exhibit 3

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S4F1YQVEAToKeWf5SnZcMJPSzubJJLIuphrmIpBRp2/tASXSnEpCeJmAmu4b3U7R cHx6d4WriZemPt/VzYM8QQ== 0000808450-01-500009.txt : 20010914 0000808450-01-500009.hdr.sgml : 20010914 ACCESSION NUMBER: 0000808450-01-500009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF DATE: 20010913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAVISTAR INTERNATIONAL CORP CENTRAL INDEX KEY: 0000808450 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 363359573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09618 FILM NUMBER: 1736745 BUSINESS ADDRESS: STREET 1: 455 N CITYFRONT PLAZA DR CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3128362000 MAIL ADDRESS: STREET 1: 455 N CITYFRONT PLAZA DRIVE STREET 2: 455 N CITYFRONT PLAZA DRIVE CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: NAVISTAR HOLDING INC DATE OF NAME CHANGE: 19870528 FORMER COMPANY: FORMER CONFORMED NAME: NAVISTAR INTERNATIONAL CORP /DE/NEW DATE OF NAME CHANGE: 19920703 10-Q 1 nic3q-10q.htm FORM 10Q, THIRD QUARTER ENDED JULY 31, 2001

                                                    UNITED STATES
                                          SECURITIES AND EXCHANGE COMMISSION
                                                Washington, D.C. 20549

                                                      FORM 10-Q

  (X)                             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                                               SECURITIES EXCHANGE ACT OF 1934

  For the quarterly period ended July 31, 2001

                                                          OR

  (   )                           TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                                               SECURITIES EXCHANGE ACT OF 1934

  For the transition period from                         to

  Commission file number 1-9618

                                          NAVISTAR INTERNATIONAL CORPORATION
                                         ------------------------------------
                                (Exact name of registrant as specified in its charter)

                                 Delaware                                              36-3359573
                   -------------------------------                                -------------------
                   (State or other jurisdiction of                                  (I.R.S. Employer
                    incorporation or organization)                                Identification No.)

                                           4201 Winfield Road, P.O. Box 1488
                                              Warrenville, Illinois 60555
                                 ----------------------------------------------------
                                  (Address of principal executive offices, Zip Code)

                         Registrant's telephone number, including area code (630) 753-5000


           Indicate by check mark whether the registrant  (1) has filed all reports  required to be filed by Section
  13 or 15(d) of the  Securities  Exchange  Act of 1934 during the  preceding  12 months and (2) has been subject to
  such filing requirements for the past 90 days.  Yes    X     No ___
                                                        ----

                                  APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                                     PROCEEDINGS DURING THE PRECEDING FIVE YEARS

           Indicate by check mark whether the  registrant  has filed all documents and reports  required to be filed
  by Sections 12, 13 or 15(d) of the Securities  Exchange Act of 1934  subsequent to the  distribution of securities
  under a plan confirmed by a court. Yes ___   No ___


                                        APPLICABLE ONLY TO CORPORATE ISSUERS:

           As of August 31, 2001, the number of shares outstanding of the registrant's common stock was 59,390,536.

NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------------------------

INDEX
---------

Page
Reference
---------

Part I. Financial Information:

Item 1. Financial Statements

Statement of Income
Three Months and Nine Months Ended July 31, 2001 and 2000........................... 3

Statement of Financial Condition
July 31, 2001, October 31, 2000 and July 31, 2000................................... 4

Statement of Cash Flow
Nine Months Ended July 31, 2001 and 2000............................................ 5

Notes to Financial Statements................................................................ 6

Additional Financial Information............................................................. 18

Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition......................................... 20

Item 3. Quantitative and Qualitative Disclosure About Market Risk..................... 28

Part II. Other Information:

Item 1. Legal Proceedings............................................................. 28

Item 2. Changes in Securities and Use of Proceeds..................................... 28

Item 6. Exhibits and Reports on Form 8-K.............................................. 28

Signature 29

PART I - FINANCIAL INFORMATION
------------------------------

ITEM 1. Financial Statements

STATEMENT OF INCOME (Unaudited)
Millions of dollars, except per share data
- --------------------------------------------------------------------------------------------------------------------------

Navistar International Corporation
and Consolidated Subsidiaries
---------------------------------------------------------------
Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- ----------------------------
2001 2000 2001 2000
----------- ------------ ----------- -----------

Sales and revenues
Sales of manufactured products...................... $ 1,516 $ 1,841 $ 4,658 $ 6,240
Finance and insurance revenue....................... 59 72 194 205
Other income........................................ 11 11 35 33
---------- ---------- ---------- ---------
Total sales and revenues........................ 1,586 1,924 4,887 6,478
---------- ---------- ---------- ---------

Costs and expenses
Cost of products and services sold.................. 1,307 1,528 4,068 5,184
Postretirement benefits expense..................... 44 48 137 157
Engineering and research expense.................... 58 66 188 213
Sales, general and administrative expense........... 135 107 393 357
Interest expense.................................... 42 37 125 105
Other expense....................................... 7 16 34 69
---------- ---------- ---------- ---------
Total costs and expenses........................ 1,593 1,802 4,945 6,085
---------- ---------- ---------- ---------

Income (loss) before income taxes........... (7) 122 (58) 393
Income tax (expense) benefit................ 9 (26) 28 (129)
---------- --------- ---------- ---------

Net income (loss)................................... $ 2 $ 96 $ (30) $ 264
========= ========= ========= =========

Earnings (loss) per share
Basic........................................... $ 0.03 $ 1.62 $ (0.51) $ 4.32
Diluted......................................... $ 0.03 $ 1.60 $ (0.51) $ 4.26

Average shares outstanding (millions)
Basic........................................... 59.5 59.4 59.5 61.1
Diluted......................................... 60.2 60.1 59.5 61.9

- --------------------------------------------------------------------------------------------------------------------------

See Notes to Financial Statements.

STATEMENT OF FINANCIAL CONDITION (Unaudited)
Millions of dollars
- ---------------------------------------------------------------------------------------------------------------------------

Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------------------
July 31 October 31 July 31
2001 2000 2000
----------------- ---------------- ----------------
ASSETS

Current assets
Cash and cash equivalents................................ $ 392 $ 297 $ 532
Marketable securities.................................... 24 57 20
Receivables, net......................................... 707 1,035 1,286
Inventories.............................................. 659 648 718
Deferred tax asset, net.................................. 192 198 213
Other assets............................................. 173 139 145
-------------- ------------ --------------

Total current assets............................................ 2,147 2,374 2,914
-------------- ------------ --------------

Marketable securities........................................... 34 37 84
Finance and other receivables, net.............................. 1,051 1,467 909
Property and equipment, net..................................... 1,885 1,778 1,604
Investments and other assets.................................... 166 137 178
Restricted cash and marketable securities....................... 405 97 10
Prepaid and intangible pension assets........................... 308 297 314
Deferred tax asset, net......................................... 693 664 600
-------------- ------------ --------------

Total assets ................................................. $ 6,689 $ 6,851 $ 6,613
============== ============ ==============

LIABILITIES AND SHAREOWNERS' EQUITY

Liabilities
Current liabilities
Notes payable and current maturities of long-term debt... $ 424 $ 482 $ 131
Accounts payable, principally trade...................... 876 1,091 904
Other liabilities........................................ 742 742 721
-------------- ------------ --------------

Total current liabilities....................................... 2,042 2,315 1,756
-------------- ------------ --------------

Debt: Manufacturing operations................................. 916 437 538
Financial services operations............................ 1,384 1,711 1,873
Postretirement benefits liability............................... 682 660 682
Other liabilities............................................... 386 414 365
-------------- ------------ --------------

Total liabilities........................................ 5,410 5,537 5,214
-------------- ------------ --------------

Commitments and contingencies

Shareowners' equity
Series D convertible junior preference stock.................... 4 4 4
Common stock (75.3 million shares issued)....................... 2,139 2,139 2,139
Retained earnings (deficit)..................................... (176) (143) (40)
Accumulated other comprehensive loss............................ (179) (177) (195)
Common stock held in treasury, at cost
(15.9 million, 15.9 million
and 16.1 million shares held)....................... (509) (509) (509)
-------------- ------------ --------------

Total shareowners' equity................................ 1,279 1,314 1,399
-------------- ------------ --------------

Total liabilities and shareowners' equity....................... $ 6,689 $ 6,851 $ 6,613
============== ============ ==============

- ---------------------------------------------------------------------------------------------------------------------------

See Notes to Financial Statements.

STATEMENT OF CASH FLOW (Unaudited)
Millions of dollars
- ---------------------------------------------------------------------------------------------------------------------------

Navistar International Corporation
and Consolidated Subsidiaries
---------------------------------------
Nine Months Ended July 31
--------------------------------------
2001 2000
------------------- ----------------
Cash flow from operations
Net income (loss)................................................................. $ (30) $ 264
Adjustments to reconcile net income (loss) to cash provided by operations:
Depreciation and amortization.............................................. 166 158
Deferred income taxes...................................................... (17) 103
Other, net................................................................. 46 (11)
Change in operating assets and liabilities, net of effects of acquisition:
Receivables................................................................ 251 575
Inventories................................................................ 43 (91)
Prepaid and other current assets........................................... (32) 2
Accounts payable........................................................... (232) (505)
Other liabilities.......................................................... (90) (176)
--------------- ---------------
Cash provided by operations................................................... 105 319
--------------- ---------------

Cash flow from investment programs
Purchases of retail notes and lease receivables................................... (719) (1,027)
Collections/sales of retail notes and lease receivables........................... 1,206 1,029
Purchases of marketable securities................................................ (76) (186)
Sales or maturities of marketable securities...................................... 112 309
Restricted investments............................................................ (315) -
Capital expenditures.............................................................. (212) (248)
Payments for acquisition, net of cash acquired.................................... (60) -
Proceeds from sale-leasebacks..................................................... 58 81
Property and equipment leased to others........................................... (43) (62)
Investment in affiliates.......................................................... 6 6
Capitalized interest and other.................................................... (21) (27)
--------------- ---------------
Cash used in investment programs.............................................. (64) (125)
--------------- ---------------

Cash flow from financing activities
Issuance of debt.................................................................. 578 207
Principal payments on debt........................................................ (229) (69)
Net (decrease) increase in notes and debt outstanding under bank revolving credit
facility and commercial paper programs......................................... (295) 108
Purchases of common stock......................................................... - (151)
--------------- ---------------
Cash provided by financing activities......................................... 54 95
--------------- ---------------

Cash and cash equivalents
Increase during the period.................................................... 95 289
At beginning of the period.................................................... 297 243
--------------- ---------------

Cash and cash equivalents at end of the period.................................... $ 392 $ 532
=============== ===============

- --------------------------------------------------------------------------------------------------------------------------

See Notes to Financial Statements.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note A. Summary of Accounting Policies

Navistar International Corporation is a holding company whose principal operating subsidiary is
International Truck and Engine Corporation (International). As used hereafter, "company" or "Navistar" refers to
Navistar International Corporation and its consolidated subsidiaries. Navistar operates in three principal
industry segments: truck, engine (collectively called "manufacturing operations"), and financial services. The
consolidated financial statements include the results of the company's manufacturing operations and its wholly
owned financial services subsidiaries. The effects of transactions between the manufacturing and financial
services operations have been eliminated to arrive at the consolidated totals.

The accompanying unaudited financial statements have been prepared in accordance with accounting
policies described in the 2000 Annual Report on Form 10-K and should be read in conjunction with the disclosures
therein.

In the opinion of management, these interim financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial position, results of operations and cash
flow for the periods presented. Interim results are not necessarily indicative of results for the full year.
Certain 2000 amounts have been reclassified to conform with the presentation used in the 2001 financial
statements.

Discussion of Navistar's adoption of Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," are disclosed in
Notes E and J, respectively.

Note B. Supplemental Cash Flow Information

Consolidated interest payments during the first nine months of 2001 and 2000 were $109 million and $95
million, respectively. Consolidated tax payments made during the first nine months of 2001 and 2000 were $4
million and $28 million, respectively.

Note C. Income Taxes

The benefit of Net Operating Loss (NOL) carryforwards is recognized as a deferred tax asset in the
Statement of Financial Condition, while the Statement of Income includes income taxes calculated at the statutory
rate. The amount reported does not represent cash payment of income taxes except for certain state income,
foreign income and withholding and federal alternative minimum taxes. In the Statement of Financial Condition,
the deferred tax asset is reduced by the amount of deferred tax expense or increased by a deferred tax benefit
recorded during the year. Until the company has utilized its significant NOL carryforwards, the cash payment of
United States (U.S.) federal income taxes will be minimal.

Income tax expense during the third quarter of 2001 was reduced by $6 million for research and
development tax credits that will be taken against future income tax payments related to research and development
activities in the current year. Income tax expense in the third quarter of 2000 was reduced by $20 million for
research and development tax credits as further described in the 2000 Annual Report on Form 10-K.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note D. Inventories

Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 2001 2000 2000
- ----------------------------------------------------------------------------------------------------------------------
Finished products.............................................. $ 421 $ 394 $ 425
Work in process................................................ 48 42 50
Raw materials and supplies..................................... 190 212 243
------------- -------------- --------------

Total inventories....................................... $ 659 $ 648 $ 718
============= ============== ==============

Note E. Financial Instruments

Adoption of SFAS 133

On November 1, 2000, the company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS 133). In November 2000, Navistar
recorded an immaterial cumulative transition adjustment to earnings primarily related to foreign currency
derivatives. Additionally, the company recorded an immaterial cumulative transition adjustment in other
comprehensive income for derivatives that had been used as cash flow type hedges.

Accounting for Derivatives and Hedging Activities

The company uses derivative financial instruments as part of its overall interest rate and foreign
currency risk management strategy as further described under Item 7A of the 2000 Annual Report on Form 10-K.

The company is exposed to interest rate risk relating to changes in market interest rates. As part of
its overall strategy to manage the level of exposure to the risk of interest rates adversely affecting net
interest income or expense, the company uses interest rate swap agreements, interest rate caps, and forward
contracts. These derivatives are generally designated and qualify as cash flow hedges.

The company uses forward starting swaps and forward interest rate locks to hedge the cash flows on sold
retail notes as well as to make possible financing under other sold note arrangements and to facilitate
financings with other parties in asset backed markets.

The company is exposed to foreign currency risk relating to changes in certain foreign currency exchange
rates. As part of its overall strategy to manage the level of exposure to exchange rate risk, the company uses
forward contracts. These derivatives are generally designated and qualify as cash flow hedges.

On the date Navistar enters into a derivative contract, management designates the derivative as either a
hedging or non-hedging instrument. Additionally, management distinguishes between fair value hedging
instruments, cash flow hedging instruments, and other derivative instruments.

The company documents and accounts for derivative and hedging activities in accordance with the
provisions of SFAS 133. In general, SFAS 133 requires that an entity recognize all derivatives as assets or
liabilities in the statement of financial position 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) changes in the fair value or cash flows of the hedged asset or liability attributable
to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. Changes in the
fair value of derivatives that are not designated as or which do not qualify as hedges for accounting purposes
are reported in earnings.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note E. Financial Instruments (continued)

As of July 31, 2001, the company held German mark forward contracts (maturing through 2002) with
notional amounts of $14 million related to the forecasted purchase of equipment and interest rate swaps (maturing
through 2005) with notional amounts of $26 million to match floating rate debt to fixed rate receivables. These
instruments are both classified as cash flow hedges and resulted in an immaterial charge to other comprehensive
income for the first nine months of 2001. Forecasted reclassifications from other comprehensive income into
earnings are not expected to be material for the next 12 months. Ineffectiveness on these contracts was not
material for the nine months ended July 31, 2001.

The company has other derivatives classified as non-hedging, which are described in Note 11 of the 2000
Annual Report on Form 10-K.

As of July 31, 2001, Navistar Financial Corporation (NFC) had three interest rate swap agreements and
three interest rate caps outstanding. One of these swap agreements is classified as a cash flow hedge derivative
instrument. The other instruments are classified as non-hedging derivative instruments. The changes in fair
value of these instruments as of July 31, 2001, were not material.

At July 31, 2001, $31 million of a Mexican subsidiary's receivables were pledged as collateral for bank
borrowings.

In December 2000, NFC renegotiated its revolving credit facility and added a short-term liquidity
facility. The new revolving credit facility provides for aggregate borrowings of $820 million and will mature in
November 2005. Under this new revolving credit facility, Navistar's three Mexican finance subsidiaries will be
permitted to borrow up to $100 million in the aggregate, which will be guaranteed by the company and NFC. The
short-term liquidity facility, which provided for aggregate borrowings of $80 million, was terminated in June
2001.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note F. Earnings Per Share

Earnings (loss) per share was computed as follows:

Three Months Ended July 31 Nine Months Ended July 31
Millions of dollars,
----------------------------- ----------------------------
Except share and per share data 2001 2000 2001 2000
- ----------------------------------------------------
-------------- ----------- ------------- -----------

Net income (loss)................................... $ 2 $ 96 $ (30) $ 264
========= ========= ========= =========

Average shares outstanding (millions)
Basic......................................... 59.5 59.4 59.5 61.1
Dilutive effect of options outstanding
and other dilutive securities....... 0.7 0.7 - 0.8
--------- --------- --------- ---------
Diluted....................................... 60.2 60.1 59.5 61.9
========= ========= ========= =========

Earnings (loss) per share
Basic......................................... $ 0.03 $ 1.62 $ (0.51) $ 4.32
Diluted....................................... $ 0.03 $ 1.60 $ (0.51) $ 4.26

The computation of diluted shares outstanding for the nine months ended July 31, 2001, excludes
incremental shares of 0.5 million related to employee stock options and other dilutive securities. These shares
are excluded due to their anti-dilutive effect as a result of the company's loss for the first nine months of
2001.

Note G. Comprehensive Income

Navistar's total comprehensive income (loss) was as follows:

Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- -----------------------------
Millions of dollars 2001 2000 2001 2000
- ----------------------------------------------------
------------ -------------- ------------ ------------

Net income (loss)................................... $ 2 $ 96 $ (30) $ 264
Other comprehensive income (loss)................... (1) (2) (2) 2
--------- --------- --------- ---------
Total comprehensive income (loss)............. $ 1 $ 94 $ (32) $ 266
========= ========= ========= =========

Included in other comprehensive loss for the nine months ended July 31, 2001, is a $3 million charge,
with no change from the previous quarter, for derivatives that had been designated as cash flow type hedges in
accordance with SFAS 133, as further described in Note E.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note H. Segment Data

Reportable operating segment data is as follows:
Financial
Millions of dollars Truck Engine Services Total
- --------------------------------------------------- -------------- -- --------------- -- --------------- -- -------------

For the quarter ended July 31, 2001
-----------------------------------------------------------------------

External revenues............................... $ 1,094 $ 422 $ 65 $ 1,581
Intersegment revenues........................... - 124 14 138
--------- --------- -------- --------
Total revenues............................. $ 1,094 $ 546 $ 79 $ 1,719
========= ========= ======== ========

Segment profit (loss)........................... $ (54) $ 64 $ 19 $ 29

For the nine months ended July 31, 2001
-----------------------------------------------------------------------

External revenues............................... $ 3,355 $ 1,303 $ 214 $ 4,872
Intersegment revenues........................... - 393 46 439
--------- --------- -------- --------
Total revenues............................. $ 3,355 $ 1,696 $ 260 $ 5,311
========= ========= ======== ========

Segment profit (loss)........................... $ (193) $ 173 $ 68 $ 48

As of July 31, 2001
-----------------------------------------------------------------------

Segment assets.................................. $ 1,899 $ 1,261 $ 2,392 $ 5,552

For the quarter ended July 31, 2000
-----------------------------------------------------------------------

External revenues............................... $ 1,431 $ 410 $ 74 $ 1,915
Intersegment revenues........................... - 153 24 177
--------- --------- -------- --------
Total revenues............................. $ 1,431 $ 563 $ 98 $ 2,092
========= ========= ======== ========

Segment profit.................................. $ 44 $ 64 $ 24 $ 132

For the nine months ended July 31, 2000
-----------------------------------------------------------------------

External revenues............................... $ 4,945 $ 1,295 $ 213 $ 6,453
Intersegment revenues........................... - 513 69 582
--------- --------- -------- --------
Total revenues............................. $ 4,945 $ 1,808 $ 282 $ 7,035
========= ========= ======== ========

Segment profit.................................. $ 182 $ 201 $ 69 $ 452

As of July 31, 2000
-----------------------------------------------------------------------

Segment assets.................................. $ 1,903 $ 882 $ 2,498 $ 5,283

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note H. Segment Data (continued)

Reconciliation to the consolidated financial statements as of and for the three months and nine months
ended July 31 is as follows:

Three Months Ended Nine Months Ended
July 31 July 31
-------------------------------- ----------------------------
Millions of dollars 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------

Segment sales and revenues........................ $ 1,719 $ 2,092 $ 5,311 $ 7,035
Other income...................................... 5 9 15 25
Intercompany...................................... (138) (177) (439) (582)
-------- -------- -------- --------
Consolidated sales and revenues................... $ 1,586 $ 1,924 $ 4,887 $ 6,478
======== ======== ======== ========

Segment profit.................................... $ 29 $ 132 $ 48 $ 452
Corporate items................................... (30) (14) (101) (66)
Manufacturing net interest income (expense)....... (6) 4 (5) 7
-------- -------- -------- --------
Consolidated pretax income (loss) ................ $ (7) $ 122 $ (58) $ 393
======== ======== ======== ========

As of July 31
----------------------------
2001 2000
----------------------------

Segment assets.................................... $ 5,552 $ 5,283
Cash and marketable securities.................... 247 437
Deferred taxes.................................... 885 813
Corporate intangible pension assets............... 25 121
Other corporate and eliminations.................. (20) (41)
-------- --------
Consolidated assets............................... $ 6,689 $ 6,613
======== ========

Note I. Restructuring Charge

In October 2000, the company incurred charges for restructuring, asset write-downs, loss on anticipated
sale of business and other exit costs totaling $306 million as part of an overall plan to restructure its
manufacturing and corporate operations ("Plan of Restructuring"). The following are the major restructuring,
integration and cost reduction initiatives included in the Plan of Restructuring:

o Replacement of current steel cab trucks with a new line of high performance next generation vehicles
(NGV) and a concurrent realignment of the company's truck manufacturing facilities
o Closure of certain operations and exit of certain activities
o Launch of the next generation technology diesel engines
o Consolidation of corporate operations
o Realignment of the bus and truck dealership network and termination of various dealership contracts

Of the total pretax restructuring charge of $306 million, $124 million represented non-cash charges.
Through July 31, 2001, approximately $156 million of the charge has been incurred, and $12 million of curtailment
loss related to the company's postretirement benefit plans was reclassified as a noncurrent postretirement
liability. The remaining restructuring liability of $138 million is expected to be funded from existing cash
balances and internally generated cash flows from operations.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note I. Restructuring Charge (continued)

The specific actions included in the Plan of Restructuring are expected to be substantially complete by
November 2001. Components of the restructuring charge are as follows:

Total Charges Amount Balance
(Millions of dollars) Incurred July 31, 2001
- ------------------------------------------------- -------------- --------------- -------------------

Severance and other benefits $ 104 $ (42) $ 62
Inventory write-downs 20 (20) -
Other asset write-downs and losses 93 (93) -
Lease terminations 33 (1) 32
Loss on anticipated sale of business 17 - 17
Dealer termination and exit costs 39 (12) 27
-------------- --------------- -------------------
Total $ 306 $ (168) $ 138
============== =============== ===================

The Plan of Restructuring includes the reduction of approximately 2,100 employees from the workforce,
primarily in North America. During the quarter, approximately $8 million was paid for severance and other
benefits, and employee headcount was reduced by approximately 200. As of July 31, 2001, approximately $30
million has been paid for severance and other benefits for the reduction of approximately 1,600 employees, and
$12 million of curtailment loss has been reclassified as a noncurrent postretirement liability. The severance
and other benefits balance mainly represents costs related to future payments over the next two years for
headcount reductions already incurred and the remaining reduction of approximately 500 employees, which will be
substantially completed by late 2001 when the majority of the NGV products will be in production.

Lease termination costs include the future obligations under long-term non-cancelable lease agreements
at facilities being vacated following workforce reductions. This charge primarily consists of the estimated
lease costs, net of probable sublease income, associated with the cancellation of the company's corporate office
lease at NBC Tower in Chicago, Illinois, which expires in 2010. As of July 31, 2001, approximately $1 million has
been incurred for lease termination costs.

The Plan of Restructuring included the effect of the anticipated sale of Harco National Insurance
Company (Harco), which is reflected as a discontinued operation in NFC's stand-alone financial statements because
Harco represents a major line of business and a reportable operating segment of NFC. However, because Harco is
neither a major line of business nor a separate operating segment of Navistar, the planned sale of Harco did not
qualify for discontinued operations presentation in accordance with Accounting Principles Board Opinion No. 30,
and accordingly, the anticipated loss on disposal was included as a component of the restructuring charge.
Additionally, due to the anticipated sale of Harco within the fiscal year the net investment in Harco has been
classified as other current assets for all periods presented in the Statement of Financial Condition.

Dealer termination and exit costs include the termination of certain dealer contracts in connection with
the realignment of the company's bus distribution network, and other litigation costs to implement the
restructuring initiatives. As of July 31, 2001, approximately $12 million has been paid for dealer terminations
and exit costs, of which $5 million was incurred during the third quarter.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note J. Sale of Receivables

On April 1, 2001 the company 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 company's results of operations,
financial condition or cash flows.

NFC securitizes and sells certain retail and wholesale 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 NFC. NFRRC, NFSC, TRAC and TERFCO have limited recourse on the sold receivables. The terms of
receivable sales generally require NFC to maintain cash reserves with the trusts and conduits as credit
enhancement. These cash reserves are restricted under the terms of the securitized sales agreements. The
maximum exposure under all receivable sale recourse provisions at July 31, 2001 was $436 million; however,
management believes the recorded reserves for losses are adequate.

NFC 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. Servicing fees are typically set
at 1.0% of average outstanding net receivable balances, representing NFC's estimated costs to service the
receivables.

Gains or losses on sales of receivables are dependent upon the purchase price being allocated between
the carrying value of the receivables sold and the retained interests based upon their relative fair values. Fair
values 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. Gains or losses
are credited or charged to finance and insurance revenue in the period in which the sales occur. An allowance
for credit losses is provided prior to the receivable sale and is reclassified as part of retained interest upon
sale.

Finance receivable balances do not include receivables sold by NFC to public and private investors with
limited recourse provisions. Outstanding sold receivable balances are as follows, in millions:

July 31 October 31 July 31
2001 2000 2000
----------------- --------------- ---------------

Retail notes.............................. $ 2,223 $ 1,730 $ 1,976
Wholesale notes........................... 671 883 959
Retail accounts........................... 140 80 -
------- ------ --------
Total................................ $ 3,034 $ 2,693 $ 2,935
======= ====== ========

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note J. Sale of Receivables (continued)

Additional financial data for gross serviced finance receivables as of July 31, 2001 is as follows, in
millions:

Retail Wholesale
Notes Leases Notes Accounts
------------ ------------ -------------- --------------
------------

Gross serviced finance receivables.......... $ 2,898 $ 540 $ 844 $ 304
Gross serviced finance receivables with
installments past due.................... 35 13 14 28
Credit losses net of recoveries............. 15 1 - -

During the first nine months of 2001, NFC sold $1,365 million of retail notes, net of unearned finance
income, through NFRRC. Aggregate net gains of $21 million were recognized on these sales. Key economic
assumptions used in measuring these gains and the related retained interest at July 31, 2001, were a prepayment
speed of 1.4 to 1.6, a weighted average remaining life of 28 months and a residual cash flows discount rate of
7.85% to 9.61%.

At July 31, 2001, NFSC has in place a revolving wholesale note trust that provides for the funding of
$1,012 million of eligible wholesale notes. TRAC and TERFCO have in place revolving retail account conduits that
each provide for the funding of $100 million of eligible retail accounts.

When receivables are sold, NFC retains interest in the securitized receivables in the form of
interest-only strips, servicing rights, cash reserve accounts and subordinated certificates. The carrying amount
of these retained interests approximate fair value and were $417 million, $317 million and $335 million at July
31, 2001, October 31, 2000 and July 31, 2000, respectively. These amounts are included in finance and other
receivables in the statement of financial condition.

The following table summarizes certain cash flows received from (paid to) securitization trusts/conduits
during the nine months ended July 31, 2001, in millions:

Proceeds from initial sales of receivables......................................................... $ 1,390
Proceeds from subsequent sales of receivables into revolving facilities............................ 3,823
Servicing fees received............................................................................ 24
All other cash received from trusts................................................................ 112
Purchase of delinquent or foreclosed receivables................................................... (73)
Cash used for pool buybacks........................................................................ (188)

Note K. New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 141 (SFAS 141), "Business Combinations," Statement of Financial Accounting Standards No. 142 (SFAS
142), "Goodwill and Other Intangible Assets," and Statement of Financial Accounting Standards No. 143 (SFAS 143),
"Accounting for Asset Retirement Obligations." SFAS 141 applies to all business combinations initiated after
June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001. SFAS 143 is effective
for financial statements issued for fiscal years beginning after June 15, 2002. The company is evaluating the
impact on the company's financial position, results of operations or cash flows.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note L. Condensed Consolidating Guarantor and Non-Guarantor Financial Information

The following tables set forth the unaudited condensed consolidating statements of financial condition,
statements of income and statements of cash flow as of July 31, 2001 and 2000 and for the nine months ended July
31, 2001 and 2000. The following information is included as a result of the guarantee of the $400 million Senior
Notes by International, exclusive of its subsidiaries. International is a direct wholly-owned subsidiary of
NIC. International, exclusive of its subsidiaries, also guarantees NIC's obligations under its 7% senior notes
due 2003 and 8% senior subordinated notes due 2008. None of NIC's other subsidiaries guarantee any of these
notes. Each of the guarantees is full and unconditional. Separate financial statements and other disclosures
concerning International have not been presented because management believes that such information is not
material to investors. NIC includes the consolidated financial results of the parent company only, with all of
its wholly-owned subsidiaries accounted for under the equity method. International, for purposes of this
disclosure only, includes the consolidated financial results of its wholly-owned subsidiaries accounted for under
the equity method. "Non-Guarantor Companies and Eliminations" includes the consolidated financial results of all
other non-guarantor subsidiaries including the elimination entries for all intercompany transactions. All
applicable corporate expenses have been allocated appropriately among the guarantor and non-guarantor
subsidiaries.

The parent company files a consolidated U.S. federal income tax return which includes International and
its U.S. subsidiaries. International has a tax allocation agreement (Tax Agreement) with the parent company
which requires International to compute its separate federal income tax expense based on its adjusted book
income. Any resulting tax liability is paid to the parent company. In addition, under the Tax Agreement,
International is required to pay to the parent company, any tax payments received from its subsidiaries. The
effect of the Tax Agreement is to allow the parent company, rather than International, to utilize U.S. operating
income/losses and NIC operating loss carryforwards.

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note L. Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued)
Non-Guarantor
Companies and
NIC International Eliminations Consolidated
-------------- ---------------- ------------------ ---------------
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JULY 31, 2001

Sales and revenues....................................... $ 9 $ 3,898 $ 980 $ 4,887
----------- ------------ ------------ ------------

Cost of products and services sold....................... - 3,509 559 4,068
All other operating expenses............................. (54) 719 212 877
------------ ------------ ------------ ------------
Total costs and expenses............................. (54) 4,228 771 4,945
------------ ------------ ------------ ------------

Equity in nonconsolidated subsidiaries................... (121) 154 (33) -

Income (loss) before income taxes........................ (58) (176) 176 (58)
Income tax (expense) benefit............................. 28 (3) 3 28
------------ ------------ ------------ ------------
Net income (loss)........................................ $ (30) $ (179) $ 179 $ (30)
============ ============ ============ ============

CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL CONDITION AS OF JULY 31, 2001

ASSETS
Cash and marketable securities........................... $ 228 $ 5 $ 217 $ 450
Receivables, net......................................... 7 23 1,728 1,758
Inventories.............................................. - 371 288 659
Property and equipment, net.............................. - 1,088 797 1,885
Investment in affiliates................................. (878) 931 (53) -
Deferred tax asset and other assets...................... 873 274 790 1,937
------------ ------------ ------------ ------------
Total assets......................................... 230 2,692 3,767 6,689
------------ ------------ ------------ ------------

LIABILITIES AND SHAREOWNERS' EQUITY
Debt..................................................... 821 22 1,881 2,724
Postretirement benefits liability........................ - 751 95 846
Amounts due (from) to affiliates......................... (1,944) 1,503 441 -
Other liabilities........................................ 74 1,343 423 1,840
------------ ------------ ------------ ------------
Total liabilities.................................... (1,049) 3,619 2,840 5,410
------------ ------------ ------------ ------------

Shareowners' equity...................................... 1,279 (927) 927 1,279
------------ ------------ ------------ ------------
Total liabilities and shareowners' equity................ $ 230 $ 2,692 $ 3,767 $ 6,689
============ ============ ============ ============

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED JULY 31, 2001

Cash provided by (used in) operations.................... $ (278) $ 56 $ 327 $ 105
------------ ------------ ------------ ------------

Cash flow from investment programs
Purchases, net of collections, of finance receivables.... - - 487 487
Net (increase) decrease in marketable securities......... 39 - (3) 36
Capital expenditures..................................... - (169) (43) (212)
Other investing activities............................... (18) 79 (436) (375)
------------ ------------ ------------ ------------
Cash provided by (used in) investment programs........... 21 (90) 5 (64)
------------ ------------ ------------ ------------

Cash flow from financing activities
Net borrowings (repayments) of debt...................... 377 16 (339) 54
------------ ------------ ------------ ------------
Cash and cash equivalents
Increase (decrease) during the period.................... 120 (18) (7) 95
At beginning of the year................................. 64 23 210 297
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period............... $ 184 $ 5 $ 203 $ 392
============ ============ ============ ============

Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)

Note L. Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued)

Non-Guarantor
Companies and
NIC International Eliminations Consolidated
-------------- ---------------- ------------------ ---------------
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JULY 31, 2000

Sales and revenues....................................... $ 14 $ 5,666 $ 798 $ 6,478
------------ ------------ ------------ ------------

Cost of products and services sold....................... - 4,768 416 5,184
All other operating expenses............................. (48) 727 222 901
------------ ------------ ------------ ------------
Total costs and expenses............................. (48) 5,495 638 6,085
------------ ------------ ------------ ------------

Equity in nonconsolidated subsidiaries................... 331 157 (488) -

Income before income taxes............................... 393 328 (328) 393
Income tax (expense) benefit............................. (129) (124) 124 (129)
------------ ------------ ------------ ------------
Net income............................................... $ 264 $ 204 $ (204) $ 264
============ ============ ============ ============

CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL CONDITION AS OF JULY 31, 2000

ASSETS
Cash and marketable securities........................... $ 432 $ 6 $ 198 $ 636
Receivables, net......................................... 6 152 2,037 2,195
Inventories.............................................. - 456 262 718
Property and equipment, net.............................. - 896 708 1,604
Investment in affiliates................................. (626) 731 (105) -
Deferred tax asset and other assets...................... 746 299 415 1,460
------------ ------------ ------------ ------------
Total assets......................................... 558 2,540 3,515 6,613
------------ ------------ ------------ ------------

LIABILITIES AND SHAREOWNERS' EQUITY
Debt..................................................... 444 4 2,094 2,542
Postretirement benefits liability........................ - 836 (31) 805
Amounts due (from) to affiliates......................... (1,327) 1,126 201 -
Other liabilities........................................ 42 1,229 596 1,867
------------ ------------ ------------ ------------
Total liabilities.................................... (841) 3,195 2,860 5,214
------------ ------------ ------------ ------------

Shareowners' equity...................................... 1,399 (655) 655 1,399
------------ ------------ ------------ ------------
Total liabilities and shareowners' equity................ $ 558 $ 2,540 $ 3,515 $ 6,613
============ ============ ============ ============

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED JULY 31, 2000

Cash provided by operations.............................. $ 166 $ 136 $ 17 $ 319
------------ ------------ ------------ ------------

Cash flow from investment programs
Purchases, net of collections, of finance receivables.... - - 2 2
Net (increase) decrease in marketable securities......... 140 - (17) 123
Capital expenditures..................................... - (202) (46) (248)
Other investing activities............................... 2 68 (72) (2)
------------ ------------ ------------ ------------
Cash provided by (used in) investment programs........... 142 (134) (133) (125)
------------ ------------ ------------ ------------

Cash flow from financing activities
Net borrowings (repayments) of debt...................... 95 (3) 154 246
Purchase of common stock and other....................... (151) - - (151)
------------ ------------ ------------ ------------
Cash provided by (used in) financing activities.......... (56) (3) 154 95
------------ ------------ ------------ ------------

Cash and cash equivalents
Increase (decrease) during the period.................... 252 (1) 38 289
At beginning of the year................................. 101 7 135 243
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period................. $ 353 $ 6 $ 173 $ 532
============ ============ ============ ============

Navistar International Corporation and Consolidated Subsidiaries

Additional Financial Information

The following additional financial information is provided based upon the continuing interest of certain
shareholders and creditors.

Navistar International Corporation (with financial services operations on an equity basis)
in millions of dollars:
Three Months Ended Nine Months Ended
July 31 July 31
----------------------------- -----------------------------
Condensed Statement of Income 2001 2000 2001 2000
- ----------------------------------------------------------
------------ ------------ ------------ ------------

Sales of manufactured products............................ $ 1,516 $ 1,841 $ 4,658 $ 6,240
Other income.............................................. 7 10 16 26
---------- ---------- ---------- ----------
Total sales and revenues............................ 1,523 1,851 4,674 6,266
---------- ---------- ---------- ----------

Cost of products sold..................................... 1,301 1,519 4,046 5,155
Postretirement benefits expense........................... 43 48 136 157
Engineering and research expense.......................... 58 66 188 213
Sales, general and administrative expense................. 116 94 333 314
Other expense............................................. 32 31 97 116
---------- ---------- ---------- ----------
Total costs and expenses............................ 1,550 1,758 4,800 5,955
---------- ---------- ---------- ----------

Income (loss) before income taxes
Manufacturing operations............................ (27) 93 (126) 311
Financial services operations....................... 20 29 68 82
---------- ---------- ---------- ----------
Income (loss) before income taxes.............. (7) 122 (58) 393
Income tax (expense) benefit................... 9 (26) 28 (129)
---------- ---------- ---------- ----------
Net income (loss)......................................... $ 2 $ 96 $ (30) $ 264
========== ========== ========== ==========

July 31 October 31 July 31
Condensed Statement of Financial Condition 2001 2000 2000
- ----------------------------------------------------------
---------------- ----------------- -----------------

Cash, cash equivalents and marketable securities.......... $ 370 $ 294 $ 498
Inventories............................................... 576 597 676
Property and equipment, net............................... 1,570 1,464 1,267
Equity in nonconsolidated subsidiaries.................... 371 386 389
Other assets.............................................. 1,036 1,095 905
Deferred tax asset, net................................... 878 862 815
-------------- --------------- --------------
Total assets...................................... $ 4,801 $ 4,698 $ 4,550
============== =============== ==============

Accounts payable, principally trade....................... $ 844 $ 1,087 $ 872
Postretirement benefits liability......................... 846 773 805
Other liabilities......................................... 1,832 1,524 1,474
Shareowners' equity....................................... 1,279 1,314 1,399
-------------- --------------- --------------
Total liabilities and shareowners' equity......... $ 4,801 $ 4,698 $ 4,550
============== =============== ==============

Navistar International Corporation and Consolidated Subsidiaries

Additional Financial Information

Navistar International Corporation (with financial services operations on an equity basis)
in millions of dollars:
Nine Months Ended
July 31
--------------------------------
Condensed Statement of Cash Flow 2001 2000
- --------------------------------------------------------------------------------------
-------------- --------------

Cash flow from operations
Net income (loss) .................................................................... $ (30) $ 264
Adjustments to reconcile net income (loss) to cash used in operations:
Depreciation and amortization.................................................. 115 114
Deferred income taxes.......................................................... (17) 103
Equity in earnings of investees, net of dividends received..................... - (32)
Other, net..................................................................... 57 (23)
Change in operating assets and liabilities, net of effects of acquisition......... (339) (678)
----------- -----------
Cash used in operations............................................................... (214) (252)
----------- -----------

Cash flow from investment programs
Purchases of marketable securities.................................................... (64) (135)
Sales or maturities of marketable securities.......................................... 103 275
Capital expenditures.................................................................. (212) (246)
Payments for acquisition, net of cash acquired........................................ (60) -
Proceeds from sale-leasebacks......................................................... 58 81
Receivable from financial services operations......................................... 169 607
Investment in affiliates.............................................................. 2 5
Capitalized interest and other........................................................ (22) (28)
----------- -----------
Cash (used in) provided by investment programs........................................ (26) 559
----------- -----------

Cash provided by (used in) financing activities....................................... 353 (54)
----------- -----------

Cash and cash equivalents
Increase during the period............................................................ 113 253
At beginning of the period............................................................ 213 167
----------- -----------
Cash and cash equivalents at end of the period........................................ $ 326 $ 420
=========== ===========

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

Certain statements under this caption that are not purely historical constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. These
forward-looking statements are based on current management expectations as of the date made. The company assumes
no obligation to update any forward-looking statements. Navistar International Corporation's actual results may
differ significantly from the results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under the caption "Business Environment."

Third Quarter Ended July 31, 2001
----------------------------------

The company reported net income of $2 million, or $0.03 per diluted common share for the third quarter
ended July 31, 2001. For the comparable quarter last year, net income was $96 million or $1.60 per diluted
common share. This change is primarily due to continued weak, new and used truck pricing and lower new truck
shipments. Net income for the third quarter of 2001 benefited from $6 million of research and development tax
credits. Net income for the third quarter of 2000 included the benefit of a $20 million research and development
tax credit.

The truck segment's profit for the third quarter of 2001 decreased by $98 million and revenues decreased
$337 million compared to the same period last year. The truck segment's profit and revenue decreases are
primarily the result of reduced industry wide shipments and lower market pricing.

The engine segment's profit for the third quarter of 2001 remained consistent with last year at $64
million, while revenues decreased $17 million. The decrease in the engine segment's revenues is primarily the
result of unfavorable sales mix.

The financial services segment's profit for the third quarter of 2001 was $19 million, which was $5
million lower than the same period last year. The change in the financial services segment's profit is primarily
due to higher retail losses and lower average wholesale and account balances. The change in the financial
services segment's revenue is primarily due to changes in finance and insurance revenue discussed below.

Sales and Revenues. Sales and revenues for the third quarter of 2001 totaled $1,586 million, 18% lower than the
$1,924 million reported for the comparable quarter in 2000.

United States (U.S.) and Canadian industry retail sales of Class 5 through 8 trucks totaled 79,600 units
in the third quarter of 2001, which is 29% lower than the 112,300 units sold during this period in 2000. Class 8
heavy truck sales of 42,400 units during the third quarter of 2001 were 37% lower than the 2000 level of 67,100
units. Industry sales of Class 5, 6 and 7 medium trucks, including school buses, decreased 18% to 37,200 units.
Industry sales of school buses, which accounted for 19% of the medium truck market, decreased 20% to 7,000 units.

Market share for the third quarter of 2001 increased to 26.7% from 25.2% reported in the same period of
2000. This increase was the result of strength in the medium truck market due in part to the launch of the High
Performance vehicles.

Shipments of mid-range diesel engines by the company to other OEMs during the third quarter of 2001
totaled 80,200 units, an 11% increase from the same period of 2000. This increase resulted primarily from the
inclusion of Maxion International Motores, S.A. (Maxion) in the consolidated financial results for 2001. In the
first quarter of 2001, Maxion became a wholly owned subsidiary of the company.

Finance and insurance revenue of $59 million in the third quarter of 2001 decreased 18% from 2000. This
decrease is primarily a result of lower average serviced wholesale note and account balances.

Costs and Expenses. Manufacturing gross margin rose to 14.2% of sales for the third quarter of 2001 from 13.9%
in the second quarter of 2001. Manufacturing gross margin was 17.5% for the third quarter of 2000. This
decrease from prior year is primarily due to the impact of lower volumes and pressure on pricing.

Postretirement benefits expense decreased $4 million from the third quarter of 2000 to $44 million. This
decrease is due to lower supplemental trust profit sharing provisions in 2001 related to lower profits.

Engineering and research expense decreased $8 million from the third quarter of 2000 to $58 million. This
decrease primarily reflects a reduction in the amount of spending on the company's Next Generation Vehicle (NGV)
and Next Generation Diesel (NGD) programs.

Sales, general and administrative expense increased 26% to $135 million in the third quarter of 2001
from $107 million for the comparable quarter in 2000. This increase is due to an increase in the provision for
losses on receivables driven by an increase in repossession frequency and pricing pressure in the used truck
market.

Interest expense increased $5 million from the third quarter of 2000 to $42 million, primarily due to
the increase in the outstanding balance of the company's debt as a result of the debt issuance that occurred in
May 2001.

Nine Months Ended July 31, 2001
-------------------------------

The company reported a net loss of $30 million, or $0.51 per diluted common share for the first nine
months of 2001, primarily due to continued weak, new and used truck pricing and lower new truck shipments. Net
income was $264 million, or $4.26 per diluted common share for the comparable period of 2000. Net income for the
first nine months of 2001 and 2000 included the benefits of the previously mentioned tax related items of $6
million and $20 million, respectively. Excluding the impact of these tax adjustments, the company had a net loss
of $36 million and net income of $244 million, respectively.

The company's manufacturing operations reported a loss before income taxes of $126 million compared with
pretax income of $311 million in the first nine months of 2000. The truck segment's profit for the first nine
months of 2001 decreased by $375 million and revenues decreased by $1,590 million compared to the same period
last year. The truck segment's profit and revenue decreases are primarily the result of reduced industry wide
shipments and lower market pricing.

The engine segment's profit for the first nine months of 2001 decreased by 14% compared to a revenue
decrease of 6%. The decreases in the engine segment's profits and revenues are partially attributable to
decreases in total shipments of mid-range diesel engines. Lower profits are also attributable to unfavorable
sales mix, higher employee benefit expenses and increases in start up costs.

The financial services segment's profit for the first nine months of 2001 remained consistent with 2000,
while revenues decreased 8%. The change in the financial services segment's revenue is primarily due to changes
in finance and insurance revenue discussed below.

Sales and Revenues. Sales and revenues for the first nine months of 2001 totaled $4,887 million, 25% lower than
the $6,478 million reported for the comparable period of 2000.

U.S. and Canadian industry retail sales of Class 5 through 8 trucks totaled 239,800 units for the first
nine months of 2001, which is 31% lower than the 346,600 units sold during this period in 2000. Class 8 heavy
truck sales of 126,300 units during the first nine months of 2001 were 39% lower than the 2000 level of 206,300
units. Industry sales of Class 5, 6 and 7 medium trucks, including school buses, decreased 19% to 113,500
units. Industry sales of school buses, which accounted for 19% of the medium truck market, decreased 18% to
21,700 units.

Market share for the first nine months of 2001 slightly declined to 25.9% from the 26.2% reported in
2000.

Shipments of mid-range diesel engines by the company to other OEMs during the first nine months of 2001
totaled 239,000 units, a 5% increase from the same period of 2000. This increase resulted primarily from the
inclusion of Maxion in the consolidated financial results for 2001. In the first quarter of 2001, Maxion became
a wholly owned subsidiary of the company.

Finance and insurance revenue of $194 million during the first nine months of 2001 decreased 5% from
2000. This decrease is primarily a result of lower average serviced wholesale note and account balances.

Costs and Expenses. Manufacturing gross margin for the first nine months of 2001 was 13.1% compared with 17.4%
in 2000. This decrease is primarily due to the impact of lower volumes and pressure on pricing.

Postretirement benefits expense decreased $20 million from the first nine months of 2000 to $137
million. This decrease is due to lower supplemental trust profit sharing provisions in 2001 related to lower
profits.

Engineering and research expense decreased $25 million for the first nine months of 2001 to $188 million
compared to the same period in 2000. This decrease is primarily due to a reduction in the amount of spending on
the company's NGV and NGD programs.

Sales, general and administrative expense increased 10% to $393 million for the nine months ended July
31, 2001 from $357 million for the comparable period in 2000. This increase is due to an increase in the
provision for losses on receivables driven by an increase in repossession frequency and pricing pressure in the
used truck market.

Interest expense increased $20 million for the first nine months of 2001 to $125 million, primarily due
to the increase in NFC's weighted average interest rate on all debt, an increase in the outstanding balance of
the revolving retail warehouse facility and an increase in the outstanding balance of the company's debt as a
result of the issuance that occurred in May 2001.

Restructuring Charge

Of the total pretax restructuring charge of $306 million, $124 million represented non-cash charges. Through July 31,
2001, approximately $156 million of the charge has been incurred, and $12 million of curtailment loss related to
the company's postretirement benefit plans was reclassified as a noncurrent postretirement liability. The
remaining restructuring liability of $138 million is expected to be funded from existing cash balances and
internally generated cash flows from operations.

The specific actions included in the Plan of Restructuring are expected to be substantially complete by
November 2001. Components of the restructuring charge are as follows:

Total Charges Amount Incurred Balance
(Millions of dollars) July 31, 2001
- ----------------------------------------------------- -------------- ----------------- -----------------------

Severance and other benefits $ 104 $ (42) $ 62
Inventory write-downs 20 (20) -
Other asset write-downs and losses 93 (93) -
Lease terminations 33 (1) 32
Loss on anticipated sale of business 17 - 17
Dealer termination and exit costs 39 (12) 27
-------------- ----------------- -----------------------
Total $ 306 $ (168) $ 138
============== ================= =======================

The Plan of Restructuring included the effect of the anticipated sale of Harco National Insurance
Company (Harco), which is reflected as a discontinued operation in Navistar Financial Corporation's (NFC)
stand-alone financial statements because Harco represents a major line of business and a reportable operating
segment of NFC. However, because Harco is neither a major line of business nor a separate operating segment of
Navistar, the planned sale of Harco did not qualify for discontinued operations presentation in accordance with
Accounting Principles Board Opinion No. 30, and accordingly, the anticipated loss on disposal was included as a
component of the restructuring charge. Additionally, due to the anticipated sale of Harco within the fiscal year
the net investment in Harco has been classified as other current assets for all periods presented in the
Statement of Financial Condition.

Liquidity and Capital Resources

Cash flow is generated from the manufacture and sale of trucks, mid-range diesel engines and their
associated service parts as well as from product financing and insurance coverage provided to the company's
dealers and retail customers by the financial services segment. The company's current debt ratings have made
sales of finance receivables the most economic source of funding for NFC. Insurance operations are self-funded.

The company had working capital of $105 million at July 31, 2001, compared to $59 million at October 31,
2000. Cash provided by operations during the first nine months of 2001 totaled $105 million. The company had a
net loss of $30 million, which was more than offset by $212 million of non-cash items, principally depreciation
and amortization. Also included was a net change in operating assets and liabilities of $60 million.

The net use of cash resulting from the change in operating assets and liabilities included a $251 million
decrease in accounts receivable primarily due to a net decrease in wholesale note and account balances. This was
more than offset by a $232 million decrease in accounts payable primarily due to a decrease in production levels,
and a $90 million decrease in other liabilities primarily due to decreased employee compensation.

Investment programs used $64 million in cash including $315 million for restricted investments, which
represents restricted marketable securities used as collateral in NFC's revolving retail warehouse facility, a
net increase in property and equipment leased to others of $43 million and capital expenditures of $212 million.
Capital expenditures were made primarily for the NGV and NGD programs and for a school bus facility in Tulsa,
Oklahoma. These were partially offset by a net decrease in retail notes and lease receivables of $487 million, a
net decrease in marketable securities of $36 million and $58 million of proceeds from sale-leasebacks.
Investment programs also used $60 million of cash to purchase the remaining 50% interest in Maxion.

Cash provided by financing activities of $54 million resulted from a net increase in long-term debt of
$349 million primarily related to the private placement of $400 million 9 3/8% Senior Notes in May 2001. This
was partially offset by a net decrease of $295 million in notes and debt outstanding under the bank revolving
credit facility and other commercial paper programs.

NFC has traditionally obtained funds to provide financing to the company's dealers and retail customers
from sales of finance receivables, commercial paper, short and long-term bank borrowings, medium and long-term
debt and equity capital. As of July 31, 2001, NFC's funding consisted of sold finance receivables of $3,034
million, bank and other borrowings of $1,041 million, subordinated debt of $100 million, capital lease
obligations of $370 million and equity of $313 million.

Through the asset-backed public market and private placement sales, NFC has been able to fund fixed rate
retail note receivables at rates offered to companies with higher investment grade ratings. During the first
nine months of 2001, NFC sold a total of $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 NFC.
Aggregate net gains of $21 million were recognized on these sales. As of July 31, 2001 the remaining shelf
registration available to NFRRC for the public issuance of asset-backed securities was $618 million. Also, as of
July 31, 2001, Navistar Financial Securities Corporation (NFSC), a special purpose, wholly owned subsidiary of
NFC, has in place a revolving wholesale note trust that provides for the funding of $1,012 million of eligible
wholesale notes, of which $671 million has been utilized. In the third quarter of 2001, NFC lowered the
outstanding variable funding certificates held by NFSC from $75 million to zero.

At July 31, 2001, available funding under NFC's bank revolving credit facilities, the revolving retail
warehouse facility and the revolving wholesale note trust was $899 million. When combined with unrestricted cash
and cash equivalents, $940 million was available to fund the general business purposes of NFC.

In November 2000, NFC established Truck Engine Receivables Financing Corporation, a special purpose wholly
owned subsidiary of NFC, for the purpose of securitizing engine accounts receivable. In November 2000, NFC
securitized all of its unsecured trade receivables generated by the sale of diesel engines and engine service
parts from Navistar to Ford Motor Company. The transaction provides for funding of $100 million and expires in
November 2005. As of July 31, 2001, NFC has utilized $71 million of this facility.

Truck Retail Accounts Corporation, a special purpose, wholly owned subsidiary of NFC, has in place a
revolving retail account conduit that provides for the funding of $100 million of eligible retail accounts. As
of July 31, 2001, NFC has utilized $69 million of this facility. The facility expires in August 2002 with an
option for renewal.

There have been no material changes in the company's hedging strategies or derivative positions since
October 31, 2000. Further disclosure may be found in Note E to the financial statements and in the company's
2000 Annual Report on Form 10-K.

Cash flow from the company's manufacturing operations, financial services operations and financing
capacity is currently sufficient to cover planned investment in the business. The company had outstanding
capital commitments of $221 million at July 31, 2001, primarily for the NGV and NGD programs.

In May 2001, the company completed the private placement of $400 million 9 3/8% Senior Notes due in 2006.
The proceeds of the Senior Notes are to be used for debt repayment, to fund ongoing capital development programs
and for general capital purposes. International, exclusive of its subsidiaries, will initially guarantee the
payment of the principal, premium and interest on these notes, as well as the existing $100 million 7% senior
notes due 2003 and the $250 million 8% senior subordinated notes due 2008.

In May 2001, Standard and Poor's affirmed the company's and NFC's senior debt ratings of BBB- as well as
the company's and NFC's subordinated debt ratings of BB+. They also assigned a BBB- rating to the senior
unsecured notes that the company issued in May 2001. Moody's confirmed the company's and NFC's subordinated debt
ratings of Ba2, but lowered the company's and NFC's senior debt ratings from Baa3 to Ba1. Fitch IBCA affirmed
the company's senior debt rating at BBB- and the subordinated debt rating at BB. Additionally, Fitch IBCA
downgraded the senior debt rating for NFC from BBB to BBB- and its subordinated debt rating from BBB- to BB.

It is the opinion of management that, in the absence of significant unanticipated cash demands, current
and forecasted cash flow as well as anticipated financing actions will provide sufficient funds to meet operating
requirements and capital expenditures. Management believes that collections on the outstanding receivables
portfolios as well as funds available from various funding sources will permit the financial services operations
to meet the financing requirements of International's dealers and retail customers.

New Accounting Pronouncements

Business Environment

Sales of Class 5 through 8 trucks historically have been cyclical, with demand affected by such economic
factors as industrial production, construction, demand for consumer durable goods, interest rates and the
earnings and cash flow of dealers and customers. Truck sales in the third quarter were hindered by a number of
factors including high inventories of new and used trucks as well as driver shortages and high fuel prices. The
demand for new trucks reflected these adverse conditions, reducing the company's U.S. and Canadian order backlog
at July 31, 2001, to 18,200 units, significantly lower than the 27,100 units at July 31, 2000. The company will
continually evaluate order receipts and backlog throughout the year and will balance production with demand as
appropriate. To control costs and align production schedules with demand, the company reduced its production
schedules during the quarter through shutdown weeks at its Garland and Springfield Assembly Plants. In the
fourth quarter of this year, the company plans to increase production of Class 8 heavy trucks at its Chatham
assembly plant. This will result in the recall of nearly 200 workers.

Reflecting the continued industry-wide decline in new truck orders, the company lowered its industry
projections for 2001. The company currently projects 2001 U.S. and Canadian Class 8 heavy truck demand to be
144,000 units down from the previous forecast of 181,600 units. Class 5, 6, and 7 medium truck demand remains
unchanged at 108,000 units, but demand for school buses is forecast at 28,000 units, down from 32,000 units.

The company launched the industry's first High Performance TrucksTM in February 2001. The launch of the
new International(R)4000, 7000 and 8000 Series trucks, which are built for specific applications to improve
customer profitability, represents the most comprehensive product launch in the history of International.

In March 2001, Green Diesel Technology(TM), available in an International(R)530E engine, was certified for use
in school buses by the U.S. Environmental Protection Agency and the California Air Resources Board. The
technology, which surpasses emissions standards while maintaining an engine with diesel power, provides a
cost-effective, clean-air solution for school districts.

In June 2001, the company opened a new school bus manufacturing facility in Tulsa, Oklahoma. The nearly
1-million-square-foot plant currently employs more than 400 workers to assemble the International integrated
conventional school bus. An integrated chassis design combines the chassis, bus body and school bus part
components to deliver customer value in the areas of improved visibility, ergonomics and operating economy.

In August 2001, the company finalized plans to form a joint venture with Ford. The joint venture, named
Blue Diamond Truck, S. de R.L. de C.V., will initially produce Class 6 and 7 medium commercial trucks that will
be marketed independently under the Ford brand and Navistar's International(R)brand. The trucks will be produced
at Navistar's plant in Escobedo, Mexico. In subsequent years, Blue Diamond plans to expand the range of
commercial trucks for both companies.

Navistar International Corporation and Consolidated Subsidiaries

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the company's market risk exposure related to foreign currency risk
since October 31, 2000, as reported in the 2000 Annual Report on Form 10-K. However, an evaluation of
interest rate risk for the fair value of interest rate sensitive assets and liabilities as of July 31,
2001, determined that a hypothetical instantaneous 10% adverse change in interest rates would decrease the
net fair market value of these instruments by approximately $22 million.

PART II - OTHER INFORMATION
---------------------------

Item 1. Legal Proceedings

Incorporated herein by reference from Item 3 - "Legal Proceedings" in the company's definitive Form 10-K
dated December 20, 2000, Commission File No. 1-9618.

Item 2. Changes in Securities and Use of Proceeds

Payments of cash dividends and the repurchase of common stock are currently limited due to restrictions
contained in the company's $400 million Senior Notes, $250 million Senior Subordinated Notes and $19
million Note Purchase Agreement. The company has not paid dividends on the common stock since 1980 and
does not expect to pay cash dividends on the common stock in the foreseeable future.

Item 6. Exhibits and reports on Form 8-K
10-Q Page
---------
(a) Exhibits:

3. Articles of Incorporation and By-Laws E-1

4. Instruments Defining The Rights of Security
Holders, Including Indentures E-2

10. Material Contracts E-5

(b) Reports on Form 8-K:

A current report on Form 8-K was filed with the Commission on
May 10, 2001, in which the company announced its plans to
issue $300 million in new five-year senior notes.

                                                     SIGNATURE
                                                 -----------------

Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.



NAVISTAR INTERNATIONAL CORPORATION
- ---------------------------------------------------------------
                       (Registrant)

/s/  Mark T. Schwetschenau
- ------------------------------------------
     Mark T. Schwetschenau
     Vice President and Controller
     (Principal Accounting Officer)


September 13, 2001










                                                    29

EX-3 3 exh3-3q01.htm EXHIBIT 3 TO THIRD QUARTER FORM 10Q exhibit 3


                                                                                                           EXHIBIT 3


                                         NAVISTAR INTERNATIONAL CORPORATION
                                           AND CONSOLIDATED SUBSIDIARIES
                       ----------------------------------------------------------------------
                                       ARTICLES OF INCORPORATION AND BY-LAWS


       The following documents of Navistar International Corporation are incorporated herein by reference:


     3.1  Restated Certificate of Incorporation of Navistar International  Corporation effective July 1, 1993, filed
          as Exhibit 3.2 to Annual Report on Form 10-K dated October 31, 1993,  which was filed on January 27, 1994,
          Commission File No. 1-9618, and amended as of May 4, 1998.

     3.2  The  By-Laws of Navistar  International  Corporation  effective  April 14,  1995,  filed as Exhibit 3.2 on
          Annual  Report on Form 10-K dated  October 31, 1995,  which was filed on January 26, 1996,  on  Commission
          File No. 1-9618.

     3.3  Certificate of Designation,  Preferences and Rights of Junior Participating  Preferred Stock,  Series A of
          Navistar  International  Corporation.  Filed as Exhibit 3.3 to Form 10-Q dated June 11,  1999.  Commission
          File No. 1-9618.


















                                                        E-1

EX-4 4 exh4-3q01.htm EXHIBIT 4 TO THIRD QUARTER FORM 10Q exhibit 4

EXHIBIT 4

NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------------------------------------------------------------
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES

The following instruments of Navistar International Corporation and its principal subsidiary International
Truck and Engine Corporation, and its principal subsidiary Navistar Financial Corporation defining the rights of
security holders are incorporated herein by reference.

4.1 Indenture, dated as of May 30, 1997, by and between Navistar Financial 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.

4.2 Indenture, dated as of February 4, 1998, by and between Navistar International Corporation and Harris
Trust and Savings Bank, as Trustee, for 7% Senior Notes due 2003 for $100,000,000. Filed on
Registration No. 333-47063.

4.3 Indenture, dated as of February 4, 1998, by and between Navistar International Corporation and Harris
Trust and Savings Bank, as Trustee, for 8% Senior Subordinated Notes due 2008 for $250,000,000. Filed
on Registration No. 333-47063.

4.4 $200,000,000 Mexican Peso Revolving Credit Agreement dated as of October 20, 1998 as amended by
Amendment No. 1 dated as of November 12, 1999 and as amended by Amendment No. 2 dated as of October 2,
2000, among Arrendadora Financiera Navistar S.A. de C.V., Servicios Financieros Navistar S.A. de C.V.
and Navistar Comercial S.A. de C.V. and Comerica Bank Mexico, S.A. The Registrant agrees to furnish to
the Commission upon request a copy of such agreement which it has elected not to file under the
provisions of Regulation 601(b)(4)(iii).

4.5 Rights Agreement dated as of April 20, 1999 between Navistar International Corporation and Harris Trust
and Savings Bank, as Rights Agent, including the form of Certificate of Designation, Preferences and
Rights of Junior Participating Preferred Stock, Series A attached thereto as Exhibit A, and the form of
Rights Certificate attached thereto as Exhibit B. Filed as Exhibit 1.1 to the company's Registration
Statement on Form 8-A, dated April 20, 1999. Commission File No. 1-9618.

4.6 $100,000,000 Revolving Credit Agreement dated as of July 9, 1999 as amended by Amendment No. 7 dated as
of April 25, 2001, among Arrendadora Financiera Navistar S.A. de C.V., Servicios Financieros Navistar
S.A. de C.V. and Navistar Comercial S.A. de C.V. and Banco Nacional de Mexico, S.A. de C.V. The
Registrant agrees to furnish to the Commission upon request a copy of such agreement which it has
elected not to file under the provisions of Regulation 601(b)(4)(iii).

4.7 $20,000,000 Credit Agreement dated as of August 10, 1999 by and between Arrendadora Financiera Navistar
S.A. de C.V. and Bancomer. The Registrant agrees to furnish to the Commission upon request a copy of
such agreement, which it has elected not to file under the provisions of Regulation 601(b)(4)(iii).

E-2

EXHIBIT 4 (CONTINUED)

4.8 $200,000,000 Mexican Peso Revolving Credit Agreement dated as of August 10, 1999 by and between
Servicios Financieros Navistar S.A. de C.V. and Bancomer, S.A.

4.9 $95,000,000 Forward contract dated as of April 20, 2000 by and between Navistar International
Corporation and Royal Bank of Canada. The Registrant agrees to furnish to the Commission upon request a
copy of such agreement which it has elected not to file under the provisions of Regulation
601(b)(4)(iii).

4.10 Credit Agreement for $820,000,000 Revolving Credit and Competitive Advance Facility dated as of
December 8, 2000, between Navistar Financial 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. Filed as Exhibit 10.05 to Navistar Financial
Corporation's Form 10-Q dated March 15, 2001. Commission File No. 1-4146-1.

4.11 Guarantee, 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. Filed as Exhibit 10.07 to Navistar Financial Corporation's Form 10-Q
dated March 15, 2001. Commission File No. 1-4146-1.

4.12 364-Day Credit Agreement for $80,000,000 364-Day Revolving Credit Facility, as of December 8, 2000,
between Navistar Financial Corporation, as borrowers, lenders party hereto, The Chase Manhattan Bank as
Administrative Agent, Bank of America, N.A., as Syndication Agent and Bank of Nova Scotia, as
Documentation Agent. Filed as Exhibit 10.08 to Navistar Financial Corporation's Form 10-Q dated March
15, 2001. Commission File No. 1-4146-1.

4.13 $50,000,000 Mexican Peso Credit Agreement dated as of November 22, 2000, by and between Servicios
Financieros Navistar, S.A. de C.V., Arrendadora Financiera Navistar, S.A. de C.V., Navistar Comercial,
S.A. de C.V. and Banco Nacional de Obras y Servicios Publicos, S.N.C.

E-3
EXHIBIT 4 (CONTINUED)

4.14 Indenture, dated as of May 31, 2001, by and between Navistar International Corporation, International
Truck and Engine Corporation and BNY Midwest Trust Company, as Trustee, for 9 3/8% Senior Notes due 2006
for $400 million. The Registrant agrees to furnish to the Commission upon request a copy of such
agreement, which it has elected not to file under the provisions of Regulation 601(b)(4)(iii).

4.15 First Supplement to Indenture, dated as of May 31, 2001, by and between Navistar International
Corporation, International Truck and Engine Corporation and BNY Midwest Trust Company, as Trustee, for
7% Senior Notes due 2003 for $100,000,000. Filed on Registration No. 333-64626.

4.16 First Supplement to Indenture, dated as of May 31, 2001, by and between Navistar International
Corporation, International Truck and Engine Corporation and BNY Midwest Trust Company, as Trustee, for
8% Senior Subordinated Notes due 2008 for $250,000,000. Filed on Registration No. 333-64626.

4.17 Note Purchase Agreement, dated as of June 15, 2001, between International Truck and Engine Corporation
and the State of Wisconsin Investment Board for 9.95% Senior Notes due 2011 for $19 million. The
Registrant agrees to furnish to the Commission upon request a copy of such agreement, which it has
elected not to file under the provisions of Regulation 601(b)(4)(iii).

=====

Instruments defining the rights of holders of other unregistered long-term debt of Navistar and its
subsidiaries have been omitted from this exhibit index because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the Registrant and its consolidated subsidiaries. The
Registrant agrees to furnish a copy of any such instrument to the Commission upon request.

E-4

EX-10 5 exh10-3q01.htm EXHIBIT 10 TO THIRD QUARTER FORM 10Q exhibit 10

EXHIBIT 10

NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
---------------------------------
MATERIAL CONTRACTS

The following documents of Navistar International Corporation and its affiliate Navistar Financial Corporation
are incorporated herein by reference.

10.28 Supplement No. 1, dated as of July 24, 2001, to Indenture dated October 16, 2000, between Truck Retail
Instalment Paper Corp., as Issuer, and The Bank of New York, as Indenture Trustee filed on Form 8-K
dated July 25, 2001. Commission File No. 1-4146-1.

The following documents of Navistar International Corporation are filed herewith.

Form 10-Q Page
--------------
*10.29 Amendment No. 1 to the Navistar International Corporation Stock Ownership
Program, effective as of April 17, 2001. E-6

*10.30 Form of Executive Severance Agreement Amendment which is executed with all
executive officers. E-9

* Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit
to this report pursuant to Item 14(c).

E-5

EX-10.29 6 exh10sop-3q01.htm EXHIBIT 10.29 TO THE THIRD QUARTER FORM 10Q exhibit 10.29


                                                                                                       Exhibit 10.29



                                                  AMENDMENT NO. 1
                                                       TO THE
                                          NAVISTAR INTERNATIONAL CORPORATION
                                               STOCK OWNERSHIP PROGRAM

                                          (Effective as of April 17, 2001)

          WHEREAS,  On June 16, 1997 the Board of Directors of Navistar  International  Corporation  (the  "Company")
approved the terms of the Stock  Ownership  Program  (the  "Plan") in which all  officers and senior  managers in Pay
Levels 9-12 (the "Participants") participate;

          WHEREAS,  it is  desired to amend the Plan to  refinance  and  extend  the term of  certain  Company  loans
provided to Participants under the Plan; and

WHEREAS, it is desired to amend other provisions of the Plan.

NOW THEREFORE, the Plan is hereby amended as follows:

         1.       At the request of a  Participant,  the Company will  refinance  any Company  loans  provided to the
Participant  under the Plan that are  outstanding  on the date hereof.  A Participant  requesting a refinancing  will
file a request  with the Company  and execute an Amended  Promissory  Note in the form  attached  hereto as Exhibit E
("Amended  Promissory Note"),  which will be substituted in its entirety for the existing Promissory Note executed by
the Participant in connection with his or her participation in the Plan ("Existing  Promissory Note").  Interest will
accrue on the Amended  Promissory Note at the Applicable  Federal Rate in effect on the date the Participant  request
such refinancing,  compounded  annually.  The refinanced loan will have a term of nine (9) years from the date of the
Amended Promissory Note, subject to accelerated  maturity in connection with certain  terminations of employment,  as
stated in the Amended Promissory Note, and otherwise in accordance with the terms of the Plan, as amended hereby.

         2.       The Section of the Plan entitled  "Company Loan to Meet  Two-Thirds of Ownership  Requirements"  is
                                                     -----------------------------------------------------------
hereby restated in its entirety to read as follows:

                  "Company Loan To Meet Two-Thirds of Ownership Requirement.  To assist Participants in meeting their
                  ----------------------------------------------------------
Ownership  Requirement,  the  Company  will  provide  financing  for a purchase of shares by the  Participant  on the
following terms:

         o        The  Company  will lend to a  Participant  at any time an amount  sufficient  to enable the  Participant  to
                  purchase two-thirds of his or her Ownership Requirement.

         o        A Participant  requesting a loan will file an application and execute a Note in the forms attached hereto as
                  Exhibits C and D, respectively.

         o        The loan will have a term of nine years with payment of principal and accrued  interest due at maturity in a
                  balloon  payment,  subject to  accelerated  maturity in  connection  with certain  terminations  of
                  employment,  as stated below. A sale,  pledge, or other disposition of the shares acquired with the
                  loan will not result in an acceleration of the maturity of the loan. You may voluntarily  repay all
                  or any part of the loan or interest thereon prior to maturity, without penalty.

                                                         E-6
                                                                                            EXHIBIT 10.29 (CONTINUED)

                                                   AMENDMENT NO. 1
                                                       TO THE
                                          NAVISTAR INTERNATIONAL CORPORATION
                                               STOCK OWNERSHIP PROGRAM

         o        The following  provisions apply to the loan in the event of the  Participant's  termination of employment by
                  the  Company  (and  any  subsidiary  of the  Company  which  employs  the  Participant).  The  term
                  "Retirement"  means voluntary  termination of employment with the Company (and/or any subsidiary of
                  the Company which employs the Participant)  following which the Participant is eligible promptly to
                  commence  receiving  benefits from a qualified pension plan maintained by the Company or any of its
                  subsidiaries.

              -        In the event of the  Participant's  termination by the Company for any reason (other than termination by the
                       Participant due to Retirement or Participant's death or disability),  the Participant shall be
                       required to (i) immediately  post collateral of a type acceptable to the Company having a fair
                       market value (or, if the Company is then subject to  Regulation G  promulgated  by the Federal
                       Reserve  Board,  a "loan  value" as  defined in  Regulation  G) equal to the lesser of (x) the
                       aggregate  amount of the accrued  interest and principal then  outstanding on the loan and (y)
                       the aggregate  fair market value,  at the date of such  termination,  of the shares  purchased
                       with the original  loan,  and (ii) within 45 days of  termination  repay in full the aggregate
                       amount of the accrued interest and principal then outstanding on the loan.

              -        In the event of termination by the Participant due to Retirement,  the Participant  shall be required to (i)
                       immediately  post  collateral of a type  acceptable to the Company  having a fair market value
                       (or, if the Company is then subject to Regulation G promulgated by the Federal  Reserve Board,
                       a "loan value" as defined in Regulation G) equal to the lesser of (x) the aggregate  amount of
                       the accrued  interest and principal  then  outstanding  on the loan and (y) the aggregate fair
                       market  value,  at the date of such  termination,  of the shares  purchased  with the original
                       loan, and (ii) repay in full the aggregate  amount of the accrued  interest and principal then
                       outstanding  on the  loan on the  earlier  of (x) the  third  anniversary  of the  date of the
                       Participant's Retirement or (y) the expiration of the original term of the loan.

              -        In the event of the  Participant's  termination of employment due to death or disability,  and if the amount
                       of the  unpaid  accrued  interest  and  principal  of the  loan  60  days  after  the  date of
                       termination  exceeds the then  aggregate  fair market value of the shares  purchased  with the
                       original loan, the Company will forgive,  as of such date, the portion of the accrued interest
                       and principal of the loan in excess of such  aggregate  fair market value of such shares,  and
                       the remaining  accrued  interest and principal amount of the loan shall be immediately due and
                       payable.

         o        The  exercise of the Put Right (as defined  below)  following a Change in Control will be deemed a voluntary
                  early  repayment  of the loan,  so that the proceeds of an exercise of such Put Right will be first
                  applied to the accrued interest and principal of the Participant's loan.
                                                         E-7
                                                                                            EXHIBIT 10.29 (CONTINUED)

                                                   AMENDMENT NO. 1
                                                       TO THE
                                          NAVISTAR INTERNATIONAL CORPORATION
                                               STOCK OWNERSHIP PROGRAM


         o        Interest will accrue on the loan at the  Applicable  Federal Rate in effect on the loan  commencement  date,
                  compounded annually.  However,  interest is payable only at maturity,  except as noted above in the
                  event of certain terminations or upon a voluntary repayment of the loan.

         o        The loan will be a "full recourse" loan,  meaning that you will be obligated to repay the loan with interest
                  even if the value of the shares  purchased with the loan is less than the amount of such repayment;
                  thus, you will be personally at risk with respect to your purchase.

         o        The loan will be "unsecured" except as noted above in the event of certain terminations."

         3.       The form of  Promissory  Note  attached as Exhibit D to the Plan is hereby  deleted in its entirety
and replaced with the form of "Promissory Note" attached hereto as Exhibit D.

           IN WITNESS WHEREOF, the undersigned Plan Administrator certifies that the Company based upon action by
its Board of Directors dated April 17, 2001, has caused this Amendment No. 1 to be adopted.


         /s/Pamela J. Hamilton
                                                  ------------------
                                                  Pamela J. Hamilton
                                                  Senior Vice President,
                                                  Human Resources and Administration

                                                         E-8

EX-10.30 7 exh10esa-3q01.htm EXHIBIT 10.30 TO THE THIRD QUARTER FORM 10Q exhibit 10.30

                                                                                                       EXHIBIT 10.30


                                      EXECUTIVE SEVERANCE AGREEMENT AMENDMENT
                                      ---------------------------------------

         THIS AGREEMENT between Navistar  International  Corporation,  a Delaware  corporation (the "Company"),  its
principal operating subsidiary,  International Truck and Engine Corporation  (formerly named Navistar  International
Transportation Corp.), a Delaware corporation ("NITC" or "INTERNATIONAL"),  and [EMPLOYEE] (the "Executive"), amends
the Executive Severance Agreement ("ESA") previously entered into by the parties.

                                                     WITNESSETH
                                                     ----------

         WHEREAS, the Company, International, and the Executive desire to make several changes to the ESA in effect
among them;

         NOW, THEREFORE, it is agreed that the ESA is hereby amended, effective October 17, 2000, to make the
following changes:

1.       Add a new paragraph (d) §4 of the Agreement to read as follows:

         (d)  Anticipatory  terminations.  For  purposes  of  this  Agreement,  the  termination  of an  Executive's
employment  shall be deemed to have been  terminated  following a Change in Control if: (i) the  termination  occurs
prior to a Change in Control  (whether or not a Change in Control  ever  occurs) and the  termination  occurs at the
request or direction of a person who has entered into an agreement with the Company the  consummation of which would
constitute  a Change in Control  or,  (ii) the  termination  occurs  prior to a Change in Control  (whether or not a
Change in Control ever occurs) and the  termination is otherwise in connection  with or in  anticipation of a Change
in Control.  For purposes of this  Agreement,  the  Executive's  employment  shall be deemed to have been terminated
following a Change in Control as a result of an event  which  constitutes  a  Constructive  Termination,  if (i) the
Executive  voluntarily  terminates  his or her employment  prior to a Change in Control  (whether or not a Change in
Control ever occurs) and the  circumstances  or event which  constitutes a  Constructive  Termination  occurs at the
request or direction of a person who has entered into an agreement with the Company the  consummation of which would
constitute  a Change in Control or, (ii) the  Executive  voluntarily  terminates  his or her  employment  prior to a
Change in Control  (whether or not a Change in Control  ever occurs) and such  termination  or the  circumstance  or
event which  constitutes a Constructive  Termination is otherwise in connection  with or in anticipation of a Change
in Control.

2.       Add a new paragraph (e) §4 of the Agreement to read as follows:

         (e)  Paragraph  4(b) of the  Agreement  defines  Constructive  Termination.  Clause (i) of  Paragraph  4(b)
provides that a Constructive  Termination  includes an event that has a material  change,  adverse to the Executive.
For the purpose of these  provisions,  a material  change,  adverse to the  Executive is deemed to have  occurred if
Navistar  International  Corporation ceases to be a public company (except as a result of a transaction in which the
Company  ceases to be  publicly  traded and the  Executive  has, or has the right to  acquire,  an equity  interest,
including  stock  options,  other  than as part  of a  compensation  program),  and if the  Executive  is one of the
following persons:


           i)  An executive officer of Navistar International Corporation;
          ii)  An executive  officer of NITC (currently named  International  Truck and Engine  Corporation) who is on the
               Executive Council of Navistar International Corporation;
         iii)  The Vice President of Public Affairs of NITC (currently named International Truck and Engine Corporation).



                                                        E-9

                                                                                           EXHIBIT 10.30 (CONTINUED)

                                      EXECUTIVE SEVERANCE AGREEMENT AMENDMENT
                                      ---------------------------------------


This Paragraph 4(e) shall not be construed as a limitation on the meaning of  Constructive  Termination as set forth
in Paragraph 4(b).

3.       Paragraph  5(a)(ii) is amended by  replacing  Clause(C),  which  relates to payment of tax  counseling  and
preparation expense reimbursement, to read as follows:

         (C)  such  flexible  perquisite  allowance  actually  paid to the  Executive  at or  prior  to the  time of
         termination  shall be  retained  by the  Executive,  and,  if the  termination  is  pursuant to a change in
         control, the Executive will be paid an amount equal to one full year  flexible perquisite allowance


         IN WITNESS WHEREOF,  the Executive has hereunto set his or her hand and, pursuant to the authorization from
its Board of Directors,  the Company and INTERNATIONAL have each caused these presents to be executed in its name on
its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary,  all as of the day and year
first above written.

                               NAVISTAR INTERNATIONAL CORPORATION

                               By:_______________________________________
                                    Chairman, President and
                                    Chief Executive Officer

ATTEST:

- ----------------
Secretary

(SEAL)

                                INTERNATIONAL TRUCK AND ENGINE CORPORATION


                                 By:____________________________________
                                      Chairman, President and
                                      Chief Executive Officer

ATTEST:

- ---------------
Secretary

(SEAL)

                                     --------------------------------------
                                                   Executive


                                                        E-10

-----END PRIVACY-ENHANCED MESSAGE-----