-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JcFVa+ERmL2mGd1GeiLKAh2zzcftcTmRLgIDykC7xHUrjSauTXVzZDmxU/QoG6M+ 3Loqd5pzc6PkM3EzVcHNMg== 0000808450-96-000005.txt : 19960912 0000808450-96-000005.hdr.sgml : 19960912 ACCESSION NUMBER: 0000808450-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960911 SROS: CSE SROS: NASD SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAVISTAR INTERNATIONAL CORP /DE/NEW CENTRAL INDEX KEY: 0000808450 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 363359573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09618 FILM NUMBER: 96628335 BUSINESS ADDRESS: STREET 1: 455 N CITYFRONT PLAZA DR CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3128362032 MAIL ADDRESS: STREET 2: 455 N CITYFRONT PLAZA DRIVE CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: NAVISTAR HOLDING INC DATE OF NAME CHANGE: 19870528 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9618 NAVISTAR INTERNATIONAL CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-3359573 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 455 North Cityfront Plaza Drive, Chicago, Illinois 60611 -------------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 836-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: As of September 4, 1996, the number of shares outstanding of the registrant's common stock was 49,385,552 and the Class B Common was 24,292,206. NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES ----------------------------- INDEX --------- Page Reference --------- Part I. Financial Information: Item 1. Financial Statements: Statement of Income -- Three Months and Nine Months Ended July 31, 1996 and 1995 3 Statement of Financial Condition -- July 31, 1996, October 31, 1995 and July 31, 1995 ....... 5 Statement of Cash Flow -- Nine Months Ended July 31, 1996 and 1995 ................ 6 Notes to Financial Statements ............................. 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ............... 10 Part II. Other Information: Item 1. Legal Proceedings ................................ 14 Item 6. Exhibits and Reports on Form 8-K ................. 14 Signature ................................................. 15 Exhibit 11 .................................................. E-1 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited) - -------------------------------------------------------------------------------------------------------------------- Millions of dollars, except per share data - -------------------------------------------------------------------------------------------------------------------- Three Months Ended July 31 --------------------------------------------------------------------------------- Navistar International Corporation and Consolidated Subsidiaries Manufacturing* Financial Services* ------------------------- ------------------ ------------------ 1996 1995 1996 1995 1996 1995 ------ ------ ------ ------ ------ ------ Sales and revenues Sales of manufactured products ..... $1,325 $1,455 $1,325 $1,455 $ - $ - Finance and insurance revenue ...... 53 50 - - 66 66 Other income ....................... 13 9 11 10 3 - ------ ------ ------ ------ ------ ------ Total sales and revenues ......... 1,391 1,514 1,336 1,465 69 66 ------ ------ ------ ------ ------ ------ Costs and expenses Cost of products and services sold . 1,159 1,253 1,158 1,251 1 2 Postretirement benefits ............ 52 50 52 50 - - Engineering and research expense ... 29 30 29 30 - - Marketing and administrative expense 84 79 75 72 9 7 Interest expense ................... 22 22 2 1 21 22 Financing charges on sold receivables 5 5 18 21 - - Insurance claims and underwriting expense ......... 12 12 - - 12 12 ------ ------ ------ ------ ------ ------ Total costs and expenses ......... 1,363 1,451 1,334 1,425 43 43 ------ ------ ------ ------ ------ ------ Income before income taxes Manufacturing .................... - - 2 40 - - Financial Services ............... - - 26 23 - - ------ ------ ------ ------ ------ ------ Income before income taxes ..... 28 63 28 63 26 23 Income tax expense ............. (11) (24) (11) (24) (10) (9) ------ ------ ------ ------ ------ ------ Net income .......................... 17 39 $ 17 $ 39 $ 16 $ 14 ====== ====== ====== ====== Less dividends on Series G preferred stock 8 8 ------ ------ Net income applicable to common stock $ 9 $ 31 ====== ====== Net income per common share ......... $ .13 $ .43 ====== ====== Average number of common and dilutive common equivalent shares outstanding (millions) ........................ 73.8 74.3 See Notes to Financial Statements.
Nine Months Ended July 31 - ---------------------------------------------------------------------------------- Navistar International Corporation and Consolidated Subsidiaries Manufacturing* Financial Services* - ------------------------- ------------------ ------------------- 1996 1995 1996 1995 1996 1995 ------ ------ ------ ------ ------ ------ $4,110 $4,408 $4,110 $4,408 $ - $ - 154 125 - - 192 168 39 37 34 33 9 8 ------ ------ ------ ------ ------ ------ 4,303 4,570 4,144 4,441 201 176 ------ ------ ------ ------ ------ ------ 3,588 3,817 3,582 3,812 6 5 163 155 163 154 - 1 93 80 93 80 - - 232 221 207 200 25 21 63 65 4 6 63 63 21 20 59 63 - - 38 39 - - 38 39 ------ ------ ------ ------ ------ ------ 4,198 4,397 4,108 4,315 132 129 ------ ------ ------ ------ ------ ------ - - 36 126 - - - - 69 47 - - ------ ------ ------ ------ ------ ------ 105 173 105 173 69 47 (40) (65) (40) (65) (26) (17) ------ ------ ------ ------ ------ ------ 65 108 $ 65 $ 108 $ 43 $ 30 ====== ====== ====== ====== 22 22 ------ ------ $ 43 $ 86 ====== ====== $ .59 $ 1.17 ====== ====== 73.8 74.4 * "Manufacturing" includes the consolidated financial results of the company's manufacturing operations with its wholly owned financial services subsidiaries included under the equity method of accounting. "Financial Services" includes the company's wholly owned subsidiary, Navistar Financial Corporation, and other wholly owned finance and insurance subsidiaries. Transactions between Manufacturing and Financial Services have been eliminated from the "Navistar International Corporation and Consolidated Subsidiaries" columns. The basis of consolidation is described in Note A.
STATEMENT OF FINANCIAL CONDITION (Unaudited) - -------------------------------------------------------------------------------------------------------------------- Millions of dollars - -------------------------------------------------------------------------------------------------------------------- Navistar International Corporation and Consolidated Subsidiaries Manufacturing* Financial Services* ------------------------------ ------------------------------ ------------------------------ July 31 October 31 July 31 July 31 October 31 July 31 July 31 October 31 July 31 1996 1995 1995 1996 1995 1995 1996 1995 1995 ------ ------ ------ ------ ------ ------ ------ ------ ------ ASSETS - ----------------------------------- Cash and cash equivalents ......... $ 201 $ 485 $ 298 $ 155 $ 461 $ 223 $ 46 $ 24 $ 75 Marketable securities ............. 386 555 431 252 415 292 134 140 139 ------ ------ ------ ------ ------ ------ ------ ------ ------ 587 1,040 729 407 876 515 180 164 214 Receivables, net .................. 1,503 1,854 1,305 261 274 276 1,348 1,672 1,149 Inventories ....................... 549 416 477 549 416 477 - - - Property, net of accumulated depreciation and amortization of $824, $764 and $739 .......... 703 683 617 643 642 582 60 41 35 Equity in Financial Services subsidiaries .................... - - - 303 282 277 - - - Investments and other assets ...... 188 166 177 142 122 141 46 44 36 Prepaid and intangible pension assets ......................... 323 320 365 322 319 364 1 1 1 Deferred tax asset ................ 1,055 1,087 1,075 1,055 1,087 1,075 - - - ------ ------ ------ ------ ------ ------ ------ ------ ------ Total assets ...................... $4,908 $5,566 $4,745 $3,682 $4,018 $3,707 $1,635 $1,922 $1,435 ====== ====== ====== ====== ====== ====== ====== ====== ====== LIABILITIES AND SHAREOWNERS' EQUITY - ----------------------------------- Liabilities Accounts payable .................. $ 750 $ 933 $ 737 $ 675 $ 876 $ 683 $ 176 $ 146 $ 170 Debt .............................. 1,118 1,457 939 122 127 122 996 1,330 817 Postretirement benefits liability . 1,323 1,341 1,236 1,316 1,334 1,229 7 7 7 Other liabilities ................. 811 965 920 663 811 760 153 157 164 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total liabilities ............. 4,002 4,696 3,832 2,776 3,148 2,794 1,332 1,640 1,158 ------ ------ ------ ------ ------ ------ ------ ------ ------ Shareowners' equity Series G convertible preferred stock (liquidation preference $240 million) ................... 240 240 240 240 240 240 - - - Series D convertible junior preference stock (liquidation preference $4 million) .......... 4 4 4 4 4 4 - - - Common stock (51.0, 50.9 and 50.5 million shares issued) ..... 1,642 1,641 1,635 1,642 1,641 1,635 178 178 178 Class B Common stock (24.3, 24.3 and 24.7 million shares issued). 491 491 496 491 491 496 - - - Retained earnings (deficit) - balance accumulated after the deficit reclassification ........ (1,441) (1,478) (1,439) (1,441) (1,478) (1,439) 125 104 99 Common stock held in treasury, at cost ......................... (30) (28) (23) (30) (28) (23) - - - ------ ------ ------ ------ ------ ------ ------ ------ ------ Total shareowners' equity ..... 906 870 913 906 870 913 303 282 277 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total liabilities and shareowners' equity ......... $4,908 $5,566 $4,745 $3,682 $4,018 $3,707 $1,635 $1,922 $1,435 ====== ====== ====== ====== ====== ====== ====== ====== ====== See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of the company's manufacturing operations with its wholly owned financial services subsidiaries included under the equity method of accounting. "Financial Services" includes the company's wholly owned subsidiary, Navistar Financial Corporation, and other wholly owned finance and insurance subsidiaries. Transactions between Manufacturing and Financial Services have been eliminated from the "Navistar International Corporation and Consolidated Subsidiaries" columns. The basis of consolidation is described in Note A.
STATEMENT OF CASH FLOW (Unaudited) - --------------------------------------------------------------------------------------------------------------- Nine Months Ended July 31 (Millions of dollars) - --------------------------------------------------------------------------------------------------------------- Navistar International Corporation and Consolidated Subsidiaries Manufacturing* Financial Services* ------------------------- ------------------ ------------------ 1996 1995 1996 1995 1996 1995 ------ ------ ------ ------ ------ ------ Cash flow from operations Net income ............................... $ 65 $ 108 $ 65 $ 108 $ 43 $ 30 Adjustments to reconcile net income to cash provided by (used in) operations: Depreciation and amortization .......... 75 63 68 59 7 4 Equity in earnings of Financial Services, net of dividends received ............ - - (23) (24) - - Deferred income taxes .................. 35 58 35 58 - - Additional pension funding .............. - (72) - (72) - - Change in operating assets and liabilities: Receivables .......................... 189 146 85 (3) - - Inventories .......................... (134) (48) (134) (48) - - Prepaid and other current assets ..... (13) - (13) - - - Accounts payable ..................... (187) (103) (198) (95) (50) (3) Other liabilities .................... (164) 77 (158) 76 (5) 7 Other, net ............................. (25) (5) (5) 4 (20) (9) ------ ------ ------ ------ ------ ------ Cash provided by (used in) operations ... (159) 224 (278) 63 (25) 29 ------ ------ ------ ------ ------ ------ Cash flow from investment programs Purchase of retail notes and lease receivables ............................ (844) (748) - - (844) (748) Collections/sales of retail notes and lease receivables ................. 1,016 805 - - 1,016 805 Cash collections in excess of acquisitions of wholesale notes and accounts receivable ............................ - - - - 164 138 Purchase of marketable securities ........ (519) (473) (456) (419) (63) (54) Sales or maturities of marketable securities ............................. 684 352 616 293 68 59 Proceeds from property sold under sale/leaseback ................... 7 - 7 - - - Capital expenditures ..................... (72) (91) (72) (91) - - Advance to Navistar Financial ............ - - (82) (99) 82 99 Other investment programs, net ........... (32) 4 (7) 13 (25) (9) ------ ------ ------ ------ ------ ------ Cash provided by (used in) investment programs ............................... 240 (151) 6 (303) 398 290 ------ ------ ------ ------ ------ ------ Cash flow from financing activities Principal payments on debt ............... (129) (409) (12) (9) (117) (400) Net increase (decrease) in notes and debt outstanding under bank revolving credit facility and asset-backed and other commercial paper programs .... (214) 104 - - (214) 104 Dividends paid ........................... (22) (22) (22) (22) (20) (6) Repurchase of Class B Common stock ....... - (5) - (5) - - ------ ------ ------ ------ ------ ------ Cash used in financing activities ....... (365) (332) (34) (36) (351) (302) ------ ------ ------ ------ ------ ------ Cash and cash equivalents Increase (decrease) during the period .. (284) (259) (306) (276) 22 17 At beginning of the year ............... 485 557 461 499 24 58 ------ ------ ------ ------ ------ ------ Cash and cash equivalents at end of the period ................... $ 201 $ 298 $ 155 $ 223 $ 46 $ 75 ====== ====== ====== ====== ====== ====== See Notes to Financial Statements. * "Manufacturing" includes the consolidated financial results of the company's manufacturing operations with its wholly owned financial services subsidiaries included under the equity method of accounting. "Financial Services" includes the company's wholly owned subsidiary, Navistar Financial Corporation, and other wholly owned finance and insurance subsidiaries. Transactions between Manufacturing and Financial Services have been eliminated from the "Navistar International Corporation and Consolidated Subsidiaries" columns. The basis of consolidation is described in Note A.
Navistar International Corporation and Consolidated Subsidiaries Notes to Financial Statements (Unaudited) Note A. Summary of Accounting Policies Navistar International Corporation is a holding company whose principal operating subsidiary is Navistar International Transportation Corp. ("Transportation"). As used hereafter, "company" refers to Navistar International Corporation and its consolidated subsidiaries. The accompanying unaudited financial statements have been prepared in accordance with accounting policies described in the 1995 Annual Report on Form 10-K and should be read in conjunction with the disclosures therein. In addition to the consolidated financial statements, the company has elected to provide financial information in a format that presents the operating results, financial condition and cash flow from operations designated as "Manufacturing" and "Financial Services." As used herein and in the 1995 Annual Report on Form 10-K, Manufacturing includes the consolidated financial results of the company's manufacturing operations with its wholly owned financial services subsidiaries included on a one-line basis under the equity method of accounting. Financial Services includes the consolidated financial results of Navistar Financial Corporation ("Navistar Financial"), its domestic insurance subsidiary and foreign finance and insurance subsidiaries. In the opinion of management, these interim financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flow for the periods presented. Interim results are not necessarily indicative of results for the full year. Certain 1995 amounts have been reclassified to conform with the presentation used in the 1996 financial statements. Note B. Supplemental Cash Flow Information On the Statement of Cash Flow, "Cash collections in excess of acquisitions" relating to Financial Services' wholesale notes and accounts receivable are included on a consolidated basis as a change in operating assets and liabilities under cash flow from operations and in Financial Services as cash flow from investment programs. Consolidated interest payments during the first nine months of 1996 and 1995 were $67 million and $65 million, respectively. Consolidated tax payments made during the first nine months of 1996 and 1995, were $3 million and $5 million, respectively. Navistar International Corporation and Consolidated Subsidiaries Notes to Financial Statements (Unaudited) Note C. Income Taxes The benefit of Net Operating Loss (NOL) carryforwards is recognized as a deferred tax asset in the Statement of Financial Condition, while the Statement of Income includes income taxes calculated at the statutory rate. The amount reported does not represent cash payment of income taxes except for certain state income, foreign withholding and federal alternative minimum taxes which are not material. In the Statement of Financial Condition, the deferred tax asset is reduced by the amount of deferred tax expense or increased by a deferred tax benefit recorded during the year. Until the company has utilized its significant NOL carryforwards, the cash payment of federal income taxes will be minimal. Note D. Inventories Inventories are as follows: July 31 October 31 July 31 Millions of dollars 1996 1995 1995 - ------------------------------------------------------------------------- Finished products .................. $ 302 $ 167 $ 215 Work in process .................... 111 91 100 Raw materials and supplies ......... 136 158 162 ------- ------- ------- Total inventories .................. $ 549 $ 416 $ 477 ======= ======= ======== Note E. Financial Instruments Navistar Financial enters into forward interest rate contracts to manage its exposures to fluctuations in funding costs from the anticipated securitization and sale of retail notes. Gains or losses incurred with the closing of these agreements are included as a component of the gain or loss on the sale of receivables. In February and May 1996, Navistar Financial entered into short-term forward interest rate lock agreements totalling $450 million on Treasury securities maturing in 1998 related to the sale of retail receivables in May 1996. These hedge agreements were closed in May 1996 in conjunction with the sale of $460 million of retail notes receivable. In August and September 1996, Navistar Financial entered into $300 million of forward interest rate lock agreements on a Treasury security maturing in 1998 related to the anticipated sale of retail receivables sometime in November 1996. Navistar International Corporation and Consolidated Subsidiaries Notes to Financial Statements (Unaudited) Note F. Legal Proceedings In May 1993, a jury issued a verdict in favor of Vernon Klein Truck & Equipment, Inc. (Klein Truck) and against Transportation in the amount of $11 million in compensatory damages and $15 million in punitive damages. Transportation appealed the verdict and in order to do so was required to post a bond collateralized with $30 million in cash. In November 1994, the Court of Appeals of the State of Oklahoma reversed the verdict and entered judgment in favor of Transportation on virtually all aspects of the case. Klein Truck then appealed to the Oklahoma Supreme Court. On June 10, 1996, the Oklahoma Supreme Court dismissed its review of the Court of Appeals decision and left standing the Court of Appeals decision reversing the jury verdict. The company has made the appropriate motions for return of its bond and expects the bond to be returned in due course. Note G. Environmental Matters In the fourth quarter of 1994, Transportation recorded a charge for potential clean-up costs related to two formerly owned businesses, Wisconsin Steel and Solar Turbines, Inc. (Solar), as disclosed in Note 5 to the company's Annual Report on Form 10-K. During the third quarter of 1995, Transportation and Solar entered into an agreement providing for the joint funding of future site studies and necessary corrective action at the facility. The agreement also provides for arbitration to revolve a dispute over past remediation costs incurred by Solar. There has been no change in Transportation's estimate of the anticipated clean-up costs of the Wisconsin Steel and Solar sites reported at October 31, 1995. Note H. Subsequent Event During the third quarter of 1996, the company announced plans for the production of the Next Generation Truck (NGT) at its Springfield, Ohio assembly facility. To achieve the necessary financial returns for the new program, the company made proposals to the UAW (United Automobile, Aerospace and Agricultural Implement Workers of America) to obtain modifications to the existing labor contract and will continue to fund the NGT program as long as rapid and significant progress is being made toward reaching an acceptable agreement with the UAW. If negotiations are unsuccessful, the company's Board of Directors has authorized management to halt development of the NGT program and to evaluate various strategy alternatives aimed at improving the company's competitiveness. Management estimates that as of August 31, 1996 a complete termination of the NGT program would have resulted in a charge to earnings of approximately $30 million. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Consolidated The company reported net income of $17 million, or $0.13 per common share for the third quarter ended July 31, 1996, compared with net income of $39 million, or $0.43 per common share for the comparable quarter last year. For the first nine months of 1996, the company reported net income of $65 million, a decrease from the $108 million reported for the same period in 1995. Consolidated sales and revenues for the third quarter of 1996 totaled $1,391 million compared with $1,514 million reported in 1995. During the first nine months of 1996, consolidated sales and revenues declined 6% to $4,303 million from $4,570 million. Manufacturing Third Quarter Ended July 31, 1996 --------------------------------- Manufacturing, excluding Financial Services, reported income before income taxes of $2 million compared with pretax income of $40 million in the third quarter of 1995. The change reflects a decline in demand for trucks partially offset by the effect of ongoing cost improvement initiatives and continued strong sales of mid-range diesel engines and service parts. Third quarter 1996 industry retail sales of Class 5 through 8 trucks totaled 91,900 units, a decrease of 8% over 1995. Class 8 heavy truck sales of 50,400 units during the third quarter of 1996 were 16% lower than the 1995 level of 60,000 units. Industry sales of Class 5, 6 and 7 medium trucks, including school buses, increased 3% to 41,500 units. Industry sales of school buses, which accounted for 22% of the medium truck market, increased 4%. Manufacturing's sales of trucks, diesel engines and service parts for the third quarter of 1996 totaled $1,325 million compared with $1,455 million reported for the same period in 1995. The company maintained its position as sales leader in the combined United States and Canadian Class 5 through 8 truck market with a 28.2% market share for the third quarter of 1996, an improvement from the 26.9% market share reported in 1995. Shipments of mid-range diesel engines by the company to other original equipment manufacturers during the third quarter of 1996 totaled 36,100 units, a 6% decrease from the same period of 1995. Lower shipments to a major automotive manufacturer for use in the light trucks and vans which use this engine was the primary reason for the decrease. Service parts sales of $185 million in the third quarter of 1996 were 4% higher than the $178 million reported in 1995. Operating Costs and Expenses. Manufacturing gross margin was 12.6% of sales for the third quarter of 1996 compared with 14.0% for the same period in 1995. The decrease in gross margin is primarily the result of lower sales volumes and more competitive pricing partially offset by improved operating efficiency. Marketing and administrative expense increased to $75 million in the third quarter of 1996 from $72 million in 1995 reflecting investment in the company's strategy for the manufacture of the next generation of medium trucks. Nine Months Ended July 31, 1996 ------------------------------- Pretax income, excluding Financial Services, for the first nine months of 1996 was $36 million compared with $126 million reported for the same period of 1995. Manufacturing's sales and revenues during this period totaled $4,144 million, 7% lower than the first three quarters of 1995. During the first nine months of 1996, sales of trucks declined 11% while sales of diesel engines to other original equipment manufacturers increased 4%. Service parts sales were 5% higher than in the same period of 1995. Industry retail sales of Class 5 through 8 trucks during the first nine months of fiscal 1996 totaled 259,800 units, a decrease from the 287,200 units sold during this period in 1995. The company remained the sales leader in the combined United States and Canadian Class 5 through 8 truck market for the first three quarters of the fiscal year with a 26.9% market share, a slight increase over the 26.2% market share reported for the same period last year. Manufacturing gross margin for the first nine months of 1996 was 12.8% compared with 13.5% in 1995. The factors which influenced gross margin during the third quarter of 1996 were also responsible for the change during the first nine months of the year. Marketing and administrative expense increased to $232 million for the first three quarters of 1996 from $221 million in 1995 reflecting investment in the company's strategy for the manufacture of the next generation of medium trucks. Financial Services Financial Services' pretax income for the third quarter of 1996 was $26 million, an improvement from the $23 million reported in 1995. Navistar Financial was responsible for the change which reflects higher income on sales of retail receivables and higher retail note balances. The increase in pretax income from $47 million for the first nine months of 1995 to $69 million in 1996 reflects higher income on sales of retail notes and higher levels of wholesale note financing. During the first three quarters of 1996, sales of receivables totaled $985 million with a gain of $20 million compared with $740 million sold a year ago with a gain of $5 million. The improved gains on sales resulted from higher margins on retail notes reflecting declining market interest rates. LIQUIDITY AND CAPITAL RESOURCES Consolidated Consolidated cash flow is generated from the manufacture, sale and financing of trucks, diesel engines and service parts. Total cash, cash equivalents and marketable securities of the company amounted to $587 million at July 31, 1996, $1,040 million at October 31, 1995 and $729 million at July 31, 1995. Manufacturing Cash used in operations during the first nine months of 1996 totaled $278 million, primarily from a net change in operating assets and liabilities of $418 million. The net change in operating assets and liabilities includes an $85 million decrease in receivables offset by a reduction in accounts payable of $198 million resulting from lower production, higher inventories and a $158 million decrease in other liabilities. The decline in other liabilities is the result of the payment to employees as required by the company's profit sharing agreements as well as the timing of planned pension funding. Investment programs provided $6 million in cash as sales of marketable securities exceeded purchases by $160 million. This cash was used to fund capital expenditures for truck product improvement, to increase diesel engine capacity and to improve cost performance as well as for an $82 million advance to Navistar Financial. Financing programs used cash to pay $22 million in dividends on the Series G Preferred Stock and to reduce debt by $12 million. At July 31, 1996, the company had outstanding capital commitments of $42 million. The commitments include truck and engine product development and ongoing facility maintenance programs. The company finances capital expenditures principally through internally generated cash. Capital leasing is used to fund selected projects based on economic and operating factors. It is the opinion of management that, in the absence of significant unanticipated cash demands, current and forecasted cash flow will provide a basis for financing operating requirements, capital expenditures and anticipated payments of preferred dividends. Financial Services Operations used $25 million in cash through the third quarter of 1996 primarily reflecting a payment to Manufacturing. Cash from investment programs funded Financial Services' operations and financing activities. Investment programs provided $398 million during this period principally as a result of a net decrease of $336 million in retail and wholesale finance notes and receivables and $82 million in funds advanced to Navistar Financial by Transportation. Financing activities used $351 million primarily to reduce debt. Receivable sales were a significant source of funding in 1996 and 1995. During the first nine months of 1996, Navistar Financial sold $985 million of retail notes, net of unearned finance income, through Navistar Financial Retail Receivables Corporation (NFRRC), realizing net proceeds from the sales of $935 million. During the same period in 1995, Navistar Financial sold $740 million of retail notes receivables with net proceeds of $693 million. In both years, the net proceeds were used for general working capital purposes. On November 14, 1995, NFRRC filed an additional registration statement with the Securities and Exchange Commission providing for the issuance from time to time of an additional $2,000 million of asset-backed securities. This registration statement, along with two previously issued registrations, allow NFRRC to issue up to $5,000 million of asset-backed securities. At July 31, 1996, the remaining shelf registration available to NFRRC was $2,400 million. Effective March 29, 1996, Navistar Financial amended and restated its $900 million bank revolving credit facility and its $300 million asset- backed commercial paper (ABCP) program, extending the maturity date of each facility to March 2001. In addition, the commitment of the bank revolving credit facility was expanded to $925 million, the ABCP facility was increased to $400 million and a new pricing and fee schedule was established. At July 31, 1996, available funding under the amended and restated credit facility and the asset-backed commercial paper facility was $551 million, of which $118 million was used to back short-term debt at July 31, 1996. The remaining $433 million, when combined with unrestricted cash and cash equivalents made $453 million available to fund the general business purposes of Navistar Financial at July 31, 1996. Management believes that collections on the outstanding receivables portfolios as well as funds available from various funding sources will permit the Financial Services subsidiaries to meet the financing requirements of the company's dealers and customers. Business Outlook During the first three quarters of 1996, the Class 5 through 8 truck market experienced a significant decline in the rate of new truck orders and an increase in the cancellation of some existing orders. Accordingly, retail deliveries in 1996 will be highly dependent on the rate at which new truck orders are received. Anticipating lower year-over-year truck demand levels, management will balance production with demand as appropriate to assure that the company's operating and financial objectives for the year are met. As a result of a decline in truck orders which reflect a softening of certain key economic indicators in the truck industry, the company currently projects 1996 United States and Canadian Class 8 heavy truck demand to be 190,000 units, a 17% decrease from 1995. Class 5, 6 and 7 medium truck demand, including school buses, is forecast at 147,500 units, a 3% decrease from 1995. Diesel engine shipments by the company to other original equipment manufacturers in 1996 are expected to be approximately 162,400 units, a 4% increase from 1995. The company's parts sales are expected to grow 6% to $773 million. During the third quarter of 1996, the company announced plans for the production of the Next Generation Truck (NGT) at its Springfield, Ohio assembly facility. To achieve the necessary financial returns for the new program, the company made proposals to the UAW (United Automobile, Aerospace and Agricultural Implement Workers of America) to obtain modifications to the existing labor contract and will continue to fund the NGT program as long as rapid and significant progress is being made toward reaching an acceptable agreement with the UAW. If these negotiations are unsuccessful, the company's Board of Directors has authorized management to halt development of the NGT program and to evaluate various strategy alternatives aimed at improving the company's competitiveness. Management estimates that as of August 31, 1996, a complete termination of the NGT program would have resulted in a charge to earnings of approximately $30 million. Navistar International Corporation and Consolidated Subsidiaries PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings Incorporated herein by reference from Item 3 - "Legal Proceedings" in the company's definitive Form 10-K dated January 26, 1996, Commission File No. 1-9618. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10-Q Page --------- 11. Computation of Net Income Per Share E-1 (b) Reports on Form 8-K: No reports on Form 8-K were filed for the three months ended July 31, 1996. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NAVISTAR INTERNATIONAL CORPORATION - ---------------------------------- (Registrant) /s/ J. Steven Keate - ---------------------------------- J. Steven Keate Vice President and Controller September 11, 1996 EX-11 2 EXHIBIT 11 NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES ---------------------------------- COMPUTATION OF NET INCOME PER COMMON SHARE
A. Primary: See the Statement of Income of this Form 10-Q. B. Full Dilution: Net income per common share assuming full dilution is computed by assuming that all options and warrants which are exercisable below market prices are exercised and the proceeds applied to reduce common stock outstanding. The computations assume that convertible preferred and preference stock are converted to common stock. Income is divided by the average number of common shares outstanding and unconditionally issuable at the end of each month during the period, adjusted for the net effects of the exercise of options and warrants and the conversion of convertible preferred and preference stocks. THREE MONTHS ENDED NINE MONTHS ENDED JULY 31 JULY 31 ------------------ ------------------- Millions of Dollars 1996 1995 1996 1995 - ---------------------------------------------------------------------- Net income ............... $ 17 $ 39 $ 65 $ 108 ======== ======== ======== ======== Average Common and common equivalent shares (millions): Average common shares outstanding as adjusted per primary calculations (millions) .............. 73.8 74.3 73.8 74.4 Assuming conversion of Series G Preferred Stock .6 .6 .6 .6 -------- -------- -------- -------- Average common and dilutive common equivalent shares as adjusted ............ 74.4 74.9 74.4 75.0 ======== ======== ======== ======== Income per common share assuming full dilution (dollars): Net income ............... $ .22 # $ .53 # $ .87 # $ 1.45 # ======== ======== ======== ======== - --------------- # 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-1 EX-27 3
5 1,000,000 3-MOS OCT-31-1996 JUL-31-1996 201 386 1,527 (24) 549 0 1,527 (824) 4,908 0 1,118 0 244 2,133 (1,471) 4,908 1,325 1,391 1,159 1,363 52 15 22 28 (11) 17 0 0 0 17 0.13 0.13 The company has adopted an unclassified presentation in the Statement of Financial Condition.
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