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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, 2002
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.)
4201 Winfield Road, P.O. Box 1488
Warrenville, Illinois 60555
-----------------------------------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (630) 753-5000
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 August 31, 2002, the number of shares outstanding of the registrant's common stock was
60,474,196.
PAGE 2
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------------------------
INDEX
---------
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements
Statement of Income
Three Months and Nine Months Ended July 31, 2002 and 2001........................... 3
Statement of Financial Condition
July 31, 2002, October 31, 2001 and July 31, 2001................................... 4
Statement of Cash Flow
Nine Months Ended July 31, 2002 and 2001............................................ 5
Notes to Financial Statements................................................................ 6
Additional Financial Information............................................................. 18
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition......................................... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 28
Item 4. Controls and Procedures....................................................... 28
Part II. Other Information:
Item 1. Legal Proceedings............................................................. 28
Item 2. Changes in Securities and Use of Proceeds..................................... 29
Item 6. Exhibits and Reports on Form 8-K.............................................. 29
Signature.................................................................................... 30
Certifications............................................................................... 31
PAGE 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
Millions of dollars, except per share data
- --------------------------------------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
---------------------------------------------------------------
Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Sales and revenues
Sales of manufactured products...................... $ 1,527 $ 1,516 $ 4,518 $ 4,658
Finance and insurance revenue....................... 61 70 210 224
Other income........................................ 6 11 16 35
---------- ---------- ---------- ----------
Total sales and revenues........................ 1,594 1,597 4,744 4,917
---------- ---------- ---------- ----------
Costs and expenses
Cost of products and services sold.................. 1,357 1,318 4,001 4,098
Restructuring adjustment............................ - - (1) -
Postretirement benefits expense..................... 58 44 174 137
Engineering and research expense.................... 61 58 190 188
Sales, general and administrative expense........... 116 135 379 393
Interest expense.................................... 39 42 117 125
Other expense....................................... 2 7 20 34
---------- ---------- ---------- ----------
Total costs and expenses........................ 1,633 1,604 4,880 4,975
---------- ---------- ---------- ----------
Income (loss) before income taxes........... (39) (7) (136) (58)
Income tax expense (benefit)................ (23) (9) (60) (28)
---------- ---------- ---------- ----------
Net income (loss)................................... $ (16) $ 2 $ (76) $ (30)
========== ========== ========== ==========
Earnings (loss) per share
Basic........................................... $ (0.27) $ 0.03 $ (1.27) $ (0.51)
Diluted......................................... $ (0.27) $ 0.03 $ (1.27) $ (0.51)
Average shares outstanding (millions)
Basic........................................... 60.6 59.5 60.2 59.5
Diluted......................................... 60.6 60.2 60.2 59.5
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
PAGE 4
STATEMENT OF FINANCIAL CONDITION (Unaudited)
Millions of dollars
- ---------------------------------------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------------------
July 31 October 31 July 31
2002 2001 2001
----------------- ---------------- ----------------
ASSETS
Current assets
Cash and cash equivalents................................ $ 547 $ 822 $ 392
Marketable securities.................................... 10 41 24
Receivables, net......................................... 622 917 707
Inventories.............................................. 714 644 659
Deferred tax asset, net.................................. 154 145 192
Other assets............................................. 135 167 173
-------------- -------------- --------------
Total current assets............................................ 2,182 2,736 2,147
-------------- -------------- --------------
Marketable securities........................................... 256 222 434
Finance and other receivables, net.............................. 1,251 1,164 1,051
Property and equipment, net..................................... 1,514 1,669 1,885
Investments and other assets.................................... 227 169 171
Prepaid and intangible pension assets........................... 277 272 308
Deferred tax asset, net......................................... 851 835 693
-------------- -------------- --------------
Total assets ................................................. $ 6,558 $ 7,067 $ 6,689
============== ============== ==============
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt... $ 399 $ 412 $ 424
Accounts payable, principally trade...................... 932 1,103 876
Other liabilities........................................ 692 758 742
-------------- -------------- --------------
Total current liabilities....................................... 2,023 2,273 2,042
-------------- -------------- --------------
Debt: Manufacturing operations................................. 789 908 916
Financial services operations............................ 1,417 1,560 1,384
Postretirement benefits liability............................... 915 824 682
Other liabilities............................................... 366 375 386
-------------- -------------- --------------
Total liabilities........................................ 5,510 5,940 5,410
-------------- -------------- --------------
Commitments and contingencies
Shareowners' equity
Series D convertible junior preference stock.................... 4 4 4
Common stock (75.3 million shares issued)....................... 2,139 2,139 2,139
Retained earnings (deficit)..................................... (261) (170) (175)
Accumulated other comprehensive loss............................ (361) (339) (180)
Common stock held in treasury, at cost
(14.8 million, 15.9 million
and 15.9 million shares held)....................... (473) (507) (509)
-------------- -------------- --------------
Total shareowners' equity................................ 1,048 1,127 1,279
-------------- -------------- --------------
Total liabilities and shareowners' equity....................... $ 6,558 $ 7,067 $ 6,689
============== ============== ==============
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
PAGE 5
STATEMENT OF CASH FLOW (Unaudited)
Millions of dollars
- --------------------------------------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------
Nine Months Ended July 31
--------------------------------------
2002 2001
------------------- ----------------
Cash flow from operations
Net loss ........................................................................ $ (76) $ (30)
Adjustments to reconcile net loss to cash provided by (used in) operations:
Depreciation and amortization.............................................. 169 166
Deferred income taxes...................................................... (22) (17)
Postretirement benefits funding less than expense.......................... 38 69
Other, net................................................................. (105) (13)
Change in operating assets and liabilities, net of effects of acquisition:
Receivables................................................................ 205 231
Inventories................................................................ (62) 15
Prepaid and other current assets........................................... (30) (33)
Accounts payable........................................................... (177) (226)
Other liabilities.......................................................... (7) (95)
--------------- ---------------
Cash provided by (used in) operations......................................... (67) 67
--------------- ---------------
Cash flow from investment programs
Purchases of retail notes and lease receivables................................... (999) (791)
Collections/sales of retail notes and lease receivables........................... 1,011 1,326
Purchases of marketable securities................................................ (90) (391)
Sales or maturities of marketable securities...................................... 88 112
Proceeds from sale of business.................................................... 63 -
Capital expenditures.............................................................. (157) (213)
Payments for acquisition, net of cash acquired.................................... - (60)
Proceeds from sale-leasebacks..................................................... 164 58
Property and equipment leased to others........................................... (24) (43)
Investment in affiliates.......................................................... 1 6
Capitalized interest and other.................................................... (5) (21)
--------------- ---------------
Cash provided by (used in) investment programs................................ 52 (17)
--------------- ---------------
Cash flow from financing activities
Issuance of debt.................................................................. 290 578
Principal payments on debt........................................................ (238) (229)
Net decrease in notes and debt outstanding under bank revolving credit facility
and commercial paper programs................................................. (323) (295)
Debt issuance costs............................................................... (6) (9)
Other financing activities........................................................ 17 -
--------------- ---------------
Cash provided by (used in) financing activities............................... (260) 45
--------------- ---------------
Cash and cash equivalents
Increase (decrease) during the period......................................... (275) 95
At beginning of the period.................................................... 822 297
--------------- ---------------
Cash and cash equivalents at end of the period.................................... $ 547 $ 392
=============== ===============
- --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
PAGE 6
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note A. Summary of Accounting Policies
Navistar International Corporation (NIC) is a holding company whose principal operating subsidiary is
International Truck and Engine Corporation (International). As used hereafter, "company" or "Navistar" refers to
Navistar International Corporation and its consolidated subsidiaries. Navistar operates in three principal
industry segments: truck, engine (collectively called "manufacturing operations"), and financial services. The
consolidated financial statements include the results of the company'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.
The accompanying unaudited financial statements have been prepared in accordance with accounting
policies described in the 2001 Annual Report on Form 10-K and should be read in conjunction with the disclosures
therein.
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 2001 amounts have been reclassified to conform with the presentation used in the 2002 financial
statements.
Note B. Supplemental Cash Flow Information
Consolidated interest payments during the first nine months of 2002 and 2001 were $105 million and $138
million, respectively. Consolidated net tax payments (refunds received) during the first nine months of 2002 and
2001 were $(29) million and $4 million, respectively.
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 income and withholding and federal alternative minimum taxes. 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
United States (U.S.) federal income taxes will be minimal.
The income tax benefit during the third quarter of 2002 increased by $8 million for research and
development tax credits that will be taken against future income tax payments related to research and development
activities in the current year. The income tax benefit in the third quarter of 2001 increased by $6 million for
research and development tax credits as further described in the 2001 Annual Report on Form 10-K.
PAGE 7
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note D. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 2002 2001 2001
- ----------------------------------------------------------------------------------------------------------------------
Finished products.............................................. $ 349 $ 405 $ 421
Work in process................................................ 112 33 48
Raw materials and supplies..................................... 253 206 190
------------- -------------- --------------
Total inventories....................................... $ 714 $ 644 $ 659
============= ============== ==============
Note E. Financial Instruments
Accounting for Derivatives and Hedging Activities
The company uses derivative financial instruments as part of its overall interest rate and foreign
currency risk management strategy as further described under Item 7A of the 2001 Annual Report on Form 10-K.
The company is exposed to interest rate risk relating to changes in market interest rates. As part of
its overall strategy to manage the level of exposure to the risk of interest rates adversely affecting net
interest income or expense, the company uses interest rate swap agreements, interest rate caps, and forward
contracts. The company is also occasionally required by third parties to use derivative instruments to make
financing possible under sold note arrangements. These derivatives are used in asset-backed transactions in
order to offset some portfolio-related risks.
The company is exposed to foreign currency risk relating to changes in certain foreign currency exchange
rates. As part of its overall strategy to manage the level of exposure to exchange rate risk, the company uses
forward contracts. These derivatives are generally designated and qualify as cash flow hedges.
On the date Navistar enters into a derivative contract, management designates the derivative as either a
hedging or non-hedging instrument. Additionally, management distinguishes between fair value hedging
instruments, cash flow hedging instruments, and other derivative instruments.
The company documents and accounts for derivative and hedging activities in accordance with the
provisions of Statement of Financial Accounting Standards No. 133 (SFAS 133). The company recognizes all
derivatives as assets or liabilities in the Statement of Financial Condition and measures them at fair value.
When certain criteria are met, it also provides for matching the timing of gain or loss recognition on the
derivative hedging instrument with the recognition of (a) changes in the fair value or cash flows of the hedged
asset or liability attributable to the hedged risk or (b) the earnings effect of the hedged forecasted
transaction. Changes in the fair value of derivatives which are not designated as, or which do not qualify as,
hedges for accounting purposes are reported in earnings in the period in which they occur.
In connection with the $179 million floating rate portion of the $500 million sale of retail note
receivables that closed in November 2001, Navistar Financial Corporation (NFC) entered into two interest rate
swap agreements. The notional amount of each swap is $179 million. As of July 31, 2002, the fair values of the
swaps are $2 million and $(2) million. The purpose of these swaps is to convert the floating rate interest of
the bonds into fixed rate interest to match the interest basis of the receivable pool sold to the owner trust,
and thereby protecting NFC from interest rate volatility. The net outcome, after applying the effect of these
swaps, results in NFC paying a fixed rate of interest on the projected balance of the pool. To the extent that
actual pool balances differ from the projected balances, NFC has retained interest rate exposure on this
difference. These two derivatives are being accounted for as non-hedging derivative instruments.
PAGE 8
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note E. Financial Instruments (continued)
As of July 31, 2002, NFC has several outstanding derivative instruments that were entered into prior to
fiscal 2002. One interest rate swap is classified as a cash flow hedge derivative instrument and has a notional
amount of $32 million. The fair value of this derivative instrument as of July 31, 2002, is $(2) million and is
recorded in other liabilities in the Statement of Financial Condition. The impact on other comprehensive income
for the period then ended was not material. NFC has two interest rate swap agreements that are classified as
non-hedging derivative instruments with notional amounts of $20 million and $17 million. The fair values of
these swaps at July 31, 2002, are immaterial. NFC has three interest rate caps that are classified as
non-hedging derivative instruments with notional amounts of $58 million, $500 million and $500 million. The fair
values of these caps as of July 31, 2002, are zero, $5 million and $(5) million, respectively. The fair values
of these derivative instruments as of July 31, 2002, are recorded in other liabilities in the Statement of
Financial Condition. The changes in fair value for the period are recorded in finance and insurance revenue and
are not material.
The company has other derivatives classified as non-hedging, which are further described in Note 12 of the
2001 Annual Report on Form 10-K.
As of July 31, 2002, the company held other derivative contracts with aggregate notional amounts of $26
million. The fair values of these derivative instruments at July 31, 2002, are immaterial, and the changes in
fair values are recorded in the Statement of Income. Additionally, the company held cash flow derivative
instruments with aggregate notional amounts of $52 million. The fair values of these derivative instruments at
July 31, 2002, are $2 million, and the changes in fair values are immaterial and are recorded in other
comprehensive income.
PAGE 9
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note F. Earnings Per Share
Earnings (loss) per share was computed as follows:
Three Months Ended Nine Months Ended
July 31 July 31
Millions of dollars, --------------------------- ---------------------------
Except share and per share data 2002 2001 2002 2001
- ---------------------------------------------------- ---------- --------- ---------- ----------
Net income (loss)................................... $ (16) $ 2 $ (76) $ (30)
========= ========= ========= =========
Average shares outstanding (millions)
Basic......................................... 60.6 59.5 60.2 59.5
Dilutive effect of options outstanding
and other dilutive securities....... - 0.7 - -
--------- --------- --------- ---------
Diluted....................................... 60.6 60.2 60.2 59.5
========= ========= ========= =========
Earnings (loss) per share
Basic......................................... $ (0.27) $ 0.03 $ (1.27) $ (0.51)
Diluted....................................... $ (0.27) $ 0.03 $ (1.27) $ (0.51)
The computation of diluted shares outstanding for the nine months ended July 31, 2002 and 2001, excludes
incremental shares of 0.9 million and 0.5 million, respectively, related to employee stock options and other
dilutive securities. These shares are excluded due to their anti-dilutive effect as a result of the company's
loss for the first nine months of 2002 and 2001.
Note G. Comprehensive Income
The components of comprehensive income (loss) are as follows:
Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- -----------------------------
Millions of dollars 2002 2001 2002 2001
- ---------------------------------------------------- ------------ -------------- ------------ ------------
Net income (loss)................................... $ (16) $ 2 $ (76) $ (30)
Other comprehensive loss............................ (28) (1) (22) (3)
--------- --------- --------- ---------
Total comprehensive income (loss)............. $ (44) $ 1 $ (98) $ (33)
========= ========= ========= =========
Included in other comprehensive loss for the three months and nine months ended July 31, 2002, are
foreign currency translation losses of $28 million and $22 million, respectively.
Also included in other comprehensive loss for the three months and nine months ended July 31, 2002, is
an immaterial charge and a $2 million, respectively, for derivatives that have been designated as cash flow type
hedges in accordance with SFAS 133, as further described in Note E.
PAGE 10
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note H. Segment Data
Reportable operating segment data is as follows:
Financial
Millions of dollars Truck Engine Services Total
- ------------------------------------------------ -------------- --------------- --------------- ---------------
For the quarter ended July 31, 2002
-----------------------------------------------------------------------
External revenues............................... $ 1,109 $ 418 $ 63 $ 1,590
Intersegment revenues........................... - 115 8 123
--------- --------- --------- ---------
Total revenues............................. $ 1,109 $ 533 $ 71 $ 1,713
========= ========= ========= =========
Segment profit (loss)........................... $ (64) $ 60 $ 14 $ 10
For the nine months ended July 31, 2002
-----------------------------------------------------------------------
External revenues............................... $ 3,208 $ 1,310 $ 217 $ 4,735
Intersegment revenues........................... - 331 26 357
--------- --------- --------- ---------
Total revenues............................. $ 3,208 $ 1,641 $ 243 $ 5,092
========= ========= ========= =========
Segment profit (loss)........................... $ (223) $ 163 $ 68 $ 8
As of July 31, 2002
-----------------------------------------------------------------------
Segment assets.................................. $ 1,914 $ 991 $ 2,266 $ 5,171
For the quarter ended July 31, 2001
-----------------------------------------------------------------------
External revenues............................... $ 1,094 $ 422 $ 76 $ 1,592
Intersegment revenues........................... - 124 14 138
--------- --------- -------- --------
Total revenues............................. $ 1,094 $ 546 $ 90 $ 1,730
========= ========= ======== ========
Segment profit (loss)........................... $ (54) $ 64 $ 19 $ 29
For the nine months ended July 31, 2001
-----------------------------------------------------------------------
External revenues............................... $ 3,355 $ 1,303 $ 244 $ 4,902
Intersegment revenues........................... - 393 46 439
--------- --------- -------- --------
Total revenues............................. $ 3,355 $ 1,696 $ 290 $ 5,341
========= ========= ======== ========
Segment profit (loss)........................... $ (193) $ 173 $ 68 $ 48
As of July 31, 2001
-----------------------------------------------------------------------
Segment assets.................................. $ 1,885 $ 1,261 $ 2,392 $ 5,538
PAGE 11
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note H. Segment Data (continued)
Reconciliation to the consolidated financial statements as of and for the three months and nine months
ended July 31 is as follows:
Three Months Ended Nine Months Ended
July 31 July 31
-------------------------- ----------------------------
Millions of dollars 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Segment sales and revenues........................ $ 1,713 $ 1,730 $ 5,092 $ 5,341
Other income...................................... 4 5 9 15
Intercompany...................................... (123) (138) (357) (439)
-------- -------- -------- --------
Consolidated sales and revenues................... $ 1,594 $ 1,597 $ 4,744 $ 4,917
======== ======== ======== ========
Segment profit.................................... $ 10 $ 29 $ 8 $ 48
Restructuring adjustment.......................... - - 1 -
Corporate items................................... (35) (30) (105) (101)
Manufacturing net interest expense................ (14) (6) (40) (5)
-------- -------- -------- --------
Consolidated pretax loss ......................... $ (39) $ (7) $ (136) $ (58)
======== ======== ======== ========
As of July 31
--------------------------
2002 2001
--------------------------
Segment assets.................................... $ 5,171 $ 5,538
Cash and marketable securities.................... 362 247
Deferred taxes.................................... 1,005 885
Corporate intangible pension assets............... 76 25
Other corporate and eliminations.................. (56) (6)
-------- --------
Consolidated assets............................... $ 6,558 $ 6,689
======== ========
Note I. Restructuring Charge
In October 2000, the company incurred charges for restructuring, asset write-downs, loss on anticipated
sale of business and other exit costs totaling $306 million as part of an overall plan to restructure its
manufacturing and corporate operations ("Plan of Restructuring"). The following are the major restructuring,
integration and cost reduction initiatives included in the Plan of Restructuring:
o Replacement of current steel cab trucks with a new line of high performance next generation vehicles
(NGV) and a concurrent realignment of the company's truck manufacturing facilities
o Closure of certain operations and exit of certain activities
o Launch of the next generation technology diesel engines
o Consolidation of corporate operations
o Realignment of the bus and truck dealership network and termination of various dealership contracts
Of the total pretax restructuring charge of $306 million, $150 million represented non-cash charges.
Through July 31, 2002, approximately $221 million of the charge has been incurred, and $12 million of curtailment
loss related to the company's postretirement benefit plans has been reclassified as a non-current postretirement
liability. The remaining restructuring liability of $73 million is expected to be funded from existing cash balances
and internally generated cash flows from operations.
PAGE 12
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note I. Restructuring Charge (continued)
The specific actions included in the Plan of Restructuring were substantially complete by November
2001. Components of the remaining restructuring charge are as follows:
Balance Amount Balance
(Millions of dollars) October 31, 2001 Incurred July 31, 2002
- ----------------------------------------- ----------------------- ---------------- --------------------
Severance and other benefits $ 32 $ (10) $ 22
Lease terminations 35 (3) 32
Loss on sale of business 2 (2) -
Dealer termination and exit costs 21 (2) 19
----------------------- ---------------- --------------------
Total $ 90 $ (17) $ 73
======================= ================ ====================
The Plan of Restructuring included the reduction of approximately 2,100 employees from the workforce,
primarily in North America, which was revised to 1,900 employees at October 31, 2001. During the quarter, $3
million was paid for severance and other benefits. As of July 31, 2002, approximately $41 million of the total
net charge of $75 million has been paid for severance and other benefits for the reduction of approximately 1,900
employees, and $12 million of curtailment loss has been reclassified as a non-current postretirement liability.
The severance and other benefits balance represents costs related to future payments over the next two years for
headcount reductions already incurred.
Lease termination costs include future obligations under long-term non-cancelable lease agreements at
facilities being vacated following workforce reductions. This charge primarily consists of the estimated lease
costs, net of probable sublease income, associated with the cancellation of the company's corporate office lease
at NBC Tower in Chicago, Illinois, which expires in 2010. As of July 31, 2002, $6 million of the total net charge
of $38 million has been incurred for lease termination costs, of which $2 million was incurred during the quarter.
The Plan of Restructuring included the effect of the sale of Harco National Insurance Company (Harco).
On November 30, 2001, NFC completed the sale of Harco to IAT Reinsurance Syndicate Ltd., a Bermuda reinsurance
company. The remaining payments related to exit costs of approximately $2 million were incurred in the second
quarter of 2002.
Dealer termination and exit costs include the termination of certain dealer contracts in connection with
the realignment of the company's bus distribution network, and other litigation costs to implement the
restructuring initiatives. As of July 31, 2002, approximately $19 million of the total net charge of $38 million
has been paid for dealer terminations and exit costs, of which $1 million was incurred during the quarter.
PAGE 13
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note J. Sale of Receivables
NFC's primary business is to provide wholesale, retail and lease financing for new and used trucks
sold by International and International's dealers, and as a result, NFC's finance receivables and leases have
significant concentration in the trucking industry. NFC retains as collateral a security interest in the equipment
associated with wholesale notes, retail notes and leases.
NFC securitizes and sells finance receivables through Navistar Financial Retail Receivables Corporation
(NFRRC), Navistar Financial Securities Corporation (NFSC), Truck Retail Accounts Corporation (TRAC) and Truck
Engine Receivables Financing Corporation (TERFCO), all special purpose entities and wholly owned subsidiaries of
NFC. The sales of finance receivables in each of the securitizations constitute sales under accounting
principles generally accepted in the United States of America, with the result that the sold finance receivables
are removed from NFC's balance sheet and the investor's interests in the related trust or conduit are not
reflected as liabilities. However, the special purpose entity's residual interests in the related trusts or
assets held by the conduit are reflected in the Statement of Financial Condition as assets. NFRRC, NFSC, TRAC
and TERFCO have limited recourse on the sold finance receivables. The terms of receivable sales generally
require NFC to maintain cash reserves with the trusts and conduits as credit enhancement. These cash reserves
are restricted under the terms of the securitized sales agreements. The maximum exposure under all receivable
sale recourse provisions at July 31, 2002, was $472 million. Management believes the recorded reserves for losses
are adequate.
At July 31, 2002, NFC has a $500 million revolving retail warehouse facility due in October 2005. In
October 2000, Truck Retail Instalment Paper Corporation, a special purpose entity and wholly owned subsidiary of
NFC, issued $475 million of senior class AAA rated and $25 million of subordinated class A rated floating rate
asset-backed notes. The proceeds were used to establish a revolving retail warehouse facility to fund NFC's
retail notes and retail leases, other than fair market value leases. The outstanding balance of this facility is
included in debt on the Statement of Financial Condition.
NFC continues to service the sold finance receivables, for which a servicing fee is received. Servicing
fees are earned on a level yield basis over the terms of the related finance receivables. Servicing fees are
typically set at 1.0% of average outstanding net finance receivable balances, representing NFC's estimated costs
to service the finance receivables.
Gains or losses on sales of finance receivables are estimated based upon the present value of future
expected cash flows using assumptions for prepayment speeds and current market interest rates. These assumptions
use management's best estimates commensurate with the risks involved. An allowance for credit losses is provided
prior to the receivables sale and is reclassified as part of retained interest upon sale.
Finance receivable balances do not include finance receivables sold by NFC to public and private
investors with limited recourse provisions. Outstanding sold finance receivable balances are as follows, in
millions:
July 31 October 31 July 31
2002 2001 2001
-------------- -------------- ------------
Retail notes, net of unearned finance income.................. $ 1,805 $ 1,863 $ 2,223
Wholesale notes............................................... 680 797 671
Retail accounts............................................... 164 191 140
------- ------- -------
Total................................................ $ 2,649 $ 2,851 $ 3,034
======= ======= ========
PAGE 14
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note J. Sale of Receivables (continued)
Additional financial data for gross serviced finance receivables as of July 31, 2002, and for the nine
months then ended is as follows, in millions:
Retail Wholesale
Notes Leases Notes Accounts
------------ ------------ -------------- --------------
Gross serviced finance receivables.......... $ 2,574 $ 473 $ 715 $ 278
Gross serviced finance receivables with
installments past due ................. 17 5 6 19
Credit losses net of recoveries............. 15 1 - -
During the nine months ended July 31, 2002, NFC sold $1,000 million of retail notes, net of unearned
finance income, through NFRRC in two separate sales. NFC sold the retail notes to owner trusts, which, in turn,
issued $1,000 million of asset-backed securities that were sold to investors. Aggregate net gains of $25 million
were recognized on these sales. These aggregate gains are net of $3 million of losses on forward rate
contracts. NFC uses forward rate contracts to limit its exposure to interest rate fluctuations on newly acquired
retail notes prior to their inclusion in a securitization. During July 2002, NFC entered into five forward rate
contracts for an aggregate notional amount of $300 million in anticipation of its retail notes and leases sale
planned for October. As of July 31, 2002, outstanding forward contracts had a net fair value of $(2) million.
These forward rate contracts are accounted for as non-hedging instruments, and the change in fair value is a $2
million loss and is recorded as an offset to finance and insurance revenue.
At July 31, 2002, NFSC has in place a revolving wholesale note trust that provides for the funding of
$837 million of eligible wholesale notes. TERFCO has in place a revolving trust that provides for the funding of
$100 million of eligible Ford Motor Company accounts receivable. TRAC has in place a revolving retail account
conduit that provides for the funding of $100 million of eligible retail accounts.
When finance receivables are sold, NFC retains an interest in the securitized receivables in the form of
interest-only strips, servicing rights, cash reserve accounts and subordinated certificates. The carrying amount
of these retained interests approximate fair value and were $456 million, $324 million and $417 million at July
31, 2002, October 31, 2001 and July 31, 2001, respectively. These amounts are included in finance and other
receivables in the Statement of Financial Condition.
Key economic assumptions used in measuring the gains and the related retained interest at July 31, 2002,
were a prepayment speed of 1.9%, a weighted average remaining life of 30 months and a residual cash flows
discount rate of 4.90% to 6.12%.
The following table summarizes certain cash flows received from (paid to) securitization trusts/conduits
during the nine months ended July 31, 2002, in millions:
Proceeds from initial sales of retail receivables.................................................. $ 999
Proceeds from subsequent sales of receivables into revolving facilities............................ 3,385
Servicing fees received............................................................................ 18
All other cash received from trusts................................................................ 179
Purchase of delinquent or foreclosed receivables................................................... (35)
Cash used to repurchase receivables................................................................ (165)
PAGE 15
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note K. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets" and Statement of Financial Accounting
Standards No. 143 (SFAS 143), "Accounting for Asset Retirement Obligations." SFAS 142 was adopted by the company
on November 1, 2001, and did not have a material impact on the company's financial position, results of
operations or cash flows. SFAS 143 is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The company is evaluating the impact of SFAS 143 on its financial position, results of operations
and cash flows.
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144),
"Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years. The company will adopt SFAS 144 on
November 1, 2002, and does not expect it to have a material impact on the company's financial position, results
of operations and cash flows.
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002.
Note L. Condensed Consolidating Guarantor and Non-Guarantor Financial Information
The following tables set forth the condensed consolidating Statements of Financial Condition as of July
31, 2002 and 2001, and the Statements of Income and Cash Flow for the nine months ended July 31, 2002 and 2001.
The following information is included as a result of the guarantee of the $400 million Senior Notes by
International, exclusive of its subsidiaries. International is a direct wholly owned subsidiary of NIC.
International, exclusive of its subsidiaries, also guarantees NIC's obligations under its 7% senior notes due
2003 and 8% senior subordinated notes due 2008. None of NIC's other subsidiaries guarantee any of these notes.
Each of the guarantees is full and unconditional. Separate financial statements and other disclosures concerning
International have not been presented because management believes that such information is not material to
investors. NIC includes the consolidated financial results of the parent company only, with all of its wholly
owned subsidiaries accounted for under the equity method. International, for purposes of this disclosure only,
includes the consolidated financial results of its wholly owned subsidiaries accounted for under the equity
method. "Non-Guarantor Companies and Eliminations" includes the consolidated financial results of all other
non-guarantor subsidiaries including the elimination entries for all intercompany transactions. All applicable
corporate expenses have been allocated appropriately among the guarantor and non-guarantor subsidiaries.
NIC files a consolidated U.S. federal income tax return which includes International and its U.S.
subsidiaries. International has a tax allocation agreement (Tax Agreement) with NIC which requires International
to compute its separate federal income tax expense based on its adjusted book income. Any resulting tax
liability is paid to NIC. In addition, under the Tax Agreement, International is required to pay to NIC any tax
payments received from its subsidiaries. The effect of the Tax Agreement is to allow NIC, rather than
International, to utilize U.S. operating income/losses and NIC operating loss carryforwards.
PAGE 16
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note L. Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued)
Non-Guarantor
Companies and
NIC International Eliminations Consolidated
-------------- ---------------- ------------------ ---------------
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JULY 31, 2002
- -----------------------------------------------------------------------------------
Sales and revenues....................................... $ 5 $ 4,081 $ 658 $ 4,744
------------ ------------ ------------ ------------
Cost of products and services sold....................... - 3,728 273 4,001
Restructuring adjustment................................. - - (1) (1)
All other operating expenses............................. (45) 735 190 880
------------ ------------ ------------ ------------
Total costs and expenses............................. (45) 4,463 462 4,880
----------- ------------ ----------- -----------
Equity in income (loss) of non-consolidated subsidiaries. (186) 130 56 -
Income (loss) before income taxes........................ (136) (252) 252 (136)
Income tax expense (benefit)............................. (60) 7 (7) (60)
------------ ------------ ------------ ------------
Net income (loss)........................................ $ (76) $ (259) $ 259 $ (76)
============ ============ ============ ============
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL CONDITION AS OF JULY 31, 2002
- ----------------------------------------------------------------------------
ASSETS
Cash and marketable securities........................... $ 328 $ 7 $ 478 $ 813
Receivables, net......................................... 6 109 1,758 1,873
Inventories.............................................. - 373 341 714
Property and equipment, net.............................. - 760 754 1,514
Investment in affiliates................................. (1,292) 999 293 -
Deferred tax asset and other assets...................... 999 304 341 1,644
------------ ------------ ------------ ------------
Total assets......................................... 41 2,552 3,965 6,558
------------ ------------ ------------ ------------
LIABILITIES AND SHAREOWNERS' EQUITY
Debt..................................................... 821 21 1,763 2,605
Postretirement benefits liability........................ - 1,019 103 1,122
Amounts due (from) to affiliates......................... (1,928) 1,818 110 -
Other liabilities........................................ 100 1,237 446 1,783
------------ ------------ ------------ ------------
Total liabilities.................................... (1,007) 4,095 2,422 5,510
------------ ------------ ------------ ------------
Shareowners' equity (deficit)............................ 1,048 (1,543) 1,543 1,048
------------ ------------ ------------ ------------
Total liabilities and shareowners' equity................ $ 41 $ 2,552 $ 3,965 $ 6,558
============ ============ ============ ============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED JULY 31, 2002
- --------------------------------------------------------------------------------------
Cash provided by (used in) operations.................... $ (304) $ (42) $ 279 $ (67)
------------ ------------ ------------ ------------
Cash flow from investment programs
Purchases, net of collections, of finance receivables.... - - 12 12
Net (increase) decrease in marketable securities......... 40 - (42) (2)
Capital expenditures..................................... - (129) (28) (157)
Other investing activities............................... (139) 172 166 199
------------ ------------ ------------ ------------
Cash provided by (used in) investment programs........... (99) 43 108 52
------------ ------------ ------------ ------------
Cash flow from financing activities
Net repayments of debt................................... - - (271) (271)
Other financing activities............................... 73 - (62) 11
------------ ------------ ------------ ------------
Cash provided by (used in) financing activities.......... 73 - (333) (260)
------------ ------------ ------------ ------------
Cash and cash equivalents
Increase (decrease) during the period.................... (330) 1 54 (275)
At beginning of the period............................... 658 6 158 822
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period................. $ 328 $ 7 $ 212 $ 547
============ ============ ============ ============
PAGE 17
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note L. Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued)
Non-Guarantor
Companies and
NIC International Eliminations Consolidated
-------------- ---------------- ------------------ ---------------
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JULY 31, 2001
- -----------------------------------------------------------------------------------
Sales and revenues....................................... $ 9 $ 3,898 $ 1,010 $ 4,917
----------- ------------ ------------ ------------
Cost of products and services sold....................... - 3,509 589 4,098
All other operating expenses............................. (54) 719 212 877
------------ ------------ ------------ ------------
Total costs and expenses............................. (54) 4,228 801 4,975
------------ ------------ ------------ ------------
Equity in income (loss) of non-consolidated subsidiaries. (121) 154 (33) -
Income (loss) before income taxes........................ (58) (176) 176 (58)
Income tax expense (benefit)............................. (28) 3 (3) (28)
------------ ------------ ------------ ------------
Net income (loss)........................................ $ (30) $ (179) $ 179 $ (30)
============ ============ ============ ============
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL CONDITION AS OF JULY 31, 2001
- ----------------------------------------------------------------------------
ASSETS
Cash and marketable securities........................... $ 228 $ 5 $ 617 $ 850
Receivables, net......................................... 7 23 1,728 1,758
Inventories.............................................. - 371 288 659
Property and equipment, net.............................. - 1,088 797 1,885
Investment in affiliates................................. (878) 931 (53) -
Deferred tax asset and other assets...................... 873 274 390 1,537
------------ ------------ ------------ ------------
Total assets......................................... 230 2,692 3,767 6,689
------------ ------------ ------------ ------------
LIABILITIES AND SHAREOWNERS' EQUITY
Debt..................................................... 821 22 1,881 2,724
Postretirement benefits liability........................ - 761 95 856
Amounts due (from) to affiliates......................... (1,944) 1,503 441 -
Other liabilities........................................ 74 1,333 423 1,830
------------ ------------ ------------ ------------
Total liabilities.................................... (1,049) 3,619 2,840 5,410
------------ ------------ ------------ ------------
Shareowners' equity (deficit)............................ 1,279 (927) 927 1,279
------------ ------------ ------------ ------------
Total liabilities and shareowners' equity................ $ 230 $ 2,692 $ 3,767 $ 6,689
============ ============ ============ ============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED JULY 31, 2001
- --------------------------------------------------------------------------------------
Cash provided by (used in) operations.................... $ (278) $ 56 $ 289 $ 67
------------ ------------ ------------ ------------
Cash flow from investment programs
Purchases, net of collections, of finance receivables.... - - 535 535
Net (increase) decrease in marketable securities......... 39 - (318) (279)
Capital expenditures..................................... - (169) (44) (213)
Other investing activities............................... (18) 79 (121) (60)
------------ ------------ ------------ ------------
Cash provided by (used in) investment programs........... 21 (90) 52 (17)
------------ ------------ ------------ ------------
Cash flow from financing activities
Net borrowings (repayments) of debt...................... 386 16 (348) 54
Other financing activities............................... (9) - - (9)
------------ ------------ ------------ ------------
Cash provided by (used in) financing activities.......... 377 16 (348) 45
------------ ------------ ------------ ------------
Cash and cash equivalents
Increase (decrease) during the period.................... 120 (18) (7) 95
At beginning of the period............................... 64 23 210 297
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period................. $ 184 $ 5 $ 203 $ 392
============ ============ ============ ============
PAGE 18
Navistar International Corporation and Consolidated Subsidiaries
Additional Financial Information
The following additional financial information is provided based upon the continuing interest of certain
shareholders and creditors.
Navistar International Corporation (with financial services operations on an equity basis)
in millions of dollars:
Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- -----------------------------
Condensed Statement of Income 2002 2001 2002 2001
- ---------------------------------------------------------- ------------ ------------ ------------ ------------
Sales of manufactured products............................ $ 1,527 $ 1,516 $ 4,518 $ 4,658
Other income.............................................. 3 7 8 16
---------- ---------- ---------- ----------
Total sales and revenues............................ 1,530 1,523 4,526 4,674
---------- ---------- ---------- ----------
Cost of products sold..................................... 1,340 1,301 3,953 4,046
Postretirement benefits expense........................... 58 43 173 136
Engineering and research expense.......................... 61 58 190 188
Sales, general and administrative expense................. 98 116 324 333
Other expense............................................. 27 32 92 97
---------- ---------- ---------- ----------
Total costs and expenses............................ 1,584 1,550 4,732 4,800
---------- ---------- ---------- ----------
Income (loss) before income taxes
Manufacturing operations............................ (54) (27) (206) (126)
Financial services operations....................... 15 20 70 68
---------- ---------- ---------- ----------
Income (loss) before income taxes.............. (39) (7) (136) (58)
Income tax expense (benefit)................... (23) (9) (60) (28)
---------- ---------- ---------- ----------
Net income (loss)......................................... $ (16) $ 2 $ (76) $ (30)
========== ========== ========== ==========
July 31 October 31 July 31
Condensed Statement of Financial Condition 2002 2001 2001
- ---------------------------------------------------------- ---------------- ----------------- -----------------
Cash, cash equivalents and marketable securities.......... $ 454 $ 806 $ 370
Inventories............................................... 675 569 576
Property and equipment, net............................... 1,227 1,359 1,570
Equity in non-consolidated subsidiaries................... 445 398 371
Other assets.............................................. 980 895 1,036
Deferred tax asset, net................................... 1,003 979 878
-------------- --------------- --------------
Total assets...................................... $ 4,784 $ 5,006 $ 4,801
============== =============== ==============
Accounts payable, principally trade....................... $ 880 $ 1,051 $ 844
Postretirement benefits liability......................... 1,109 1,069 846
Debt...................................................... 921 966 971
Other liabilities......................................... 826 793 861
Shareowners' equity....................................... 1,048 1,127 1,279
-------------- --------------- --------------
Total liabilities and shareowners' equity......... $ 4,784 $ 5,006 $ 4,801
============== =============== ==============
PAGE 19
Navistar International Corporation and Consolidated Subsidiaries
Additional Financial Information
Navistar International Corporation (with financial services operations on an equity basis)
in millions of dollars:
Nine Months Ended
July 31
--------------------------------
Condensed Statement of Cash Flow 2002 2001
- -------------------------------------------------------------------------------------- -------------- --------------
Cash flow from operations
Net loss............................................................................. $ (76) $ (30)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization.................................................. 121 115
Deferred income taxes.......................................................... (22) (17)
Postretirement benefits funding less than expense.............................. 38 69
Equity in earnings of investees, net of dividends received..................... (41) -
Other, net..................................................................... (88) (3)
Change in operating assets and liabilities, net of effects of acquisition......... (261) (339)
----------- -----------
Cash used in operations............................................................... (329) (205)
----------- -----------
Cash flow from investment programs
Purchases of marketable securities.................................................... (29) (64)
Sales or maturities of marketable securities.......................................... 69 103
Capital expenditures.................................................................. (154) (212)
Payments for acquisition, net of cash acquired........................................ - (60)
Proceeds from sale-leasebacks......................................................... 164 58
Receivable from financial services operations......................................... (52) 169
Investment in affiliates.............................................................. 2 2
Capitalized interest and other........................................................ (5) (22)
----------- -----------
Cash used in investment programs...................................................... (5) (26)
----------- -----------
Cash provided by financing activities................................................. 22 344
----------- -----------
Cash and cash equivalents
Increase (decrease) during the period................................................. (312) 113
At beginning of the period............................................................ 766 213
----------- -----------
Cash and cash equivalents at end of the period........................................ $ 454 $ 326
=========== ===========
PAGE 20
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Certain statements under this caption that are not purely historical constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. These
forward-looking statements are based on current management expectations as of the date made. The company assumes
no obligation to update any forward-looking statements. The company'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."
Third Quarter Ended July 31, 2002
----------------------------------
The company reported a net loss of $16 million, or a loss of $0.27 per diluted common share for the third
quarter ended July 31, 2002. For the comparable quarter last year, net income was $2 million or $0.03 per
diluted common share. The net loss for the third quarter of 2002 benefited from $8 million of research and
development tax credits. Net income for the third quarter of 2001 included the benefit of a $6 million research
and development tax credit.
The truck segment's loss for the third quarter of 2002 increased by $10 million and revenues increased $15
million compared to the same period last year. The truck segment's increased revenue was primarily the result of
higher demand in the Class 8 heavy truck and school bus markets versus the same period in 2001 partially offset
by the continued weakness in the medium truck market. The truck segment's loss for the third quarter of 2002 was
negatively impacted by some unusual and nonrecurring items such as the inability of a major supplier to supply
pre-emission engines, product recall expenses, the weaker than expected Brazilian exchange rate and costs
associated with the six week strike at the company's Chatham, Ontario plant.
The engine segment's profit for the third quarter of 2002 decreased by $4 million, while revenues
decreased $13 million. The decreases in the engine segment's profits and revenues are primarily the result of
lower shipments driven by the continued weakness in the medium truck market.
The financial services segment's profit for the third quarter of 2002 was $14 million, which was $5
million lower than the same period last year while revenues decreased $19 million. The change in the financial
services segment's profit is primarily the result of lower wholesale note revenue due to lower dealer inventory
levels. The change in the financial services segment's revenue is primarily due to changes in finance and
insurance revenue discussed below.
Sales and Revenues. Sales and revenues for the third quarter of 2002 totaled $1,594 million, comparable to the
$1,597 million reported for the same period in 2001.
United States (U.S.) and Canadian industry retail sales of Class 5 through 8 trucks totaled 79,700 units
in the third quarter of 2002, slightly lower than the 80,400 units sold during this period in 2001. Class 8
heavy truck sales of 46,100 units during the third quarter of 2002 were 8% higher than the 2001 level of 42,600
units. Industry sales of Class 5, 6 and 7 medium trucks, including school buses, decreased 11% to 33,600 units.
Industry sales of school buses, which accounted for 20% of the medium truck market, increased 4% to 6,800 units.
Market share for the third quarter of 2002 decreased to 24.3% from 26.5% reported in the same period of
2001. This decrease is mainly due to the weak medium truck industry along with lower order receipts in the Class
6-7 medium truck market.
PAGE 21
Shipments of mid-range diesel engines by the company to other original equipment manufacturers (OEMs)
during the third quarter of 2002 totaled 73,400 units, an 8% decrease from the same period of 2001.
Finance and insurance revenue of $61 million in the third quarter of 2002 decreased 13% from 2001. This
decrease is primarily a result of lower average serviced wholesale note and account balances.
Other income of $6 million in the third quarter of 2002 decreased from $11 million in the same period in
2001. This decrease is primarily a result of lower marketable securities revenue driven by lower average
interest rates.
Costs and Expenses. Manufacturing gross margin declined to 12.2% of sales for the third quarter of 2002 compared
to 14.2% for the third quarter of 2001. This decrease is primarily due to the unusual and nonrecurring charges
described above.
Postretirement benefits expense increased $14 million from the third quarter of 2001 to $58 million. This
increase is primarily due to higher interest expense resulting from higher pension and health care obligations,
higher amortization of unrecognized losses, and lower returns on assets.
Engineering and research expense increased $3 million from the third quarter of 2001 to $61 million. This
increase primarily reflects an increase in spending on development programs and new plant initiatives offset by a
reduction in the amount of spending on the company's Next Generation Vehicle (NGV) and Next Generation Diesel
(NGD) programs.
Sales, general and administrative (SG&A) expense decreased 14% to $116 million in the third quarter of
2002 from $135 million for the comparable quarter in 2001. This decrease is due to a decrease in the provision
for losses on receivables and the result of increased focus on reducing SG&A expenses.
Interest expense decreased 7% from the third quarter of 2001 to $39 million, primarily due to the
company's lower weighted average interest rates on debt.
Other expense decreased to $2 million in the third quarter of 2002 from $7 million in the same period of
2001. This decrease is primarily due to lower financing charges on sold receivables.
Nine Months Ended July 31, 2002
-------------------------------
The company reported a net loss of $76 million, or a $1.27 loss per diluted common share for the first
nine months of 2002, primarily due to continued weak demand for new trucks. In addition, results were impacted
by a number of unusual and nonrecurring items including the inability of a major supplier to supply pre-emission
engines, product recall expenses, the weaker than expected Brazilian exchange rate, and costs associated with the
six week strike at the company's Chatham, Ontario heavy truck assembly plant. The net loss for the same period
in 2001 totaled $30 million, or a $0.51 loss per diluted common share. The net losses for the first nine months
of 2002 and 2001 included the benefits of the previously mentioned tax related items of $8 million and $6
million, respectively.
During the first nine months of 2002, both the truck and engine segments' profits and revenues decreased
compared to the same period in 2001. These decreases are mainly driven by the continued softness in the medium
and heavy truck and school bus markets.
The financial services segment's profit for the first nine months of 2002 remained consistent with 2001,
while revenues decreased 16%. The change in the financial services segment's revenue is primarily due to changes
in finance and insurance revenue discussed below.
PAGE 22
Sales and Revenues. Sales and revenues for the first nine months of 2002 totaled $4,744 million, 4% lower than
the $4,917 million reported for the comparable period of 2001.
U.S. and Canadian industry retail sales of Class 5 through 8 trucks totaled 208,000 units for the first
nine months of 2002, which is 14% lower than the 240,600 units sold during this period in 2001. Class 8 heavy
truck sales of 115,000 units during the first nine months of 2002 were 9% lower than the 2001 level of 126,500
units. Industry sales of Class 5, 6 and 7 medium trucks, including school buses, decreased 18% to 93,000 units.
Industry sales of school buses, which accounted for 21% of the medium truck market, decreased 6% to 19,900 units.
Market share for the first nine months of 2002 slightly increased to 25.9% from the 25.8% reported in
2001.
Shipments of mid-range diesel engines by the company to other OEMs during the first nine months of 2002
totaled 230,200 units, a 4% decrease from the same period of 2001.
Finance and insurance revenue of $210 million during the first nine months of 2002 decreased 6% from
2001. This decrease is primarily a result of lower average serviced wholesale note and account balances.
Other income decreased to $16 million for the first nine months of 2002 from $35 million reported for the
same period in 2001. This decrease is primarily the result of lower marketable securities revenue driven by
lower average interest rates.
Costs and Expenses. Manufacturing gross margin for the first nine months of 2002 was 12.5% compared with 13.1%
in 2001. This decrease is primarily due to the impact of unusual and nonrecurring charges in the third quarter.
Postretirement benefits expense increased $37 million from the first nine months of 2001 to $174
million. This increase is primarily due to higher interest expense resulting from higher pension and health care
obligations, higher amortization of unrecognized losses, and lower returns on assets.
SG&A expense decreased 4% to $379 million for the nine months ended July 31, 2002 from $393 million for
the comparable period in 2001. This decrease is primarily due to a decrease in the provision for losses on
receivables and the result of increased focus on reducing SG&A expenses.
Interest expense decreased $8 million for the first nine months of 2002 to $117 million, primarily due
to the company's lower weighted average interest rates on debt.
Other expense decreased to $20 million for the first nine months of 2002 from $34 million in the same
period in 2001. This decrease is primarily due to lower financing charges on sold receivables.
Restructuring Charge
In October 2000, the company incurred charges for restructuring, asset write-downs, loss on anticipated
sale of business and other exit costs totaling $306 million as part of an overall plan to restructure its
manufacturing and corporate operations ("Plan of Restructuring"). The following are the major restructuring,
integration and cost reduction initiatives included in the Plan of Restructuring:
o Replacement of current steel cab trucks with a new line of high performance next generation vehicles
(NGV) and a concurrent realignment of the company's truck manufacturing facilities
o Closure of certain operations and exit of certain activities
o Launch of the next generation technology diesel engines
o Consolidation of corporate operations
o Realignment of the bus and truck dealership network and termination of various dealership contracts
PAGE 23
Of the total pretax restructuring charge of $306 million, $150 million represented non-cash charges.
Through July 31, 2002, approximately $221 million of the charge has been incurred, and $12 million of curtailment
loss related to the company's postretirement benefit plans has been reclassified as a non-current postretirement
liability. The remaining restructuring liability of $73 million is expected to be funded from existing cash
balances and internally generated cash flows from operations.
The specific actions included in the Plan of Restructuring were substantially complete by November
2001. Components of the remaining restructuring charge are as follows:
Balance Amount Balance
(Millions of dollars) October 31, 2001 Incurred July 31, 2002
- ----------------------------------------- ----------------------- ---------------- -------------------
Severance and other benefits $ 32 $ (10) $ 22
Lease terminations 35 (3) 32
Loss on sale of business 2 (2) -
Dealer termination and exit costs 21 (2) 19
----------------------- ---------------- -------------------
Total $ 90 $ (17) $ 73
======================= ================ ===================
The Plan of Restructuring included the reduction of approximately 2,100 employees from the workforce,
primarily in North America, which was revised to 1,900 employees at October 31, 2001. During the quarter, $3
million was paid for severance and other benefits. As of July 31, 2002, approximately $41 million of the total
net charge of $75 million has been paid for severance and other benefits for the reduction of approximately 1,900
employees, and $12 million of curtailment loss has been reclassified as a non-current postretirement liability.
The severance and other benefits balance represents costs related to future payments over the next two years for
headcount reductions already incurred.
Lease termination costs include future obligations under long-term non-cancelable lease agreements at
facilities being vacated following workforce reductions. This charge primarily consists of the estimated lease
costs, net of probable sublease income, associated with the cancellation of the company's corporate office lease
at NBC Tower in Chicago, Illinois, which expires in 2010. As of July 31, 2002, $6 million of the total net charge
of $38 million has been incurred for lease termination costs, of which $2 million was incurred during the quarter.
The Plan of Restructuring included the effect of the sale of Harco National Insurance Company (Harco).
On November 30, 2001, Navistar Financial Corporation (NFC) completed the sale of Harco to IAT Reinsurance
Syndicate Ltd., a Bermuda reinsurance company. The remaining payments related to exit costs of approximately $2
million were incurred in the second quarter of 2002.
Dealer termination and exit costs include the termination of certain dealer contracts in connection with
the realignment of the company's bus distribution network, and other litigation costs to implement the
restructuring initiatives. As of July 31, 2002, approximately $19 million of the total net charge of $38 million
has been paid for dealer terminations and exit costs, of which $1 million was incurred during the quarter.
Liquidity and Capital Resources
Cash flow is generated from the manufacture and sale of trucks, mid-range diesel engines and their
associated service parts as well as from product financing provided to the company's dealers and retail customers
by the financial services segment. The company's current debt ratings have made sales of finance receivables the
most economic source of funding for NFC.
PAGE 24
The company had working capital of $159 million at July 31, 2002, compared to $463 million at October 31,
2001. Cash used in operations during the first nine months of 2002 totaled $67 million primarily from a net loss
of $76 million. Also included was a net change in operating assets and liabilities of $71 million, which was
more than offset by $80 million of other items including depreciation and amortization.
The net use of cash resulting from the change in operating assets and liabilities included a $177 million
decrease in accounts payable primarily due to lower truck and engine production levels in the first nine months
of 2002, as well as from the timing of invoices paid for capital equipment purchased in the fourth quarter of
2001. Also included was a $62 million increase in inventories primarily caused by the decrease in new truck
shipments. This change was partially offset by a $205 million decrease in receivables primarily due to a net
decrease in wholesale note and account balances.
Cash provided by investment programs resulted from $164 million of proceeds from sale-leasebacks and the
sale of Harco on November 30, 2001, that provided $63 million in cash proceeds. These were partially offset by a
net increase in property and equipment leased to others of $24 million and $157 million of capital expenditures
primarily for the NGV and NGD programs.
In the first nine months of 2002, the company entered into two sale-leaseback arrangements with various
financial institutions. Under the first arrangement, which related to the completion of a fiscal 2001 sale
leaseback, engine manufacturing equipment with a net book value of $5 million was sold for $5 million and leased
back under a 10.5-year operating lease agreement. Under the second arrangement, additional engine manufacturing
and assembly equipment with a net book value of $159 million was sold for $159 million and leased back under a
12-year operating lease agreement.
Cash used by financing activities resulted from a net decrease of $323 million in notes and debt
outstanding under the bank revolving credit facility and other commercial paper programs. This was partially
offset by a net increase in long-term debt of $52 million that includes $220 million of 4.75% subordinated
exchangeable notes due 2009, which were issued in March 2002.
NFC has traditionally obtained the funds to provide financing to International's dealers and retail
customers from sales of finance receivables, commercial paper, short and long-term bank borrowings, medium and
long-term debt and equity capital. As of July 31, 2002, NFC's funding consisted of sold finance receivables of
$2,649 million, bank and other borrowings of $868 million, subordinated debt of $171 million, secured borrowings
of $337 million and equity of $365 million.
NFC securitizes and sells finance receivables through Navistar Financial Retail Receivables Corporation
(NFRRC), Navistar Financial Securities Corporation (NFSC), Truck Retail Accounts Corporation (TRAC) and Truck
Engine Receivables Financing Corporation (TERFCO), all special purpose entities and wholly owned subsidiaries of
NFC. The sales of finance receivables in each of the securitizations constitute sales under accounting
principles generally accepted in the United States of America, with the result that the sold finance receivables
are removed from NFC's balance sheet and the investor's interests in the related trust or conduit are not
reflected as liabilities. However, the special purpose entity's residual interests in the related trusts or
assets held by the conduit are reflected on the Statement of Financial Condition as assets.
Through the asset-backed public market and private placement sales, NFC has been able to fund fixed rate
retail note receivables at rates offered to companies with higher investment grade ratings. During the first
nine months of 2002, NFC sold $1,000 million of retail notes, net of unearned finance income, through NFRRC in
two separate sales. NFC sold the retail notes to owner trusts, which in turn, issued $1,000 million of
asset-backed securities that were sold to investors. Aggregate net gains of $25 million were recognized on
these sales. As of July 31, 2002, the remaining shelf registration available to
PAGE 25
NFRRC for the public issuance of asset-backed securities was $2,500 million. Also, as of July 31, 2002, NFSC has
in place a revolving wholesale note trust that provides for the funding of $837 million of eligible wholesale
notes, of which $680 million has been utilized.
At July 31, 2002, available funding under NFC's bank revolving credit facilities, the revolving retail
warehouse facility and the revolving wholesale note trust was $908 million. When combined with unrestricted cash
and cash equivalents, $966 million was available to fund the general business purposes of NFC.
In November 2000, NFC established TERFCO for the purpose of securitizing engine accounts receivable. In
November 2000, NFC securitized all of its unsecured trade receivables generated by the sale of diesel engines and
engine service parts from the company to Ford Motor Company. The transaction provides for funding of $100
million and matures in 2006. As of July 31, 2002, NFC has utilized $64 million of this facility.
TRAC has in place a revolving retail account conduit that provides for the funding of $100 million of
eligible retail accounts. As of July 31, 2002, NFC has utilized $100 million of this facility. The facility was
renewed in August 2002. It expires in August 2003 and is renewable upon mutual consent of the parties.
In March 2002, NFC completed the private placement of $220 million 4.75% subordinated exchangeable notes
due 2009. The notes will be exchangeable at the option of the holders, prior to redemption or maturity, into
common stock of the company. NFC received $170 million (before $6 million of expenses) and the company received
$50 million. The proceeds from the notes will be used for general corporate purposes. In May 2002, the company
filed a registration statement for the resale of the notes and the shares of common stock issuable upon
conversion of the notes.
In August 2002, Standard and Poor's lowered the company's and NFC's senior debt ratings to BB from BB+.
They also lowered the company's senior unsecured debt rating to BB from BB+ and the company's subordinated debt
rating to B+ from BB-. In March 2002, Fitch IBCA lowered the company's and NFC's senior debt ratings to BB+ from
BBB- as well as the company's senior unsecured debt rating to BB+ from BBB-. Fitch IBCA also lowered the
company's and NFC's subordinated debt ratings to BB- from BB.
There have been no material changes in the company's hedging strategies or derivative positions since
October 31, 2001. Further disclosure may be found in Note E to the financial statements and in the company's
2001 Annual Report on Form 10-K.
Cash flow from the company's manufacturing operations, financial services operations and financing
capacity is currently sufficient to cover planned investment in the business. At July 31, 2002, the company had
$263 million of outstanding capital commitments through 2006 primarily for the NGV and NGD programs as well as
other new engine projects.
It is the opinion of management that, in the absence of significant unanticipated cash demands, current
and forecasted cash flow as well as anticipated financing actions will provide sufficient funds to meet operating
requirements and capital expenditures. Management 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 International's dealers and retail customers.
PAGE 26
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets" and Statement of Financial Accounting
Standards No. 143 (SFAS 143), "Accounting for Asset Retirement Obligations." SFAS 142 was adopted by the company
on November 1, 2001, and did not have a material impact on the company's financial position, results of
operations or cash flows. SFAS 143 is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The company is evaluating the impact of SFAS 143 on its financial position, results of operations
and cash flows.
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144),
"Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years. The company will adopt SFAS 144 on
November 1, 2002, and does not expect it to have a material impact on the company's financial position, results
of operations and cash flows.
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002.
Business Environment
Sales of Class 5 through 8 trucks historically have been 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. Truck sales in the third quarter continue to be hindered by a
number of factors including the overall state of the economy, rising insurance costs, tightened credit
availability and a large decline in sales to leasing companies. The demand for medium trucks and school buses
reflected these adverse conditions, however, an improvement in the number of heavy truck orders has increased the
company's U.S. and Canadian order backlog at July 31, 2002, to 29,400 units, from the 18,200 units at July 31,
2001. Historically, retail deliveries have been impacted by the rate at which new truck orders are received.
Therefore, in order to manage through the current downturn, the company continually evaluates order receipts and
backlog throughout the year by balancing production with demand as appropriate. Also, in an effort to reduce
fixed costs and improve operating efficiencies, the company announced the layoff of approximately 750-800 workers
at its Springfield Assembly Plant and approximately 315 workers at its Indianapolis Engine Plant starting in the
fourth quarter of 2002.
Reflecting the continued industry-wide decline in new truck orders, the company adjusted its industry
projections for 2002. The company currently projects 2002 U.S. and Canadian Class 5, 6, and 7 medium truck
demand, excluding school buses, to be 97,500 units, down from the previous forecast of 101,500 units. Demand for
school buses remains unchanged at 26,000 units as does the forecast for Class 8 heavy trucks at 156,000 units.
The company, through its subsidiary IC Corporation (f/k/a American Transportation Corporation),
announced the creation of a single brand identity for its line of integrated products, the rear engine, front
engine and conventional school buses, which are built at IC Corporation's Conway, Arkansas and Tulsa, Oklahoma
plants. The new identity was unveiled to dealers of the integrated school bus product at the annual bus dealer
meeting in April 2002.
PAGE 27
On June 1, 2002, the company's collective bargaining contract with the National Automobile, Aerospace and
Agricultural Implement Workers of Canada (CAW) expired. Efforts to negotiate a new labor contract with the CAW
failed, and on June 1, 2002, the CAW struck at the company's Chatham, Ontario, heavy truck assembly plant, whose
employees are represented by the CAW. The company quickly implemented contingency plans designed to maintain
production and shipment levels to meet the needs of its customers, including increasing premium conventional
heavy truck production at its Escobedo Assembly Plant in Mexico. On July 15, 2002, the company and the CAW
reached an agreement ratifying a new two-year labor contract that expires in June of 2004. Under this new
contract, the company has the option to close the plant in June 2003.
PAGE 28
Navistar International Corporation and Consolidated Subsidiaries
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the company's market risk exposure since October 31, 2001, as
reported in the 2001 Annual Report on Form 10-K.
Item 4. Controls and Procedures
For the quarter ended July 31, 2002, the company did not make any significant changes to, nor take any
corrective action regarding, its internal controls or other factors that could significantly affect these
controls.
PART II - OTHER INFORMATION
---------------------------
Item 1. 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 that constitute ordinary routine litigation incidental to the
business of the company and its subsidiaries. In the opinion of the company's management, none of these
proceedings or claims are material to the business or the financial condition of the company.
Various claims and controversies have arisen between the company and its former fuel system supplier,
Caterpillar Inc. (Caterpillar), regarding the ownership and validity of certain patents covering fuel
system technology used in the company's new version of diesel engines that were introduced in February
2002. In June 1999, in Federal Court in Peoria, IL, Caterpillar sued Sturman Industries, Inc. (Sturman),
the company's joint venture partner in developing fuel system technology, alleging that technology
invented and patented by Sturman and licensed to the company, belongs to Caterpillar. On July 18, 2002,
the jury returned a verdict in favor of Caterpillar finding that this technology belongs to Caterpillar
under a prior contract between Caterpillar and Sturman. Sturman is seeking to set aside the verdict and
will appeal any adverse judgment. The company intends to cooperate in these efforts. The company
believes that Caterpillar may assert claims against the company regarding this and other aspects of fuel
system technology that it may claim is used in the company's new engines. In January 2002, Caterpillar
sued the company in the Circuit Court in Peoria County, IL, and the company sued Caterpillar in the
Circuit Court in Cook County, IL, each alleging the other breached the purchase agreement pursuant to
which Caterpillar supplied fuel systems for the company's prior version of diesel engines. The company
subsequently dismissed its Cook County, IL, suit against Caterpillar and consolidated its claims against
Caterpillar in the Peoria County, IL, action. The alleged breaches involve Caterpillar's refusal to
supply the new fuel system and the company's subsequent replacement of Caterpillar as the supplier of such
systems for the company's new version of diesel engines. The company believes that it has meritorious
defenses to any such claims Caterpillar has asserted or may assert against the company and will defend
vigorously any such actions. Based upon the information developed to date, the company believes that the
proceedings or claims will not have a material adverse impact on the business, results of operations or
financial condition of the company.
PAGE 29
Navistar International Corporation and Consolidated Subsidiaries
Item 2. Changes in Securities and Use of Proceeds
Directors of the company who are not employees receive an annual retainer of $50,000, payable at their
election in shares of common stock of the company or in cash. Currently the board of directors mandates
that at least one-fourth of the annual retainer be paid in the form of common stock of the company. For
the period covered by this report, receipt of approximately 935 shares were deferred as payment for the
2002 annual retainer. In each case, the shares were acquired at prices ranging from $31.66 to $38.58,
which represented the fair market value of such shares on the date of acquisition. Exemption from
registration of the shares is claimed by the company under Section 4(2) of the Securities Act of 1933, as
amended.
Payments of cash dividends and the repurchase of common stock are currently limited due to restrictions
contained in the company's $400 million Senior Notes, $250 million Senior Subordinated Notes and $19
million Note Purchase Agreement. The company has not paid dividends on the common stock since 1980 and
does not expect to pay cash dividends on the common stock in the foreseeable future.
Item 6. Exhibits and reports on Form 8-K
10-Q Page
---------
(a) Exhibits:
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-6
99.1 CEO Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. E-13
99.2 CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. E-14
(b) Reports on Form 8-K:
A current report on Form 8-K was filed with the Commission on May 16, 2002,
in which the company released its second quarter earnings.
A current report on Form 8-K was filed with the Commission on July 16,
2002, in which the company announced the ratification of a new labor
contract with the CAW.
PAGE 30
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/ Mark T. Schwetschenau
- --------------------------------------
Mark T. Schwetschenau
Vice President and Controller
(Principal Accounting Officer)
September 13, 2002
PAGE 31
CERTIFICATION
-------------
I, John R. Horne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Navistar International Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ John R. Horne
- -----------------------------------------
John R. Horne
Chairman and Chief Executive Officer
(Principal Executive Officer)
PAGE 32
CERTIFICATION
-------------
I, Robert C. Lannert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Navistar International Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly report.
Date: September 13, 2002
/s/ Robert C. Lannert
- ----------------------------------------------
Robert C. Lannert
Vice Chairman and Chief Financial Officer
(Principal Financial Officer)