital expenditures ............................ (117) (139) (87)
Property and equipment leased to others ......... (73) (19) (5)
Other investment programs, net .................. (15) 8 36
-------- -------- --------
Cash provided by (used in) investment programs. (32) (641) 202
-------- -------- --------
Cash flow from financing activities
Principal payments on debt ...................... (136) (121) (222)
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 ..................... 81 312 (28)
Dividends paid .................................. (29) (29) (58)
Repurchase of Class B Common stock .............. - (10) (12)
-------- -------- --------
Cash provided by (used in) financing activities (84) 152 (220)
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 2 (72) 136
At beginning of the year ...................... 485 557 421
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 487 $ 485 $ 557
======== ======== ========
- --------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 23>
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1996
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). As used hereafter, "company" refers to Navistar
International Corporation and its consolidated subsidiaries. The
consolidated financial statements include the results of Transportation's
manufacturing operations and its wholly owned financial services
subsidiaries. The effects of transactions between the manufacturing and
financial services operations have been eliminated to arrive at the
consolidated totals.
Transportation operates in two principal industry segments:
manufacturing and financial services. Manufacturing operations are
responsible for the manufacture and marketing of medium and heavy trucks,
including school buses, mid-range diesel engines and service parts
primarily in the United States and Canada as well as in selected export
markets. Based on assets and revenues, manufacturing operations represent
the majority of Transportation's business activities. The financial
services operations consist of Navistar Financial Corporation (Navistar
Financial), its domestic insurance subsidiary and the company's foreign
finance and insurance subsidiaries. Navistar Financial's primary business
is the retail and wholesale financing of products sold by the
manufacturing operations and its dealers within the United States and the
providing of commercial physical damage and liability insurance to the
manufacturing operations' dealers and retail customers and to the general
public through an independent insurance agency system.
The distinction between current and long-term assets and liabilities
in the Statement of Financial Condition is not meaningful when finance,
insurance and manufacturing operations are combined; therefore, the
company has adopted an unclassified presentation. Certain 1995 and 1994
amounts have been reclassified to conform with the presentation used in
the 1996 financial statements.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Manufacturing operations recognize 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.
<PAGE>
<PAGE 24>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Financial services operations recognize 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. Operating
lease revenues are recognized on a straight-line basis over the life of
the lease. 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 operations continue to service the sold
receivables and receive 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 prorata 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.
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, United States 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 periodically to determine if adjustment to the depreciation and
amortization period or to the unamortized balance is warranted. Such
evaluation is based principally on the expected utilization of the long-
lived assets and the projected, undiscounted cash flows of the operations
in which the long-lived assets are deployed.
<PAGE>
<PAGE 25>
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Engineering and Research Expense
Engineering and research expense, which includes research and
development expenses and routine ongoing costs associated with improving
existing products and manufacturing processes totaled $129 million, $113
million and $97 million in 1996, 1995 and 1994, respectively. Research and
development expenses, which included activities for the introduction of
new truck and diesel engine products and major improvements to existing
products and processes, totaled $101 million, $91 million and $88 million
in 1996, 1995 and 1994, 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 product liability claims.
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, a wholly owned subsidiary
of Transportation, 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.
Pending Accounting Standards
The company has elected to adopt Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," in 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. Accordingly, adoption
of this standard will have no effect on the company's net income or
financial position.
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which the company must adopt for all applicable transactions
occurring after December 31, 1996. The standard is not expected to have a
material effect on the company's net income or financial position.
<PAGE>
<PAGE 26>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. 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 1996 1995 1994
- -----------------------------------------------------------------------
Pension expense ................... $ 160 $ 110 $ 108
Health/life insurance ............. 60 70 64
Profit sharing provision to Trust . - 26 4
------- ------- -------
Total postretirement
benefits expense ................ $ 220 $ 206 $ 176
======= ======= =======
In the Statement of Financial Condition, the postretirement benefits
liability of $1,351 million in 1996 and $1,341 million in 1995 includes
$607 million and $587 million, respectively, for pension and $744 million
and $754 million, respectively, for postretirement health care and life
insurance benefits.
Pension Benefits
Generally, the pension plans are noncontributory 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. 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 1996 1995 1994
- -----------------------------------------------------------------------
Service cost for benefits
earned during the period ........ $ 34 $ 24 $ 34
Interest on projected
benefit obligation .............. 231 232 211
Net amortization costs and other .. 104 57 50
Less expected return on assets .... (209) (203) (187)
------- ------- -------
Net pension expense ............... $ 160 $ 110 $ 108
======= ======= =======
Actual return on assets .......... $ 188 $ 398 $ (127)
======= ======= =======
<PAGE>
<PAGE 27>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. POSTRETIREMENT BENEFITS (continued)
Pension Expense (continued)
"Amortization costs" shown in the above table include amortization of
cumulative gains and losses over the expected remaining service life of
employees, amortization of the initial transition liability over 15 years
and amortization of plan amendments, recognized over the remaining service
life of employees, except for those plan amendments arising from
negotiated labor contracts, which are amortized over the length of the
contract.
Pension Assets and Liabilities
Included in the Statement of Financial Condition is the minimum
pension liability for certain unfunded pension plans. The adjustment for
the minimum pension liability in the amounts of $623 million and $628
million are offset by intangible pension assets of $314 million and $284
million and accumulated reductions in shareowners' equity of $206 million
and $220 million at October 31, 1996 and October 31, 1995, respectively.
The changes in shareowners' equity are net of deferred income taxes of
$103 million at October 31, 1996 and $124 million at October 31, 1995.
The minimum pension liability will change from year to year as a result of
revisions to actuarial assumptions, experience gains or losses and
settlement rate changes.
The funded status of the company's plans as of October 31, 1996 and
1995 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 1996 1995 1996 1995
- -----------------------------------------------------------------------
Actuarial present value of:
Vested benefits ......... $ (59) $ (51) $(2,672) $ (2,612)
Nonvested benefits ...... (7) (5) (270) (270)
-------- -------- -------- --------
Accumulated benefit
obligation .......... (66) (56) (2,942) (2,882)
Effect of projected future
compensation levels ..... (3) (4) (23) (27)
-------- -------- -------- --------
Projected benefit
obligation .............. (69) (60) (2,965) (2,909)
Plan assets at fair value . 91 87 2,336 2,295
-------- -------- -------- --------
Funded status at October 31 22 27 (629) (614)
Unamortized pension costs:
Net losses .............. 11 9 332 372
Prior service costs ..... 6 1 113 50
(Asset) liability
at date of transition . (1) (1) 200 233
Adjustment for the minimum
liability ............... - - (623) (628)
-------- -------- -------- --------
Net asset (liability) ..... $ 38 $ 36 $ (607) $ (587)
======== ======== ======== ========
<PAGE>
<PAGE 28>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
The weighted average rate assumptions used in determining pension
costs and the projected benefit obligation were:
1996 1995 1994
- ----------------------------------------------------------------------
Discount rate used to
determine present value
of projected benefit obligation
at end of year ................ 8.1% 7.8% 9.3%
Expected long-term rate of
return on plan assets
for the year ................... 9.0% 9.9% 8.1%
Expected rate of increase
in future compensation levels .. 3.5% 3.5% 3.5%
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.
In 1993, a trust was established to provide a vehicle for funding the
health care liability through company contributions and retiree premiums.
The funds in this trust are invested primarily in equity securities. The
company is required to make a prefunding contribution of $200 million to
the trust on or prior to June 30, 1998.
The components of expense for other postretirement benefits included
in the Statement of Income are as follows:
Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Service cost for benefits
earned during the year ......... $ 14 $ 10 $ 10
Interest cost on the
accumulated benefit obligation
and other ....................... 84 90 81
Less expected return on assets .... (38) (30) (27)
------- ------- -------
Net other postretirement
benefits expense ............... $ 60 $ 70 $ 64
======= ======= =======
Actual return on assets .......... $ 46 $ 65 $ 12
======= ======= =======
The funded status of other postretirement benefits as of October 31
is as follows:
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Accumulated other postretirement
benefit obligation (APBO):
Retirees and their dependents . $ (773) $ (729)
Active employees eligible
to retire ....................... (244) (201)
Other active participants ......... (208) (227)
------- -------
Total APBO ........................ (1,225) (1,157)
Plan assets at fair value ......... 401 364
------- -------
APBO in excess of plan assets ..... (824) (793)
Unamortized prior service cost .... (6) -
Unrecognized net loss ............. 86 39
------- -------
Net liability ..................... $ (744) $ (754)
======= =======
<PAGE>
<PAGE 29>
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The weighted average expected return on plan assets was 10.5% for
1996, 10% for 1995 and 9% for 1994. The weighted average of discount
rates used to determine the accumulated other postretirement benefit
obligation was 8.2% and 7.8% at October 31, 1996 and 1995, respectively.
For 1997, the weighted average rate of increase in the per capita cost of
covered health care benefits is projected to be 8.2%. The rate is
projected to decrease to 5.0% by the year 2004 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 $117 million and the
associated expense recognized for the year ended October 31, 1996 would
increase by an estimated $8 million.
3. INCOME TAXES
The domestic and foreign components of income (loss) from continuing
operations before income taxes consist of the following:
Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Domestic ......................... $ 108 $ 251 $ 145
Foreign .......................... (3) 11 13
------- ------- -------
Total income before income taxes . $ 105 $ 262 $ 158
======= ======= =======
Taxes on income of continuing operations are analyzed by categories
as follows:
Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Current:
Federal ........................ $ 1 $ 7 $ 3
State and local .............. 2 2 2
------- ------- -------
Total current expense ........ 3 9 5
------- ------- -------
Deferred:
Federal ........................ 32 77 44
State and local .............. 5 12 7
Total deferred expense ....... 37 89 51
------- ------- -------
Total income tax expense
of continuing operations ....... $ 40 $ 98 $ 56
======= ======= =======
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. Consolidated tax payments made
during 1996, 1995 and 1994 were $3 million, $9 million and $5 million,
respectively.
<PAGE>
<PAGE 30>
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. INCOME TAXES (continued)
The relationship of the tax expense to the income of continuing
operations for 1996, 1995 and 1994 differs from the U.S. statutory rate
(35%) because of state income taxes and the benefit of NOLs in foreign
countries. The effective tax rates on the income of continuing operations
for the years 1996, 1995 and 1994 were 38.1%, 37.4% and 35.4%,
respectively.
Undistributed earnings of foreign subsidiaries were $30 million and
$28 million at October 31, 1996 and 1995, 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.
Taxpaying 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. The components of the
deferred tax asset (liability) at October 31 are as follows:
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards . $ 753 $ 768
Alternative minimum tax .......... 11 10
Product liability ................ 57 60
Warranty ......................... 43 42
Other liabilities ................ 143 170
Postretirement benefits .......... 363 390
------- -------
Total deferred tax assets ........ 1,370 1,440
------- -------
Deferred tax liabilities:
Prepaid pension assets ........... (12) (23)
Depreciation ..................... (40) (42)
------- -------
Total deferred tax liabilities .... (52) (65)
------- -------
Total deferred tax asset ......... 1,318 1,375
Less valuation allowance ......... (288) (288)
------- -------
Net deferred tax asset ........... $ 1,030 $ 1,087
======= =======
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards . $ 2 $ -
Postretirement benefits .......... 19 19
------- -------
Total deferred tax assets ........ 21 19
Less valuation allowance ......... (21) (19)
------- -------
Net deferred tax assets .......... - -
Deferred tax liabilities
--prepaid pension assets ....... (16) (16)
------- -------
Net deferred tax liabilities ..... $ (16) $ (16)
======= =======
<PAGE>
<PAGE 31>
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. INCOME TAXES (continued)
A valuation allowance has been provided for those NOL 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 $2 million during 1996
resulting from tax benefits associated with foreign NOLs.
At October 31, 1996, the company had $1,982 million of domestic and
$5 million of foreign NOL carryforwards available to offset future taxable
income. Such carryforwards reflect income tax losses incurred which will
expire as follows, in millions of dollars:
1998 .................. $ 202
1999 .................. 29
2000 .................. 300
2001 .................. 143
2002 .................. 47
2004 .................. 238
2005 .................. 7
2006 through 2009 ..... 1,021
----------
Total ................. $ 1,987
==========
Additionally, the reversal of net temporary differences of $1,507
million as of October 31, 1996 will create net tax deductions which, if
not utilized previously, will expire subsequent to 2009.
4. 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 14.
<PAGE>
<PAGE 32>
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. 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:
1996 1995
------------------- --------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ---------------------------------------------------------------------
Corporate securities . $ 127 $ 126 $ 56 $ 56
U.S. government
securities ......... 152 152 411 413
Mortgage and asset
backed securities 94 94 65 66
Foreign government
securities ......... 5 5 9 9
------ ------ ------ ------
Total debt securities 378 377 541 544
Equity securities .... 14 17 10 11
------ ------ ------ ------
Total marketable
securities ......... $ 392 $ 394 $ 551 $ 555
====== ====== ====== ======
Gross unrealized gains and losses on marketable securities at October
31, 1996 and 1995 are not material.
Contractual maturities of marketable debt securities at October 31
are as follows:
1996 1995
------------------- --------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ---------------------------------------------------------------------
Due in one year or less $ 46 $ 46 $ 120 $ 120
Due after one year
through five years . 208 208 318 320
Due after five years
through ten years .. 24 23 27 27
Due after ten years .. 6 6 11 11
------ ------ ------ ------
284 283 476 478
Mortgage and asset-
backed securities 94 94 65 66
------ ------ ------ ------
Total debt
securities ......... $ 378 $ 377 $ 541 $ 544
====== ====== ====== ======
Proceeds from sales or maturities of investments in securities were
$752 million during 1996 and $480 million during 1995. 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
$1 million, net of income taxes, at October 31, 1996 and $3 million, net
of income taxes, at October 31, 1995. At October 31, 1996 and 1995, a
domestic insurance subsidiary had $17 million and $23 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, 1996 and
1995.
<PAGE>
<PAGE 33>
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. RECEIVABLES
Receivables at October 31 are summarized by major classification as
follows:
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Accounts receivable .............. $ 560 $ 588
Retail notes and lease financing . 733 747
Wholesale notes .................. 101 268
Amounts due from sales
of receivables ................. 264 248
Reinsurance balance receivables .. 28 31
Allowance for losses ............. (31) (28)
------- -------
Total receivables, net ....... $ 1,655 $ 1,854
======= =======
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, net of underwriting costs, were $982 million in 1996, $727
million in 1995 and $995 million in 1994. Uncollected sold retail and
wholesale receivable balances totaled $1,866 million and $1,673 million as
of October 31, 1996 and 1995, respectively.
Contractual maturities of accounts receivable, retail notes and lease
financing and wholesale notes, including unearned finance income, at
October 31, 1996 were: 1997 - $860 million, 1998 - $243 million, 1999 -
$186 million, 2000 - $142 million, 2001 - $76 million, and 2002 and
thereafter - $14 million. Unearned finance income totaled $127 million at
October 31, 1996.
<PAGE>
<PAGE 34>
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. INVENTORIES
Inventories at October 31 are as follows:
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Finished products ................ $ 242 $ 167
Work in process .................. 97 91
Raw materials and supplies ....... 124 158
------- -------
Total inventories ................ $ 463 $ 416
======= =======
8. PROPERTY AND EQUIPMENT
At October 31, property and equipment includes the following:
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Land ............................. $ 12 $ 11
------- -------
Buildings, machinery
and equipment at cost:
Plants ........................ 1,299 1,223
Distribution .................. 79 75
Other ......................... 222 138
------- -------
Subtotal ................. 1,600 1,436
------- -------
Total property ................ 1,612 1,447
Less accumulated depreciation
and amortization ............ (842) (764)
------- -------
Total property
and equipment, net ...... $ 770 $ 683
======= =======
Total property includes property under capitalized lease obligations
of $25 million at October 31, 1996 and $24 million at October 31, 1995.
In addition, total property includes vehicles under operating leases to
third parties of $116 million at October 31, 1996 and $49 million at
October 31, 1995.
<PAGE>
<PAGE 35>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. DEBT
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Manufacturing operations
Notes payable
and current maturities
of long-term debt ............ $ 14 $ 10
------- -------
6 1/4% Sinking Fund Debentures,
due 1998 ..................... 3 6
9% Sinking Fund Debentures,
due 2004 ..................... 53 60
8% Secured Note,
due 2002 secured by plant assets 26 31
Capitalized leases and other ... 19 20
------- -------
Total long-term debt ....... 101 117
------- -------
Manufacturing operations debt .... 115 127
------- -------
Financial services operations
Commercial paper ............... 99 50
Current maturities
of long-term debt ........... - 118
------- -------
Total short-term debt ...... 99 168
------- -------
Asset-backed commercial
paper program, variable rate,
due March 2001 ............... 402 302
Bank revolver, variable rate,
due March 2001 .............. 704 760
------- -------
Total senior debt .......... 1,106 1,062
------- -------
Subordinated Term Debt
- Senior notes, 8 7/8%,
due November 1998 .......... 100 100
------- -------
Total long-term debt ....... 1,206 1,162
------- -------
Financial services
operations debt ................ 1,305 1,330
------- -------
Total debt ....................... $ 1,420 $ 1,457
======= =======
Consolidated interest payments were $83 million, $82 million and $76
million in 1996, 1995 and 1994, respectively.
Navistar Financial issues commercial paper with varying terms and has
short-term borrowings with various banks on a noncommitted basis.
Compensating cash balances and commitment fees are not required under
these borrowings.
<PAGE>
<PAGE 36>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. DEBT (continued)
The aggregate annual maturities and sinking fund requirements for debt
for the years ended October 31 are as follows:
Financial
Manufacturing Services
Millions of dollars Operations Operations Total
- -------------------------------------------------------------------------
1997 ............................. $ 14 $ 99 $ 113
1998 ............................. 22 - 22
1999 ............................. 16 100 116
2000 ............................. 15 - 15
2001 ............................. 15 1,106 1,121
Thereafter ....................... 33 - 33
Weighted average interest rate
on total debt, including short-term,
and the effect of discounts
and related amortization
for the years ended:
October 31, 1996 .............. 8.1% 6.5% 6.7%
October 31, 1995 .............. 9.0% 7.4% 7.6%
Effective March 29, 1996, Navistar Financial amended and restated its
bank revolving credit facility and its 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. The available funding under the
ABCP program is $414 million, comprised of the $400 million liquidity
facility and $14 million of trust certificates issued in connection with the
ABCP trust.
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. The
assets may also be sold to the trust.
Available funding under the amended and restated credit agreement and
ABCP program was $233 million, of which $99 million was used to back short-
term debt at October 31, 1996. The remaining $134 million, when combined
with unrestricted cash and cash equivalents, made $141 million available to
fund the general business purposes of Navistar Financial at October 31, 1996.
<PAGE>
<PAGE 37>
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. 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 has in place $500 million of revolving wholesale note sales trusts
that provide for the continuous sale of eligible wholesale notes on a daily
basis. The sales trusts are comprised of three $100 million tranches of
investor certificates maturing serially from 1997 to 1999 and a $200 million
tranche maturing in 2004.
During 1996, Navistar Financial sold $985 million of retail notes, net
of unearned finance income, through NFRRC in two separate sales to two
individual owner trusts which in turn sold $946 million of notes and $39
million of certificates to investors. The net proceeds, after underwriting
costs and credit enhancements, of $934 million were used by Navistar
Financial for general working capital purposes. At October 31, 1996, the
remaining shelf registration available to NFRRC for issuance of asset-backed
securities was $2,445 million.
In November 1996, Navistar Financial sold $487 million of retail notes
through NFRRC. The net proceeds of $473 million were used for general
working capital purposes.
10. OTHER LIABILITIES
Major classifications of other liabilities at October 31 are as follows:
Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Product liability and warranty ... $ 293 $ 294
Loss reserves
and unearned premiums .......... 113 118
Employee incentive programs ...... 10 104
Payroll, commissions
and employee related benefits .. 73 80
Long-term disability
and workers' compensation ...... 55 66
Taxes ............................ 44 45
Environmental .................... 23 25
Interest ......................... 9 12
Other ............................ 199 221
------- -------
Total other liabilities ........ $ 819 $ 965
======= =======
During the fourth quarter of 1996, the company recorded a one-time
$35 million pretax charge for termination of its next generation truck
program.
<PAGE>
<PAGE 38>
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. 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:
1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- -------------------------------------------------------------------
Receivables, net ..... $1,655 $1,658 $1,854 $1,867
Investments
and other assets ... 213 221 202 202
Debt ................. 1,420 1,414 1,457 1,460
Cash and cash equivalents approximate fair value. The cost and fair
value of marketable securities are disclosed in Note 5.
Customer receivables, 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 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 39>
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. FINANCIAL INSTRUMENTS (continued)
Derivatives Held or Issued for Purposes Other Than Trading
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.
The company purchases collateralized mortgage obligations (CMOs) that
have predetermined fixed-principal payment patterns which are relatively
certain. These instruments totaled $94 million at October 31, 1996. At
October 31, 1996, the unrecognized gain on 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.
Between August and October 1996, Navistar Financial entered into $400
million of forward interest rate lock agreements on a Treasury note
maturing in 1998 related to the anticipated November 1996 sale of retail
receivables. These hedge agreements were closed in conjunction with the
pricing of the sale, and the loss at October 31, 1996, which was not
material, was deferred and included in the gain recognized on the sale of
receivables in November 1996.
<PAGE>
<PAGE 40>
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS,
AND LEASES
Commitments, contingencies and restricted assets
At October 31, 1996, commitments for capital expenditures in progress
were approximately $38 million.
Navistar Financial's maximum exposure under all receivable sale
recourse provisions at October 31, 1996 was $215 million; however,
Navistar Financial's exposure is not considered material.
At October 31, 1996, 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 $164 million
on retail contracts and $9 million on retail leases. In addition, as of
October 31, 1996, the company is contingently liable for approximately $45
million for various guarantees and buyback programs; 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 operations 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,
1996, these subsidiaries had $385 million of net assets of which $260
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 3 years ended October 31, 1996.
Concentrations
At October 31, 1996, the company employed 9,043 hourly workers and
5,143 salaried workers in the United States and Canada. Approximately 91%
of the hourly employees and 23% of the salaried employees are represented
by unions. Of these represented employees, 89% of the hourly workers and
93% of the salaried workers are represented by the United Automobile,
Aerospace, and Agricultural Implement Workers of America (UAW) or the
National Automobile, Aerospace, and Agricultural Implement Workers of
Canada (CAW). The collective bargaining agreements with the UAW and the
CAW expire on October 1, 1998 and October 24, 1999, respectively.
Reflecting higher consumer demand for light trucks and vans, sales of
mid-range diesel engines to a domestic automobile manufacturer have
increased from 10% of consolidated sales and revenues in 1994 to 12% in
1995 and 14% in 1996.
<PAGE>
<PAGE 41>
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS,
AND LEASES
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.
The majority of the company's lease payments are for operating
leases. At October 31, 1996, future minimum lease payments under
operating leases having lease terms in excess of one year are: 1997 - $33
million, 1998 - $30 million, 1999 - $29 million, 2000 - $29 million, 2001
- - $21 million and thereafter - $55 million. Total operating lease expense
was $35 million in 1996, $42 million in 1995 and $38 million in 1994.
Income received from sublease rentals was $6 million in 1996, 1995 and
1994, respectively.
13. LEGAL PROCEEDINGS
The company and its subsidiaries are subject to various 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.
14. 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 related to environmental liabilities at production facilities
of two formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc.
(Solar). Transportation reached an agreement with the Economic
Development Administration, a division of the U.S. Department of Commerce,
in 1994 in settlement of commercial and environmental disputes related to
the Wisconsin Steel property. At October 31, 1996, the final consent
decree remained subject to approval by the U.S. Department of Justice and
by Transportation.
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 probable costs and is provided for in the financial
statements. These obligations generally are recognized no later than
completion of the remedial feasibility study and are not discounted to
their present value. 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 42>
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. INDUSTRY SEGMENT DATA
Information concerning operations by industry segment is as follows:
Financial
Manufacturing Services
Millions of dollars Operations Operations Consolidated
- -------------------------------------------------------------------------
October 31, 1996
- ----------------
Total sales and revenues ..... $5,550 $ 258 $5,754
Operating profit ............. 690 109 750
Depreciation and amortization. 90 11 101
Capital expenditures ......... 117 - 117
Identifiable assets .......... 3,815 1,843 5,326
October 31, 1995
- ----------------
Total sales and revenues ..... $6,168 $ 235 $6,342
Operating profit ............. 845 80 870
Depreciation and amortization. 75 6 81
Capital expenditures ......... 139 - 139
Identifiable assets .......... 4,018 1,922 5,566
October 31, 1994
- ----------------
Total sales and revenues ..... $5,178 $ 214 $5,337
Operating profit ............. 659 76 685
Depreciation and amortization. 68 4 72
Capital expenditures ......... 87 - 87
Identifiable assets .......... 3,724 1,582 5,047
Intersegment sales and revenues were not material in 1996, 1995 or
1994. Transactions between manufacturing operations and financial
services operations have been eliminated from the consolidated column.
<PAGE>
<PAGE 43>
NOTES TO FINANCIAL STATEMENTS
(Continued)
16. 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 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, 1996, 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
and issued ........... 4,800,000 3,000,000
Number outstanding ..... 4,800,000 176,994
Optional redemption price $50 per share $25 per share
and liquidation plus accrued plus accrued
preference ........... 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 Senior to all other Senior to Common;
and upon liquidation . 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, 1996, the company had such defined surplus of $903
million.
- -------------------------------------------------------------------------
<PAGE>
<PAGE 44>
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. COMMON SHAREOWNERS' EQUITY
Changes in the common shareowners' equity accounts are as follows:
Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Common Stock
Beginning of year ................. $ 1,641 $ 1,628 $ 1,615
Conversion of Class B
Common Stock and other .......... 1 13 13
------- ------- -------
End of year ....................... $ 1,642 $ 1,641 $ 1,628
------- ------- -------
Class B Common Stock
Beginning of year ................. $ 491 $ 501 $ 513
Repurchase of stock ............... - (10) (12)
------- ------- -------
End of year ....................... $ 491 $ 491 $ 501
------- ------- -------
Retained Earnings (Deficit)
Beginning of year ................. $(1,478) $(1,538) $(1,592)
Net income ........................ 65 164 82
Preferred dividends ............... (29) (22) (36)
Minimum pension liability
adjustments and other ........... 11 (82) 8
------- ------- -------
End of year ....................... $(1,431) $(1,478) $(1,538)
------- ------- -------
Common Stock Held in Treasury
Beginning of year ................ $ (28) $ (18) $ (5)
Repurchase of Common Stock
and other ...................... (2) (10) (13)
------- ------- -------
End of year ...................... $ (30) $ (28) $ (18)
------- ------- -------
Common Stock
The company has authorized 110 million shares of Common Stock with a
par value of $.10 per share and 26 million shares of Class B Common Stock
with a par value of $.10 per share and restricted voting rights and
transfer provisions. At October 31, 1996 and 1995, there were 49.4
million and 49.5 million shares of Common Stock outstanding, net of Common
Stock held in Treasury, respectively. The number of shares of Class B
Common stock outstanding at October 31, 1996 and 1995 was 24.3 million.
<PAGE>
<PAGE 45>
NOTES TO FINANCIAL STATEMENTS
(Continued)
18. 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).
The Incentive Plan includes the granting of two types of stock option
awards, nonqualified options and incentive options. Nonqualified 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 1996 1995 1994
- -------------------------------------------------------------------------
Outstanding at beginning
of the year...................... 1,738,304 1,146,154 639,234
Granted ........................... 692,000 635,900 614,560
Exercised ......................... - - (8,850)
Terminated ........................ (131,780) (43,750) (98,790)
--------- --------- ---------
Outstanding at end of the year .... 2,298,524 1,738,304 1,146,154
========= ========= =========
Exercisable at October 31 ......... 1,654,624 1,122,804 554,374
========= ========= =========
Available for grant ............... - - 146,406
========= ========= =========
Average price per share
- -------------------------------------------------------------------------
Outstanding at October 31 ........ $ 50 $ 51 $ 52
Granted .......................... $ 10 $ 12 $ 19
Exercised ........................ $ - $ - $ 22
<PAGE>
<PAGE 46>
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------------- ---------------- --------------- ----------------
(Millions of dollars) 1996 1995 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues .. $1,432 $1,416 $1,480 $1,640 $1,391 $1,514 $1,451 $1,772
====== ====== ====== ====== ====== ====== ====== ======
Manufacturing gross
margin ............ 12.2% 12.4% 13.7% 14.0% 12.6% 14.0% 11.6% 14.4%
====== ====== ====== ====== ====== ====== ====== ======
Net income .......... $ 22 $ 23 $ 26 $ 46 $ 17 $ 39 $ - $ 56
Net income (loss)
per common share . $ .20 $ .21 $ .26 $ .52 $ .13 $ .43 $ (.10) $ .66
Market price range
- Common stock
High .......... $12 1/8 $17 1/2 $12 $16 3/8 $12 $16 5/8 $10 3/8 $15 1/8
Low ........... $ 9 1/2 $12 3/4 $ 9 1/2 $12 1/4 $9 1/8 $13 7/8 $ 8 1/2 $9 1/4
</TABLE>
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.
20. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31
AND FOR THE YEARS THEN ENDED(Unaudited)
Navistar International Corporation (with financial services
operations on an equity basis)
in millions of dollars:
<TABLE>
<CAPTION>
Condensed Statement of Income 1996 1995 1994
- -------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Sales of manufactured products ............. $5,508 $6,125 $5,153
Other income ............................... 42 43 25
------ ------ ------
Total sales and revenues .............. 5,550 6,168 5,178
------ ------ ------
Cost of products sold ...................... 4,818 5,280 4,494
Postretirement benefits .................... 219 205 175
Engineering and research expense ........... 129 113 97
Marketing and administrative expense ....... 282 277 238
Other expenses ............................. 80 93 76
------ ------ ------
Total costs and expenses ................... 5,528 5,968 5,080
------ ------ ------
Income before income taxes
Manufacturing operations ................. 22 200 98
Financial services operations ............ 83 62 60
------ ------ ------
Income before income taxes ............. 105 262 158
Income tax expense ......................... 40 98 56
------ ------ ------
Income of continuing operations ............ 65 164 102
Loss of discontinued operations ............ - - 20
------ ------ ------
Net income ................................. $ 65 $ 164 $ 82
====== ====== ======
</TABLE>
<PAGE>
<PAGE 47>
NOTES TO FINANCIAL STATEMENTS
(Continued)
20. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31
AND FOR THE YEARS THEN ENDED(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Condensed Statement of Financial Condition 1996 1995
- --------------------------------------------- ------ ------
<S> <C> <C>
Cash, cash equivalents
and marketable securities ................. $ 707 $ 876
Inventories ................................. 463 416
Property and equipment, net ................. 666 642
Equity in Financial Services subsidiaries ... 306 282
Other assets ................................ 643 715
Deferred tax asset, net ..................... 1,030 1,087
------ ------
Total assets ........................... $3,815 $4,018
====== ======
Accounts payable ............................ $ 771 $ 876
Postretirement benefits liabilities ......... 1,344 1,334
Other liabilities ........................... 784 938
Shareowners' equity ......................... 916 870
------ ------
Total liabilities
and shareowners' equity .............. $3,815 $4,018
====== ======
Condensed Statement of Cash Flow 1996 1995 1994
- --------------------------------------------- ------ ------ ------
Cash flow from operations
Net income .................................. $ 65 $ 164 $ 82
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization .......... 90 75 68
Equity in earnings of nonconsolidated
companies, net of dividends received . (24) (28) (10)
Deferred income taxes .................. 37 89 51
Other, net ............................. 4 (66) 8
Change in operating assets and liabilities .. (172) 166 81
------ ------ ------
Cash provided by operations ................. - 400 280
------ ------ ------
Cash flow from investment programs
Purchase of marketable securities ........... (501) (646) (651)
Sales or maturities of marketable securities. 665 399 569
Capital expenditures ........................ (117) (139) (87)
Other investment programs, net .............. (8) 8 123
------ ------ ------
Cash provided by (used in) investment programs 39 (378) (46)
------ ------ ------
Cash flow from financing activities ......... (48) (60) (112)
------ ------ ------
Cash and cash equivalents
Increase (decrease) during the year ....... (9) (38) 122
At beginning of the year .................. 461 499 377
------ ------ ------
Cash and cash equivalents at end of the year . $ 452 $ 461 $ 499
====== ====== ======
</TABLE>
<PAGE>
<PAGE 48>
NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- -----------------------------------------------------------------------------------------------------------
For the Years Ended October 31
Millions of dollars,
except per share data
market share, and units shipped) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total sales and revenues ................ $5,754 $6,342 $5,337 $4,721 $3,897
Net income (loss)
of continuing operations .............. 65 164 102 (273) (147)
Net income (loss)(a) .................... 65 164 82 (501) (212)
Income (loss) per common share
of continuing operations .............. .49 1.83 .99 (8.63) (6.97)
Net income (loss) per common share ...... .49 1.83 .72 (15.19) (9.55)
Average number of Common, Class B Common
and dilutive common equivalent shares
outstanding (millions) ................ 73.8 74.3 74.6 34.9 25.3
-------------------------------------------------------------------------------------------------------
FINANCIAL DATA
Total assets ............................ 5,326 5,566 5,047 5,060 3,627
Debt
Manufacturing operations ............. 115 127 127 175 187
Financial services operations ........ 1,305 1,330 1,091 1,199 1,218
------- ------- ------- ------- -------
Total debt .............................. 1,420 1,457 1,218 1,374 1,405
Shareowners' equity ...................... 916 870 817 775 338
Total manufacturing operations debt as
a percent of total manufacturing
capitalization ......................... 11.2% 12.7% 13.4% 18.4% 35.6%
Return on equity (b) .................... 7.1% 18.9% 12.5% (35.2)% (43.5)%
--------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Capital expenditures .................... 117 139 87 110 55
Engineering and research expense ........ 129 113 97 94 92
-------------------------------------------------------------------------------------------------------
OPERATING DATA
United States and Canadian market share (c) 27.5% 26.7% 27.0% 27.6% 28.4%
Unit shipments
Trucks ................................ 95,200 112,200 95,000 87,200 73,200
OEM engines ........................... 163,200 154,200 130,600 118,200 97,400
Service parts sales ..................... 760 730 714 632 571
<FN>
(a) In the third quarter of 1993, the company adopted SFAS 106 and SFAS 109 retroactive to
November 1, 1992.
(b) Return on equity is calculated based on income of continuing operations.
(c) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school buses, and heavy trucks (Class 8).
</TABLE>
<PAGE>
<PAGE 49>
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)
461-3309.
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 62,307 owners of Common Stock at October
31, 1996.
Annual Meeting
The 1997 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 19, 1997, 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 February 7, 1997.
Commitment to Equal Employment Opportunity
Navistar International Corporation has a long-standing commitment to
equal employment opportunity dating back to 1919 when the company issued
its first written statement against discrimination in the workplace.
Today, Navistar continues to be a leader in the industry in complying
with all state and federal laws, local municipal laws and regulations
governing employment. Navistar has continuously and aggressively
implemented measures to ensure that all individuals regardless of age,
race, sex, religion, national origin, disability, or veteran status are
not discriminated against in regard to career opportunities within the
company.
Navistar has adopted policy standards and assurances for all
employees and qualified applicants, pledging terms and conditions of
employment to be equal for all individuals.
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 50>
Reports and Publications
A copy of the company's 1996 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, 1997.
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 1997 quarterly financial results will be
announced on the following dates:
First quarter February 13, 1997
Second quarter May 15, 1997
Third quarter August 14, 1997
Fourth quarter December 4, 1997
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
Navistar also encourages shareowners to visit its home page on the
World Wide Web at http://www.navistar.com.
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.
Additional registered trademarks include Eagle, Fleet Charge, Fleetrite,
Skyrise, Paystar and Pro Sleeper. Diamond SPEC, Diamond PLUS and Diamond
Services are trademarks of Navistar International Transportation Corp.
<PAGE>
<PAGE 51>
Directors and Officers
<TABLE>
<CAPTION>
Navistar International Corporation (As of December 31, 1996)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <S> <S> <S>
Board of Directors Principal Officers
John R. Horne John D. Correnti Mary Garst John R. Horne
Chairman, President Chief Executive Officer, Manager, Cattle Division Chairman, President
and Chief Executive Officer President and Vice Chairman Garst Company and Chief Executive Officer
Navistar International Nucor Corporation Agri-Business Company
Corporation Steel Manufacturer Committees: 1, 4, 5 [Chair] Donald DeFosset, Jr.
Committees: 1[Chair] Committees: 2, 4, 6 Executive Vice President
Michael N. Hammes and President Truck Group
William F. Andrews James C. Cotting Chairman and Robert C. Lannert
Chairman Former Chairman of the Board Chief Executive Officer Executive Vice President
Schrader-Bridgeport and Chief Executive Officer The Coleman Company, Inc. and Chief Financial Officer
International Inc. Navistar International Manufacturer and Distributor Robert A. Boardman
Manufacturer of Tire Valves Corporation of Camping and Outdoor Senior Vice President
and Valve Accessories Committees: 3, 5 Recreational Products and General Counsel
Chairman and Hardware/Home Products Thomas M. Hough
Scovill Fasteners, Inc. William C. Craig Committees: 3, 5 Vice President and Treasurer
Manufacturers of Apparel Former Executive Vice President J. Steven Keate
and Industrial Fasteners Mack Trucks Robert C. Lannert Vice President and Controller
Committees: 1, 2, 3 [Chair], 6 Manufacturer of Trucks Executive Vice President Steven K. Covey
Committees: 1, 2, 3 and Chief Financial Corporate Secretary
Dr. Andrew F. Brimmer Officer
President Jerry E. Dempsey Navistar International
Brimmer & Company, Inc. Chairman and Corporation
Economic and Financial Chief Executive Officer
Consulting PPG Industries, Inc. Walter J. Laskowski Committees:
Committees: 1, 3, 4 [Chair], Diversified Global Manufacturer International 1 Executive
5, 6 of Glass, Protective Coatings Vice President 2 Organization
and Chemicals of the UAW 3 Finance
Richard F. Celeste Committees: 1, 2 [Chair], Committees: 1, 3, 4 4 Audit
Managing General Partner 3, 6 [Chair] 5 Public Policy
Celeste & Sabety, Ltd. William F. Patient 6 Strategic Initiatives
Public Policy Consulting Firm John F. Fiedler Chairman of the Board,
Committees: 4,5 Chairman, President and President and
Chief Executive Officer Chief Executive Officer
Borg-Warner Automotive, Inc. The Geon Company
Supplier of Engineered Manufacturer of Polyvinyl
Components and Systems Chloride (PVC) Resins and
Committees: 2, 5, 6 Compounds
Committees: 2, 4
Navistar International Transportation Corp.
- ----------------------------------------------------------------------------------------------------------------------------
Principal Officers Group Vice Presidents Senior Vice Presidents
John R. Horne John J. Bongiorno Robert A. Boardman Thomas E. Rigsby
Chairman, President General Manager General Counsel Truck Manufacturing
and Chief Executive Officer Financial Services Joseph V. Thompson James L. Simonton
Donald DeFosset, Jr. David J. Johanneson Employee Relations Purchasing and
Executive Vice President Truck Businesses and Administration Supplier Development
and President Truck Group James T. O'Dare, Jr. Brian B. Whalen
Robert C. Lannert Sales and Distribution Vice Presidents Public Affairs
Executive Vice President Daniel C. Ustian Thomas M. Hough
and Chief Financial Officer General Manager Treasurer Secretary
Engine and Foundry J. Steven Keate
Dennis W. Webb Controller Gregory Lennes
International Operations
</TABLE>
<PAGE 1>
EXHIBIT 21
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
SUBSIDIARIES OF THE REGISTRANT
AS OF OCTOBER 31, 1996
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.
E-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 487
<SECURITIES> 394
<RECEIVABLES> 1686
<ALLOWANCES> (31)
<INVENTORY> 463
<CURRENT-ASSETS> 0<F1>
<PP&E> 1612
<DEPRECIATION> (842)
<TOTAL-ASSETS> 5326
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1420
0
244
<COMMON> 2133
<OTHER-SE> (1461)
<TOTAL-LIABILITY-AND-EQUITY> 5326
<SALES> 5508
<TOTAL-REVENUES> 5754
<CGS> 4827
<TOTAL-COSTS> 5649
<OTHER-EXPENSES> 220
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 105
<INCOME-TAX> (40)
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
<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, 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 1-4146-1
-----------------
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, 1996, 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, 1996
<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) 2
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's properties principally consist of office
equipment and leased office space in Rolling Meadows, Illinois;
Columbus, Ohio; Atlanta, Georgia; Plano, Texas; Mt. Laurel, New
Jersey; and San Ramon, California. The office equipment owned
and in use by the Corporation is not significant in relation to
the total assets of the Corporation.
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. Based on discussions with
outside counsel, NFC's management 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>
PART I (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
Intentionally omitted. See the index page of this Report for
explanation.
PART II
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 29
Item 6. Selected Financial Data
Intentionally omitted. See the index page to this Report for
explanation.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financing Volume
The Corporation's serviced receivables portfolio, which
includes sold receivables, totaled $3.3 billion at October 31,
1996, up from $3.2 billion and $2.5 billion at October 31, 1995
and 1994, respectively.
In fiscal 1996 customer demand for Class 5 through 8 trucks
declined approximately 9% compared with 1995 and was slightly
higher than 1994 demand. In spite of lower customer demand and
the continued highly competitive commercial financing market,
fiscal 1996 acquisitions of retail notes and leases of $1.1
billion, net of unearned finance income, were equal to 1995. The
Corporation's finance market share of new trucks manufactured by
Transportation and sold in the United States increased to 16.3%
in 1996 from 14.4% in 1995. Acquisitions in 1995 were $.2
billion higher than 1994 due to increased demand offset in part
by lower finance market share of 14.4% in 1995 compared with
15.3% in 1994. Serviced retail notes and lease financing
balances were $2.2 billion at October 31, 1996, compared with
$1.9 billion and $1.6 billion at October 31, 1995 and 1994,
respectively.
During fiscal 1996, the Corporation supplied 94% of the
wholesale financing of new trucks sold to Transportation's
dealers, slightly higher than the 93% in 1995 and 1994. During
1996, Transportation dealers generally reduced inventory levels
in response to lower customer demand. As a result, acquisitions
of wholesale notes decreased $.3 billion, 9%, to $2.7 billion in
1996 after a 29% increase to $3.0 billion in 1995 from 1994.
Serviced wholesale note balances were $685 million at October 31,
1996, compared to $854 million and $577 million at October 31,
1995 and 1994, respectively.
Owned finance receivables balances, including subordinated
interests in retail and wholesale receivables, decreased to $1.4
billion at October 31, 1996, from $1.5 billion at October 31,
1995 due primarily to lower wholesale financing. Balances in 1995
were $.2 billion higher than 1994 as a result of the higher level
of wholesale and retail financing. Receivable sales were a
significant source of funding during fiscal 1996 and 1995 and, as
a result, sold retail receivable balances increased to $1.4
billion at October 31, 1996 from $1.2 billion and $1.0 billion at
October 31, 1995 and 1994, respectively. Sold wholesale note
balances were $500 million at October 31, 1996 and 1995 and $300
million at October 31, 1994.
Results of Operations
The Corporation's after tax return on equity was a record
18.1% in 1996 compared with 15.0% and 15.1% in 1995 and 1994,
respectively. Income before taxes in 1996 was $81 million, a 37%
increase from $59 million in 1995, primarily as a result of
higher gains on sales of retail notes, higher levels
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations (Continued)
of wholesale note balances during the first nine months of 1996
and higher retail and lease balances offset in part by a higher
loss provision. Gains on sales of retail note receivables during
1996 were $20 million on sales of $985 million compared with
gains of $5 million on sales of $740 million in 1995. The higher
gains on sales resulted from higher margins on retail notes due
to declining market interest rates prior to the sale in November
1995. During a declining interest rate environment, the
Corporation's acquisition spreads improve as NFC's cost of
borrowing differs from the time when interest rates are quoted to
borrowers and the time when notes are acquired. In addition, the
effective interest rate for each sale is based on a market
interest rate at the time of the sale, which may be up to six
months after the Corporation acquired the retail note. During
fiscal 1995, the opposite impact was experienced by NFC on a sale
in November 1994 as market interest rates were rising and a loss
was recorded on that sale.
Income before taxes of $59 million in 1995 increased 6% from
$55 million in 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 the $740 million retail
notes sold in 1995 were $5 million compared with $12 million on
sales of $1,033 million in 1994.
The more significant elements of revenue and expense
impacting net income for these years are discussed in the
following paragraphs:
Retail note and lease financing revenue for 1996 was $98
million compared with $73 million and $71 million in 1995 and
1994, respectively. The 1996 improvement over 1995 is primarily
due to higher gains on sold notes and higher average balances.
The increase in 1995 revenues compared with 1994 is due to higher
financing volume offset in part by lower gains on sold notes.
Wholesale note revenue increased 5% in 1996 to $57 million
as a result of higher average outstanding note balances in the
first nine months of the fiscal year offset in part by lower
average yields relating to a lower prime interest rate. In 1995
revenue increased 38% compared with 1994 as the level of
wholesale financing was higher to support increased demand for
Transportation truck products and higher average yields due to
higher prime interest rates.
Revenue from accounts decreased in 1996 to $27 million from
$29 million in 1995 as the decline in customer demand caused a
lower level of financing activity. Revenue in 1995 was 32%
higher than 1994 due to higher outstanding balances in support of
the increased demand for Transportation truck products and higher
average yields due to higher prime interest rates.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of Operations (Continued)
Servicing fee income increased to $20 million in 1996 from
$18 million in 1995 and $17 million in 1994 as a result of higher
levels of sold note receivable balances which the Corporation
continues to service.
Insurance premiums earned by Harco decreased 6% to $42
million in 1996 from $45 million in 1995 and 12% in 1995 from
1994. The decreases in 1996 and 1995 reflect reductions in
written premiums of truck liability lines in response to adverse
loss experience in those lines and to increased competition.
Borrowing costs decreased slightly in 1996 to $82 million
from $84 million in 1995 after a significant increase in 1995
compared with $70 million in 1994. During 1996 the Corporation's
weighted average interest rate on all debt declined to 6.5% from
7.4% in 1995 primarily due to the maturity of high fixed rate
public debt during 1995 and 1996 and also due to lower market
interest rates. The favorable rate impact was offset in part by
higher debt balances to support receivable balances. The
increase in 1995 from 1994 was primarily the result of higher
debt balances to support increased wholesale note and account
balances and higher market interest rates, offset in part by an
improvement in the Corporation's borrowing spread over market
interest rates as a result of the 1995 amendment to the revolving
debt agreement and the asset-backed commercial paper ("ABCP")
program. The ratio of debt to equity was 4.7:1, 5.2:1 and 4.8:1
at October 31, 1996, 1995, and 1994, respectively.
Credit collection and administrative expenses were $28
million in 1996 and 1995 compared with $26 million in 1994. The
$2 million increase in 1995 compared with 1994 was due to retail
marketing efforts and incentive programs.
The provision for losses on receivables totaled $9 million
in 1996 compared with $3 million in 1995 and $2 million in 1994.
As the trucking industry softened during 1996, the high level of
new truck purchases in 1995 caused an over capacity in the
trucking sector. This over capacity coupled with competitive
freight rates and higher fuel costs impacted NFC's customers'
abilities to meet obligations and has resulted in higher
delinquencies, repossessions and credit losses. Notes and
account write-offs (recoveries), including sold notes totaled $5
million in 1996, $(1) million in 1995 and $1 million in 1994.
The Corporation's allowance for losses as a percentage of
serviced finance receivables was .74%, .62% and .65% at October
31, 1996, 1995 and 1994, respectively.
Insurance claims and underwriting expenses decreased to $44
million in 1996 from $47 million and $54 million in 1995 and
1994, respectively. The decline resulted from decreases in
losses incurred in Harco's truck liability insurance lines and
lower commission costs associated with lower volumes of premiums
written through general agents.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 sales of receivables, commercial paper, short- and
long-term bank borrowings, medium- and long-term debt issues 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 operation generates its funds through
internal operations and has no external borrowings.
Operations used $29 million in cash in 1996 as the cash
provided from net income of $49 million was offset by a decrease
in accounts payable reflecting the timing of payments to
Transportation. Investment activities provided $95 million in
cash primarily due to a $163 million decline in wholesale note
and account balances, offset in part by higher retail and
equipment leasing activity. During 1996, the purchase of $1,108
million retail notes and lease receivables was funded with $982
million proceeds from the sale of the receivables and principal
collections of $125 million. The cash provided from investing
activities was used to lower debt funding and to pay dividends of
$26 million. See also the "Statement of Consolidated Cash Flow"
on page 12.
Over the last three years, operations provided $103 million
in cash and proceeds from the sale of retail receivables totaled
$2,704 million. These amounts were used mainly to fund
receivable acquisitions of $2,747, net of principal collections
on the receivables, and dividend payments of $61 million.
Receivable sales were a significant source of funding in
1996 and 1995. 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 1996 and 1995, the Corporation sold $985
and $740 million, respectively, of retail notes, through Navistar
Financial Retail Receivables Corporation ("NFRRC"), a wholly-
owned subsidiary, to owner trusts which in turn sold notes and
certificates to investors. At October 31, 1996, the remaining
shelf registration available to NFRRC for issuance of asset-
backed securities was $2.4 billion. The Corporation has a $500
million revolving wholesale note trust that provides for the
continuous sale of eligible wholesale notes on a daily basis.
The trust is funded by securities sold to the public comprised of
three $100 million tranches of investor certificates maturing
serially from 1997 to 1999 and a $200 million tranche of investor
certificates maturing in 2004. See Note 5 to the Consolidated
Financial Statements for further discussion.
The Corporation has a $925 million bank revolving credit
facility and a $400 million asset-backed commercial paper
("ABCP") program supported by a bank liquidity facility, which
mature in March 2001. See Note 10 to the Consolidated Financial
Statements for further discussion.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Liquidity and Funds Management (Continued)
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.
In November 1996, the Corporation sold $487 million of
retail notes, net of unearned finance income, through NFRRC to an
owner trust which in turn sold notes and certificates to
investors. A gain of $6.9 million was recognized on the sale.
The Corporation manages sensitivity to interest rate changes
by funding floating rate assets with floating rate debt,
primarily borrowings under the bank revolving credit agreement,
and fixed rate assets with fixed rate debt, equity and floating
rate debt. Management has limited the amount of fixed rate
assets funded with floating rate debt by selling retail
receivables on a fixed rate basis and, to a lesser extent, by
utilizing derivative financial instruments. See notes 1 and 14
to the Consolidated Financial Statements. Corporate policy
prohibits the use of derivatives for speculative purposes.
On February 1, 1994, the Illinois Department of Revenue
("Department") issued a Notice of Deficiency to the Corporation
for approximately $12 million for the fiscal years 1989 throuth
1991. The Corporation maintains that the Department's
interpretation and application of the law is incorrect and
improper. Based on discussions with outside counsel, NFC's
management is of the opinion that NFC's position will prevail and
the Department's action will not have a material impact on NFC's
financial condition. See Note 8 to the Consolidated Financial
Statements for further discussion.
Pending Accounting Standards
In June 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 125 ("SFAS
No. 125"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" which the Corporation
must adopt for all applicable transactions occurring after
December 31, 1996. The Corporation will apply SFAS No. 125 to
securitization transactions occurring on or after January 1,
1997. The new standard is not expected to have a material effect
on the Corporation's net income or financial condition.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Business Outlook
The demand for heavy trucks is forecast to continue to
soften during fiscal 1997 and correspondingly NFC's profitability
and wholesale and retail financing activity are anticipated to be
lower. 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 1997 and beyond.
<PAGE>
<TABLE>
<CAPTION>
Page
Item 8. Financial Statements and Supplementary Data
Navistar Financial Corporation and Subsidiaries:
<S> <C>
Statement of Consolidated Income and Retained Earnings
for the years ended October 31, 1996, 1995 and 1994 10
Statement of Consolidated Financial Condition as of
October 31, 1996 and 1995 11
Statement of Consolidated Cash Flow for the years ended
October 31, 1996, 1995 and 1994 12
Notes to Consolidated Financial Statements 13
Supplementary Financial Data 34
Independent Auditors' Report 39
</TABLE>
<PAGE>
Navistar Financial Corporoation and Subsidiaries
Statement of Consolidated Income and Retained Earnings
Millions of Dollars
<TABLE>
<CAPTION>
For the years ended October 31 1996 1995 1994
<S> <C> <C> <C>
Revenues
Retail notes and lease financing $ 97.7 $ 73.3 $ 71.4
Wholesale notes 56.6 54.1 39.2
Accounts 26.6 29.2 22.2
Servicing fee income 20.5 18.3 17.3
Insurance premiums earned 42.0 44.6 51.1
Marketable securities 9.4 8.7 9.6
Total 252.8 228.2 210.8
Expenses
Cost of borrowing:
Interest expense (Notes 9 and 10) 73.2 75.1 62.7
Other 8.4 9.1 7.1
Total 81.6 84.2 69.8
Credit, collection and administrative 28.2 27.9 25.9
Provision for losses on receivables (Note 7) 9.3 2.6 2.3
Insurance claims and underwriting 44.4 46.7 54.0
Other expense, net 8.8 8.1 3.6
Total 172.3 169.5 155.6
Income Before Taxes 80.5 58.7 55.2
Taxes on Income (Note 8) 31.1 22.5 21.2
Net Income 49.4 36.2 34.0
Retained Earnings
Beginning of year 84.0 56.8 48.4
Dividends paid
(26.0) (9.0) (25.6)
End of year (Note 13) $107.4 $ 84.0 $ 56.8
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Financial Condition
Millions of Dollars
<TABLE>
<CAPTION>
As of October 31 1996 1995
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 6.7 $ 2.9
Marketable Securities (Note 4) 128.1 131.8
Receivables
Finance receivables (Note 5) 1,205.2 1,381.3
Allowance for losses (Note 7) (11.6) (10.4)
Receivables, net 1,193.6 1,370.9
Amounts Due from Sales of Receivables (Note 5) 264.3 247.8
Equipment on Operating Leases, Net (Note 6) 101.1 39.3
Repossessions 13.2 5.8
Reinsurance Receivables 21.2 24.8
Other Assets 65.6 51.4
Total Assets $1,793.8 $1,874.7
LIABILITIES AND SHAREOWNER'S EQUITY
Short-Term Debt (Note 9) $ 99.4 $ 50.5
Accounts Payable 66.7 138.8
Other Liabilities 19.7 24.1
Senior and Subordinated Debt (Note 10) 1,206.4 1,279.8
Dealers' Reserves 22.3 21.0
Unpaid Insurance Claims and Unearned Premiums 99.6 103.8
Commitments and Contingent Liabilities (Notes 8, 12 & 15) - -
Shareowner's Equity (Note 13)
Capital stock (Par value $1.00, 1,600,000 shares
issued and outstanding) and paid-in capital 171.0 171.0
Retained earnings 107.4 84.0
Unrealized gains on marketable
securities (Note 4) 1.3 1.7
Total 279.7 256.7
Total Liabilities and Shareowner's Equity $1,793.8 $1,874.7
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Navistar Financial Corporation and Subsidiaries
Statement of Consolidated Cash Flow
Millions of Dollars
<TABLE>
<CAPTION>
For the years ended October 31 1996 1995 1994
Cash Flow From Operations
<S> <C> <C> <C>
Net income $ 49.4 $ 36.2 $ 34.0
Adjustments to reconcile net income to
cash provided from operations:
Gains on sales of receivables (Note 5) (20.2) (5.2) (11.8)
Depreciation and amortization 15.3 11.1 8.7
Provision for losses on receivables (Note 7) 9.3 2.6 2.3
Increase (decrease) in accounts payable
to affiliated companies (65.0) 73.2 (0.9)
Other (17.3) (6.7) (12.3)
Total (28.5) 111.2 20.0
Cash Flow From Investing Activities
Proceeds from sold retail notes 982.1 726.8 994.8
Purchase of retail notes and lease receivables (1,107.6) (1,099.5) (915.9)
Principal collections on retail notes and
lease receivables 125.4 123.4 180.9
Acquisitions (over)/under cash collections of
wholesale notes and accounts receivable 163.0 (77.1) (140.0)
Purchase of marketable securities (63.0) (61.9) (51.8)
Proceeds from sales and maturities of
marketable securities 67.7 67.3 45.1
Increase in property and equipment
leased to others (72.8) (18.7) (5.3)
Total 94.8 (339.7) 107.8
Cash Flow From Financing Activities
Net increase (decrease) in short-term debt 48.9 (368.7) 344.2
Net increase (decrease) in bank
revolving credit facility usage (56.0) 405.0 (372.0)
Net increase in asset-backed commercial paper
facility usage 88.1 275.8 -
Principal payments on long-term debt (117.5) (100.0) (180.0)
Proceeds from issuance of long-term debt - - 100.0
Dividends paid to Transportation (26.0) (9.0) (25.6)
Total (62.5) 203.1 (133.4)
Increase/(Decrease) in Cash and Cash Equivalents 3.8 (25.4) (5.6)
Cash and Cash Equivalents at Beginning of Year 2.9 28.3 33.9
Cash and Cash Equivalents at End of Year $ 6.7 $ 2.9 $ 28.3
Supplementary disclosure of cash flow information:
Interest paid $ 76.3 $ 74.3 $ 64.8
Income taxes paid $ 32.2 $ 14.6 $ 22.1
</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, 1996
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").
Nature of Operations
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. The
Corporation also 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.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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. Revenue on
operating leases is recognized on a straight-line basis over the
life of the lease. Recognition of revenue on receivables and
leases is suspended when management determines the collection of
future income is not probable. Income recognition is resumed if
collection doubts are removed.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
Allowance for Losses on Receivables
The allowance for losses on receivables is established
through a charge to the provision for losses. The allowance is
an estimate of the amount adequate to absorb losses on existing
receivables that may become uncollectible. The allowance is
maintained at an amount management considers appropriate in
relation to the outstanding receivables portfolio based on such
factors as overall portfolio quality, historical loss experience
and current economic conditions.
Under various agreements, Transportation and its dealers may
be liable for a portion of customer losses or may be required to
repurchase the repossessed collateral at the receivable principal
value. The Corporation's losses are net of these benefits.
Receivables are charged off to the allowance for losses as soon
as the receivable is determined to be uncollectible.
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.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
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 are classified as available-for-sale
and are reported at fair value.
Derivative Financial Instruments
The Corporation uses derivatives to reduce its exposure to
interest rate volatility. All derivative financial instruments
are held for purposes other than trading, and the Corporation's
policy prohibits 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.
Pending Accounting Standards
In June 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 125,
("SFAS No. 125") "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" which the
Corporation must adopt for all applicable transactions occurring
after December 31, 1996. The Corporation will apply SFAS No. 125
to securitization transactions occurring on or after January 1,
1997. The new standard is not expected to have a material effect
on the Corporation's net income or financial condition.
Reclassification
Certain amounts for prior years have been reclassified to conform
with the presentation used in the 1996 financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
2. TRANSACTIONS WITH AFFILIATED COMPANIES
Wholesale Notes, Wholesale Accounts and Retail Accounts
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
was $49.8 in 1996, $55.7 in 1995 and $50.7 in 1994.
Retail Notes and Lease Financing
In accordance with agreements between the Corporation and
Transportation, Transportation may be liable for certain losses
on the finance receivables and may be required to repurchase the
repossessed collateral at the receivable principal value. Losses
recorded by Transportation were $9.5 in 1996 and $.6 in 1995 and
1994.
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
1996, $2.4 in 1995 and $2.5 in 1994.
Short-Term Debt
The Corporation had daily average short-term borrowings from
Transportation of $85 in 1996 and $93 in 1995 on which interest
accrued at the Corporation's incremental short-term borrowing
rate. These borrowings, including $5 and $6 of interest expense
in 1996 and 1995, respectively, were repaid during each of the
fiscal years.
Accounts Payable
Accounts payable include $24.5 and $89.5 payable to
Transportation at October 31, 1996 and 1995, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
3. INDUSTRY SEGMENTS
Information by industry segment is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Finance operations $ 201.6 $ 175.1 $ 150.6
Insurance operations 51.2 53.1 60.2
Total revenue $ 252.8 $ 228.2 $ 210.8
Income before taxes:
Finance operations $ 74.2 $ 53.1 $ 49.9
Insurance operations 6.3 5.6 5.3
Total income before taxes $ 80.5 $ 58.7 $ 55.2
Assets at end of year:
Finance operations $1,626.9 $1,701.9 $1,354.1
Insurance operations 166.9 172.8 180.7
Total assets at end of year $1,793.8 $1,874.7 $1,534.8
</TABLE>
4. MARKETABLE SECURITIES
The fair value of marketable securities is 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 $1.3 and
$1.7 as of October 31, 1996 and 1995, respectively. The
following table sets forth, by type of security issuer, the
amortized cost and estimated market values at October 31, 1996
and 1995:
<TABLE>
<CAPTION>
Amortized Gross Realized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government and
agency securities $ 41.7 $ .3 $ .5 $ 41.5
Corporate debt securities 29.1 .1 .4 28.8
Mortgage- and
asset-backed securities 42.4 .2 .4 42.2
Foreign governments 1.5 - - 1.5
Total debt securities $ 114.7 $ .6 $ 1.3 $ 114.0
Equity securities 11.3 3.5 .7 14.1
Total $ 126.0 $ 4.1 $ 2.0 $ 128.1
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. MARKETABLE SECURITIES (Continued)
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
October 31, 1995 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government and
agency 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 - - .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
</TABLE>
Contractual maturities of marketable debt securities at
October 31, 1996, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 16.1 $ 16.0
Due after one year through five years 31.2 31.5
Due after five years through ten years 18.9 18.5
Due after ten years 6.1 5.8
72.3 71.8
Mortgage- and asset-backed securities 42.4 42.2
Total (Excludes Stocks) $ 114.7 $ 114.0
</TABLE>
Actual maturities may differ from the contractual maturities
because of prepayments by the issuers.
Proceeds from sales or maturities of marketable securities
available for sale were $67.7 during 1996 and $67.3 during 1995.
Gross gains of $1.8 and $.8 and gross losses of $.5 and $.6 were
realized on those sales in 1996 and 1995, respectively.
All marketable securities at October 31, 1996 and 1995, were
held by Harco, of which $16.7 and $23.2, respectively, were on
deposit with various state departments of insurance or otherwise
restricted as to use.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES
Finance receivable balances, net of unearned finance income,
at October 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Retail notes and lease financing $ 733.3 $ 747.2
Wholesale notes 100.5 268.2
Accounts:
Retail 314.7 316.7
Wholesale 56.7 49.2
Total 371.4 365.9
Total finance receivables $1,205.2 $1,381.3
</TABLE>
Contractual maturities of finance receivables including
unearned finance income at October 31, 1996, are summarized as
follows:
<TABLE>
<CAPTION>
Retail Wholesale Accounts
<S> <C> <C> <C>
Due in:
1997 $230.7 $ 69.5 $371.4
1998 211.6 31.0 -
1999 186.4 - -
2000 142.3 - -
2001 75.5 - -
Due after 2001 13.8 - -
Gross finance receivables 860.3 100.5 371.4
Unearned finance income 127.0 - -
Total finance receivables $733.3 $100.5 $371.4
</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's primary business is to provide wholesale,
retail and lease financing for new and used trucks sold by
Transportation and Transportation's dealers, and as a result the
Corporation's receivables and leases have significant
concentration in the trucking industry. On a geographic basis,
there is not a disproportionate concentration of credit risk in
any area of the United States. The Corporation retains as
collateral a security interest in the equipment associated with
wholesale notes, retail notes and leases other than accounts.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
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>
1996 1995
<S> <C> <C>
Retail notes $1,366.4 $1,173.2
Wholesale notes 500.0 500.0
Total $1,866.4 $1,673.2
</TABLE>
Gains or losses from the sales of receivables are recognized
in the period in which such sales occur. The allowance for
credit losses is adequately provided prior to the receivable
sales; therefore, gains from receivable sales are not reduced for
expected credit losses. Included in "Retail notes and lease
financing" revenue are gains totaling $20.2, $5.2 and $11.8 on
retail note receivable sales of $985, $740 and $1,033 for the
fiscal years ended October 31, 1996, 1995 and 1994, respectively.
Gains on sales of wholesale receivables are not material as a
result of their short maturities.
The Corporation has two wholly-owned subsidiaries, Navistar
Financial Retail Receivables Corporation ("NFRRC") and Navistar
Financial Securities Corporation ("NFSC"), which have a limited
purpose of purchasing retail and wholesale receivables,
respectively, and transferring an undivided ownership interest in
such notes to investors in exchange for pass-through notes and
certificates. These subsidiaries have limited recourse on the
sold receivables and their assets are available to satisfy the
claims of their creditors prior to such assets becoming available
to the Corporation or affiliated companies. During fiscal 1996,
in two separate sales, the Corporation sold a total of $985 of
retail notes, net of unearned finance income, through NFRRC to
two individual owner trusts. The owner trusts, in turn, sold
$946 of notes and $39 of certificates to investors. The proceeds
of $934, net of underwriting fees and credit enhancements, were
used by the Corporation for general working capital purposes. At
October 31, 1996, the remaining shelf registration available to
NFRRC for issuance of asset-backed securities was $2.4 billion.
NFSC has in place a $500 revolving wholesale note trust that
provides for the continuous sale of eligible wholesale notes on a
daily basis. The issuance of a $200 tranche of investor
certificates during fiscal 1995 increased NFSC's revolving
wholesale note trust to $500. The trust is comprised of three
$100 tranches of investor certificates maturing serially from
1997 to 1999 and a $200 tranche of investor certificates maturing
in 2004.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
5. FINANCE RECEIVABLES (Continued)
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.
The following is a summary of amounts included in "Amounts
Due from Sales of Receivables" as of October 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash held and invested by trusts $ 85.2 $ 66.8
Subordinated retained interests in wholesale 85.4 86.3
receivables
Subordinated retained interests in retail 12.5 12.2
receivables
Holdback reserves 31.7 43.7
Excess servicing fee and other 61.9 48.0
Allowance for credit losses
(12.4) (9.2)
Total $264.3 $247.8
</TABLE>
6. INVESTMENT IN OPERATING LEASES
Operating leases at year-end were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Investment in operating leases
Vehicles and other equipment, at cost $116.4 $ 49.0
Less: Accumulated depreciation
(15.3) (9.7)
Net investment in operating leases $101.1 $ 39.3
</TABLE>
Future minimum rentals on operating leases are as follows:
1997, $24.7; 1998, $22.2; 1999, $16.9; 2000, $11.1 and $5.3
thereafter. Each of these assets is depreciated on a straight-
line basis over the term of the lease in an amount necessary to
reduce the leased vehicle to its estimated residual value at the
end of the lease term.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
7. ALLOWANCE FOR LOSSES
The allowance for losses on receivables is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Total allowance for losses at beginning of year $19.6 $16.2 $14.8
Provision for losses 9.3 2.6 2.3
Net (losses) recoveries (charged)
credited to allowance (4.9) .8 (.9)
Total allowance for losses at end of year $24.0 $19.6 $16.2
Allowance pertaining to:
Owned notes $11.6 $10.4 $ 8.2
Sold notes 12.4 9.2 8.0
Total $24.0 $19.6 $16.2
</TABLE>
8. TAXES ON INCOME
Taxes on income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $26.4 $18.9 $15.1
State and local 4.4 3.1 3.0
Total current 30.8 22.0 18.1
Deferred (primarily Federal) .3 .5 3.1
Total $31.1 $22.5 $21.2
</TABLE>
The effective tax rate of 38% 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, comprised the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Other postretirement benefits $2.9 $2.8
Deferred tax liabilities:
Depreciation and other 6.9 6.4
Unrealized gains on marketable securities .8 1.0
Total deferred tax liabilities 7.7 7.4
Net deferred tax liabilities $4.8 $4.6
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
8.TAXES ON INCOME (Continued)
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. Based on discussions with
outside counsel, NFC's management is of the opinion that it is
more likely than not that NFC's position will prevail such that
the Department's action will not have a material impact on NFC's
earnings and financial position.
9. SHORT-TERM DEBT
Commercial paper is issued by the Corporation with varying
terms. The Corporation also has short-term borrowings with
various banks on a non- committed basis. Compensating cash
balances and commitment fees are not required under these
agreements. Short-Term Debt outstanding at October 31 was
comprised only of commercial paper. There were no short-term
borrowings outstanding.
Information regarding short-term debt is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Aggregate obligations outstanding:
Daily average $ 68.2 $ 37.8 $ 11.7
Maximum month-end balance 117.8 81.1 419.2
Weighted average interest rate:
On average daily borrowing 6.0% 6.4% 5.4%
At October 31 5.9% 6.3% 5.6%
</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 10 to the
Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. SENIOR AND SUBORDINATED DEBT
Senior and Subordinated Debt outstanding at October 31 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Bank revolving credit, at variable rates,
due March 2001 $ 704.0 $ 760.0
Funding under asset-backed commercial
paper program, at variable rates,
due March 2001 402.4 302.3
Senior term debt:
Notes, medium-term, 9.50%, due 1996 - 117.5
Subordinated term debt:
Senior Notes, 8 7/8%, due November 1998 100.0 100.0
Total senior and subordinated debt $1,206.4 $1,279.8
</TABLE>
The weighted average interest rate on total debt, including
short-term debt and the effect of discounts and related
amortization, was 6.5%, 7.4% and 7.1% in 1996, 1995 and 1994,
respectively. The aggregate annual maturities and required
payments of debt are as follows: 1999, $100.0; and 2001,
$1,106.4.
Effective March 29, 1996, the Corporation amended and
restated its $900 million bank revolving credit facility and its
$300 million asset-backed commercial paper ("ABCP") program
supported by a bank liquidity facility, 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 structure was established. The available
funding under the ABCP program is $414 million which is comprised
of the $400 million liquidity facility plus $14 million of trust
certificates issued in connection with the formation of the ABCP
Trust.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. SENIOR AND SUBORDINATED DEBT (Continued)
Available funding under the amended and restated credit
facility and the ABCP program was $233, of which $99 provided
funding backup for the outstanding short-term debt at October 31,
1996. The remaining $134 when combined with unrestricted cash
and cash equivalents made $141 available to fund the general
business purposes of the Corporation at October 31, 1996. Under
the terms of the revolving credit facility, 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
amended agreement grants security interests in substantially all
of the Corporation's 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.
11. RETIREMENT BENEFITS
The Corporation provides postretirement benefits to
substantially all of its employees. Expenses associated with
postretirement benefits include pension expense for employees,
retirees and surviving spouses, and postretirement health care
and life insurance expense for employees, retirees, surviving
spouses and dependents.
Pension Benefits
Generally pension benefits are non-contributory with
benefits related to an employee's length of service and
compensation rate. Plan assets are primarily invested in a
dedicated portfolio of long-term fixed income securities with the
remainder invested in high quality equity securities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. RETIREMENT BENEFITS (Continued)
Pension Expense
Net pension cost includes the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost for benefits earned during
the period $ .7 $ .5 $ 1.0
Interest cost on projected benefit
obligation 2.9 2.8 2.7
Return on assets - actual (gain) loss (3.2) (9.1) 3.3
- deferred gain (loss) (.4) 5.8 (6.8)
Net amortization costs and other costs. .1 - .1
Net pension cost $ .1 $ - $ .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
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $(31.5) $ (31.8) $ (2.0) $ (2.2)
Non-vested benefits (4.0) (4.0) (.1) (.1)
Accumulated benefit
obligation (35.5) (35.8) (2.1) (2.3)
Effect of projected future
compensation levels (.9) - - (1.0)
Total projected benefit
obligation (36.5) (36.7) (2.1) (2.3)
Plan assets at fair value 42.7 41.5 - -
Funded status at October 31 6.2 4.8 (2.1) (2.3)
Unrecognized net losses (gains) (5.5) (4.2) .4 .6
Unrecognized plan amendments .5 .5 - -
Unrecognized net obligation
as of transition date .1 .1 - -
Net asset (liability) $ 1.3 $ 1.2 $ (1.7) $ (1.7)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. RETIREMENT BENEFITS (Continued)
The weighted average rate assumptions used in determining the
projected benefit obligation and pension expense were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate used to determine the present value 7.9% 7.5% 9.2%
of the projected benefit obligations
Expected long-term rate of return on plan assets 8.9% 9.9% 9.0%
Expected rate of increase in future
compensation levels 3.5% 3.5% 3.5%
</TABLE>
Other Postretirement Benefits
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>
1996 1995 1994
<S> <C> <C> <C>
Service cost for benefits earned during the year $ .4 $ .3 $ .2
Interest cost on the accumulated benefit
obligation .8 .8 .7
Expected return on assets - actual (gain) loss .8 (1.5) (.2)
- deferred gain (loss) (1.3) 1.2 -
Total cost of other postretirement benefits $ .7 $ .8 $ .7
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
11. RETIREMENT BENEFITS (Continued)
The funded status of other postretirement benefits as of October 31,
1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated other postretirement benefit
obligation (APBO):
Retirees and their dependents $(4.9) $(4.9)
Active employees eligible to retire (2.9) (2.4)
Other active participants (3.4) (3.3)
Total APBO (11.2) (10.6)
Plan assets at fair value 3.9 4.5
APBO in excess of plan assets (7.3) (6.1)
Unrecognized net loss 1.5 .4
Net liability $(5.8) $(5.7)
</TABLE>
The expected return on plan assets was 10.5% for 1996, 10%
for 1995 and 9% for 1994. The weighted average of discount rates
used to determine the accumulated postretirement benefit
obligation was 8.1% and 7.7% at October 31, 1996 and 1995,
respectively. For 1997, the weighted average rate of increase in
the per capita cost of covered health care benefits is projected
to be 8.1%. The rate is projected to decrease to 5.0% in the
year 2004 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 $1.2 and the
associated expense recognized for the year ended October 31,
1996, would increase by an estimated $.1.
12. LEASES
The Corporation is obligated under noncancelable operating
leases for the majority of its office facilities and equipment.
These leases are generally renewable and provide that property
taxes and maintenance costs are to be paid by the lessee. At
October 31, 1996, future minimum lease commitments under
noncancelable operating leases with remaining terms in excess of
one year are as follows:
<TABLE>
<S> <C>
Year Ended October 31,
1997 $1.7
1998 1.7
1999 1.6
2000 1.3
2001 .3
Thereafter -
Total $6.6
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
13. SHAREOWNER'S EQUITY
The number of authorized shares of capital stock as of
October 31, 1996 and 1995, 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.
14. 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>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Finance receivables:
Retail notes $ 662.5 $ 672.1 $ 680.8 $ 707.2
Wholesale notes 100.5 100.5 268.2 268.2
Accounts 371.4 371.4 365.9 365.9
Amounts due from sales of
receivables 264.3 258.1 247.8 234.6
Financial liabilities:
Senior and subordinated debt $1,206.4 $1,207.4 $1,279.8 $1,282.9
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
14. 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
14. 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 or loss on sale of receivables.
During August through October 1996, the Corporation entered
into $400 of forward interest rate lock agreements on a Treasury
maturing in 1998 related to the anticipated November 1996 sale of
retail receivables. See also Note 16. These hedge agreements,
which were closed in conjunction with the pricing of the sale,
resulted in a $1.9 loss which was deferred at October 31, 1996,
and included in the gain on the sale of receivables recognized in
November 1996.
The Corporation's wholly-owned insurance subsidiary has
investments in Collateralized Mortgage Obligations ("CMO's") of
$42 which are included in the Corporation's marketable securities
at October 31, 1996. These securities have characteristics which
reduce the Corporation's exposure to prepayment risk.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
15. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are subject to various
other claims arising in the ordinary course of business, and are
parties to various legal proceedings which constitute ordinary
routine litigation incidental to the business of the Corporation
and its subsidiaries. In the opinion of the Corporation's
management, none of these proceedings or claims are material to
the business or the financial condition of the Corporation.
16. SUBSEQUENT EVENT
In November 1996, the Corporation sold $487 of retail notes,
net of unearned finance income, through NFRRC to an owner trust
which, in turn, sold notes and certificates to investors. A gain
of $6.9 was recognized on the sale.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
17. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
1996
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Revenues $68.7 $60.7 $67.0 $56.4 $252.8
Interest expense 17.1 19.7 18.8 17.6 73.2
Provision for losses
on receivables 1.1 1.6 1.7 4.9 9.3
Net income 16.6 8.7 15.6 8.5 49.4
</TABLE>
<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>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
Five Year Summary of Financial and Operating Data
Dollar amounts in millions
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues and net income retained
Revenues $ 252.8 $ 228.2 $ 210.8 $ 231.9 $ 228.3
Provision for losses on
receivables 9.3 2.6 2.3 1.5 3.6
Interest expense 73.2 75.1 62.7 74.6 82.2
Other charges, net 89.8 91.8 90.6 106.8 96.1
Taxes on income 31.1 22.5 21.2 17.7 16.9
Cumulative effect of changes in
accounting policy, net of
income taxes - - - 8.8 -
Net income 49.4 36.2 34.0 22.5 29.5
Dividends paid 26.0 9.0 25.6 22.6 16.0
Net income retained $ 23.4 $27.2 $ 8.4 $ (.1) $ 13.5
Percent of net income to
average shareowner's equity 18.1% 15.0% 15.1% 10.3% 13.8%
Assets at end of year
Cash and cash equivalents $ 6.7 $ 2.9 $ 28.3 $ 33.9 $ 79.2
Marketable securities 128.1 131.8 130.5 125.6 130.5
Finance receivables:
Truck retail notes and
lease financing 733.3 747.2 513.9 823.5 955.1
Wholesale notes 100.5 268.2 230.6 212.5 81.5
Accounts 371.4 365.9 357.7 245.1 204.3
Total 1,205.2 1,381.3 1,102.2 1,281.1 1,240.9
Allowance for losses (11.6) (10.4) (8.2) (10.9) (12.4)
Finance receivables, net 1,193.6 1,370.9 1,094.0 1,270.2 1,228.5
Other assets 465.4 369.1 282.0 195.5 170.5
Total assets $1,793.8 $1,874.7 $1,534.8 $1,625.2 $1,608.7
Liabilities and shareowner's
equity at end of year
Short-term borrowings $ 99.4 $ 50.5 $ 419.2 $ 75.0 $ -
Bank revolving credit 704.0 760.0 355.0 727.0 727.0
Asset-backed commercial paper
facility 402.4 302.3 - - -
Medium-term notes - 117.5 217.3 222.2 261.1
Long-term notes and debentures - - - 75.0 135.0
Subordinated debt 100.0 100.0 100.0 100.0 94.9
Total debt 1,305.8 1,330.3 1,091.5 1,199.2 1,218.0
Other liabilities 208.3 287.7 217.7 206.6 171.2
Shareowner's equity 279.7 256.7 225.6 219.4 219.5
Total liabilities and
shareowner's equity $1,793.8 $1,874.7 $1,534.8 $1,625.2 $1,608.7
Debt to equity ratio 4.7:1 5.2:1 4.8:1 5.5:1 5.5:1
Senior debt to capital funds ratio 3.2:1 3.4:1 3.0:1 3.4:1 3.6:1
Gross insurance premiums written $ 53.3 $ 52.0 $ 59.0 $ 65.8 $ 69.2
Number of employees at Oct. 31 352 360 353 339 364
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Gross Finance Receivables and Leases Acquired
<TABLE>
<CAPTION>
Dollar amounts in millions
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Wholesale notes $2,705.8 $2,979.4 $2,306.6 $1,977.6 $1,547.7
Retail notes and leases:
New 1,064.1 1,075.0 861.9 730.0 591.8
Used 281.7 242.3 217.2 168.4 185.9
Total 1,345.8 1,317.3 1,079.1 898.4 777.7
Total $4,051.6 $4,296.7 $3,385.7 $2,876.0 $2,325.4
</TABLE>
<TABLE>
<CAPTION>
Analysis of Finance Retail Notes Acquired
Average Down Payment
Contractual as a Percent Average
Term of Retail Monthly
In Months Sales Price Installment
Number of
Year Units New Used New Used New Used
<S> <C> <C> <C> <C> <C> <C> <C>
1996 19,521 55 42 8.0% 15.6% $1,394 $ 918
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
</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) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Original amount of notes
and leases $ 3.2 $ 1.2 $ 1.3 $ 2.6 $ 4.3
Balance of notes and leases 2.1 .5 .5 .7 2.1
Balance as a percent of
total outstanting .25% .06% .09% .08% .19%
</TABLE>
<TABLE>
<CAPTION>
Analysis of Retail Note Repossessions
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Retail note repossessions
acquired as a percentage
of average retail note
gross balance 3.15% .92% .97% 1.95% 3.70%
</TABLE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA (Continued)
Analysis of Loss Experience
<TABLE>
<CAPTION>
($ Millions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net losses (recoveries):
Retail notes and leases $5.1 $ .3 $ .6 $(.1) $2.4
Wholesale notes (.2) (.9) .1 .8 .8
Accounts - (.2) .2 - -
Total $4.9 $(.8) $ .9 $ .7 $3.2
Percent net losses (recoveries)
to liquidations:
Retail notes and leases .48% .03% .07% (.01)% .27%
Wholesale notes (.01) (.03) .01 .04 .06
Total .13% (.02)% .03% .03% .13%
Percent net losses (recoveries)
to related average gross
receivables outstanding:
Retail notes and leases .22% .02% .04% - .17%
Wholesale notes (.02) (.13) .03 .16 .20
Accounts - (.05) .08 - -
Total .14% (.03)% .04% .03% .16%
</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, 1996 and 1995 and the results of
their operations and their cash flow for each of the three
years in the period ended October 31, 1996 in conformity with
generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
December 16, 1996
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
</TABLE>
Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
October 31, 1996.
<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 22, 1997
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
without the other and with full power of substitution, to exe
cute, deliver and file, for and on such person's behalf, and in
such person's name and capacity or capacities as stated below,
any amendment, exhibit or supplement to the Form 10-K Report
making such changes in the report as such attorney-in-fact
deems appropriate.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S><C> <C> <C>
/s/JOHN J. BONGIORNO President and Chief Executive January 22, 1997
John J. Bongiorno Officer; Director
(Principal Executive Officer)
/s/R. WAYNE CAIN Vice President and Treasurer; January 22, 1997
R. Wayne Cain Director
(Principal Financial Officer)
/s/PHYLLIS E. COCHRAN Vice President and Controller; January 22, 1997
Phyllis E. Cochran Director
(Principal Accounting Officer)
/s/JORDAN H. FEIGER Vice President, Operations; January 22, 1997
Jordan H. Feiger Director
/s/JOHN R. HORNE Director January 22, 1997
John R. Horne
/s/THOMAS M. HOUGH Director January 22, 1997
Thomas M. Hough
</TABLE>
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
SIGNATURES (Continued)
<TABLE>
<CAPTION>
Signature Title Date
<S><C> <C> <C>
/s/ROBERT C. LANNERT Director January 22, 1997
Robert C. Lannert
/s/J. STEVEN KEATE Director January 22, 1997
J. Steven Keate
/s/THOMAS D. SILVER Director January 22, 1997
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 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.
10.46 Amendment No. 1 dated as of March 29, 1996, to the Loan
and Security Agreement dated as of November 7, 1994,
between Truck Retail Instalment Paper Corp. ("TRIP") and
NFC Asset Trust (the "Trust") filed on Form 8-K dated June
5, 1996. Commission File No. 1-4146-1.
10.47 Amendment No. 1 and Consent dated as of March 29, 1996, to
the Liquidity Agreement dated as of November 7, 1994,
among NFC Asset Trust, certain lenders, and Chemical Bank,
as Administrative Agent for the lenders filed on Form 8-K
dated June 5, 1996. Commission File No. 1-4146-1.
10.48 Amendment No. 2 dated as of March 29, 1996, to the Amended
and Restated Credit Agreement dated as of November 4,
1994, as amended by Amendment No. 1 dated as of December
15, 1995, 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 June
5, 1996. Commission File No. 1-4146-1.
10.49 Purchase Agreement dated as of May 30, 1996, between the
Corporation and Navistar Financial Retail Receivables
Corporation, as Purchaser, with respect to Navistar
Financial 1996-A Owner Trust. Filed on Registration No.
33-55865.
10.50 Pooling and Servicing Agreement dated as of May 30, 1996,
among the Corporation, as Servicer, and Navistar Financial
Retail Receivables Corporation, as Seller, and Navistar
Financial 1996-A Owner Trust, as Issuer. Filed on
Registration No. 33-55865.
10.51 Trust Agreement dated as of May 30, 1996, between Navistar
Financial Retail Receivables Corporation, as Seller, and
Chemical Bank Delaware, as Owner Trustee, with respect to
Navistar Financial 1996-A Owner Trust. Filed on
Registration No. 33-55865.
E-8
<PAGE>
Exhibit 10 (Continued)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.52 Indenture dated as of November 6, 1996, between Navistar
Financial 1995-B Owner Trust and The Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1996-
A Owner Trust. Filed on Registration No. 33-55865.
10.53 Purchase Agreement dated as of November 6, 1996, between
the Corporation and Navistar Financial Retail Receivables
Corporation, as Purchaser, with respect to Navistar
Financial 1996-B Owner Trust. Filed on Registration No.
33-55865.
10.54 Pooling and Servicing Agreement dated as of November 6,
1996, among the Corporation, as Servicer, and Navistar
Financial Retail Receivables Corporation, as Seller, and
Navistar Financial 1996-B Owner Trust, as Issuer. Filed
on Registration No. 33-55865.
10.55 Trust Agreement dated as of November 6, 1996, between
Navistar Financial Retail Receivables Corporation, as
Seller, and Chemical Bank Delaware, as Owner Trustee, with
respect to Navistar Financial 1996-B Owner Trust. Filed
on Registration No. 33-55865.
10.56 Indenture dated as of November 6, 1996, between Navistar
Financial 1995-B Owner Trust and The Bank of New York, as
Indenture Trustee, with respect to Navistar Financial 1996-
B Owner Trust. Filed on Registration No. 33-55865.
E-9
