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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
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Commission File Number 1-4146-1
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NAVISTAR FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-2472404
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 West Golf Road
Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 847-734-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No__
As of November 30, 2001, the number of shares outstanding of the registrant's
common stock was 1,600,000.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
CORPORATION AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1) (a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
Year Ended October 31, 2001
INDEX
Page
PART I
Item 1.Business (A)..................................................... 1
Item 2.Properties (A)................................................... 1
Item 3.Legal Proceedings................................................ 1
Item 4.Submission of Matters to a Vote of
Security Holders (A)...................................... 1
PART II
Item 5.Market for the Registrant's Common Equity and
Related Stockholder Matters............................... 1
Item 6.Selected Financial Data (A)...................................... 2
Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations (A)................... 2
Item 7A.Quantitative and Qualitative Disclosures About Market Risk...... 11
Item 8.Financial Statements............................................. 12
Statement of Financial Reporting Responsibility........... 38
Independent Auditors' Report.............................. 39
Supplementary Financial Data.............................. 40
Item 9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 43
PART III
Item 10.Directors and Executive Officers of the
Registrant (A)............................................ 43
Item 11.Executive Compensation (A)....................................... 43
Item 12.Security Ownership of Certain Beneficial Owners
and Management (A)........................................ 43
Item 13.Certain Relationships and Related
Transactions (A).......................................... 43
PART IV
Item 14.Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 43
SIGNATURES- Principal Accounting Officer ................................ 44
- Directors.......................................... 45
POWER OF ATTORNEY........................................................ 45
INDEX TO EXHIBITS........................................................ E-1
(A)- Omitted or amended as the registrant is a wholly-owned subsidiary of
Navistar International Corporation and meets the conditions set forth in General
Instructions I(1) (a) and (b) of Form 10-K and is, therefore, filing this Form
with the reduced disclosure format.
PART I
Item 1. Business
The registrant, Navistar Financial Corporation ("NFC"), was incorporated in
Delaware in 1949 and is a wholly-owned subsidiary of International Truck and
Engine Corporation ("International"). As used herein, the "Corporation" refers
to Navistar Financial Corporation and its wholly-owned subsidiaries unless the
context otherwise requires.
The Corporation is a commercial financing organization that provides
wholesale, retail and lease financing in the United States for sales of new and
used trucks sold by International and International's dealers. The Corporation
also finances wholesale accounts and selected retail accounts receivable of
International. Sales of new products (including trailers) of other manufacturers
are also financed regardless of whether designed or customarily sold for use
with International's truck products.
On November 30, 2000, the Corporation's Board of Directors approved
management's plan for the sale of Harco National Insurance Company ("Harco"),
the wholly-owned insurance subsidiary. On November 30, 2001, the Corporation
completed the sale of all of the stock of Harco to IAT Reinsurance Syndicate
Ltd., a Bermuda reinsurance company. Cash proceeds of $62 million were received
on November 30, 2001. Harco provides commercial physical damage and liability
insurance coverage to International's dealers and retail customers, and to the
general public through an independent insurance agency system. As a result of
this plan of disposal, the 1999 financial statements have been restated and the
results of operations of Harco have been reported as Discontinued Operations.
Item 2. Properties
The Corporation's properties principally consist of office equipment and
leased office space in Rolling Meadows, Illinois; Duluth, Georgia and Frisco,
Texas. The office equipment owned and in use by the Corporation is not
significant in relation to the total assets of the Corporation.
Item 3. Legal Proceedings
There were no material pending legal proceedings other than ordinary, routine
litigation incidental to the business of the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
Intentionally omitted. See the index page of this Report for explanation.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See Note 11 to Consolidated Financial Statements.
Item 6. Selected Financial Data
Intentionally omitted. See the index page of this Report for explanation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements under this caption, which involve risks and
uncertainties, constitute "forward-looking statements" under the Securities
Reform Act. Navistar Financial Corporation's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed under the headings "Business Outlook" and "Quantitative and
Qualitative Disclosures About Market Risk."
Financing Volume
Customer demand for Class 5 through 8 trucks in fiscal 2001 was 29% lower
than 2000 and 33% lower than 1999. Financing support provided to retail
customers over the last three years was as follows:
2001 2000 1999
Retail and Lease Financing: ($ millions)
Finance market share of new International
trucks sold in the U.S. 15.4% 16.4% 16.4%
Purchases of receivables and
equipment leased to others $997 $1,475 $1,526
Net serviced retail notes and lease
financing balances (including
sold notes) at October 31 $2,992 $3,296 $3,003
During fiscal year 2001, the Corporation's finance market share of new
International trucks sold in the U.S fell below 2000 market share due to a
decrease in the heavy truck market share. The purchase of receivables and
equipment leased to others declined 32% from 2000 levels primarily due to lower
industry demand. Purchases of receivables and equipment leased to others in 2000
declined 3% from 1999 as a result of lower truck industry demand.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Financing Volume (continued)
Financing support provided to International's dealers over the last three
years was as follows:
2001 2000 1999
Wholesale Financing: ($ millions)
Percent of wholesale financing of
new International trucks sold to
International's dealers in the U.S. 96% 96% 96%
Purchases of receivables $2,804 $4,119 $4,188
Serviced wholesale note balances
(including sold notes) at
October 31 $817 $1,115 $1,226
The Corporation's finance percentage of new International trucks sold to
International's dealers remained at 96% in 2001. The volume of receivables
purchased in 2001 was 32% lower than 2000 primarily due to a decrease in dealer
inventory levels in response to lower industry retail sales. Receivables
purchased decreased 2% in 2000 from 1999 levels as industry demand declined
during the last half of fiscal year 2000.
Results from Continuing Operations
Results from continuing operations over the last three years were as
follows:
2001 2000 1999
($ millions)
Revenue $304 $308 $282
Cost of borrowing 102 110 95
Income before taxes 72 92 96
Net income 46 56 59
Return on average equity 14.8% 18.9% 21.0%
The decrease in the Corporation's return on average equity from 2001 to
2000 was primarily the result of lower average finance receivable balances and
higher retail losses, offset, in part, by higher gains on sales of retail note
receivables. The decrease in 2000 from 1999 was due primarily to lower gains on
sales of retail note receivables and higher losses on retail receivables,
offset, in part, by higher average finance receivable balances.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results from Continuing Operations (continued)
Retail note financing revenue for 2001 was $81 million compared with $79
million and $85 million in 2000 and 1999, respectively. The increase in 2001 is
primarily the result of higher gains on the sale of retail note receivables.
Gains on the sales of retail note receivables were $21 million, $3 million and
$12 million in 2001, 2000 and 1999, respectively. The higher gains on sales
resulted primarily from higher margins on retail notes.
Lease financing revenue for 2001 was $99 million compared with $94 million
and $76 million in 2000 and 1999, respectively. Included in lease financing
revenue is operating lease revenue of $81 million, $75 million and $62 million
in 2001, 2000 and 1999, respectively. The higher operating lease revenue in 2001
is primarily the result of higher average operating lease balances.
In fiscal 2001 wholesale note revenue decreased 28% to $46 million compared
to 2000, primarily due to lower average serviced wholesale balances and a lower
prime rate. Wholesale note revenue increased 3% in 2000 to $64 million as a
result of the higher level of wholesale financing activity and an increase in
the average prime interest rate.
Retail and wholesale account revenue for 2001 was $28 million compared with
$43 million and $36 million in 2000 and 1999, respectively. The decrease in 2001
is primarily the result of lower average receivable balances.
Marketable securities revenue was $23 million in 2001 compared to less than
$1 million in 2000 and 1999. The increase was primarily the result of higher
average restricted marketable securities balances held as collateral for
borrowings under the revolving retail warehouse facility.
Borrowing costs decreased 7% in 2001 to $102 million from $110 million in
2000 primarily due to lower average receivable funding requirements and lower
average interest rates. Accounts payable to affiliates reduced debt levels and
resulted in a reduction in borrowing costs of $4 million, $16 million and $13
million for fiscal years ending 2001, 2000 and 1999, respectively. The
Corporation's weighted average interest rate on all debt was 5.7% in 2001, 6.4%
in 2000 and 5.6% in 1999. The decrease in the Corporation's weighted average
interest rate is primarily a result of the lower LIBOR rates, offset by slightly
increased credit spreads. Borrowing costs increased 16% in 2000 to $110 million
from $95 million in 1999 primarily due to higher average receivable funding
requirements and higher interest rates. The ratio of debt to equity was 5.0:1,
6.2:1, and 6.1:1 at October 31, 2001, 2000 and 1999, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results from Continuing Operations (continued)
The provision for losses on receivables totaled $28 million in 2001
compared with $12 million in 2000 and $6 million in 1999. The increase in 2001
compared to 2000 is primarily due to an increase in repossession volume and
pricing pressure in the used truck market. Notes and account write-offs, net of
recoveries, including sold notes, were $24 million in 2001, $12 million in 2000
and $5 million in 1999. The Corporation's allowance for losses as a percentage
of serviced finance receivables was .71%, .54% and .55% at October 31, 2001,
2000 and 1999, respectively.
Depreciation and other expenses in 2001 increased to $61 million from $55
million in 2000 and $44 million in 1999. The increase is primarily the result of
higher depreciation on a larger average investment balance in equipment under
operating leases.
Results from Discontinued Operations
On November 30, 2000, the Corporation's Board of Directors approved
management's plan for the sale of Harco National Insurance Company ("Harco"),
the wholly-owned insurance subsidiary. On November 30, 2001, the Corporation
completed the sale of all of the stock of Harco to IAT Reinsurance Syndicate
Ltd., a Bermuda reinsurance company. Cash proceeds of $62 million were received
on November 30, 2001. Harco provides commercial physical damage and liability
insurance coverage to International's dealers and retail customers, and to the
general public through an independent insurance agency system. As a result of
this disposal, the 1999 financial statements have been restated and the results
of operations of Harco have been reported as Discontinued Operations.
The net cumulative pretax loss on the disposal of Harco for 2001 and 2000
is estimated to be approximately $4 million. This includes the estimated gain on
sale of $1 million, $4 million of severance and other exit costs, and $1 million
of curtailment loss associated with the related future reduction of employees
from the Corporation's postretirement benefit plans.
Revenues of Harco were $62 million, $56 million and $44 million for fiscal
2001, 2000 and 1999, respectively.
Liquidity and Funds Management
The Corporation has traditionally obtained the funds to provide financing
to International's dealers and retail customers from sales of receivables,
commercial paper, short and long-term bank borrowings, medium and long-term debt
and equity capital. The Corporation's current debt ratings have made sales of
finance receivables the most economical source of funding.
In May 2001, Moody's and Fitch lowered the Corporation's senior debt
ratings to Ba1 and BBB- from Baa3 and BBB, respectively. Fitch also lowered the
Corporation's subordinated debt ratings to BB from BBB-.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Funds Management (Continued)
Operations used $134 million of cash in 2001 primarily as a result of the
decrease of $252 million in accounts payable to affiliates. Financing activities
used $244 million to primarily decrease the bank revolving credit facility usage
and the revolving retail warehouse facility. To fund the cash used by operations
and financing activities, investing activities provided $358 million in cash
during this period primarily as a result of the sale of retail notes, offset by
the purchases of retail notes and lease receivables. See also the "Statements of
Consolidated Cash Flow" on page 15.
Over the last three years, operations provided an aggregate of $203 million
in cash, and proceeds from the sale of retail receivables totaled $3,388
million. These amounts were used principally to fund the purchase of finance
receivables and equipment leased to others of $3,773 million, net of principal
collections on the receivables, and to pay dividends of $109 million.
Receivable sales were a significant source of funding in 2001, 2000 and
1999. Through the asset-backed public market and private placement sales, the
Corporation has been able to fund fixed rate retail note receivables at rates
offered to companies with higher investment grade ratings. During fiscal 2001,
the Corporation sold $1,365 million of retail notes, net of unearned finance
income, through Navistar Financial Retail Receivables Corporation ("NFRRC"), a
special purpose, wholly owned subsidiary of the Corporation, in three separate
sales. The Corporation sold $765 million of retail notes in November 2000 to an
owner trust which, in turn, issued securities that were sold to investors. The
Corporation also sold $200 million of retail notes in December 2000 to a
multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution. Over the three month period ending in June 2001, the
Corporation sold $400 million of retail notes to an owner trust which, in turn,
issued $400 million of asset-backed securities that were sold to investors.
Aggregate gains of $21 million were recognized on the sales. During fiscal 2000,
the Corporation sold a total of $1,008 million of retail notes, net of unearned
finance income, through NFRRC, in two separate sales. The Corporation sold $533
million of retail notes in November 1999 to two multi-seller asset-backed
commercial paper conduits sponsored by a major financial institution and $475
million of retail notes in March 2000 to an owner trust which, in turn, sold
notes to investors. Aggregate gains of $3 million were recognized on the sales.
During fiscal 1999, the Corporation sold a total of $1,260 million of retail
notes, net of unearned finance income, through NFRRC, in two separate sales. The
Corporation sold $545 million of retail notes in November 1998 to a multi-seller
asset-backed commercial paper conduit sponsored by a major financial institution
and $715 million of retail notes in June 1999 to an owner trust which, in turn,
issued securities which were sold to investors. Aggregate gains of $12 million
were recognized on the sales. Over the period November 1, 2001, through December
10, 2001, the Corporation sold $470 million of retail notes, net of unearned
finance income, through NFRRC to an owner trust which, in turn, issued
securities which were sold to investors. A $16 million gain was recognized on
this sale.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Funds Management (continued)
At October 31, 2001, Navistar Financial Securities Corporation ("NFSC"), a
wholly-owned subsidiary of the Corporation, had in place a revolving wholesale
note trust that funded $797 million of eligible wholesale notes. As of October
31, 2001 the trust was comprised of three $200 million tranches of investor
certificates maturing in 2003, 2004 and 2008, a $212 million tranche of investor
certificates maturing in 2005 and a variable funding certificate with a maximum
capacity of $200 million. This facility expires in January 2002, with an option
for renewal.
At October 31, 2001, Truck Retail Accounts Corporation ("TRAC"), a special
purpose, wholly-owned subsidiary of the Corporation, had in place a revolving
retail account conduit that provides for the funding of $100 million of eligible
retail accounts. As of October 31, 2001 the Corporation had utilized $91 million
of this facility. The facility expires in August 2002 with an option for
renewal.
At October 31, 2001, Truck Engine Receivables Financing Corporation
("TERFCO"), a special purpose, wholly-owned subsidiary of the Corporation,
provided for funding of $100 million of eligible Ford accounts receivables. The
funding facility is due in 2005. As of October 31, 2001 the Corporation had
utilized $100 million of this facility.
At October 31, 2001, the Corporation had a $500 revolving retail warehouse
facility due in October 2005. On October 16, 2000, Truck Retail Instalment Paper
Corporation ("TRIP"), a special purpose wholly-owned subsidiary of the
Corporation, issued $475 of senior class AAA rated and $25 of subordinated class
A rated floating rate asset-backed notes. The proceeds were used to purchase
eligible receivables from the Corporation and establish a revolving retail
warehouse facility for the Corporation's retail notes and retail leases, other
than fair market value leases.
During fiscal 2001, 2000 and 1999, the Corporation entered into
sale/leaseback agreements with third party financiers involving vehicles subject
to retail finance leases and operating leases with end users. Total proceeds
were $118 million, $137 million and $160 million in 2001, 2000 and 1999,
respectively. The outstanding capital lease obligations at October 31, 2001 were
$361 million.
The Corporation manages its exposure to fluctuations in interest rates by
limiting the amount of fixed rate assets funded with variable rate debt
generally by selling fixed rate receivables on a fixed rate basis and by
utilizing derivative financial instruments. These derivative financial
instruments may include forward contracts, interest rate swaps and interest rate
caps.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Funds Management (continued)
In November 1998, the Corporation sold fixed rate retail receivables to a
multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution on a variable rate basis. For the protection of investors,
the Corporation issued an interest rate cap. The notional amount of the cap
amortizes based on the expected outstanding principal balance of the sold retail
receivables. Under the terms of the cap agreement, the Corporation will make
payments if interest rates exceed certain levels. As of October 31, 2001 the cap
had a notional amount of $138 million and had an immaterial fair value.
In November 1999, the Corporation sold fixed rate retail receivables on a
variable rate basis and entered into an amortizing interest rate swap agreement
to fix the future cash flows of interest paid to lenders. In March 2000, the
Corporation transferred all the rights and obligations of the swap to the bank
conduit. The notional amount of the amortizing swap is based on the expected
outstanding principal balance of the sold retail receivables. Under the terms of
the agreement, the Corporation will make or receive payments based on the
differential between the transferred swap notional amount and the outstanding
principal balance of the sold retail receivables. The net settlement is included
in retail notes revenue. As of October 31, 2001 the difference between the
amortizing swap notional amount and the net outstanding principal balance of the
sold retail receivables was $32 million and had a fair value of $1 million,
which is recorded in other liabilities on the Statement of Consolidated
Financial Condition.
In October 2000, the Corporation entered into a $500 million retail
revolving facility as a method to fund retail notes and finance leases prior to
the sale of receivables. Under the agreements of this facility, the Corporation
sells fixed rate retail notes or finance leases to the conduit and pays
investors a floating rate of interest. As required by the rating agencies, the
Corporation purchased an interest rate cap to protect investors against rising
interest rates. To offset the economic cost of this cap, the Corporation sold an
identical interest rate cap. As of October 31, 2001 the interest rate caps each
had a notional amount of $500 million and a net fair value of zero.
In December 2000, the Corporation sold fixed rate retail receivables on a
variable rate basis and entered into an interest rate swap agreement. Under the
terms of the agreement, the Corporation will make or receive payments based on
the differential between the transferred swap notional amount and the
outstanding principal balance of the sold retail receivables and on changes in
the interest rates. The net settlement is included in retail notes revenue. As
of October 31, 2001 the difference between the amortizing swap notional amount
and the net outstanding principal balance of the sold retail receivables was $3
million and had an immaterial fair value.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Funds Management (continued)
In July 2001, the Corporation entered into an interest rate swap agreement
to fix a portion of its floating rate revolving debt. This transaction is
accounted for as a cash flow hedge, and consequently, gains and losses on the
derivative are recorded in other comprehensive income. Derivative gains and
losses are reclassified from other comprehensive income as the hedged item
affects earnings. There was no ineffectiveness related to this derivative during
fiscal 2001. As of October 31, 2001, the interest rate swap had a notional
amount of $35 million and a fair value of $2 million, which is recorded in other
liabilities on the Statement of Consolidated Financial Condition.
At October 31, 2001, available funding under the bank revolving credit
facility, the revolving retail warehouse facility, the retail account facilities
and the revolving wholesale note trust was $539 million. When combined with
unrestricted cash and cash equivalents, $561 million remained available to fund
the general business purposes of the Corporation.
New Accounting Standards
On April 1, 2001 the Corporation adopted Statement of Financial Accounting
Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities". The adoption of this statement has not had
and is not expected to have a material effect on the Corporation's results of
operations, financial condition or cash flows. We have included certain
disclosures in Note 4 to the Consolidated Financial Statements to comply with
the requirements of this new statement.
Business Outlook
Retail deliveries of Class 5 through 8 trucks, including school buses, in
the U.S. in fiscal 2002 is forecasted to decrease approximately 6% from 2001.
The competitive commercial financing market will continue to put pressure on the
Corporation's retail and wholesale financing activity. Increased volatility in
the capital markets is likely to put additional pressure on the funding rates
available to the Corporation in the asset-backed public market, commercial paper
markets and other debt financing markets.
Management believes that collections on the outstanding receivables
portfolio plus cash available from the Corporation's various funding sources
will permit Navistar Financial Corporation to meet the financing requirements of
International's dealers and retail customers through 2002 and beyond.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Corporation is exposed to market risk primarily due to fluctuations in
interest rates. Interest rate risk arises from the funding of a portion of the
Corporation's fixed rate receivables with floating rate debt. The Corporation
has managed exposure to interest rate changes by funding floating rate
receivables with floating rate debt and fixed rate receivables with fixed rate
debt, floating rate debt and equity capital. Management has reduced the net
exposure which results from the funding of fixed rate receivables with floating
rate debt by generally selling fixed rate receivables on a fixed rate basis and
by utilizing derivative financial instruments. The Corporation does not use
derivative financial instruments for trading purposes.
The Corporation measures its interest rate risk by estimating the net
amount by which the fair value of all interest rate sensitive assets and
liabilities, including derivative financial instruments, would be impacted by
selected hypothetical changes in market interest rates. Assuming a hypothetical
10% increase in interest rates as of October 31, 2001, the estimated fair value
of the net assets, excluding net assets of Discontinued Operations, would
decrease by approximately $5 million.
Item 8. Financial Statements and Supplementary Data Page
Navistar Financial Corporation and Subsidiaries:
Consolidated Financial Statements:
Statements of Consolidated Income and Retained Earnings
for the years ended October 31, 2001, 2000 and 1999........... 12
Statements of Consolidated Comprehensive Income for the
years ended October 31, 2001, 2000 and 1999................... 12
Statements of Consolidated Financial Condition as of
October 31, 2001 and 2000 .................................... 13
Statements of Consolidated Cash Flow for the years ended
October 31, 2001, 2000 and 1999............................... 14
Notes to Consolidated Financial Statements....................... 15
Statement of Financial Reporting Responsibility..................... 38
Independent Auditors' Report........................................ 39
Supplementary Financial Data........................................ 40
Navistar Financial Corporation and Subsidiaries
Statements of Consolidated Income and Retained Earnings
Millions of Dollars
For the years ended October 31
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Revenues
Retail Notes . . . . . . . . . . . . . . . . . . . . $ 81.4 $ 79.3 $ 84.9
Lease Financing . . . . . . . . . . . . . . . . . . . 99.2 93.5 76.4
Wholesale Notes . . . . . . . . . . . . . . . . . . . 46.2 64.4 62.8
Accounts . . . . . . . . . . . . . . . . . . . . . . 28.4 42.9 35.6
Servicing Fee Income . . . . . . . . . . . . . . . . 26.6 27.1 21.9
Marketable Securities . . . . . . . . . . . . . . . . 22.6 0.6 0.4
Total . . . . . . . . . . . . . . . . . . 304.4 307.8 282.0
Expenses
Cost of Borrowing
Interest Expense. . . . . . . . . . . . . 92.9 104.1 88.6
Other . . . . . . . . . . . . . . . . . . 9.2 5.8 6.1
Total . . . . . . . . . . . . . . . . . . 102.1 109.9 94.7
Credit, Collection and Administrative . . . . . . . . 41.2 38.8 40.6
Provision for Losses on Receivables . . . . . . . . . 27.8 12.1 6.2
Depreciation Expense and Other. . . . . . . . . . . . 61.0 55.1 44.1
Total . . . . . . . . . . . . . . . . . . 232.1 215.9 185.6
Income Before Taxes . . . . . . . . . . . . . . . . . . . . . . . . 72.3 91.9 96.4
Taxes on Income . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 35.5 37.1
Income from Continuing Operations . . . . . . . . . . . . . . . . . 46.2 56.4 59.3
Gain (loss) on Disposal of Discontinued Operations,
(net of tax of $(5.1), $6.4 and $0.0) . . . . . . . . 8.3 (10.5) -
Income from Discontinued Operations,
(net of tax of $0.0, $(0.1) and $(1.8) ). . . . . . . - 0.5 3.2
Income (loss) from Discontinued Operations. . . . . . . . . . . . . 8.3 (10.0) 3.2
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.5 46.4 62.5
Retained Earnings
Beginning of Year . . . . . . . . . . . . . . . . . . 134.9 111.2 109.0
Dividends Paid. . . . . . . . . . . . . . . . . . . . (26.0) (22.7) (60.3)
End of Year . . . . . . . . . . . . . . . . . . . . . $163.4 $134.9 $111.2
Statements of Consolidated Comprehensive Income
- ---------------------------------------------------------------------------------------------------------------------------
For the years ended October 31 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54.5 $ 46.4 $ 62.5
Other comprehensive loss, net of tax:
Net unrealized losses on marketable securities
(net of tax of $0.0, $0.0, and $1.9) . . . . . . . . - - (3.2)
Net unrealized losses on derivative contracts
(net of tax of $0.6, $0.0, and $0.0). . . . . . . . . (1.6) - -
Minimum pension liability adjustment
(net of tax of $0.0, $0.2, and $0.1) . . . . . . . . - (0.3) (0.2)
Other comprehensive loss, net of tax. . . . . . . . . . . . . . . . (1.6) (0.3) (3.4)
Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . $ 52.9 $ 46.1 $ 59.1
See Notes to Consolidated Financial Statements.
Navistar Financial Corporation and Subsidiaries
Statements of Consolidated Financial Condition
Millions of Dollars
As of October 31
2001 2000
- -------------------------------------------------------------------------------------------------------
ASSETS
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . $ 22.3 $ 41.6
Receivables
Finance Receivables . . . . . . . . . . . . . . . . . 1,092.8 1,679.0
Allowance for Losses. . . . . . . . . . . . . . . . . (13.3) (12.9)
Receivables, Net. . . . . . . . . . . . . 1,079.5 1,666.1
Amounts Due from Sales of Receivables . . . . . . . . . . . . . . . 323.5 316.5
Net Investment in Operating Leases. . . . . . . . . . . . . . . . . 283.8 291.1
Repossessions . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.7 42.4
Restricted Marketable Securities. . . . . . . . . . . . . . . . . . 213.7 85.2
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.5 27.2
Net Assets of Discontinued Operations . . . . . . . . . . . . . . . 61.9 48.8
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,110.9 $2,518.9
LIABILITIES AND SHAREOWNER'S EQUITY
Net Accounts Payable to Affiliates. . . . . . . . . . . . . . . . . $ 14.2 $266.4
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 90.6 50.0
Senior and Subordinated Debt. . . . . . . . . . . . . . . . . . . . 1,652.6 1,874.0
Dealers' Reserves . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 24.1
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . - -
Shareowner's Equity
Capital Stock (Par value $1.00, 1,600,000 shares
issued and outstanding) and paid-in capital . . . . 171.0 171.0
Retained Earnings . . . . . . . . . . . . . . . . . . 163.4 134.9
Accumulated Other Comprehensive Loss. . . . . . . . . (3.1) (1.5)
Total . . . . . . . . . . . . . . . . . . 331.3 304.4
Total Liabilities and Shareowner's Equity . . . . . . . . . . . . . $2,110.9 $2,518.9
See Notes to Consolidated Financial Statements.
Navistar Financial Corporation and Subsidiaries
Statements of Consolidated Cash Flow
Millions of Dollars
For the years ended October 31
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Cash Flow From Operations
Net Income. . . . . . . . . . . . . . . . . . . . . . $54.5 $46.4 $62.5
Adjustment to reconcile net income to
cash provided from operations:
(Gain) loss on disposal of discontinued
operations, net of tax . . . . . . . . . . . . . . . (8.3) 10.5 -
Gains on sales of receivables . . . . . . . . . . . . (20.5) (2.5) (11.5)
Depreciation and amortization . . . . . . . . . . . . 61.7 56.0 47.1
Provision for losses on receivables . . . . . . . . . 27.8 12.1 6.2
(Decrease) increase in accounts payable to affiliates (252.2) (440.5) 570.1
Other . . . . . . . . . . . . . . . . . . . . . . . . 2.9 (3.7) (15.6)
Total . . . . . . . . . . . . . . . . . . (134.1) (321.7) 658.8
Cash Flow From Investing Activities
Proceeds from sold retail notes . . . . . . . . . . . 1,238.7 958.0 1,191.6
Purchase of retail notes and lease receivables. . . . (886.5) (1,375.9) (1,417.2)
Principal collections on retail notes and
lease receivables. . . . . . . . . . . . . . . . . 5.1 131.1 88.1
(Repurchase of) proceeds from sold wholesale notes, net (226.1) 282.2 -
Acquisitions under (over) cash collections of
wholesale notes and accounts receivable. . . . . . 284.1 216.1 (410.3)
Proceeds from sold retail accounts. . . . . . . . . . 120.0 80.0 -
Net (purchase)/sale or maturities of restricted
marketable securities. . . . . . . . . . . . . . . (128.5) (85.2) -
Purchase of equipment leased to others. . . . . . . . (110.2) (98.6) (108.7)
Sale of equipment leased to others. . . . . . . . . . 61.0 21.2 15.2
Total . . . . . . . . . . . . . . . . . . 357.6 128.9 (641.3)
Cash Flow From Financing Activities
Net (decrease) increase in short-term debt. . . . . . - (34.5) 12.7
Net (decrease) increase in bank revolving
credit facility usage. . . . . . . . . . . . . . . (203.0) 55.0 25.0
Proceeds from revolving retail warehouse facility . . - 500.0 -
Net (decrease) increase in asset-backed
commercial paper facility usage. . . . . . . . . . - (358.9) 4.4
Principal payments on long-term debt. . . . . . . . . (136.0) (80.9) (133.3)
Proceeds from long-term debt. . . . . . . . . . . . . 121.3 136.9 159.7
Dividends paid to International . . . . . . . . . . . (26.0) (22.7) (60.3)
Total . . . . . . . . . . . . . . . . . . (243.7) 194.9 8.2
(Decrease) increase in Cash and Cash Equivalents from
Continuing Operations. . . . . . . . . . . . . . . . . . . . . . (20.2) 2.1 25.7
Net Cash from Discontinued Operations . . . . . . . . . . . . . . . 0.9 0.5 (0.6)
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . 41.6 39.0 13.9
Cash and Cash Equivalents at End of Year. . . . . . . . . . . . . . $22.3 $41.6 $39.0
Supplementary disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . $94.5 $102.8 $92.3
Income taxes paid . . . . . . . . . . . . . . . . . . $16.0 $37.8 $36.5
See Notes to Consolidated Financial Statements.
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 2001
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Navistar
Financial Corporation and its wholly-owned subsidiaries ("Corporation").
International Truck and Engine Corporation ("International"), which is
wholly-owned by Navistar International Corporation ("Navistar"), is the parent
company of the Corporation. All significant intercompany balances and
transactions have been eliminated.
Nature of Operations
The Corporation is a commercial financing organization that provides
retail, wholesale and lease financing of products sold by International and its
dealers within the United States.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue on Receivables
Revenue from finance receivables is recognized using the interest method.
Revenue on operating leases is recognized on a straight-line basis over the life
of the lease. Recognition of revenue is suspended when management determines the
collection of future income is not probable. Income recognition is resumed if
collection doubts are removed.
Net Investments in Operating Leases
The Corporation has significant investments in the residual values of its
leasing portfolio. The residual values represent an estimate of the values of
the assets at the end of the lease contracts and are initially recorded based on
estimates of future market values. Realization of the residual values is
dependent on the Corporation's future ability to market the vehicles under then
prevailing conditions. Management reviews residual values periodically to
determine that recorded amounts are appropriate and the operating lease assets
have not been impaired. Each of these assets is depreciated on a straight-line
basis over the term of the lease in an amount necessary to reduce the leased
vehicle to its estimated residual value at the end of the lease term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Allowance for Losses on Receivables
The allowance for losses on receivables is established through a charge to
the provision for losses. The allowance is an estimate of the amount required to
absorb losses on existing receivables that may become uncollectible. The
allowance is maintained at an amount management considers appropriate in
relation to the outstanding receivables portfolio based on such factors as
overall portfolio quality, historical loss experience and current economic
conditions. Receivables are charged off to the allowance for losses when the
receivable is determined to be uncollectible.
Under various agreements, International and its dealers may be liable for a
portion of customer losses or may be required to repurchase the repossessed
collateral at the receivable principal value. The Corporation's losses are net
of these benefits.
Repossessions
Losses arising from the repossession of collateral supporting finance
receivables and operating leases are recognized upon repossession. Repossessed
assets are recorded at the lower of historical cost or fair value and are
reclassified from finance receivables or operating leases to repossessions with
the related adjustments recorded in provision for losses on receivables.
Receivable Sales
The Corporation securitizes and sells receivables to public and private
investors with limited recourse. The Corporation continues to service the
receivables, for which a servicing fee is received. Servicing fees are earned on
a level yield basis over the terms of the related sold receivables and are
included in servicing fee income. Gains or losses on sales of receivables are
credited or charged to financing revenue in the period in which the sales occur.
An adequate allowance for credit losses is provided prior to the receivable
sale. Interest-only strip receivables are recorded at estimated fair value. The
difference between market value and cost for interest-only strip receivables is
recorded within comprehensive income, net of related taxes. Differences between
market value and cost were immaterial during fiscal year 2001 and 2000.
Income Taxes
Navistar and its subsidiaries file a consolidated federal income tax
return, which includes International and the Corporation. Federal income taxes
for the Corporation are computed on a separate consolidated return basis and are
payable to International.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and marketable
securities with original maturities of three months or less.
Restricted Marketable Securities
On October 16, 2000, Truck Retail Instalment Paper Corporation ("TRIP"), a
special purpose wholly-owned subsidiary of the Corporation, issued $475 of
senior class AAA rated and $25 of subordinated class A rated floating rate
asset-backed notes. The proceeds were used to purchase eligible receivables from
the Corporation and establish a revolving retail warehouse facility for the
Corporation's retail notes and retail leases, other than fair market value
leases. The Corporation is required to maintain the revolving retail warehouse
facility with collateral in the amount of $500. In the event that retail note
and lease balances pledged to the revolving retail warehouse facility fall below
$500, the excess proceeds are invested in marketable securities, which are
restricted and have maturities of three months or less. Due to the short-term
nature of these marketable securities, the fair value approximates carrying
value.
Derivative Financial Instruments
On November 1, 2000, the Corporation adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended. This statement standardizes the accounting for
derivative instruments by requiring that an entity recognize all derivatives as
assets or liabilities in the statement of financial condition and measure 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) the 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.
All derivative financial instruments, such as forward contracts, interest
rate swaps and interest rate caps, are held for purposes other than trading. The
Corporation's policy prohibits the use of derivative financial instruments for
speculative purposes. The Corporation generally uses derivative financial
instruments to reduce its exposure to interest rate volatility.
The Corporation may use forward contracts to hedge future interest payments
on the notes and certificates related to an expected sale of receivables. The
principal balance of receivables expected to be sold by the Corporation equals
or exceeds the notional amount of open forward contracts. The Corporation may
use interest rate swaps to reduce exposure to interest rate changes when it
sells fixed rate receivables on a variable rate basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Derivative Financial Instruments (continued)
For the protection of investors, the Corporation may enter into an interest
rate cap when fixed rate receivables are sold on a variable rate basis. The
Corporation will make payments under the terms of the written caps if interest
rates exceed certain levels.
All derivative instruments are recorded at their fair value. For those
instruments which do not qualify for hedge accounting, changes in fair value are
recognized in income.
New Accounting Standards
On April 1, 2001 the Corporation adopted Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities". The adoption of this statement has not had
and is not expected to have a material effect on the Corporation's results of
operations, financial condition or cash flows. We have included certain
disclosures to comply with the requirements of this new statement.
Reclassification
Certain prior year amounts have been reclassified to conform with the
presentation used in the 2001 financial statements.
2. TRANSACTIONS WITH AFFILIATED COMPANIES
Wholesale Notes, Wholesale Accounts and Retail Accounts
In accordance with the agreements between the Corporation and International
relating to financing of wholesale notes, wholesale accounts and retail
accounts, the Corporation receives interest income from International at agreed
upon interest rates applied to the average outstanding balances less interest
amounts paid by dealers on wholesale notes and wholesale accounts. The
Corporation purchases wholesale notes and accounts from International at the
principal amount of the receivables. Revenue collected from International was
$51.3 in 2001, $85.6 in 2000 and $71.5 in 1999.
Retail Notes and Lease Financing
In accordance with agreements between the Corporation and International,
International may be liable for certain losses on the finance receivables and
may be required to repurchase the repossessed collateral at the receivable
principal value. Losses recorded by International were $37.3 in 2001, $22.5 in
2000 and $3.5 in 1999.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
2. TRANSACTIONS WITH AFFILIATED COMPANIES (continued)
Support Agreements
Under provisions of certain public and private financing arrangements,
agreements with International and Navistar provide that the Corporation's
consolidated income before interest expense and income taxes will be maintained
at not less than 125% of its consolidated interest expense. No income
maintenance payments were required during the three-year period ended October
31, 2001.
Administrative Expenses
The Corporation pays a fee to International for data processing and other
administrative services based on the actual cost of services performed. The
amount of the fee was $2.5, $3.0, and $2.6 in 1999 for fiscal 2001, 2000 and
1999, respectively.
Accounts Payable
Accounts payable to affiliates, which are obligated to be repaid upon
request, were $14.2, $266.4, and $706.9 at October 31, 2001, 2000, and 1999,
respectively. Accounts payable to affiliates reduced debt levels and resulted in
a reduction in borrowing costs of $3.9, $15.9 and $12.5 for fiscal 2001, 2000,
and 1999, respectively.
3. DISCONTINUED OPERATIONS
On November 30, 2000, the Corporation's Board of Directors approved
management's plan for the sale of Harco National Insurance Company ("Harco"),
the wholly-owned insurance subsidiary. On November 30, 2001, the Corporation
completed the sale of all of the stock of Harco to IAT Reinsurance Syndicate
Ltd., a Bermuda reinsurance company. Cash proceeds of $62.2 million were
received on November 30, 2001.
Harco provides commercial physical damage and liability insurance coverage
to International's dealers and retail customers, and to the general public
through an independent insurance agency system. Harco generates its funds
through internal operations and has no external borrowings. Insurance premiums
written by Harco are earned on a pro rata basis over the terms of the policies.
Commission costs and premium taxes incurred in acquiring business are deferred
and amortized on the same basis as related premiums are earned. The liability
for unpaid insurance claims includes provisions for reported claims and
estimates of unreported claims based on past experience. Such provisions include
an estimate of loss adjustment expense. The estimated liability for unpaid
insurance claims is regularly reviewed and updated. Any change in such estimate
is reflected in current operations. Harco limits its exposure on any single loss
occurrence by obtaining reinsurance from other insurance enterprises.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
3. DISCONTINUED OPERATIONS (continued)
The Harco insurance segment is accounted for as a discontinued operation,
and accordingly, amounts in the consolidated financial statements and notes
thereto for all periods shown have been restated to reflect discontinued
operations accounting. The net assets of Harco have been reflected in the
consolidated balance sheet at net realizable value and consisted of the
following at October 31:
2001 2000
- --------------------------------------------------- ------------ ------------
Marketable securities, at fair value............... $121.3 $110.4
Reinsurance receivables............................ 20.1 27.0
Other assets....................................... 23.6 17.8
Total assets..................................... 165.0 155.2
Insurance reserves and unearned premiums........... 88.4 90.6
Other liabilities.................................. 7.6 3.4
Total liabilities................................ 96.0 94.0
Net assets......................................... 69.0 61.2
Adjustment to net realizable value................. ( 7.1) (12.4)
Net assets of discontinued operations.............. $ 61.9 $ 48.8
Below are the components of the gain (loss) on disposal recorded in the
Statement of Consolidated Income and Retained Earnings
2001 2000 Total
- --------------------------------------------------------------------------------------------------------------
Estimated gain(loss) on sale............................. $13.1 $(11.9) $ 1.2
Estimated severance and other exit costs................. 0.3 ( 3.8) (3.5)
Curtailment loss......................................... - ( 1.2) (1.2)
Pretax gain(loss) on disposal............................ 13.4 (16.9) (3.5)
Deferred tax (expense) benefit........................... ( 5.1) 6.4 1.3
Total gain(loss) on Disposal of
Discontinued Operations.............................. $ 8.3 $(10.5) $(2.2)
The pretax loss on disposal of Harco is estimated to be approximately $3.5
and includes the estimated gain on sale of $1.2, approximately $3.5 of severance
and other exit costs, and $1.2 of curtailment loss associated with the related
future reduction of employees from the Corporation's postretirement benefit
plans.
Revenues of Harco were $61.6, $55.9 and $44.2 for fiscal 2001, 2000 and
1999, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. FINANCE RECEIVABLES
Finance receivable balances, net of unearned finance income, at October 31
are summarized as follows:
2001 2000
- --------------------------------------------------------------------------------
Retail notes $634.1 $1,050.5
Lease financing................................... 211.5 223.7
Wholesale notes................................... 31.7 82.3
Accounts:
Retail 137.1 249.6
Wholesale.................................... 78.4 72.9
Total.................................... 215.5 322.5
Total finance receivables........... $1,092.8 $1,679.0
Contractual maturities of finance receivables including unearned finance
income at October 31, 2001, are summarized as follows:
Retail Lease Wholesale Accounts
- --------------------------------------------------- -------------- ----------------- ---------------- ---------------
Due in fiscal year:
2002 ....................................... $ 218.6 $ 16.8 $ 26.5 $ 215.5
2003 ....................................... 160.1 40.3 5.2 -
2004 ....................................... 142.7 69.3 - -
2005 ....................................... 108.8 61.0 - -
2006 ....................................... 71.9 47.3 - -
Due after 2006.................................... 18.9 12.6 - -
Gross finance receivables.................. 721.0 247.3 31.7 215.5
Unearned finance income........................... (86.9) (35.8) - -
Total finance receivables.................. $634.1 $ 211.5 $ 31.7 $ 215.5
The actual cash collections from finance receivables may vary from the
contractual cash flows because of sales, prepayments, extensions and renewals.
The contractual maturities, therefore, should not be regarded as a forecast of
future collections.
The Corporation's primary business is to provide wholesale, retail and
lease financing for new and used trucks sold by International and
International's dealers, and as a result, the Corporation's receivables and
leases have significant concentration in the trucking industry. On a geographic
basis, there is not a disproportionate concentration of credit risk in any area
of the United States. The Corporation retains as collateral a security interest
in the equipment associated with wholesale notes, retail notes and leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. FINANCE RECEIVABLES (continued)
The Corporation securitizes and sells 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,
wholly-owned subsidiaries of the Corporation. NFRRC, NFSC, TRAC and TERFCO have
limited recourse on the sold receivables and their assets are available to
satisfy the claims of their creditors prior to such assets becoming available
for their own uses or to the Corporation or affiliated companies. The terms of
receivable sales generally require the Corporation to maintain cash reserves
with the trusts and conduits as credit enhancement. The use of cash reserves
held by the trusts and conduits is restricted under the terms of the securitized
sales agreements. The maximum exposure under all receivable sale recourse
provisions at October 31, 2001 was $340.2; however, management believes the
recorded reserves for losses are adequate.
The Corporation continues to service the receivables, for which a servicing
fee is received. Servicing fees are earned on a level yield basis over the terms
of the related sold receivables and are included in servicing fee income.
Servicing fees are typically set at 1.0% of average outstanding net receivable
balances, representing the Corporation's estimated costs to service the
receivables.
Gains or losses on sales of 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 receivable sale and is reclassified to Amounts
Due from Sales of Receivables upon sale.
Finance receivable balances do not include receivables sold by the
Corporation to public and private investors with limited recourse provisions.
Outstanding sold receivable balances at October 31 are as follows:
2001 2000
- ---------------------------------------------------------------------
Retail notes....................... $1,862.6 $1,730.2
Wholesale notes.................... 797.3 883.0
Retail accounts.................... 191.3 80.0
Total......................... $2,851.2 $2,693.2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. FINANCE RECEIVABLES (continued)
Additional financial data for gross serviced finance receivables as of
October 31, 2001 is as follows:
Retail Wholesale
Notes Leases Notes Accounts
------------- ---------- ---------- -------------
Gross serviced finance
receivables................................ $2,720.1 $531.2 $817.4 $415.5
Gross serviced finance
receivables with
installments past due
over 30 days........................ - - 7.1 18.3
over 60 days........................ 25.4 12.5 - -
Credit losses net of
recoveries................................. 21.5 1.9 0.6 -
In fiscal 2001, the Corporation sold $1,365.0 of retail notes, net of
unearned finance income, through NFRRC, in three separate sales. The Corporation
sold $765.0 of retail notes in November 2000 to an owner trust which, in turn,
issued securities that were sold to investors. The Corporation sold $200.0 of
retail notes in December 2000 to a multi-seller asset-backed commercial paper
conduit sponsored by a major financial institution. During the three months
ended June 2001, the Corporation sold $400.0 of retail notes to an owner trust
which, in turn, issued $400.0 of asset-backed securities that were sold to
investors. Aggregate gains of $20.5 were recognized on these sales.
At October 31, 2001, NFSC has in place a revolving wholesale note trust
that provides for the funding of $1,012.0 of eligible wholesale notes. As of
October 31, 2001 the trust is comprised of three $200.0 tranches of investor
certificates maturing in 2003, 2004 and 2008, a $212.0 tranche of investor
certificates maturing in 2005 and a variable funding certificate with a maximum
capacity of $200.0. This facility expires in January 2002, with an option for
renewal. TERFCO has in place a revolving trust that provides for the funding of
$100.0 of eligible Ford accounts receivables. TRAC has in place a revolving
retail account conduit that provides for the funding of $100.0 of eligible
retail accounts.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. FINANCE RECEIVABLES (continued)
When receivables are sold, the Corporation retains interest in the
securitized receivables in the form of interest-only strips, servicing rights,
cash reserve accounts and subordinated certificates. The following is a summary
of retained interests included in Amounts Due from Sales of Receivables at
October 31:
2001 2000
- ---------------------------------------------------------------------------------------------------
Cash held and invested by trusts........................................ $146.6 $136.6
Subordinated retained interests in wholesale receivables................ 127.1 142.5
Subordinated retained interests in retail receivables................... 56.4 50.6
Interest only receivables............................................... 10.1 0.1
Allowance for credit losses............................................. (16.7) (13.3)
Total.............................................................. $323.5 $316.5
The fair value of cash deposits included in amounts due from sales of
receivables approximate their carrying value due to their short-term nature and
variable interest rate terms. The subordinated retained interests in wholesale
and retail receivables principally consist of wholesale notes or marketable
securities, retail accounts and certain cash collections on finance receivables.
Due to the short-term nature of these assets the fair value approximates
carrying value.
Key economic assumptions used in measuring the interest only strip at the
date of the securitization for securitizations completed during the fiscal year
and at October 31, 2001 for all outstanding securitizations, were as follows:
At date of At October 31,
Securitization 2001
------------------------ ------------------------
------------------------ ------------------------
Prepayment speed............................... 1.4 - 1.6 1.1 - 1.3
Weighted average remaining life................ 41 months 25 months
Residual cash flows discount rate.............. 7.85% - 9.61% 6.41% - 9.61%
The impact of hypothetical 10% and 20% adverse changes in these assumptions
would have no material effect on the fair value of the interest only receivables
at October 31, 2001. These sensitivities are hypothetical and should be used
with caution. The effect of a variation of a particular assumption on the fair
value of the interest only receivables is calculated without changing any other
assumption; in reality, changes in one factor may result in changes in another.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
4. FINANCE RECEIVABLES (continued)
The following table summarizes certain cash flows received from and (paid
to) securitization trusts/conduits during the year ended October 31, 2001:
($ Millions)
------------
Proceeds from initial sales of retail receivables................ $1,390.4
Proceeds from subsequent sales of receivables into
revolving facilities............................................ 5,063.8
Servicing fees received.......................................... 26.6
All other cash received from trusts.............................. 192.8
Purchase of delinquent or foreclosed receivables................. (96.3)
Cash used for pool buybacks...................................... (220.8)
5. INVESTMENT IN OPERATING LEASES
Operating leases at year-end were as follows:
2001 2000
- --------------------------------------------------------------------------------
Investment in operating leases:
Vehicles and other equipment, at cost....... $405.1 $409.7
Less: Accumulated depreciation............. (121.3) (118.6)
Net investment in operating leases....... $283.8 $291.1
Future minimum rentals on operating leases are as follows: 2002, $85.0;
2003, $71.6; 2004, $54.7; 2005, $30.6; 2006, $17.3 and $7.8 thereafter.
6. ALLOWANCE FOR LOSSES
The allowance for losses on receivables is summarized as follows:
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Total allowance for losses at beginning of year............. $26.2 $26.2 $25.4
Provision for losses........................................ 27.8 12.1 6.2
Net losses charged to allowance............................. (24.0) (12.1) (5.4)
Total allowance for losses at end of year.......... $30.0 $26.2 $26.2
Allowance pertaining to:
Owned notes............................................ $13.3 $12.9 $13.4
Sold notes............................................. 16.7 13.3 12.8
Total.............................................. $30.0 $26.2 $26.2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
7. TAXES ON INCOME
Taxes on income at October 31 are summarized as follows:
2001 2000 1999
- -----------------------------------------------------------------------------------------------
Current:
Federal......................................... $14.5 $26.9 $30.6
State and local................................. 5.6 4.5 4.9
Total current............................... 20.1 31.4 35.5
Deferred (primarily Federal)......................... 11.1 (2.2) 3.4
Sub-total................................... 31.2 29.2 38.9
Less amount from Discontinued Operations 5.1 (6.3) 1.8
Total....................................... $26.1 $35.5 $37.1
The effective tax rate of approximately 36%, 38% and 38% in the years ended
October 31, 2001, 2000 and 1999, respectively, differs from the statutory United
States Federal tax rate of 35% primarily because of state and local income
taxes. The net deferred tax liability from continuing operations is included in
other liabilities on the Statements of Financial Condition. Net deferred tax
assets of $1.2 and $1.6 at October 31, 2001 and 2000, respectively, are included
in net assets from discontinued operations on the Statements of Consolidated
Financial Condition. Deferred tax assets and liabilities at October 31 comprised
of the following:
2001 2000
- --------------------------------------------------------------------------------
Deferred tax assets:
Other postretirement benefits..................... $ 4.4 $ 3.6
Loss on disposal of discontinued operations....... - 6.4
Total deferred tax assets..................... 4.4 10.0
Deferred tax liabilities:
Loss on disposal of discontinued operations....... 0.6 -
Depreciation and other............................ 19.4 14.1
Total deferred tax liabilities................ 20.0 14.1
Net deferred tax liabilities.................. $15.6 $ 4.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
8. SENIOR AND SUBORDINATED DEBT
Senior and subordinated debt outstanding at October 31 is summarized as
follows:
2001 2000
- --------------------------------------------------------------------------------
Bank revolving credit facility, at variable
rates, due November 2005.......................... $ 692.0 $ 895.0
Funding under revolving retail warehouse facility,
at variable rates, due October 2005............... 500.0 500.0
Capital lease obligations, 4.11% to 6.65%,
due serially through 2007......................... 360.6 379.0
Senior Subordinated Notes, 9%, due June 2002........... 100.0 100.0
Total senior and subordinated debt....... $1,652.6 $1,874.0
The weighted average interest rate on total debt, including short-term debt
and the effect of discounts and related amortization, was 5.7% in 2001, 6.4% in
2000 and 5.6% in 1999. The aggregate annual maturities and required payments of
senior and subordinated debt are as follows:
Fiscal year ended October 31
2002................................ $ 204.3
2003................................ 115.2
2004................................ 72.6
2005................................ 543.9
2006................................ 712.0
2007 and thereafter................. 4.6
Total............................ $1,652.6
At October 31, 2001, the Corporation had a $820.0 contractually committed
bank revolving credit facility that will mature in November 2005. Under the
revolving credit agreement, Navistar's three Mexican finance subsidiaries are
permitted to borrow up to $100.0 in the aggregate, which is guaranteed by the
Corporation.
At October 31, 2001, the Corporation had a $500.0 revolving retail
warehouse facility due in October 2005. On October 16, 2000, Truck Retail
Instalment Paper Corporation ("TRIP"), a special purpose wholly-owned subsidiary
of the Corporation, issued $475.0 of senior class AAA rated and $25.0 of
subordinated class A rated floating rate asset-backed notes. The proceeds were
used to purchase eligible receivables from the Corporation and establish a
revolving retail warehouse facility for the Corporation's retail notes and
retail leases, other than fair market value leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
8. SENIOR AND SUBORDINATED DEBT (continued)
Available funding under the bank revolving credit facility, the revolving
retail warehouse facility and the revolving wholesale note trust was $539.0.
When combined with unrestricted cash and cash equivalents, $561.0 was available
to fund the general business purposes of the Corporation at October 31, 2001.
Under the terms of the bank revolving credit facility, the Corporation is
required to maintain a debt to tangible net worth ratio of no greater than 7.0
to 1 and a interest expense to EBIT ratio not to be less than 1.25 to 1. The
bank revolving credit agreement grants security interests in substantially all
of the Corporation's assets to the Corporation's debt holders. Compensating cash
balances are not required under the bank revolving credit facility. Facility
fees are paid quarterly regardless of usage.
The Corporation enters into sale/leaseback agreements involving vehicles
subject to retail finance and operating leases with end users. The balances are
classified under senior and subordinated debt as capital lease obligations. In
connection with the sale and leaseback of certain of its leasing portfolio
assets, the Corporation and its subsidiary, Harco Leasing, Inc. ("HLC"), have
established Navistar Leasing Company ("NLC"), a Delaware business trust. NLC
holds legal title to leased vehicles and is the lessor on substantially all
leases originated by the Corporation. The assets of NLC have been and will
continue to be allocated into various beneficial interests issued by NLC. HLC
owns one such beneficial interest in NLC and HLC has transferred other
beneficial interests issued by NLC to purchasers under sale/leaseback
agreements. Neither the beneficial interests held by purchasers under
sale/leaseback agreements or the assets represented thereby, nor legal interest
in any assets of NLC, are available to HLC, the Corporation or its creditors.
9. POSTRETIREMENT BENEFITS
The Corporation provides postretirement benefits to a substantial number of
its employees. Costs associated with postretirement benefits include pension and
postretirement health care expenses for employees, retirees and surviving
spouses and dependents.
Generally, the pension plans are non-contributory. The Corporation's policy
is to fund its pension plans in accordance with applicable United States
government regulations. At October 31, 2001, all legal funding requirements had
been met.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. POSTRETIREMENT BENEFITS (continued)
Postretirement Expense
Net periodic benefit cost included in the Statements of Consolidated Income
is composed of the following:
Pension Benefits Other Benefits
------------------------------------- -------------------------------------
2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------- -------------------------------------
Service cost for benefits
earned during the period.............. $ 0.7 $ 0.7 $ 0.7 $ 0.5 $ 0.4 $ 0.3
Interest cost on obligation................ 3.9 3.7 3.4 1.6 1.2 1.0
Net amortization costs and other........... 0.2 0.1 0.2 0.4 - 0.1
Less expected return on assets............. (5.4) (5.2) (5.0) (0.9) (0.9) (0.7)
Net postretirement
(income) expense $(0.6) $(0.7) $(0.7) $ 1.6 $ 0.7 $ 0.7
"Amortization costs" include amortization of cumulative gains and losses
over the expected remaining service life of employees and amortization of the
initial transition liability over 15 years and amortization of plan amendments.
Plan amendments are recognized over the remaining service life of employees.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. POSTRETIREMENT BENEFITS (continued)
Postretirement Expense (continued)
The funded status of the Corporation's plans as of October 31, 2001 and
2000 and a reconciliation with amounts recognized in the Statements of
Consolidated Financial Condition are as follows:
Pension Benefits Other Benefits
------------------------------- --------------------------------
2001 2000 2001 2000
- --------------------------------------------------------------------------------------- --------------------------------
Change in benefit obligation
Benefit obligation at beginning
of year $50.3 $48.5 $ 21.0 $14.9
Service cost 0.7 0.7 0.5 0.4
Interest on obligation............................... 3.9 3.7 1.6 1.2
Curtailment - 0.2 - 1.0
Actuarial net loss (gain)............................ 1.9 0.1 (2.1) 4.0
Benefits paid (3.2) (2.9) (0.5) (0.5)
Benefit obligation at end of year.................... $53.6 $50.3 $ 20.5 $21.0
Change in plan asset
Fair value of plan assets at
beginning of year................................. $56.2 $53.9 $ 8.0 $ 7.8
Actual return on plan assets......................... 0.7 4.9 (1.5) 0.2
Employer contribution................................ - - 0.3 0.3
Benefits paid (2.8) (2.6) (0.2) (0.3)
Fair value of plan assets at
year-end $54.1 $56.2 $ 6.6 $ 8.0
Funded status $ 0.5 $ 5.9 $(13.9) $(13.0)
Unrecognized actuarial net
(gain) loss....................................... 2.6 (3.9) 6.6 6.7
Unrecognized transition amount....................... 0.1 0.1 - -
Unrecognized prior service cost...................... 0.4 0.6 - -
Net amount recognized................................ $ 3.6 $ 2.7 $ (7.3) $(6.3)
Amounts recognized in the
Statements of Consolidated
Financial Condition
consists of:
Prepaid benefit cost........................... $ 5.5 $ 4.6 $ - $ -
Accrued benefit liability...................... (4.3) (4.3) (7.3) (6.3)
Accumulated reduction in
shareowner's equity......................... 2.4 2.4 - -
Net amount recognized.................... $ 3.6 $ 2.7 $ (7.3) $(6.3)
The accumulated reduction in shareowner's equity is recorded in the Statements of Consolidated Financial Condition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
9. POSTRETIREMENT BENEFITS (continued)
Postretirement Expense (continued)
The sale of Harco resulted in a curtailment loss of approximately $1.0,
which is recorded as a part of the loss on disposal of discontinued operations
in the Statements of Consolidated Income.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $4.3, $4.3, and $0.0, respectively, as of October
31, 2001, and $4.1, $4.1, and $0.0, respectively, as of October 31, 2000.
The weighted average rate assumptions used in determining expenses and
benefit obligations were:
Pension Benefits Other Benefits
---------------------------------- --------------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------- --------------------------------------
Discount rate used to determine
present value of benefit
obligation at year-end......................... 7.4% 8.0% 7.8% 7.4% 8.2% 8.0%
Expected long-term rate of
return on plan asset for
the year 9.8% 9.8% 9.6% 10.8% 11.0% 10.8%
Expected rate of increase in
future compensation levels..................... 3.5% 3.5% 3.5% N/A N/A N/A
For 2001, the weighted average rate of increase in the per capita cost of
covered health care benefits is projected to be 11.0%. The rate is projected to
decrease to 5.0% by the year 2007 and remain at that level each year thereafter.
The effect of changing the health care cost trend rate is as follows:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
- -------------------------------------------------------------------------------------------
Effect on total of service and interest cost
components....................................... $0.4 $(0.3)
Effect on postretirement benefit obligation......... 3.6 (3.0)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
10. LEASES
The Corporation is obligated under non-cancelable operating leases for the
majority of its office facilities. These leases are generally renewable and
provide that property taxes and maintenance costs are to be paid by the lessee.
At October 31, 2001, future minimum lease commitments under non-cancelable
operating leases with remaining terms in excess of one year are as follows:
Year Ended October 31,
2002............................. $ 1.7
2003............................. 1.7
2004............................. 1.5
2005............................. 1.4
2006............................. 1.1
Total............................ $ 7.4
The total operating lease expense was $2.0 in 2001, $2.0 in 2000 and $2.0
in 1999.
11. SHAREOWNER'S EQUITY
The number of authorized shares of capital stock as of October 31, 2001 and
2000, was 2,000,000 of which 1,600,000 shares were issued and outstanding. All
of the issued and outstanding capital stock is owned by International and no
shares are reserved for officers and employees, or for options, warrants,
conversions and other rights.
The components of accumulated other comprehensive income (loss), net of
taxes, are as follows:
Net
Unrealized Net Accumulated
Gains Unrealized Minimum Other
(Losses) on Losses on Pension Comprehensive
Securities Derivatives Liability Income (Loss)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at October 31, 1998...................... $2.5 - $(1.0) $ 1.5
Change in 1999.............................. (3.2) - (0.2) (3.4)
Balance at October 31, 1999...................... (0.7) - (1.2) (1.9)
Change in 2000.............................. - - (0.3) (0.3)
Reclass to loss on disposal
of Discontinued Operations................ 0.7 - - 0.7
Balance at October 31, 2000...................... - - (1.5) (1.5)
Change in 2001.............................. - $(1.6) - (1.6)
Balance at October 31, 2001...................... $ - $(1.6) $(1.5) $(3.1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
12. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Corporation's
financial instruments were as follows:
2001 2000
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ------------------------------------------------------------------------------------ ----------------------------
Financial assets:
Finance receivables:
Retail notes................................ $634.1 $664.8 $ 1,050.5 $ 1,036.6
Wholesale notes and accounts................ 247.2 247.2 404.8 404.8
Amounts due from sales of
receivables................................. 323.5 323.5 316.5 316.5
Financial liabilities:
Senior and subordinated debt,
excluding capital lease
obligations................................. 1,292.0 1,292.4 1,495.0 1,494.9
The carrying amount of cash and cash equivalents approximates fair value.
The fair value of retail notes is estimated by discounting the future
contractual cash flows using an estimated discount rate reflecting current rates
paid to purchasers of similar types of receivables with similar credit, interest
rate and prepayment risks. For wholesale notes and retail and wholesale
accounts, all of which reprice monthly, the carrying amounts approximate fair
value as a result of the short-term nature of the receivables.
The fair value of cash deposits included in amounts due from sales of
receivables approximate their carrying value due to their short-term nature and
variable interest rate terms. The subordinated retained interests in wholesale
and retail receivables principally consist of wholesale notes or marketable
securities, retail accounts and certain cash collections on finance receivables.
Due to the short-term nature of these assets the fair value approximates
carrying value. The fair value of the interest only receivables is derived by
discounting the expected future cash flows at estimated current market rates.
For fixed rate debt, the fair value is estimated based on quoted market
prices where available and, where not available, on quoted market prices of debt
with similar characteristics. For variable rate debt the fair values approximate
their carrying value.
The estimated fair values for all other financial instruments approximate
their carrying values due to the short-term nature or variable interest terms
inherent in the financial instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
12. FINANCIAL INSTRUMENTS (continued)
Derivatives Held or Issued for Purposes Other Than Trading
The Corporation manages its exposure to fluctuations in interest rates by
limiting the amount of fixed rate assets funded with variable rate debt
generally by selling fixed rate receivables on a fixed rate basis and by
utilizing derivative financial instruments. These derivative financial
instruments may include forward contracts, interest rate swaps and interest rate
caps. The fair value of these instruments is estimated based on quoted market
prices and is subject to market risk as the instruments may become less valuable
due to changes in market conditions or interest rates. The Corporation manages
exposure to counter-party credit risk by entering into derivative financial
instruments with major financial institutions that can be expected to fully
perform under the terms of such agreements. The Corporation does not require
collateral or other security to support derivative financial instruments with
credit risk. The Corporation's counter-party credit exposure is limited to the
fair value of contracts with a positive fair value at the reporting date. At
October 31, 2001, the Corporation's derivative financial instruments had a
negative net fair value. Notional amounts are used to measure the volume of
derivative financial instruments and do not represent exposure to credit loss.
The Corporation enters into derivative financial instruments to manage its
exposure to fluctuations in the fair value of retail notes anticipated to be
sold. The Corporation manages such risk by entering into forward contracts to
sell fixed debt securities or forward interest rate swaps whose fair value is
highly correlated with that of the Corporation's receivables. For transactions
which qualify for hedge accounting the fair value of the derivatives is deferred
until the designated loans are sold. Gains or losses incurred with the closing
of these agreements are included as a component of the gain or loss on sale of
receivables. As of October 31, 2001, there were no such derivative financial
instruments open.
In November 1998, the Corporation sold fixed rate retail receivables to a
multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution on a variable rate basis. For the protection of investors,
the Corporation issued an interest rate cap. The notional amount of the cap
amortizes based on the expected outstanding principal balance of the sold retail
receivables. Under the terms of the cap agreement, the Corporation will make
payments if interest rates exceed certain levels. As of October 31, 2001 the cap
had a notional amount of $138.0 and had an immaterial fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
12. FINANCIAL INSTRUMENTS (continued)
In November 1999, the Corporation sold fixed rate retail receivables on a
variable rate basis and entered into an amortizing interest rate swap agreement
to fix the future cash flows of interest paid to lenders. In March 2000, the
Corporation transferred all the rights and obligations of the swap to the bank
conduit. The notional amount of the amortizing swap is based on the expected
outstanding principal balance of the sold retail receivables. Under the terms of
the agreement, the Corporation will make or receive payments based on the
differential between the transferred swap notional amount and the outstanding
principal balance of the sold retail receivables. The net settlement is included
in retail notes revenue. As of October 31, 2001 the difference between the
amortizing swap notional amount and the net outstanding principal balance of the
sold retail receivables was $32.0 and had a fair value of $1.0, which is
recorded in other liabilities on the Statement of Consolidated Financial
Condition.
In October 2000, the Corporation entered into a $500.0 retail revolving
facility as a method to fund retail notes and finance leases prior to the sale
of receivables. Under the agreements of this facility, the Corporation sells
fixed rate retail notes or finance leases to the conduit and pays investors a
floating rate of interest. As required by the rating agencies, the Corporation
purchased an interest rate cap to protect investors against rising interest
rates. To offset the economic cost of this cap, the Corporation sold an
identical interest rate cap. As of October 31, 2001 the interest rate caps each
had a notional amount of $500.0 and a net fair value of zero.
In December 2000, the Corporation sold fixed rate retail receivables on a
variable rate basis and entered into an interest rate swap agreement. Under the
terms of the agreement, the Corporation will make or receive payments based on
the differential between the transferred swap notional amount and the
outstanding principal balance of the sold retail receivables and on changes in
the interest rates. The net settlement is included in retail notes revenue. As
of October 31, 2001 the difference between the amortizing swap notional amount
and the net outstanding principal balance of the sold retail receivables was
$3.0 and had an immaterial fair value.
In July 2001, the Corporation entered into an interest rate swap agreement
to fix a portion of its floating rate revolving debt. This transaction is
accounted for as a cash flow hedge, and consequently, gains and losses on the
derivative are recorded in other comprehensive income. Derivative gains and
losses are reclassified from other comprehensive income as the hedged item
affects earnings. There was no ineffectiveness related to this derivative during
fiscal 2001. As of October 31, 2001, the interest rate swap had a notional
amount of $35.0 and a fair value of $2.0, which is recorded in other liabilities
on the Statement of Consolidated Financial Condition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
13. LEGAL PROCEEDINGS
The Corporation is subject to various claims arising in the ordinary course
of business, and is party to various legal proceedings which constitute ordinary
routine litigation incidental to the business of the Corporation. In the opinion
of the Corporation's management, none of these proceedings or claims are
material to the business or the financial condition of the Corporation.
14. SUBSEQUENT EVENTS
Over the period November 1, through December 10, 2001, the Corporation sold
$470.0 million of retail notes, net of unearned finance income, through NFRRC to
an owner trust which, in turn, issued securities which were sold to investors. A
$16.2 million gain was recognized on this sale.
15. QUARTERLY FINANCIAL INFORMATION (unaudited)
2001
-------------- --------------- -------------- ------------- --------------
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
- --------------------------------------- -------------- --------------- -------------- ------------- --------------
Results of Continuing Operations
Revenues.......................... $84.3 $82.3 $69.6 $68.2 $304.4
Interest expense.................. 30.0 24.8 20.8 17.3 92.9
Provision for losses
on receivables................. 6.5 7.6 6.1 7.6 27.8
Income from Continuing
Operations........................ 12.8 12.8 9.3 11.3 46.2
Loss on Disposal of
Discontinued Operations........... - - - 8.3 8.3
Net income............................ 12.8 12.8 9.3 19.6 54.5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS OF DOLLARS
15. QUARTERLY FINANCIAL INFORMATION (unaudited) (Continued)
2000
-------------- --------------- -------------- ------------- -------------
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
- --------------------------------------- -------------- --------------- -------------- ------------- -------------
Results of Continuing Operations
Revenues.......................... $74.8 $73.6 $77.1 $82.3 $307.8
Interest expense.................. 24.0 23.0 26.8 30.3 104.1
Provision for losses
on receivables................. 1.4 2.3 3.0 5.4 12.1
Income from Continuing
Operations........................ 16.0 14.1 14.2 12.1 56.4
Loss on Disposal of
Discontinued Operations........... - - - (10.5) (10.5)
Income (loss) from Discontinued
Operations........................ 1.2 0.1 - (0.8) 0.5
Net income............................ 17.2 14.2 14.2 0.8 46.4
Navistar Financial Corporation and Subsidiaries
Statement of Financial Reporting Responsibility
Management of Navistar Financial Corporation and its subsidiaries is
responsible for the preparation and for the integrity and objectivity of the
accompanying financial statements and other financial information in this
report. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include amounts that are based on management's estimates and judgments.
The accompanying financial statements have been audited by Deloitte &
Touche LLP, independent auditors. Management has made available to Deloitte &
Touche LLP all the Corporation's financial records and related data, as well as
the minutes of Directors' meetings. Management believes that all representations
made to Deloitte & Touche LLP during its audit were valid and appropriate.
Management is responsible for establishing and maintaining a system of
internal controls throughout its operations that provides reasonable assurance
as to the integrity and reliability of the financial statements, the protection
of assets from unauthorized use and the execution and recording of transactions
in accordance with management's authorization. The system of internal controls
which provides for appropriate division of responsibility is supported by
written policies and procedures that are updated by management as necessary. The
system is tested and evaluated regularly by the parent Company's internal
auditors as well as by the independent auditors in connection with their annual
audit of the financial statements. The independent auditors conduct their audit
in accordance with auditing standards generally accepted in the United States of
America and perform such tests of transactions and balances as they deem
necessary. Management considers the recommendations of its internal auditors and
independent auditors concerning the Corporation's system of internal controls
and takes the necessary actions that are cost-effective in the circumstances to
respond appropriately to the recommendations presented. Management believes that
the Corporation's system of internal controls accomplishes the objectives set
forth in the first sentence of this paragraph.
John J. Bongiorno
President and Chief Executive Officer
Ronald D. Markle
Vice President and Controller
Navistar Financial Corporation and Subsidiaries
Independent Auditors' Report
Navistar Financial Corporation:
We have audited the accompanying consolidated financial statements of Navistar
Financial Corporation (the "Corporation") and its subsidiaries as of October 31,
2001 and 2000 and for each of the three years in the period ended October 31,
2001, listed in Item 8. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Navistar Financial
Corporation and its subsidiaries as of October 31, 2001 and 2000 and the results
of their operations and their cash flow for each of the three years in the
period ended October 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
December 10, 2001
Chicago, Illinois
SUPPLEMENTARY FINANCIAL DATA
Five Year Summary of Financial and Operating Data
Dollar amounts in millions
2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Results of Continuing
Operations:
Revenues................................. $ 304.4 $ 307.8 $ 282.0 $ 234.3 $ 193.5
Net income .............................. 46.2 56.4 59.3 48.9 41.8
Dividends paid .......................... 26.0 22.7 60.3 57.0 40.0
Percent of net income to
average shareowner's
equity............................... 14.8% 18.9% 21.0% 17.1% 14.7%
Financial Data:
Finance receivables, net ................ $1,079.5 $1,666.1 $2,062.5 $1,510.9 $1,211.2
Total assets ............................ 2,110.9 2,518.9 2,769.9 2,127.8 1,719.4
Total debt .............................. 1,652.6 1,874.0 1,710.3 1,633.0 1,223.7
Shareowner's equity ..................... 331.3 304.4 280.3 281.5 287.8
Debt to equity ratio .................... 5.0:1 6.2:1 6.1:1 5.8:1 4.3:1
Senior debt to capital
funds ratio.......................... 3.6:1 4.4:1 4.2:1 3.1:1 2.1:1
Number of employees at
October 31............................... 311 291 307 300 270
Results of Discontinued
Operations:
Revenues................................. $ 61.6 $ 55.9 $ 44.2 $ 41.6 $ 41.4
Net income .............................. 6.4 0.5 3.2 4.0 3.9
Number of employees at
October 31............................... 78 94 92 94 88
SUPPLEMENTARY FINANCIAL DATA (Continued)
Gross Finance Receivables and Leases Acquired
($ Millions) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Wholesale notes............................... $2,803.7 $4,119.3 $4,188.5 $3,812.8 $2,772.8
Retail notes and leases:
New 963.1 1,561.4 1,519.7 1,358.0 976.2
Used .................................... 228.3 268.6 286.4 309.2 270.3
Total................................ 1,191.4 1,830.0 1,806.1 1,667.2 1,246.5
Total ................................... $3,995.1 $5,949.3 $5,994.6 $5,480.0 $4,019.3
Serviced (including sold notes) Retail Notes and
Leases With Installments Past Due Over 60 Days
At October 31 ($ Millions) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Original amount of notes
and leases............................... $ 72.3 $ 91.7 $ 40.4 $ 33.6 $ 31.8
Balance of notes and leases................... 37.8 46.3 17.9 16.5 16.2
Balance as a percent of
total outstanding........................ 1.12% 1.26% 0.53% 0.57% 0.64%
Retail Note and Lease Repossessions (including sold notes)
2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Retail note and lease
repossessions acquired as
a percentage of average
serviced retail note and
lease balances........................... 4.47% 2.80% 1.82% 2.26% 2.69%
SUPPLEMENTARY FINANCIAL DATA (Continued)
Credit Loss Experience on Serviced (including sold notes) Receivables
($ Millions) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Net losses (recoveries):
Retail notes and leases ................. $23.4 $12.2 $5.5 $ .2 $2.2
Wholesale notes ......................... 0.6 - (.2) (.3) (.2)
Accounts - (0.1) .1 - -
Total ............................... $24.0 $12.1 $5.4 $(.1) $2.0
Percent net losses (recoveries)
to liquidations:
Retail notes and leases ................. 1.52% .82% .41% .02% .18%
Wholesale notes ......................... 0.02 - - (.01) (.01)
Total ............................... 0.52% .21% .10% - .05%
Percent net losses (recoveries)
to related average gross
receivables outstanding:
Retail notes and leases ................. 0.68% .36% .18% .01% .09%
Wholesale notes ......................... 0.06 (.02) (.02) (.04) (.02)
Accounts - (.02) .02 - -
Total ............................... 0.50% .30% .12% - .06%
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Items 10, 11, 12 and 13
Intentionally omitted. See the index page of this Report for explanation.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements
See Index to Financial Statements in Item 8.
Financial Statement Schedules
All schedules are omitted because of the absence of the conditions under
which they are required or because information called for is shown in the
financial statements and notes thereto.
Exhibits, Including Those Incorporated By Reference
See Index to Exhibits.
Reports on Form 8-K
The Registrant filed the following reports on Form 8-K for the three months
ended October 31, 2001:
(i) Form 8-K dated August 6, 2001, discloses the Supplement No. 1 to
Indenture agreement, dated as of July 24, 2001, among Truck Retail
Instalment Paper Corp. and The Bank of New York, to amend the
Indenture to (i) revise the definition of "Series 2000-1 Loss Reserve
Specified Balance", and (ii) revise the Amortization Events.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NAVISTAR FINANCIAL CORPORATION
(Registrant)
By: /s/Ronald D. Markle December 17, 2001
Ronald D. Markle
Vice President and Controller
(Principal Accounting Officer)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute and
appoint John J. Bongiorno, Ronald D. Markle and Steven K. Covey and each of them
acting individually, true and lawful attorneys-in-fact and agents with power to
act without the other and with full power of substitution, to execute, deliver
and file, for and on such person's behalf, and in such person's name and
capacity or capacities as stated below, any amendment, exhibit or supplement to
the Form 10-K Report making such changes in the report as such attorney-in-fact
deems appropriate.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/JOHN J. BONGIORNO President and Chief Executive December 17, 2001
John J. Bongiorno Officer; Director
(Principal Executive Officer)
/s/R. WAYNE CAIN Senior Vice President and December 17, 2001
R. Wayne Cain Treasurer; Director
/s/ANDREW J. CEDEROTH Vice President and Treasurer; December 17, 2001
Andrew J. Cederoth Director
(Principal Financial Officer)
/s/RONALD D. MARKLE Vice President and Controller; December 17, 2001
Ronald D. Markle Director
(Principal Accounting Officer)
/s/PHYLLIS E. COCHRAN Vice President Operations; December 17, 2001
Phyllis E. Cochran Director
/s/JOHN R. HORNE Director December 17, 2001
John R. Horne
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
SIGNATURES (Continued)
Signature Title Date
/s/THOMAS M. HOUGH Director December 17, 2001
Thomas M. Hough
/s/ROBERT C. LANNERT Director December 17, 2001
Robert C. Lannert
/s/MARK SCHWETSCHENAU Director December 17, 2001
Mark Schwetschenau
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
The following documents of Navistar Financial Corporation are incorporated
herein by reference:
3.1 Restated Certificate of Incorporation of Navistar Financial Corporation (as
amended and in effect on December 15, 1987). Filed on Form 8-K dated
December 17, 1987. Commission File No. 1-4146-l.
3.2 The By-Laws of Navistar Financial Corporation (as amended February 29,
1988). Filed on Form 10-K dated January 19, 1989. Commission File No.
1-4146-1.
4.1 Indenture dated as of May 30, 1997 by and between the Corporation and The
Fuji Bank and Trust Company, as Trustee, for 9% Senior Subordinated Notes
due 2002 for $100,000,000. Filed on Registration No. 333-30167.
10.1 Master Inter-company Agreement dated as of April 26, 1993, between the
Corporation and International. Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.
10.2 Inter-company Purchase Agreement dated as of April 26, 1993, between the
Corporation and Truck Retail Instalment Paper Corp. Filed on Form 8-K dated
April 30, 1993. Commission File No. 1-4146-1.
10.3 Pooling and Servicing Agreement dated as of June 8, 1995, among Navistar
Financial Corporation, as Servicer, Navistar Financial Securities
Corporation, as Seller, The Chase Manhattan Bank (survivor in the merger
between The Chase Manhattan Bank and Chemical Bank which was the survivor
in the merger between Chemical Bank and Manufacturers Hanover Trust
Company), as 1990 Trust Trustee, and The Bank of New York, as Master Trust
Trustee. Filed on Registration No. 33-87374.
10.4 Series 1995-1 Supplement to the Pooling and Servicing Agreement dated as of
June 8, 1995, among the Corporation, as Servicer, Navistar Financial
Securities Corporation, as Seller, and The Bank of New York, as Master
Trust Trustee on behalf of the Series 1995-1 Certificate holders. Filed on
Registration No. 33-87374.
10.5 Purchase Agreement dated as of June 8, 1995, between the Corporation and
Navistar Financial Securities Corporation, as Purchaser, with respect to
the Dealer Note Master Trust. Filed on Registration No. 33-87374.
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.6 Series 1997-1 Supplement to the Pooling and Servicing Agreement dated as of
August 19, 1997, among Navistar Financial Corporation, as Servicer,
Navistar Financial Securities Corporation, as Seller, and the Bank of New
York, as Master Trust Trustee on behalf of the Series 1997-1
Certificateholders. Filed on Registration No. 333-30737.
10.7 Series 1998-1 Supplement to the Pooling and Servicing Agreement dated as of
July 17, 1997, among Navistar Financial Corporation, as Servicer, Navistar
Financial Securities Corporation, as Seller, and the Bank of New York, as
Master Trust Trustee on behalf of the Series 1998-1 Certificateholders.
Filed on Registration No. 333-30737.
10.8 Purchase Agreement dated as of June 4, 1998, between the Corporation and
Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 1998-A Owner Trust, as Issuer. Filed on
Registration No. 33-64249.
10.9 Pooling and Servicing Agreement dated as of June 4, 1998, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1998-A Owner Trust, as
Issuer. Filed on Registration No. 33-64249.
10.10Trust Agreement dated as of June 4, 1998, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial 1998-A Owner
Trust. Filed on Registration No. 33-64249.
10.11Indenture dated as of June 4, 1998, between Navistar Financial 1998-A
Owner Trust and The Bank of New York, as Indenture Trustee, with respect to
Navistar Financial 1998-A Owner Trust. Filed on Registration No. 33-64249.
10.12Purchase Agreement dated as of November 13, 1998, between the Corporation
and Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 1998-B Multi-seller Asset-backed Commercial
Paper Conduit, as Issuer. Filed on Form 8-K dated December 18, 1998.
Commission File No. 33-64249.
10.13Transfer and Administration Agreement dated as of November 13, 1998,
between the Corporation, as Servicer, and Navistar Financial Retail
Receivables Corporation, as Transferor, Park Avenue Receivables
Corporation, as Purchaser, and The Chase Manhattan Bank, as Funding Agent
and APA Bank. Filed on Form 8-K dated December 18, 1998. Commission File
No. 33-64249.
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.14Purchase Agreement dated as of June 3, 1999, between the Corporation and
Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 1999-A Owner Trust, as Issuer. Filed on
Registration No. 333-62445.
10.15Pooling and Servicing Agreement dated as of June 3, 1999, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 1999-A Owner Trust, as
Issuer. Filed on Registration No. 333-62445.
10.16Trust Agreement dated as of June 3, 1999, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial 1999-A Owner
Trust. Filed on Registration No. 333-62445.
10.17Indenture dated as of June 3, 1999, between Navistar Financial 1999-A
Owner Trust and The Bank of New York, as Indenture Trustee, with respect to
Navistar Financial 1999-A Owner Trust. Filed on Registration No. 333-62445.
10.18Receivable Purchase Agreement dated as of November 12, 1999, between
Navistar Financial Retail Receivables Corporation, as Seller, the
Corporation, as Servicer, and, Falcon Asset Securitization Corporation and
International Securitization Corporation, as investors, and Bank One NA as
agent and as Securities Intermediary, with respect to Navistar Financial
1999-B Multi-seller Asset-backed Commercial Paper Conduit. Filed on
Registration No. 333-62445.
10.19Receivable Sale dated as of November 12, 1999, between the Corporation and
Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 1999-B Multi-seller Asset-backed Commercial
Paper Conduit, as Issuer. Filed on Registration No. 333-62445.
10.20Certificate Purchase Agreement dated as of January 28, 2000, between
Navistar Financial Securities Corporation, as seller, the Corporation, as
Servicer, Receivable Capital Corporation, as the Conduit Purchaser, Bank of
America, National Association, as administrative Agent for the Purchasers,
and Bank of America, National Association, as a Committed Purchaser filed
on Form 8-K dated February 24, 2000. Commission File No. 333-30737.
10.21Purchase Agreement dated as of March 9, 2000, between the Corporation and
Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 2000-A Owner Trust, as Issuer. Filed on
Registration No. 333-62445.
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.22Pooling and Servicing Agreement dated as of March 9, 2000, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 2000-A Owner Trust, as
Issuer. Filed on Registration No. 333-62445.
10.23Trust Agreement dated as of March 9, 2000, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial 2000-A Owner
Trust. Filed on Registration No. 333-62445.
10.24Indenture dated as of March 9, 2000, between Navistar Financial 2000-A
Owner Trust and The Bank of New York, as Indenture Trustee, with respect to
Navistar Financial 2000-A Owner Trust. Filed on Registration No. 333-62445.
10.25Series 2000-1 Supplement to the Pooling and Servicing Agreement dated as
of July 13, 2000, among Navistar Financial Corporation, as Servicer,
Navistar Financial Securities Corporation, as Seller, and the Bank of New
York, as Master Trust Trustee on behalf of the Series 2000-1
Certificateholders. Filed on Registration No. 333-32960.
10.26Purchase Agreement dated as of November 1, 2000, between the Corporation
and Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 2000-B Owner Trust, as Issuer. Filed on
Registration No. 333-62445.
10.27Pooling and Servicing Agreement dated as of November 1, 2000, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 2000-B Owner Trust, as
Issuer. Filed on Registration No. 333-62445.
10.28Trust Agreement dated as of November 1, 2000, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial 2000-B Owner
Trust. Filed on Registration No. 333-62445.
10.29Indenture dated as of November 1, 2000, between Navistar Financial 2000-B
Owner Trust and The Bank of New York, as Indenture Trustee, with respect to
Navistar Financial 2000-B Owner Trust. Filed on Registration No. 333-62445.
10.30Servicing Agreement dated as of October 16, 2000, between the Corporation,
as Servicer, and Navistar Leasing Corporation, Harco Leasing Company, Inc.,
Truck Retail Instalment Paper Corp, The Bank of New York as Collateral
Agent, and Bank One National Association, as Portfolio Trustee.
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.31Receivables Purchase Agreement dated as of October 16, 2000, between Truck
Retail Instalment Paper Corp. and the Corporation.
10.32Indenture Agreement dated as of October 16, 2000, between Truck Retail
Instalment Paper Corp., as Issuer, and The Bank of New York, as Indenture
Trustee.
10.33Series 2000-1 Supplement dated as of October 16, 2000, to the Indenture
also dated October 16, 2000 between Truck Retail Instalment Paper Corp., as
Issuer, and The Bank of New York, as Indenture Trustee.
10.34Credit Agreement for $820,000,000 Revolving Credit and Competitive Advance
Facility dated as of December 8, 2000, between the Corporation, Arrendadora
Financiera Navistar, S.A. DE C.V., Servicios Financieros Navistar, S.A. DE
C.V. and Navistar Comercial, S.A. DE C.V., as borrowers, lenders party
hereto, The Chase Manhattan Bank as Administrative Agent, Bank of America
as Syndication Agent and Bank of Nova Scotia as Documentation Agent.
10.35Parents Side Agreement, dated as of December 8, 2000, by Navistar
International Corporation, and International Truck and Engine Corporation,
for the benefit of the Lenders from time to time party to the Credit
Agreement referred to above.
10.36Guarantee, dated as of December 8, 2000, made by Navistar International
Corporation, in favor of The Chase Manhattan Bank, as Administrative Agent,
for the lenders parties to the Credit Agreement, dated as of December 8,
2000, among Navistar Financial Corporation and Arrendadora Financiera
Navistar, S.A. DE C.V., Servicios Financieros Navistar, S.A. DE C.V. and
Navistar Comercial, S.A. DE C.V., the Lenders, Bank of America, N.A., as
syndication agent, The Bank of Nova Scotia, as documentation agent, and the
Administrative Agent.
10.37Receivable Purchase Agreement dated as of December 21, 2000, between
Navistar Financial Retail Receivables Corporation, as Seller, the
Corporation, as Servicer, Thunder Bay Funding Inc., as company, and Royal
Bank of Canada as agent, with respect to Navistar Financial 2000-C
Multi-seller Asset-backed Commercial Paper Conduit. Filed on Registration
No. 333-62449.
10.38Receivable Sale dated as of December 21, 2000, between the Corporation, as
Issuer, and Navistar Financial Retail Receivables Corporation, as
Purchaser. Filed on Registration No. 333-62449.
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX TO EXHIBITS
10.39Purchase Agreement dated as of April 27, 2001, between the Corporation and
Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 2001-A Owner Trust, as Issuer. Filed on
Registration No. 033-50291.
10.40Pooling and Servicing Agreement dated as of April 27, 2001, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 2001-A Owner Trust, as
Issuer. Filed on Registration No. 033-50291.
10.41Trust Agreement dated as of April 27, 2001, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial 2001-A Owner
Trust. Filed on Registration No. 033-50291.
10.42Indenture dated as of April 27, 2001, between Navistar Financial 2001-A
Owner Trust and The Bank of New York, as Indenture Trustee, with respect to
Navistar Financial 2001-A Owner Trust. Filed on Registration No. 033-50291.
10.43Supplement No. 1 to Indenture agreement, dated as of July 24, 2001, among
Truck Retail Instalment Paper Corp. and The Bank of New York, to amend the
Indenture to (i) revise the definition of "Series 2000-1 Loss Reserve
Specified Balance", and (ii) revise the Amortization Events filed on Form
8-K dated August 6, 2001. Commission File No. 1-4146-1.
10.44Purchase Agreement dated as of November 1, 2001, between the Corporation
and Navistar Financial Retail Receivables Corporation, as Purchaser, with
respect to Navistar Financial 2001-B Owner Trust, as Issuer. Filed on
Registration No. 033-50291.
10.45Pooling and Servicing Agreement dated as of November 1, 2001, among the
Corporation, as Servicer, and Navistar Financial Retail Receivables
Corporation, as Seller, and Navistar Financial 2001-B Owner Trust, as
Issuer. Filed on Registration No. 033-50291.
10.46Trust Agreement dated as of November 1, 2001, between Navistar Financial
Retail Receivables Corporation, as Seller, and Chase Manhattan Bank
Delaware, as Owner Trustee, with respect to Navistar Financial 2001-B Owner
Trust. Filed on Registration No. 033-50291.
10.47Indenture dated as of November 1, 2001, between Navistar Financial 2001-B
Owner Trust and The Bank of New York, as Indenture Trustee, with respect to
Navistar Financial 2001-B Owner Trust. Filed on Registration No. 033-50291.