EXHIBIT 13

FINANCIAL INFORMATION

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

Statement of Financial Reporting Responsibility................ 12

Independent Auditors' Report................................... 13

Financial Statements

Statement of Income.......................................... 14
Statement of Comprehensive Income............................ 14
Statement of Financial Condition............................. 15
Statement of Cash Flow....................................... 16

Notes to Financial Statements

1 Summary of accounting policies........................... 17
2 Postretirement benefits.................................. 22
3 Income taxes............................................. 25
4 Marketable securities.................................... 28
5 Receivables.............................................. 29
6 Inventories.............................................. 30
7 Property and equipment................................... 30
8 Debt..................................................... 31
9 Other liabilities........................................ 34
10 Financial instruments.................................... 35
11 Commitments, contingencies, restricted assets,
concentrations and leases............................. 37
12 Legal proceedings and environmental matters.............. 38
13 Segment data............................................. 39
14 Preferred and preference stocks.......................... 42
15 Common shareowners' equity............................... 43
16 Earnings per share....................................... 45
17 Stock compensation plans................................. 46
18 Selected quarterly financial data (unaudited)............ 48

Supplemental Financial Information (unaudited)................. 49

Five-Year Summary of Selected Financial
and Statistical Data......................................... 51

- 1 -

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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
captions "Year 2000" and "Business Environment."

Navistar International Corporation is a holding company and its principal
operating subsidiary is Navistar International Transportation Corp.
(Transportation). In this discussion and analysis, "company" 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
company's truck segment is engaged in the manufacture and marketing of Class 5
through 8 trucks, including school buses. The truck segment also provides
customers with proprietary products needed to support the International truck
and bus lines, together with a wide selection of other standard truck and
trailer aftermarket parts. The truck segment operates primarily in the United
States (U.S.) and Canada as well as in Mexico, Brazil and other selected export
markets. The company's engine segment is engaged in the design and manufacture
of mid-range diesel engines. The engine segment also provides customers with
proprietary products needed to support the International engine lines, together
with a wide selection of other standard engine and aftermarket parts. The engine
segment operates primarily in the U.S. and Brazil. The financial services
operations of the company provide wholesale, retail and lease financing, and
domestic commercial physical damage and liability insurance coverage to the
company's dealers and retail customers and to the general public through an
independent insurance agency system.

The discussion and analysis reviews the operating and financial results,
and liquidity and capital resources of the manufacturing and financial services
operations. Manufacturing operations reflect the financial results of the
financial services operations included on a one-line basis under the equity
method of accounting. Financial services operations include Navistar Financial
Corporation (NFC) and the company's foreign finance companies. See Note 1 to the
Financial Statements.

RESULTS OF OPERATIONS

The company reported net income of $544 million for 1999, or $8.20 per
diluted common share, reflecting higher sales of engines as well as a $178
million reduction in the company's tax valuation allowance. Net income was $299
million, or $4.11 per diluted common share in 1998, and $150 million, or $1.65
per diluted common share in 1997. Net income in 1998 included a $45 million
reduction in the company's tax valuation allowance.

The company's manufacturing operations reported income before income taxes
of $474 million in 1999 compared with $321 million in 1998 and $164 million in
1997. The truck segment's profits increased by 20% in 1999 and 91% in 1998
compared to revenue increases of 6% and 26%, respectively. The engine segment's
profits increased by 58% in 1999 and 35% in 1998 compared to revenue increases
of 21% and 22%, respectively. The truck and engine segments' profit increases
during 1999 are attributable to economies of scale in engine production,
improved truck pricing and various cost improvement initiatives by both the
truck and engine segments. The truck and engine segments' profit increases
during 1998 are attributable to economies of scale in truck and engine
production, improved truck pricing and various other cost improvement
initiatives by both the truck and engine segments. The truck and engine
segments' revenue increases are attributable to increases in shipments of trucks
and of mid-range diesel engines to other original equipment manufacturers
(OEMs).

The financial services segment's profit in 1999 was $28 million higher than
in 1998. This is primarily attributable to the increase in NFC's pretax income
and a legal settlement in favor of an insurance subsidiary of the company. NFC's

- 2 -

pretax income in 1999 was $101 million, a 19% increase from $85 million in 1998,
primarily as a result of an increase in wholesale and retail financing activity
and proportionally lower interest expense and debt levels resulting from a
higher level of average outstanding accounts payable to affiliates. This was
partially offset by a higher provision for losses and higher costs to service
the larger portfolio. The financial services segment's profit in 1998 was $7
million higher than in 1997, primarily due to the $10 million increase in NFC's
pretax income from the $75 million reported in 1997. This increase is primarily
due to an increase in wholesale and retail financing activity partially offset
by lower financing margins.

Sales and Revenues. Sales and revenues of $8,647 million in 1999 were 10% higher
than the $7,885 million reported in 1998 which was 24% higher than the $6,371
million reported in 1997. Sales of manufactured products totaled $8,326 million
in 1999, 9% above the $7,629 million reported for 1998 which was a 24% increase
from the $6,147 million reported in 1997.

U.S. and Canadian industry retail sales of Class 5 through 8 trucks totaled
465,500 units in 1999, a 19% increase from the 392,000 units sold in 1998, and
34% higher than the 347,400 units sold in 1997. Class 8 heavy truck sales
totaled 286,000 units, a 23% increase from the 232,000 units sold in 1998, and
45% higher than the 196,800 units sold in 1997. Industry sales of Class 5, 6 and
7 medium trucks, including school buses, totaled 179,500 units in 1999, a 12%
increase from 1998, when 160,000 units were sold, which was a 6% increase over
the 150,600 units sold in 1997. Industry sales of school buses, which accounted
for 19% of the medium truck market, increased approximately 3% from 1998 to
33,800 units.

The company's 1999 market share of 25.6% in the combined U.S. and Canadian
Class 5 through 8 truck market was constrained by the fact that continued
industry demand for heavy and medium trucks outstripped system capacity. Market
shares in 1998 and 1997 were 29.1% and 28.3%, respectively. (Sources: Ward's
Communications and the Canadian Vehicle Manufacturers Association).

Total engine units shipped reached 374,200 in 1999, a 25% increase over
1998. This excludes the 48,200 units shipped by Maxion International Motores
S.A., the company's joint venture in Brazil. Shipments of mid-range diesel
engines by the company to other OEMs during 1999 were a record 286,500 units, a
34% increase over the 213,700 units shipped in 1998, which represented a 16%
improvement over 1997. Higher shipments to Ford Motor Company to meet consumer
demand for the light trucks and vans which use this engine was the primary
reason for the increases.

Finance and insurance revenue was $256 million for 1999, a $55 million
increase over 1998 revenue of $201 million, which was a $27 million increase
over 1997 revenue of $174 million. These increases are primarily due to
increased wholesale and retail financing.

The 1999 increase in other income is primarily due to a legal settlement in
favor of an insurance subsidiary of the company.

Costs and Expenses. Manufacturing gross margin was 18.0% of sales in 1999,
compared with 15.3% in 1998, and 14.2% in 1997. The increase in 1999 gross
margin is primarily due to improved pricing and improved operating efficiencies.
The 1998 improvement in margin was primarily due to improved operating
efficiencies offset by provisions for employee profit sharing.

Postretirement benefits expense of $216 million in 1999 increased $42
million from $174 million in 1998 and approximated the 1997 expense of $215
million. The 1999 increase is mainly a result of higher retiree healthcare
expense and higher profit sharing provisions to a retiree trust ($23 million and
$16 million, respectively). The 1998 decrease was mainly a result of higher
expected return on plan assets and lower amortization of prior service cost ($69
million and $9 million, respectively) offset by higher profit sharing provisions
to a retiree trust ($38 million).

Engineering and research expense increased to $281 million in 1999 from
$192 million in 1998 and $124 million in 1997. Approximately 50% and 35%,
respectively, of these increases reflect the company's continuing investment in

- 3 -

its next generation vehicle (NGV) program and approximately 25% and 20%,
respectively, of the 1999 and 1998 increases reflect investment in the next
generation diesel (NGD) program.

Sales, general and administrative expense was $486 million in 1999 compared
with $427 million in 1998 and $365 million in 1997. The 1999 increase is
primarily due to marketing programs and the operational implementation of the
company's integrated truck and engine strategies ($13 million and $34 million,
respectively). The change between 1998 and 1997 primarily reflects investment in
the company's five-point truck strategy and an increase in the provision for
payment to employees as provided by the company's performance incentive programs
($24 million and $20 million, respectively).

Interest expense increased to $135 million in 1999 from $105 million in
1998 and $74 million in 1997. The increase in 1999 resulted, in part, from
higher average receivable funding requirements driven by higher sales levels.
Additionally, a portion of the increase in 1999 and the majority of the increase
in 1998 is due to a $358 million net increase in manufacturing operations debt
during 1998 driven by the issuance of $350 million of senior and senior
subordinated notes in February 1998.

Other expense for 1998 includes $14 million related to the secondary public
offering of 19.9 million shares of the company's common stock which was
completed in June 1998.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow is generated from the manufacture and sale of trucks and
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 sources of
funding for NFC. Insurance operations are self-funded.

The company had working capital of $340 million at October 31, 1999,
compared to $482 million at October 31, 1998. The decrease from 1998 to 1999 is
primarily due to a net change in operating assets and liabilities of $439
million as described below, and $144 million of purchases of common stock offset
by net sales and maturities of marketable securities of $330 million.

Consolidated cash, cash equivalents and marketable securities of the
company were $576 million at October 31, 1999, $1,064 million at October 31,
1998, and $965 million at October 31, 1997. Cash, cash equivalents and
marketable securities available to manufacturing operations, including a 1999
$659 million intercompany receivable from NFC, which NFC is obligated to repay
upon request, totaled $1,045 million at October 31, 1999, $1,010 million at
October 31, 1998 and $901 million at October 31, 1997.

Cash provided by operations during 1999 totaled $302 million, primarily
from net income of $544 million. Income tax expense for 1999 was $47 million,
primarily composed of cash payments of $40 million to federal and certain state,
local and foreign governments.

The net change in operating assets and liabilities of $439 million includes
a $445 million increase in receivables, primarily due to a net increase in
wholesale note and account balances. The change also includes a $129 million
increase in inventory due to higher production levels, offset by a related $139
million increase in accounts payable.

During 1999, investment programs used $451 million in cash principally to
fund $498 million of capital expenditures and investments in affiliates. Capital
expenditures were made primarily for the NGV and NGD programs, increased engine
production capacity, and increased capacity, infrastructure and facility
enhancements at the Escobedo, Mexico plant. Investment programs also used cash
for a $160 million net increase in retail notes and lease receivables and a $108
million net increase in property and equipment leased to others. These were
offset by a net decrease in marketable securities of $330 million.

Financing activities provided an $88 million net increase in notes and debt
outstanding under the bank revolving credit facility and other commercial paper
programs, and a $39 million net increase in long-term debt. Additionally, $22
million was borrowed under the Mexican credit facility, of which approximately

- 4 -

half is denominated in Mexican pesos. These were offset by purchases of $144
million of common stock during 1999 in accordance with board approved spending
levels for 1999 and 2000.

Cash flow from the company's manufacturing and financial services
operations is currently sufficient to cover planned investment in the business.
Capital investments for 2000 are expected to be nearly $600 million including
approximately $100 million for the NGV program and $200 million for the NGD
program. In addition to the NGV and NGD programs, capital expenditures are
planned to purchase lease options on engine equipment, to add a school bus
facility in Tulsa, Oklahoma, and for normal improvements to existing facilities
and products. The company had outstanding capital commitments of $505
million at October 31, 1999, including $91 million for the NGV program and $325
million through 2003 for the NGD program.

The company currently estimates $460 million and $500 million in capital
spending and $190 million and $120 million in development expense through 2004
for the NGV and NGD programs, respectively. Approximately $90 million and $20
million of the development expenses are planned for 2000. Included in the NGD
amounts for capital spending and development expense are the company's planned
investment to produce new high technology diesel engines in Huntsville, Alabama.

During October 1999, the company's board of directors approved a new share
repurchase program for as much as $243 million. Under the new repurchase
program, shares will be purchased on the open market from time to time; however,
the company cannot purchase more than 4.5 million shares through March 2001
without impairing the use of its tax loss carryforwards. Through November 1999,
the company has purchased $46 million worth of shares under this program,
including $11 million in fiscal 1999.

The company's truck assembly facility in Escobedo, Mexico is encumbered by
a lien in favor of certain lenders of the company as collateral for a $125
million revolving Mexican credit facility. At October 31, 1999, $52 million of a
Mexican subsidiary's receivables were pledged as collateral for bank borrowings.
In addition, as of October 31, 1999, the company is contingently liable for
approximately $204 million for various purchasing commitments, credit guarantees
and buyback programs. Based on historical loss trends, the company's exposure is
not considered material. Additionally, restrictions under the terms of the
senior and senior subordinated notes and the Mexican credit facility include a
limitation on indebtedness and a limitation on certain restricted payments.

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. At October 31, 1999, NFC's funding consisted of sold finance
receivables of $2,296 million, bank and other borrowings of $1,287 million,
subordinated debt of $100 million, capital lease obligations of $323 million and
equity of $280 million.

Through the asset-backed markets, NFC has been able to fund fixed rate
retail note receivables at rates offered to companies with investment grade
ratings. During 1999, NFC sold $1,260 million of retail notes through Navistar
Financial Retail Receivables Corporation (NFRRC), a wholly owned subsidiary of
NFC. At October 31, 1999, the remaining shelf registration available to NFRRC
for the public issuance of asset-backed securities was $2,257 million. Also, at
October 31, 1999, Navistar Financial Securities Corporation, a wholly owned
subsidiary of NFC, had in place a revolving wholesale note trust that provides
for the funding of $600 million of wholesale notes.

At October 31, 1999, available funding under NFC's bank revolving credit
facility and the asset-backed commercial paper facility was $87 million, of
which $35 million was used to back short-term debt. The remaining $52 million,
when combined with unrestricted cash and cash equivalents, made $90 million
available to fund the general business purposes of NFC.

- 5 -

In November 1999, NFC sold $533 million of retail notes, net of unearned
finance income, through NFRRC to two multi-seller asset-backed commercial paper
conduits sponsored by a major financial institution. The gain on the sale, which
was not material, was recognized in November 1999.

NFC's maximum contractual exposure under all receivable sale recourse
provisions at October 31, 1999, was $257 million. However, management believes
the recorded reserves for losses on sold receivables are adequate. See Note 5 to
the Financial Statements.

At October 31, 1999, NFC held forward interest rate contracts with notional
amounts of $500 million and $75 million in anticipation of retail receivable
sales to occur in November 1999 and March 2000, respectively. These contracts
were entered into to reduce exposure to future changes in interest rates. NFC
intends to close these positions on the pricing dates of the sales. Any
resulting gain or loss will be included in the gain or loss on the sales of
receivables. For the protection of investors in NFC's debt securities, NFC
issued an interest rate cap. The notional amount of the cap, $374 million,
amortizes based on the expected outstanding principal balance of the sold retail
receivables. Under the terms of the cap agreement, NFC will make payments if
interest rates exceed certain levels. The interest rate cap is recorded at fair
value with changes in fair value recognized in income. At October 31, 1999, the
impact on income was not material.

In addition, the company held German mark, Japanese yen, and Canadian
dollar forward contracts with notional amounts of $49 million, $13 million, and
$10 million, respectively, and other derivative contracts with notional amounts
of $19 million. At October 31, 1999, the unrealized net loss on these contracts
was not material.

At October 31, 1999, the Canadian operating subsidiary was contingently
liable for retail customers' contracts and leases financed by a third party. The
Canadian operating subsidiary is subject to maximum recourse of $251 million on
retail contracts and $22 million on retail leases. The Canadian operating
subsidiary, NFC and certain other subsidiaries included in the financial
services operations are parties to agreements that may result in the restriction
of amounts which can be distributed to Transportation in the form of dividends
or loans and advances. At October 31, 1999, the maximum amount of dividends
which were available for distribution under the most restrictive covenants was
$220 million.

The company and Transportation are obligated under certain agreements with
public and private lenders of NFC to maintain the subsidiary's income before
interest expense and income taxes at not less than 125% of its total interest
expense. No income maintenance payments were required for the three years ended
October 31, 1999.

In May 1999, Moody's and Duff and Phelps raised the company's senior debt
ratings from Ba1 and BB+ to Baa3 and BBB-, respectively and raised the company's
subordinated debt ratings from Ba3 and BB- to Ba2 and BB, respectively. NFC's
senior debt ratings increased from Ba1 and BBB- to Baa3 and BBB, respectively.
NFC's subordinated debt ratings were also raised from Ba3 and BB+ to Ba2 and
BBB-, respectively.

It is the opinion of management that, in the absence of significant
unanticipated cash demands, current and forecasted cash flow will provide a
basis for financing operating requirements, capital investments and planned
repurchases of common stock. Management also believes that collections on the
outstanding receivables portfolios as well as funds available from various
funding sources will permit the financial services operations to meet the
financing requirements of the company's dealers and customers.

ENVIRONMENTAL MATTERS

- 6 -

cases, consists of data related to quantities and characteristics of material
generated at, or shipped to, each site as well as cost estimates from PRPs
and/or federal or state regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the company's share, if any, of the
probable costs and is provided for in the financial statements. These
obligations are generally recognized no later than completion of the remedial
feasibility study and are not discounted to their present value. The company
reviews its accruals on a regular basis and believes that, based on these
calculations, its share of the potential additional costs for the cleanup of
each site will not have a material effect on the company's financial results.

DERIVATIVE FINANCIAL INSTRUMENTS

As disclosed in Notes 1 and 10 to the Financial Statements, the company
uses derivative financial instruments to transfer or reduce the risks of foreign
exchange and interest rate volatility, and potentially increase the return on
invested funds.

The company's manufacturing operations, as conditions warrant, hedge
foreign exchange exposure on the purchase of parts and materials from foreign
countries and its exposure from the sale of manufactured products in other
countries. Contracted purchases of commodities or manufacturing equipment may
also be hedged.

The financial services operations may use forward contracts to hedge the
fair value of their fixed rate receivables against changes in market interest
rates in anticipation of the sale of such receivables. The financial services
operations also use interest rate swaps to reduce exposure to interest rate
changes when they sell fixed rate receivables on a variable rate basis. For the
protection of investors in NFC's debt securities, NFC may write interest rate
caps when fixed rate receivables are sold on a variable rate basis.

MARKET RISK DISCLOSURE

The company's primary market risks include fluctuations in interest rates
and currency exchange rates. The company is also exposed to changes in the
prices of commodities used in its manufacturing operations and to changes in the
prices of equity instruments owned by the company. Commodity price risk related
to the company's current commodity financial instruments and equity price risk
related to the company's current investments in equity instruments are not
material. The company does not hold any material market risk sensitive
instruments for trading purposes.

The company has established policies and procedures to manage sensitivity
to interest rate and foreign currency exchange rate market risk. These
procedures include the monitoring of the company's level of exposure to each
market risk, the funding of variable rate receivables with variable rate debt,
and limiting the amount of fixed rate receivables which may be funded with
floating rate debt. These procedures also include the use of derivative
financial instruments to mitigate the effects of interest rate fluctuations and
to reduce the exposure to exchange rate risk.

Interest rate risk is the risk that the company will incur economic losses
due to adverse changes in interest rates. The company measures its interest rate
risk by estimating the net amount by which the fair value of all of its interest
rate sensitive assets and liabilities would be impacted by selected hypothetical
changes in market interest rates. Fair value is estimated using a discounted
cash flow analysis. Assuming a hypothetical instantaneous 10% decrease in
interest rates as of October 31, 1999 and 1998, the net fair value of these
instruments would decrease by approximately $5 million in each year. The
company's interest rate sensitivity analysis assumes a parallel shift in
interest rate yield curves. The model, therefore, does not reflect the potential
impact of changes in the relationship between short-term and long-term interest
rates.

Foreign currency risk is the risk that the company will incur economic
losses due to adverse changes in foreign currency exchange rates. The company's
primary exposure to foreign currency exchange fluctuations are the Canadian
dollar/U.S. dollar and Mexican peso/U.S. dollar. At October 31, 1999 and 1998,
the potential reduction in future earnings from a hypothetical instantaneous 10%
adverse change in quoted foreign currency spot rates applied to foreign currency

- 7 -

sensitive instruments would be approximately $10 million in each year. The
foreign currency sensitivity model is limited by the assumption that all of the
foreign currencies to which the company is exposed would simultaneously decrease
by 10%, because such synchronized changes are unlikely to occur. The effects of
foreign currency forward contracts have been included in the above analysis;
however, the sensitivity model does not include the inherent risks associated
with the anticipated future transactions denominated in foreign currency for
which these forward contracts have been entered into for hedging purposes.

YEAR 2000

In 1995, the company instituted a corporate-wide Year 2000 readiness
project to identify all systems which will require modification or replacement,
and to establish appropriate remediation and contingency plans to avoid an
impact on the company's ability to continue to provide its products and
services. Navistar has established a team of professionals within each of its
sites and locations to implement and complete this initiative. In 1997, the
company expanded its Year 2000 readiness project to include the company's
products, external suppliers, dealers and facilities.

The company's Year 2000 program is directed to four major areas: products,
internal systems (including information technology (IT) and non-IT systems),
suppliers and dealers.

The company has completed its compliance review of virtually all of its
products and has not learned of any products which it manufactures that will
cease functioning or experience an interruption in operation as a result of the
transition to the Year 2000.

The internal systems portion of the project addresses personal computing;
facilities, including the physical "machines" inside a plant or office complex;
and computer business systems that are commonly run on larger mainframes and
mid-range computers as well as the supporting infrastructure for the company's
computer business systems. The company presently believes that it has identified
all significant applications that require remediation, which in some cases will
involve the replacement of the systems, to achieve Year 2000 readiness. Both
internal and external resources are being used to make the required
modifications and test for Year 2000 compliance. At November 30, 1999, the
company estimates that it was 99.8% complete with the conversion or compliance
checking of its internal systems including significant applications. The company
is targeting the completion of the modifications and testing processes to all
significant applications by mid-December 1999, which is prior to any anticipated
impact on its operating systems. Remaining significant applications have
contingency plans available.

The company has completed assessing the Year 2000 readiness of its
production and service parts suppliers through a supplier survey process
designed and coordinated by the Automotive Industry Action Group (AIAG).
Responses to these questionnaires have been received and based on these
responses, individual supplier contacts and 160 on-site assessments, the company
believes that the majority of these suppliers have successfully completed their
Year 2000 readiness programs. In addition, contingency plans have been
established for all suppliers to assure an uninterrupted flow of materials in
the unlikely event there are some that have unexpected problems.

NFC has received written assurances from its major suppliers of cash
management services that their main treasury management products and required
backroom processing have been tested and deemed ready for the Year 2000.

The company is working with its independent dealers on their Year 2000
readiness and monitoring their progress. The company has contacted all dealers
and is working with its certified Dealer Business Systems Vendors to assist the
dealers in becoming Year 2000 compliant. Compliance of all certified dealers
systems is targeted for completion in December 1999.

The company's total cost of the Year 2000 project, which will be funded
through operating cash flows, is estimated to be $32 million, including $26
million of estimated expense and $6 million of capital expenditures.
Approximately $23 million has been expensed and approximately $6 million has

- 8 -

been capitalized through October 31, 1999. The remaining costs are estimated to
be incurred in fiscal year 2000. The company's estimated annual expense for the
Year 2000 project is not material to the company's fiscal 2000 information
technology budget. Other non-Year 2000 information technology efforts have not
been materially delayed or impacted by the Year 2000 project.

The costs of the Year 2000 project and the dates on which the company
believes it will complete the Year 2000 modifications and testing are based on
management's best estimates, which were derived utilizing numerous assumptions
regarding future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those currently anticipated. Examples of factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and embedded technology, and similar
uncertainties. In addition, there can be no guarantee that the systems or
products of other entities, including the company's independent dealers, on
which the company relies will be converted on a timely basis, or that a failure
to convert by another company, or a conversion that is incompatible with the
company's systems, would not have a material adverse effect on the company.

The company currently believes that the most reasonably likely worst case
scenario with respect to the Year 2000 issue is the failure of a supplier,
including utility suppliers, to become Year 2000 compliant, which could result
in the temporary interruption of the supply of necessary products or services to
a manufacturing facility. This could result in interruptions in production for a
period of time, which in turn could result in potential lost sales and profits.
Additionally, sales, general and administrative expense could increase if
automated functions would need to be performed manually.

The company currently believes that the most reasonably likely worst case
scenario for its financial services operations with respect to the Year 2000
issue would be the inability to sustain its current level of performance and
customer service. Additionally, a significant failure of the banking systems or
key entities in the financial markets could adversely affect the financial
services operations' ability to access various credit and money markets.

As part of its continuous assessment process, each of the business
locations have prepared contingency plans for critical business processes that
will be placed into effect in the event of a Year 2000 problem. These plans
identify when contingent actions should be taken and identify the resources
necessary for a proper response. Review and testing of the contingency plans
will continue through the remainder of 1999, along with the necessary training
of people that will manage through the crossover into the Year 2000.

Checklists have been established for each of the contingency plans, against
which status will be measured as the crossover occurs. The first priority will
be to determine that computing platforms, data base management systems and
communication networks for both voice and data are functioning properly.
Immediately following, a series of production applications have been scheduled
to run, with the objective being to quickly identify any remaining Year 2000
problems, and to initiate corrective actions promptly.

A Year 2000 command center structure has been established to facilitate the
management of activities and communications, consisting of a central center and
10 subsidiary centers defined for the business locations. Staffing has been
identified for each of the centers, along with the procedures to manage the
implementation of the defined pre and post-Year 2000 activities.

Navistar is using its best efforts to ensure that the Year 2000 impact on
its critical systems and processes will not affect its supply of product,
quality or service. However, in the event that the company is unable to complete
its remedial actions described above and is unable to implement adequate
contingency plans in the event problems arise, there could be a material adverse
effect on the company's business, financial position or results of operations.

- 9 -

The preceding Year 2000 discussion contains various forward-looking
statements which represent the company's beliefs or expectations regarding
future events. When used in the Year 2000 discussion, the words "believes,"
"expects," "estimates," "planned," "could," and similar expressions are intended
to identify forward-looking statements. Forward-looking statements include,
without limitation, the company's expectations as to when it will complete the
remediation and testing phases of its Year 2000 program as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness; and the
company's belief that its internal systems and equipment will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and remediate all
date-sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Year 2000 problems.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement defines whether
or not certain costs related to the development or acquisition of internal use
software should be expensed or capitalized, and is effective for fiscal years
beginning after December 15, 1998. The company adopted this statement effective
November 1, 1999. At planned 2000 spending levels, adoption of this statement
will result in the company capitalizing approximately $25 million of certain
costs that would have otherwise been expensed.

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), to establish accounting and
reporting requirements for derivative instruments. This standard requires
recognition of all derivative instruments in the statement of financial
condition as either assets or liabilities, measured at fair value. This
statement additionally requires changes in the fair value of derivatives to be
recorded each period in current earnings or comprehensive income depending on
the intended use of the derivatives. The company is currently assessing the
impact of this statement on the company's results of operations, financial
condition and cash flows. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS 133 by deferring for one year, the effective date of SFAS 133, to
those fiscal years beginning after June 15, 2000.

INCOME TAXES

The Statement of Financial Condition at October 31, 1999 and 1998 includes
a deferred tax asset of $896 million and $912 million, respectively, net of
valuation allowances of $86 million and $264 million, respectively, related to
future tax benefits. The deferred tax asset has been reduced by the valuation
allowance as management believes it is more likely than not that some portion of
the deferred tax asset may not be realized in the future.

The deferred tax asset includes the tax benefits associated with cumulative
tax losses of $1,134 million and temporary differences, which represent the
cumulative expense of $1,224 million recorded in the Statement of Income that
has not been deducted on the company's tax returns. The valuation allowance at
October 31, 1999, assumes that it is more likely than not that approximately
$226 million of cumulative tax losses will not be realized before their
expiration date. Realization of the net deferred tax asset is dependent on the
generation of approximately $2,400 million of future taxable income. Until the
company has utilized its significant net operating loss carryforwards, the cash
payment of U.S. federal income taxes will be minimal. See Note 3 to the
Financial Statements.

The company performs extensive analysis to determine the amount of the
deferred tax asset. Such analysis is based on the premise that the company is,
and will continue to be, a going concern and that it is more likely than not
that deferred tax benefits will be realized through the generation of future

- 10 -

taxable income. Management reviews all available evidence, both positive and
negative, to assess the long-term earnings potential of the company. The
financial results are evaluated using a number of alternatives in economic
cycles at various industry volume conditions. One significant factor considered
is the company's role as a leading producer of heavy and medium trucks and
school buses and mid-range diesel engines.

As a result of the increase in 1999 industry demand, the continued
successful implementation of the company's manufacturing strategies, changes in
the company's operating structure, and other positive operating indicators,
management reviewed its projected future taxable income and evaluated the impact
of these changes on its deferred tax asset valuation allowance. This review was
completed during the third quarter of 1999 and resulted in a reduction to the
deferred tax asset valuation allowance of $178 million which has been recorded
as a reduction of income tax expense resulting in an effective tax rate of 8%.
In addition, a $45 million reduction in the allowance was recorded during the
fourth quarter of 1998 based on a similar review. Management believes that, with
the combination of available tax planning strategies and the maintenance of
significant market share, earnings are achievable in order to realize the net
deferred tax asset of $896 million.

Reconciliation of the company's income before income taxes for financial
statement purposes to U.S. taxable income for the years ended October 31 is as
follows:

Millions of dollars 1999 1998 1997
- -----------------------------------------------------------------------------

Income before income taxes .... $ 591 $ 410 $ 242
Exclusion of income
of foreign subsidiaries ..... (102) (7) (3)
State income taxes ............ (4) (3) (2)
Temporary differences.......... 72 (175) 145
Other ........................ (7) (26) 6
-------- -------- --------
Taxable income......... $ 550 $ 199 $ 388
======== ======== ========

BUSINESS ENVIRONMENT

Sales of Class 5 through 8 trucks have historically 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. Reflecting the stability of the general economy,
demand for new trucks remained strong during 1999. The decrease in the number of
new truck orders has decreased the company's order backlog to a more normal
level of 57,300 units at October 31, 1999, from 72,100 units at October 31,
1998. The company continually evaluates order receipts and backlog throughout
the year and will balance production with demand as appropriate.

The company currently projects 2000 U.S. and Canadian Class 8 heavy truck
demand to be 245,000 units, a 14% decrease from 1999. Although lower, this level
of demand is still considered strong allowing Navistar to produce at record
capacity levels. Process improvements and capacity expansions have been
implemented to enhance the company's ability to meet customer demand for its
products. Class 5, 6 and 7 medium truck demand, excluding school buses is
forecast at 128,000 units, 12% lower than in 1999. Demand for school buses is
expected to decrease only 5% in 2000 to 32,000 units. Mid-range diesel engine
shipments by the company to OEMs in 2000 are expected to be 324,000 units, 13%
higher than in 1999.

In 1999, the company announced that it had finalized a joint venture with a
Brazilian diesel engine producer to manufacture diesel engines in South America.

In June 1999, the employees represented by Local 127 of the Canadian Auto
Workers voted to ratify a new three-year labor agreement. The new contract
extends through June 1, 2002. Increased labor and pension costs associated with
the new contract are expected to be offset by work rule changes that provide
increased manufacturing flexibility.

- 11 -

STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY

Management of Navistar International Corporation and its subsidiaries is
responsible for the preparation and for the integrity and objectivity of the
accompanying financial statements and other financial information in this
report. The financial statements have been prepared in accordance with generally
accepted accounting principles and include amounts that are based on
management's estimates and judgments.

The accompanying financial statements have been audited by Deloitte &
Touche LLP, independent auditors. Management has made available to Deloitte &
Touche LLP all the company's financial records and related data, as well as the
minutes of the board of directors' meetings. Management believes that all
representations made to Deloitte & Touche LLP during its audit were valid and
appropriate.

Management is responsible for establishing and maintaining a system of
internal controls throughout its operations that provides reasonable assurance
as to the integrity and reliability of the financial statements, the protection
of assets from unauthorized use and the execution and recording of transactions
in accordance with management's authorization. Management believes that the
company's system of internal controls is adequate to accomplish these
objectives. The system of internal controls, which provides for appropriate
division of responsibility, is supported by written policies and procedures that
are updated by management, as necessary. The system is tested and evaluated
regularly by the company's internal auditors as well as by the independent
auditors in connection with their annual audit of the financial statements. The
independent auditors conduct their audit in accordance with generally accepted
auditing standards and perform such tests of transactions and balances as they
deem necessary. Management considers the recommendations of its internal
auditors and independent auditors concerning the company's system of internal
controls and takes the necessary actions that are cost-effective in the
circumstances to respond appropriately to the recommendations presented.

The Audit Committee of the board of directors, composed of five
non-employee directors, meets periodically with the independent auditors,
management, general counsel and internal auditors to satisfy itself that such
persons are properly discharging their responsibilities regarding financial
reporting and auditing. In carrying out these responsibilities, the Committee
has full access to the independent auditors, internal auditors, general counsel
and financial management in scheduled joint sessions or private meetings as in
the Committee's judgment seems appropriate. Similarly, the company's independent
auditors, internal auditors, general counsel and financial management have full
access to the Committee and to the board of directors and each is responsible
for bringing before the Committee or its Chair, in a timely manner, any matter
deemed appropriate to the discharge of the Committee's responsibility.

John R. Horne
Chairman, President and
Chief Executive Officer

Robert C. Lannert
Executive Vice President
and Chief Financial Officer

- 12 -

INDEPENDENT AUDITORS' REPORT

Navistar International Corporation,
Its Directors and Shareowners:

We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31, 1999
and 1998, and the related Statements of Income, Comprehensive Income and of Cash
Flow for each of the three years in the period ended October 31, 1999. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Navistar
International Corporation and Consolidated Subsidiaries at October 31, 1999 and
1998, and the results of their operations and their cash flow for each of the
three years in the period ended October 31, 1999, in conformity with generally
accepted accounting principles.

Deloitte & Touche LLP
December 13, 1999
Chicago, Illinois

- 13 -

STATEMENT OF INCOME
Navistar International Corporation
and Consolidated Subsidiaries
---------------------------------------
For the Years Ended October 31
Millions of dollars,
except share data 1999 1998 1997
- -------------------------------------------------------------------------------

Sales and revenues
Sales of manufactured products....... $ 8,326 $ 7,629 $ 6,147
Finance and insurance revenue........ 256 201 174
Other income......................... 65 55 50
-------- -------- --------
Total sales and revenues........ 8,647 7,885 6,371
-------- -------- --------

Costs and expenses
Cost of products and services sold... 6,862 6,498 5,292
Postretirement benefits.............. 216 174 215
Engineering and research expense..... 281 192 124
Sales, general
and administrative expense......... 486 427 365
Interest expense..................... 135 105 74
Other expense........................ 76 79 59
-------- -------- --------
Total costs and expenses........ 8,056 7,475 6,129
-------- -------- --------

Income before income taxes.. 591 410 242
Income tax expense.......... 47 111 92
-------- -------- --------

Net income........................... 544 299 150

Less dividends on
Series G preferred stock........... - 11 29
-------- -------- --------

Net income applicable
to common stock.................... $ 544 $ 288 $ 121
======== ======== ========

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

Earnings per share
Basic........................... $ 8.34 $ 4.16 $ 1.66
Diluted......................... $ 8.20 $ 4.11 $ 1.65

Average shares outstanding (millions)
Basic........................... 65.2 69.1 73.1
Diluted......................... 66.4 70.0 73.6

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

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED OCTOBER 31
Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Net income........................... $ 544 $ 299 $ 150
-------- -------- --------
Other comprehensive income (loss),
net of tax:
Minimum pension liability
adjustment, net of tax of
$(81), $76 and $(6) million.... 152 (144) 9
Foreign currency translation
adjustments and other.......... (18) 5 2
-------- -------- --------

Other comprehensive income (loss),
net of tax......................... 134 (139) 11
-------- -------- --------
Comprehensive income................. $ 678 $ 160 $ 161
======== ======== ========
See Notes to Financial Statements.
- 14 -

STATEMENT OF FINANCIAL CONDITION
Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
As of October 31
Millions of dollars 1999 1998
- -------------------------------------------------------------------------------

ASSETS

Current assets
Cash and cash equivalents................ $ 243 $ 390
Marketable securities.................... 138 259
Receivables, net......................... 1,550 1,352
Inventories.............................. 625 507
Deferred tax asset, net.................. 229 194
Other assets............................. 57 39
-------- --------

Total current assets.......................... 2,842 2,741

Marketable securities......................... 195 415
Finance and other receivables, net............ 1,268 844
Property and equipment, net................... 1,475 1,106
Investments and other assets.................. 207 127
Prepaid and intangible pension assets......... 274 238
Deferred tax asset, net....................... 667 718
-------- --------

Total assets ................................ $ 6,928 $ 6,189
======== ========

LIABILITIES AND SHAREOWNERS' EQUITY

Liabilities
Current liabilities
Current maturities of long-term debt..... $ 192 $ 186
Accounts payable, principally trade...... 1,399 1,265
Other liabilities........................ 911 808
-------- --------

Total current liabilities..................... 2,502 2,259

Debt: Manufacturing operations............... 445 446
Financial services operations.......... 1,630 1,490
Postretirement benefits liability............. 634 862
Other liabilities............................. 426 363
-------- --------

Total liabilities.................... 5,637 5,420
-------- --------

Commitments and contingencies

Shareowners' equity
Series D convertible junior preference stock.. 4 4
Common stock
(75.3 million shares issued)............. 2,139 2,139
Retained earnings (deficit)................... (297) (829)
Accumulated other comprehensive loss.......... (197) (331)
Common stock held in treasury, at cost
(12.1 million and 9.1 million shares held) (358) (214)
-------- --------

Total shareowners' equity............ 1,291 769
-------- --------

Total liabilities and shareowners' equity..... $ 6,928 $ 6,189
======== ========

- -------------------------------------------------------------------------------
See Notes to Financial Statements.
- 15 -

STATEMENT OF CASH FLOW
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------

For the Years Ended October 31
Millions of dollars 1999 1998 1997
- ------------------------------------------------------------------------------

Cash flow from operations
Net income........................... $ 544 $ 299 $ 150
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization.... 174 159 120
Deferred income taxes............ 185 149 82
Deferred tax asset valuation
allowance adjustment........... (178) (45) -
Postretirement benefits funding
less than (in excess of)
expense........................ 47 (373) (128)
Other, net....................... (31) (16) (51)
Change in operating assets
and liabilities:
Receivables.................. (445) (192) (194)
Inventories.................. (129) (13) (25)
Prepaid and
other current assets....... (24) (1) 4
Accounts payable............. 139 192 288
Other liabilities............ 20 202 137
-------- -------- --------
Cash provided by operations...... 302 361 383
-------- -------- --------

Cash flow from investment programs
Purchases of retail notes
and lease receivables.............. (1,442) (1,263) (970)
Collections/sales of retail notes
and lease receivables.............. 1,282 1,071 1,054
Purchases of marketable securities... (396) (837) (512)
Sales or maturities
of marketable securities........... 726 521 557
Capital expenditures................. (427) (302) (169)
Property and equipment
leased to others................... (108) (125) (42)
Investment in affiliates............. (71) (7) 8
Capitalized interest and other....... (15) (6) (8)
-------- -------- --------
Cash used in investment programs. (451) (948) (82)
-------- -------- --------

Cash flow from financing activities
Issuance of debt..................... 174 493 211
Principal payments on debt........... (135) (119) (46)
Net increase (decrease) in notes
and debt outstanding under bank
revolving credit facility and
commercial paper programs.......... 88 348 (285)
Mexican credit facility.............. 22 84 -
Debt and equity issuance costs....... (3) (26) (7)
Purchases of common stock............ (144) (189) (23)
Proceeds from reissuance
of treasury shares................. - 28 -
Redemption of
Series G preferred stock........... - (240) -
Dividends paid....................... - (11) (29)
-------- -------- --------
Cash provided by (used in)
financing activities.......... 2 368 (179)
-------- -------- --------

Cash and cash equivalents
(Decrease) increase
during the year.................. (147) (219) 122
At beginning of the year........... 390 609 487
-------- -------- --------

Cash and cash equivalents
at end of the year................. $ 243 $ 390 $ 609
======== ======== ========

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

See Notes to Financial Statements.
- 16 -

NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1999

1. SUMMARY OF ACCOUNTING POLICIES

Basis of Consolidation

Navistar International Corporation is a holding company, whose principal
operating subsidiary is Navistar International Transportation Corp.
(Transportation). As used hereafter, "company" 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 company's truck segment is engaged in the manufacture and marketing of
Class 5 through 8 trucks, including school buses, and operates primarily in the
United States (U.S.) and Canada as well as in Mexico, Brazil and other selected
export markets. The company's engine segment is engaged in the design and
manufacture of mid-range diesel engines and operates primarily in the U.S. and
Brazil. The financial services operations of the company provide wholesale,
retail and lease financing, and domestic commercial physical damage and
liability insurance coverage to the company's dealers and retail customers and
to the general public through an independent insurance agency system.

The 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. Certain
1998 and 1997 amounts have been reclassified to conform with the presentation
used in the 1999 financial statements. During 1999, the company adopted a
classified balance sheet format; 1998 balances have been reclassified to conform
with the presentation used in 1999.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

- 17 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Revenue Recognition

Truck operations recognize shipments of new trucks and service parts to
dealers and retail customers as sales. Price allowances, expected in the normal
course of business, and the cost of special incentive programs are recorded at
the time of sale. Engine sales are recognized at the time of shipment to
original equipment manufacturers (OEMs). An allowance for losses on receivables
is maintained at an amount that management considers appropriate in relation to
the outstanding receivables portfolio, and it is charged when receivables are
determined to be uncollectible.

Financial services operations recognize finance charges on finance
receivables as income over the term of the receivables utilizing the interest
method. Operating lease revenues are recognized on a straight-line basis over
the life of the lease. Selected receivables are securitized and sold to public
and private investors with limited recourse. Gains or losses on sales of
receivables are credited or charged to revenue in the period in which the sale
occurs. Financial services operations continue to service the sold receivables
and receive a fee for such services. An allowance for losses is maintained at a
level deemed appropriate based on such factors as overall portfolio quality,
historical loss experience and current economic conditions.

Insurance premiums are earned on a prorata basis over the terms of the
policies. The liability for unpaid insurance claims includes provisions for
reported claims and an estimate of unreported claims based on past experience.

Cash and Cash Equivalents

All highly liquid financial instruments with maturities of three months or
less from date of purchase, consisting primarily of bankers' acceptances,
commercial paper, U.S. government securities and floating rate notes, are
classified as cash equivalents in the Statements of Financial Condition and Cash
Flow.

Marketable Securities

Marketable securities are classified as available-for-sale securities and
are reported at fair value. The difference between amortized cost and fair value
is recorded as a component of accumulated other comprehensive loss in
shareowners' equity, net of applicable deferred taxes. Securities with remaining
maturities of less than twelve months and other investments needed for current
cash requirements are classified as current within the Statement of Financial
Condition. All equity securities are classified as current because they are
highly liquid financial instruments which can be readily converted to cash. All
other securities are classified as non-current.

Inventories

Inventories are valued at the lower of average cost or market.

- 18 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Property and Other Long-Lived Assets

Significant expenditures for replacement of equipment, tooling and pattern
equipment, and major rebuilding of machine tools are capitalized. Depreciation
and amortization are generally provided on the straight-line basis over the
estimated useful lives of the assets, which average 35 years for buildings and
improvements and eight years for machinery and equipment. Gains and losses on
property disposals are included in other income and expense. The carrying amount
of all long-lived assets is evaluated periodically to determine if adjustment to
the depreciation and amortization period or to the unamortized balance is
warranted. Such evaluation is based principally on the expected utilization of
the long-lived assets and the projected, undiscounted cash flows of the
operations in which the long-lived assets are deployed.

Engineering and Research Expense

Engineering and research expense includes research and development expenses
and routine ongoing costs associated with improving existing products and
manufacturing processes. Research and development expenses, which include
activities for the introduction of new truck and engine products and major
improvements to existing products and processes, totaled $207 million, $138
million and $85 million in 1999, 1998 and 1997, respectively.

Product Related Costs

The company accrues warranty expense at the time of end product sale.
Product liability expense is accrued based on the estimate of total future
payments to settle product liability claims.

Derivative Financial Instruments

The company uses derivatives to transfer or reduce risks of foreign
exchange and interest rate volatility and to potentially increase the return on
invested funds. Financial services operations may use forward contracts to hedge
the fair value of its fixed rate receivables against changes in market interest
rates in anticipation of the sale of such receivables. Financial services
operations also use interest rate swaps to reduce exposure to interest rate
changes when they sell fixed rate receivables on a variable rate basis. For the
protection of investors in Navistar Financial Corporation's (NFC) debt
securities, NFC may write interest rate caps when fixed rate receivables are
sold on a variable rate basis. The company also uses derivatives such as forward
contracts to reduce its exposure to foreign exchange volatility.

Derivative financial instruments are generally held for purposes other than
trading. Income recognition of changes in fair values of the derivatives is
deferred until the derivative instruments are closed. Gains or losses related to
hedges of anticipated transactions are deferred until they are recognized in
income when the effects of the anticipated transactions are recognized in
earnings. The principal balance of receivables expected to be sold by NFC equals
or exceeds the notional amount of open forward contracts. Additionally, the
value of committed purchases denominated in currencies other than the functional
currency generally exceeds the notional amount of related open derivative
contracts.

- 19 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Foreign Currency

The financial statements of foreign subsidiaries are translated to U.S.
dollars using the period-end exchange rate for assets and liabilities and a
weighted-average exchange rate for each period for revenues and expenses. The
local currency is the functional currency for the company's foreign subsidiaries
and translation adjustments for these subsidiaries are recorded as a component
of accumulated other comprehensive loss in shareowners' equity. Effective
February 1, 1999, the functional currency of the company's Mexican subsidiaries
changed from the U.S. dollar to the Mexican peso because Mexico's economy is no
longer considered highly inflationary. The effect of this change was not
material. Translation gains and losses arising from fluctuations in currency
exchange rates on transactions denominated in currencies other than the
functional currency are recognized in earnings as incurred, except for those
transactions which hedge purchase commitments and for those intercompany
balances which are designated as long-term investments. Net income included a
foreign currency transaction loss of $10 million in 1999 and foreign currency
transaction gains of $4 million in 1998 and $2 million in 1997.

New Accounting Pronouncements

Effective November 1, 1998, Navistar adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and its
components. Financial statements for prior periods have been reclassified as
required by this statement. Effective November 1, 1998, Navistar adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131). See Note 13 to the
Financial Statements.

- 20 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

New Accounting Pronouncements (continued)

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), to establish accounting and
reporting requirements for derivative instruments. This standard requires
recognition of all derivative instruments in the statement of financial
condition as either assets or liabilities, measured at fair value. This
statement additionally requires changes in the fair value of derivatives to be
recorded each period in current earnings or comprehensive income depending on
the intended use of the derivatives. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133," which amends SFAS 133 by deferring for one year the effective date of SFAS
133, to those fiscal years beginning after June 15, 2000. The company is
currently assessing the impact of SFAS 133 on the company's results of
operations, financial condition and cash flows.

- 21 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS

The company provides postretirement benefits to substantially all of its
employees. Costs associated with postretirement benefits include pension and
postretirement health care expenses for employees, retirees and surviving
spouses and dependents. In addition, as part of the 1993 restructured health
care and life insurance plans, profit sharing payments to the Retiree
Supplemental Benefit Trust (Trust) are required.

The cost of postretirement benefits is segregated as a separate component
in the Statement of Income and is as follows:

Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Pension expense...................... $ 77 $ 74 $ 129
Health/life insurance................ 65 42 66
Profit sharing provision to Trust.... 74 58 20
-------- -------- --------
Total postretirement benefits expense $ 216 $ 174 $ 215
======== ======== ========

Generally, the pension plans are non-contributory. The company's policy is
to fund its pension plans in accordance with applicable U.S. and Canadian
government regulations and to make additional payments as funds are available to
achieve full funding of the accumulated benefit obligation. At October 31, 1999,
all legal funding requirements had been met. In 2000, the company expects to
contribute approximately $85 million to its pension plans to meet legal
requirements.

In 1993, the Retiree Health Benefit Trust was established to provide a
vehicle for funding the health care liability through company contributions and
retiree premiums. The company made a required prefunding contribution of $200
million to this trust during 1998.

Postretirement Benefits Expense

Net periodic benefits expense included in the Statement of Income is
composed of the following:

Pension Benefits Other Benefits
---------------- --------------
Millions of dollars 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------

Service cost
for benefits
earned during
the period........ $ 34 $ 37 $ 34 $ 16 $ 14 $ 13
Interest on
obligation........ 229 231 238 107 98 96
Amortization costs
and other......... 99 88 99 15 2 -
Less expected
return on assets.. (285) (282) (242) (73) (72) (43)
----- ----- ----- ----- ----- -----

Net postretirement
benefits expense.. $ 77 $ 74 $ 129 $ 65 $ 42 $ 66
===== ===== ===== ===== ===== =====

- 22 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

Postretirement Benefits Expense (continued)

"Amortization costs and other" include amortization of cumulative gains and
losses over the expected remaining service life of employees and amortization of
the initial transition liability over 15 years. Also included is the expense
related to yearly lump-sum payments to retirees required by negotiated labor
contracts, expense related to defined contribution plans and amortization of
plan amendments. Plan amendments are recognized over the remaining service life
of employees, except for those plan amendments arising from negotiated labor
contracts, which are amortized over the length of the contract.

The funded status of the company's plans as of October 31, 1999 and 1998
and a reconciliation with amounts recognized in the Statement of Financial
Condition are provided below.

Pension Benefits Other Benefits
---------------- --------------

Millions of dollars 1999 1998 1999 1998
- -------------------------------------------------------------------------------

Change in benefit obligation
Benefit obligation
at beginning of year.............. $3,481 $3,299 $1,560 $1,374
Service cost........................ 34 37 16 14
Interest on obligation.............. 229 231 107 98
Amendments.......................... 8 - 4 -
Actuarial net (gain) loss........... (157) 186 52 164
Benefits paid....................... (287) (272) (103) (90)
------ ------ ------ ------
Benefit obligation at end of year... $3,308 $3,481 $1,636 $1,560
------ ------ ------ ------
Change in plan assets
Fair value of plan assets
at beginning of year.............. $3,032 $2,900 $ 693 $ 486
Actual return on plan assets........ 348 187 118 47
Employer contribution............... 12 212 10 210
Benefits paid....................... (279) (267) (57) (50)
------ ------ ------ ------
Fair value of plan assets
at end of year.................... $3,113 $3,032 $ 764 $ 693
------ ------ ------ ------

Funded status....................... $ (195) $ (449) $(872) $ (867)
Unrecognized actuarial net loss..... 342 587 331 344
Unrecognized transition amount...... 100 133 - -
Unrecognized prior service cost..... 56 69 - (5)
------ ------ ------ ------
Net amount recognized............... $ 303 $ 340 $ (541) $ (528)
====== ====== ====== ======

Amounts recognized in
the Statement of
Financial Condition consist of:
Prepaid benefit cost................ $ 148 $ 39 $ - $ -
Accrued benefit liability
- current......................... (95) (17) (58) (55)
- noncurrent...................... (151) (389) (483) (473)
Intangible asset.................... 126 199 - -
Accumulated other comprehensive loss 275 508 - -
------ ------ ------ ------
Net amount recognized............... $ 303 $ 340 $ (541) $ (528)
====== ====== ====== ======

- 23 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

Postretirement Benefits Expense (continued)

The accumulated other comprehensive loss included in shareowners' equity is
recorded in the Statement of Financial Condition net of deferred income taxes of
$91 million and $172 million at October 31, 1999 and 1998, respectively.

The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $2,057 million, $2,056 million and $1,814 million,
respectively, as of October 31, 1999, and $3,393 million, $3,336 million and
$2,931 million respectively, as of October 31, 1998.

During 1998, the pension plans purchased 3 million shares of the company's
common stock. At October 31, 1998, these shares accounted for approximately 2%
of the plans' assets. During 1999, the pension plans sold all of their shares of
the company's common stock.

The weighted average rate assumptions used in determining expenses and
benefit obligations were:

Pension Benefits Other Benefits
---------------- --------------
Millions of dollars 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------

Discount rate used
to determine
present value of
benefit obligation
at end of year...... 7.9% 6.8% 7.3% 8.0% 7.1% 7.4%
Expected long-term
rate of return
on plan assets
for the year........ 9.7% 9.7% 9.8% 10.8% 10.8% 11.1%
Expected rate of
increase in future
compensation levels. 3.5% 3.5% 3.5% N/A N/A N/A

For 2000, the weighted average rate of increase in the per capita cost of
covered health care benefits is projected to be 9.7%. The rate is projected to
decrease to 5.0% by the year 2005 and remain at that level each year thereafter.
The effect of changing the health care cost trend rate by one-percentage point
for each future year is as follows:

One-Percentage- One-Percentage-
Point Increase Point Decrease
--------------- ---------------

Effect on total of service
and interest cost components.... $ 19 $ (16)
Effect on postretirement
benefit obligation.............. 192 (163)

- 24 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES

The domestic and foreign components of income before income taxes consist
of the following:

Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Domestic......................... $ 489 $ 403 $ 239
Foreign.......................... 102 7 3
-------- -------- --------
Total income before income taxes. $ 591 $ 410 $ 242
======== ======== ========

The components of income tax expense consist of the following:

Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Current:
Federal........................ $ 11 $ 4 $ 8
State and local................ 4 3 2
Foreign........................ 25 - -
-------- -------- --------
Total current expense............ 40 7 10
-------- -------- --------
Deferred:
Federal........................ 154 127 71
State and local................ 23 19 11
Foreign........................ 8 3 -
-------- -------- --------
Total deferred expense........... 185 149 82
-------- -------- --------

Less valuation allowance
adjustment..................... (178) (45) -
-------- -------- --------

Total income tax expense......... $ 47 $ 111 $ 92
======== ======== ========

The deferred tax expense does not represent cash payment of income taxes
and was primarily generated by the utilization of net operating loss (NOL)
carryforwards and the increase of temporary differences, and will not require
future cash payments. Consolidated tax payments made during 1999, 1998 and 1997
were $40 million, $7 million and $10 million, respectively.

The relationship of the tax expense to income before taxes for 1999, 1998
and 1997 differs from the U.S. statutory rate (35%) because of state income
taxes and the benefit of NOL carryforwards in foreign countries. Also, the 1999
and 1998 effective tax rates reflect a $178 million and $45 million reduction in
the deferred tax asset valuation allowance, respectively. A valuation allowance
has been provided for those NOL carryforwards and temporary differences which
are estimated to expire before they are utilized. The effective tax rates for
1999, 1998 and 1997 were 8.0%, 27.0% and 38.0%, respectively.

As a result of continued strong industry demand, the continued successful
implementation of the company's manufacturing strategies, changes in the
company's operating structure, and other positive operating indicators,
management reviewed its projected future taxable income and evaluated the impact
of these changes on its deferred tax asset valuation allowance. This review was
completed during the third quarter of 1999 and resulted in a reduction to the
deferred tax asset valuation allowance of $178 million which reduced income tax
expense during the third quarter of 1999. In addition, a $45 million reduction
in the allowance was recorded during the fourth quarter of 1998 based on a
similar review.

- 25 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES (continued)

Undistributed earnings of foreign subsidiaries were $126 million and $50
million at October 31, 1999 and 1998, respectively. Taxes have not been provided
on these earnings because no withholding taxes are applicable upon repatriation
and any U.S. tax would be substantially offset by the utilization of NOL
carryforwards.

Taxpaying entities of the company offset all deferred tax assets and
liabilities within each tax jurisdiction. The components of the deferred tax
asset (liability) at October 31 are as follows:

Millions of dollars 1999 1998
- -------------------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards........ $ 397 $ 590
Alternative minimum tax................. 35 24
Postretirement benefits................. 266 347
Product liability and warranty.......... 116 106
Employee incentive programs............. 77 79
Other liabilities....................... 129 153
-------- --------
Total deferred tax assets............... 1,020 1,299
-------- --------
Deferred tax liabilities:
Prepaid pension assets.................. (102) (117)

Depreciation ......................... (22) (30)
-------- --------
Total deferred tax liabilities.......... (124) (147)
-------- --------
Total deferred tax assets............... 896 1,152
Less valuation allowance................ (65) (243)
-------- --------
Net deferred U.S. tax assets............ $ 831 $ 909
-------- --------
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards........ $ 34 $ 5
Other accrued liabilities............... 52 19
-------- --------
Total deferred tax assets............... 86 24
Less valuation allowance................ (21) (21)
-------- --------
Net deferred foreign tax assets......... $ 65 $ 3
-------- --------

Total net deferred tax assets........... $ 896 $ 912
-------- --------

Deferred foreign tax liabilities:
Prepaid pension assets.................. $ (45) $ (13)
Depreciation ......................... (30) (7)
Other................................... (12) -
-------- --------
Total deferred foreign tax liabilities.. $ (87) $ (20)
======== ========

Amounts recognized in the
Statement of Financial Condition:
Deferred tax assets..................... $ 896 $ 912
Less current portion............... (229) (194)
-------- --------
Long-term deferred tax asset....... $ 667 $ 718
======== ========

Other long-term liabilities............. $ (87) $ (20)
======== ========

- 26 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES (continued)

At October 31, 1999, the company had $1,045 million of domestic and $89
million of foreign NOL carryforwards available to offset future taxable income.
Such carryforwards reflect income tax losses incurred which will expire as
follows, in millions of dollars:

2007......................................... $ 75
2008......................................... 816
2009......................................... 37
2011......................................... 179
Indefinite................................... 27
-------

Total........................................ $ 1,134
=======

Additionally, the reversal of net temporary differences of $1,224 million
as of October 31, 1999 will create net tax deductions which, if not utilized
previously, will expire subsequent to 2011.

- 27 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

4. MARKETABLE SECURITIES

The fair value of marketable securities is estimated based on quoted market
prices, when available. If a quoted price is not available, fair value is
estimated using quoted market prices for similar financial instruments.

Information related to the company's marketable securities at October 31 is
as follows:
1999 1998
-------------------- --------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ------------------------------------------------------------------------------

Corporate securities......... $ 172 $ 170 $ 386 $ 388
U.S. government securities... 82 82 171 174
Mortgage and
asset-backed securities.... 55 54 85 86
Foreign government securities 5 5 6 7
------ ------ ------ ------
Total debt securities.... 314 311 648 655
------ ------ ------ ------

Equity securities............ 22 22 17 19
------ ------ ------ ------

Total marketable securities.. $ 336 $ 333 $ 665 $ 674
====== ====== ====== ======

Contractual maturities of marketable debt securities at October 31 are as
follows:
1999 1998
-------------------- --------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ------------------------------------------------------------------------------

Due in one year or less..... $ 147 $ 146 $ 239 $ 240
Due after one year
through five years ....... 95 94 297 301
Due after five years
through 10 years ......... 10 10 17 18
Due after 10 years ......... 7 7 10 10
------ ------ ------ ------
259 257 563 569
Mortgage and
asset-backed securities.. 55 54 85 86
------ ------ ------ ------

Total debt securities ..... $ 314 $ 311 $ 648 $ 655
====== ====== ====== ======

Gross gains and losses realized on sales or maturities of marketable
securities were not material for each of the two years. At October 31, 1999 and
1998, a domestic insurance subsidiary had $11 million and $13 million,
respectively, of marketable securities which were on deposit with various state
departments of insurance or otherwise not available. These securities are
included in total marketable securities balances at October 31, 1999 and 1998.

- 28 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

5. RECEIVABLES

Receivables at October 31 are summarized by major classification as
follows:

Millions of dollars 1999 1998
- -------------------------------------------------------------------------------

Accounts receivable ................... $ 816 $ 661
Retail notes and lease financing....... 1,061 925
Wholesale notes........................ 592 261
Amounts due from sales
of receivables....................... 244 246
Notes receivable....................... 117 109
Other.................................. 24 27
Allowance for losses................... (36) (33)
-------- --------

Total receivables, net............. 2,818 2,196
Less current portion............... (1,550) (1,352)
-------- --------
Finance and other receivables, net. $ 1,268 $ 844
======== ========

The financial services segment purchases the majority of the wholesale
notes receivable and some retail notes and accounts receivable arising from the
company's operations.

A portion of NFC's funding for retail and wholesale notes comes from sales
of receivables by NFC to third parties with limited recourse. NFC's maximum
contractual exposure under all receivable sale recourse provisions at October
31, 1999 was $257 million; however, management believes that the allowance for
credit losses on sold receivables is adequate. Proceeds from sales of retail
notes receivable, net of underwriting costs, were $1,192 million in 1999, $953
million in 1998 and $958 million in 1997. Uncollected sold retail and wholesale
receivable balances totaled $2,296 million and $2,145 million as of October 31,
1999 and 1998, respectively.

In November 1999, NFC sold $533 million of retail notes, net of unearned
finance income, through Navistar Financial Retail Receivables Corporation
(NFRRC) to two multi-seller asset-backed commercial paper conduits sponsored by
a major financial institution. The gain on sales, which was not material, was
recognized in November 1999.

Contractual maturities of accounts receivable, retail notes and lease
financing and wholesale notes, including unearned finance income, at October 31,
1999 were: 2000 - $1,550 million, 2001 - $443 million, 2002 - $245 million, 2003
- - $188 million, 2004 - $148 million and thereafter - $49 million. Unearned
finance income totaled $154 million at October 31, 1999. Notes receivable are
due upon demand from a limited partnership that invests in S&P 500 stock index
arbitrage.

- 29 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

6. INVENTORIES

Inventories at October 31 are as follows:

Millions of dollars 1999 1998
- -------------------------------------------------------------------------------

Finished products.......................... $ 285 $ 225
Work in process............................ 95 69
Raw materials and supplies................. 245 213
-------- --------

Total inventories.......................... $ 625 $ 507
======== ========

7. PROPERTY AND EQUIPMENT

At October 31, property and equipment includes the following:

Millions of dollars 1999 1998
- -------------------------------------------------------------------------------

Land ...................................... $ 20 $ 18

Buildings, machinery
and equipment at cost:
Plants................................ 1,627 1,419
Distribution.......................... 102 94
Construction in progress.............. 313 130
Net investment in operating leases.... 283 218
Other ................................ 253 203
-------- --------
Total property........................ 2,598 2,082
-------- --------
Less accumulated depreciation
and amortization.................... (1,123) (976)
-------- --------
Total property and equipment, net. $ 1,475 $ 1,106
======== ========

Total property includes property under capitalized lease obligations of $24
million and $25 million at October 31, 1999 and 1998, respectively. Future
minimum rentals on net investments in operating leases are: 2000 - $68 million,
2001 - $58 million, 2002 - $44 million, 2003 - $27 million and thereafter - $13
million. Each of these assets is depreciated on a straight-line basis over the
term of the lease in an amount necessary to reduce the leased vehicle to its
estimated residual value at the end of the lease term. Capitalized interest for
1999, 1998, and 1997 was $15 million, $12 million, and $2 million, respectively.

- 30 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

8. DEBT

Millions of dollars 1999 1998
- -------------------------------------------------------------------------------

Manufacturing operations
Notes payable and current maturities
of long-term debt..................... $ 31 $ 4
-------- --------

8% Senior Subordinated Notes, due 2008 250 250
7% Senior Notes, due 2003............. 100 100
Mexican credit facility............... 83 84
Capitalized leases and other.......... 12 12
-------- --------
Total long-term debt................ 445 446
-------- --------
Manufacturing operations debt............. 476 450
-------- --------
Financial services operations
Commercial paper...................... 35 22
Current maturities of long-term debt.. 126 160
-------- --------
Total short-term debt............... 161 182
-------- --------
Bank revolvers, variable rates,
due 2001-2005....................... 867 815
Asset-backed commercial paper program,
variable rate, due 2001............. 413 401
-------- --------
Total senior debt................... 1,280 1,216

9% Subordinated Senior Notes,
due 2002............................ 100 100

Capitalized leases, 4.1% to 6.3%,
due serially through 2006........... 250 174
-------- --------

Total long-term debt................ 1,630 1,490
-------- --------

Financial services operations debt........ 1,791 1,672
-------- --------

Total debt................................ $ 2,267 $ 2,122
======== ========

The effective annual interest rate on manufacturing notes payable was 7.7%
in 1999, 6.8% in 1998 and 8.3% in 1997. Consolidated interest payments were $134
million, $95 million and $66 million in 1999, 1998 and 1997, respectively.

- 31 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

8. DEBT (continued)

During 1998, the company arranged financing for $164 million of funds
denominated in U.S. dollars and Mexican pesos to be used for investment in the
company's Mexican manufacturing and financial services operations. As of October
31, 1999, borrowings outstanding under these arrangements were $106 million, of
which 54% is denominated in dollars and 46% in pesos. The interest rates on the
dollar-denominated debt are at a negotiated fixed rate or a variable rate based
either on LIBOR or the Federal Funds Rate. On peso-denominated debt, the
interest rate is based on the Interbank Interest Equilibrium Rate. The effective
interest rate for the combined dollar and peso denominated debt was 18% for 1999
and 17% for 1998.

NFC issues commercial paper with varying terms and has short-term
borrowings with various banks on a noncommitted basis. Compensating cash
balances and commitment fees are not required under these borrowings.

The aggregate annual maturities for debt for the years ended October 31 are
as follows:
Financial
Manufacturing Services
Millions of dollars Operations Operations Total
- -------------------------------------------------------------------------------

2000................ $ 31 $ 161 $ 192
2001................ 33 1,341 1,374
2002................ 47 172 219
2003................ 110 84 194
2004 and thereafter. 255 33 288
-------- -------- --------
Total.......... $ 476 $ 1,791 $ 2,267
======== ======== ========

Weighted average interest rate on total debt, including short-term, and the
effect of discounts and related amortization for the years ended:

October 31, 1999... 10.1% 5.6% 6.6%
October 31, 1998... 9.3% 6.4% 7.1%

At October 31, 1999, NFC has a $925 million contractually committed bank
revolving credit facility and a $400 million asset-backed commercial paper
(ABCP) program supported by a bank liquidity facility plus $14 million of trust
certificates issued in connection with the formation of the ABCP trust.
Available funding under the bank revolving credit facility and the ABCP program
was $87 million, of which $35 million provided funding backup for the
outstanding short-term debt at October 31, 1999.

NFC's wholly owned subsidiaries, Navistar Financial Securities Corporation
(NFSC) and NFRRC, have a limited purpose of purchasing retail and wholesale
receivables, respectively, and transferring an undivided ownership interest in
such notes to investors. The subsidiaries have limited recourse on the sold
receivables and their assets are available to satisfy the claims of their
creditors prior to such assets becoming available to NFC or affiliated
companies.

- 32 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

8. DEBT (continued)

NFSC has in place a revolving wholesale note trust that provides for the
funding of $600 million of wholesale notes. The trust is comprised of three $200
million tranches maturing in 2003, 2004 and 2008.

During fiscal 1999, in two separate sales, NFC sold a total of $1,260
million of retail notes, net of unearned finance income, through NFRRC. The
combined gain recognized on the sale of these notes was $12 million. The
aggregate shelf registration available to NFRRC for issuance of asset-backed
securities is $2,257 million.

NFC has entered into various sale/leaseback agreements involving vehicles
subject to retail finance and operating leases with end users. The outstanding
balances are classified under financial services operations as capitalized
leases. These agreements grant the purchasers a security interest in the
underlying end user leases.

- 33 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

9. OTHER LIABILITIES

Major classifications of other liabilities at October 31 are as follows:

Millions of dollars 1999 1998
- -------------------------------------------------------------------------------

Product liability and warranty........... $ 337 $ 323
Employee incentive programs.............. 212 215
Payroll, commissions
and employee-related benefits......... 103 104
Postretirement benefits liability........ 153 72
Loss reserves and unearned premiums...... 102 105
Taxes.................................... 163 67
Sales and marketing...................... 56 54
Long-term disability
and workers' compensation.............. 48 53
Environmental............................ 22 27
Interest................................. 16 22
Other.................................... 125 129
-------- --------
Total other liabilities............... 1,337 1,171

Less current portion.............. (911) (808)
-------- --------
Other long-term liabilities....... $ 426 $ 363
======== ========

- 34 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

10. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The carrying amounts of financial instruments, as reported in the Statement
of Financial Condition and described in various Notes to the Financial
Statements, and their fair values at October 31 are as follows:

1999 1998
-------------------- --------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- ------------------------------------------------------------------------------

Total receivables, net....... $2,818 $2,824 $2,196 $2,216

Long-term investments
and other assets........... 207 206 127 130

Total debt................... 2,267 2,256 2,122 2,119

Cash and cash equivalents approximate fair value. The cost and fair value
of marketable securities are disclosed in Note 4.

The fair value of notes receivable and retail notes is estimated by
discounting expected cash flows at estimated current market rates. Customer
receivables, wholesale notes and retail and wholesale accounts approximate fair
value as a result of the short-term nature of the receivables.

The fair value of investments and other assets is estimated based on quoted
market prices or by discounting future cash flows.

The short-term debt and variable-rate borrowings under NFC's bank revolving
credit agreement, which are repriced frequently, approximate fair value. The
fair value of long-term debt is estimated based on quoted market prices, when
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar financial instruments or discounting
future cash flows.

- 35 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

10. FINANCIAL INSTRUMENTS (continued)

Derivatives Held or Issued for Purposes Other Than Trading

The company uses derivatives to transfer or reduce risks of foreign
exchange and interest rate volatility, and to potentially increase the return on
invested funds.

The company periodically enters into forward contracts in order to reduce
exposure to exchange rate risk related to purchases denominated in currencies
other than the functional currency.

The financial services operations manage exposures to fluctuations in
interest rates by limiting the amount of fixed rate assets funded with variable
rate debt generally by selling fixed rate receivables on a fixed rate basis and
by utilizing derivative financial instruments. These derivative financial
instruments may include interest rate swaps, interest rate caps and forward
contracts. The fair value of these instruments is subject to risk as the
instruments may become less valuable due to changes in market conditions or
interest rates. NFC manages exposure to counter-party credit risk by entering
into derivative financial instruments with major financial institutions that can
be expected to fully perform under the terms of such agreements. NFC's credit
exposure is limited to the fair value of contracts with a positive fair value at
the reporting date. Notional amounts are used to measure the volume of
derivative financial instruments and do not represent exposure to credit loss.

The financial services operations enter into forward contracts to manage
their exposure to fluctuations in the fair value of retail notes anticipated to
be sold. The financial services operations manage such risk by entering into
forward contracts to sell fixed debt securities or forward interest rate swaps
whose fair value is highly correlated with that of its receivables. Income
recognition of changes in fair value of the derivatives is deferred until the
derivative instruments are closed. Gains or losses incurred with the closing of
these agreements are included as a component of the gain or loss on sale of
receivables.

In November 1998, NFC sold $545 million of fixed rate retail receivables to
a multi-seller asset-backed commercial paper conduit sponsored by a major
financial institution on a variable rate basis. For the protection of investors,
NFC issued an interest rate cap. The notional amount of the cap, $374 million,
amortizes based on the expected outstanding principal balance of the sold retail
receivables. Under the terms of the cap agreement, NFC will make payments if
interest rates exceed certain levels. The interest rate cap is recorded at fair
value with changes in fair value recognized in income. As of October 31, 1999,
the impact on income was not material.

At October 31, 1999, NFC held forward interest rate contracts with notional
amounts of $500 million and $75 million in anticipation of retail receivable
sales to occur in November 1999 and March 2000, respectively. In addition, the
company held German mark, Japanese yen and Canadian dollar forward contracts
with notional amounts of $49 million, $13 million, and $10 million,
respectively, and other derivative contracts with notional amounts of $19
million. At October 31, 1999, the unrealized net loss on these contracts was not
material.

- 36 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS AND LEASES

Commitments, Contingencies and Restricted Assets

At October 31, 1999, commitments for capital expenditures in progress were
approximately $505 million. The company's truck assembly facility located in
Escobedo, Mexico is encumbered by a lien in favor of certain lenders of the
company as collateral for the $125 million revolving Mexican credit facility. At
October 31, 1999, $52 million of a Mexican subsidiary's receivables were pledged
as collateral for bank borrowings. In addition, as of October 31, 1999, the
company is contingently liable for approximately $204 million for various
purchasing commitments, credit guarantees and buyback programs. Based on
historical loss trends, the company's exposure is not considered material.
Additionally, restrictions under the terms on the senior and senior subordinated
notes and Mexican credit facility include a limitation on indebtedness and a
limitation on certain restricted payments.

At October 31, 1999, the Canadian operating subsidiary was contingently
liable for retail customers' contracts and leases financed by a third party. The
Canadian operating subsidiary is subject to maximum recourse of $251 million on
retail contracts and $22 million on retail leases. The Canadian operating
subsidiary, NFC and certain other subsidiaries included in financial services
operations are parties to agreements that may result in the restriction of
amounts which can be distributed to Transportation in the form of dividends or
loans and advances. At October 31, 1999, the maximum amount of dividends which
were available for distribution under the most restrictive covenants was $220
million.

Concentrations

At October 31, 1999, the company employed 10,800 hourly workers and 6,700
salaried workers in the United States and Canada. Approximately 98% of the
hourly employees and 21% of the salaried employees are represented by unions. Of
these represented employees, 92% of the hourly workers and 100% of the salaried
workers are represented by the United Automobile, Aerospace, and Agricultural
Implement Workers of America (UAW) or the National Automobile, Aerospace, and
Agricultural Implement Workers of Canada (CAW). The company's current master
contract with the UAW expires on October 1, 2002. The collective bargaining
agreement with the CAW expires on June 1, 2002. Additionally, of the company's
1,070 employees in Mexico, approximately 71% are represented by a union.

Reflecting higher consumer demand for light trucks and vans, sales of
mid-range diesel engines to Ford Motor Company by the engine segment were 17% of
consolidated sales and revenues in 1999 and 14% in both 1998 and 1997. The
company has a 10-year agreement, effective with model year 2003, to continue
supplying Ford Motor Company with diesel engines for use in its diesel-powered
light trucks and vans.

- 37 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS,
AND LEASES (continued)

Leases

The company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for five to 25 years and, in
many cases, provide for renewal options. The company is generally obligated for
the cost of property taxes, insurance and maintenance. The company leases office
buildings, distribution centers, furniture and equipment, machinery and
equipment, and computer equipment.

The majority of the company's lease payments are for operating leases. At
October 31, 1999, future minimum lease payments under operating leases having
lease terms in excess of one year are: 2000 - $43 million, 2001 - $33 million,
2002 - $21 million, 2003 - $19 million, 2004 - $9 million and thereafter - $26
million. Total operating lease expense was $30 million in 1999, $36 million in
1998 and $40 million in 1997. Income received from sublease rentals was $7
million in 1999 and 1998 and $6 million in 1997.

12. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS

The company and its subsidiaries are subject to various claims arising in
the ordinary course of business, and are parties to various legal proceedings
which constitute ordinary routine litigation incidental to the business of the
company and its subsidiaries. In the opinion of the company's management, none
of these proceedings or claims is material to the business or the financial
condition of the company.

The company has been named a potentially responsible party (PRP), in
conjunction with other parties, in a number of cases arising under an
environmental protection law, the Comprehensive Environmental Response,
Compensation, and Liability Act, popularly known as the Superfund law. These
cases involve sites which allegedly have received wastes from current or former
company locations. Based on information available to the company, which, in most
cases, consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRPs and/or
federal or state regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the company's share, if any, of the
probable costs and is provided for in the financial statements. These
obligations are generally recognized no later than completion of the remedial
feasibility study and are not discounted to their present value. The company
reviews its accruals on a regular basis and believes that, based on these
calculations, its share of the potential additional costs for the cleanup of
each site will not have a material effect on the company's financial results.

- 38 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

13. SEGMENT DATA

Effective November 1, 1998, Navistar adopted SFAS 131. Segment data for
1998 and 1997 has been restated. Under the provisions of the new standard,
Navistar has three reportable segments: truck, engine and financial services.
The company's reportable segments are organized according to the products and
the markets they each serve.

The company's truck segment manufactures and distributes a full line of
diesel-powered trucks and school buses in the common carrier, private carrier,
government/service, leasing, construction, energy/petroleum and student
transportation markets. The truck segment also provides customers with
proprietary products needed to support the International truck and bus lines,
together with a wide selection of standard truck and trailer aftermarket parts.

The company's engine segment designs and manufactures diesel engines for
use in the company's Class 5, 6 and 7 medium trucks and school buses and
selected Class 8 heavy truck models, and for sale to OEMs in the U.S. and
Mexico. This segment also sells engines for industrial, agricultural and marine
applications. In addition, the engine segment provides customers with
proprietary products needed to support the International engine lines, together
with a wide selection of standard engine and aftermarket parts.

The company's financial services segment consists of NFC, its domestic
insurance subsidiary and the company's foreign finance and insurance
subsidiaries. NFC's primary business is the retail, wholesale and lease
financing of products sold by the truck segment and its dealers within the U.S.
as well as the company's wholesale accounts and selected retail accounts
receivable. NFC's insurance subsidiary provides commercial physical damage and
liability insurance to the truck segment's dealers and retail customers and to
the general public through an independent insurance agency system. The foreign
finance subsidiaries' primary business is to provide wholesale, retail and lease
financing to the Mexican operations' dealers and retail customers.

The company evaluates the performance of its operating segments based on
operating profits, which exclude certain corporate items, and retiree pension
and medical expense. Additionally, the operating profits of the company's truck
and engine segments exclude most interest revenue and expense items.
Intersegment sales are transferred at prices established by an agreement between
the buying and selling locations.

- 39 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

13. SEGMENT DATA (continued)

Reportable operating segment data follows:

Financial
Millions of dollars Truck Engine Services Total
- --------------------- -----------------------------------------------------

For the year ended October 31, 1999
-----------------------------------------------------

External revenues..... $6,628 $1,698 $ 273 $8,599
Intersegment revenues. - 681 71 752
------ ------ ------ ------
Total revenues... $6,628 $2,379 $ 344 $9,351
====== ====== ====== ======

Interest expense...... $ - $ - $ 103 $ 103
Depreciation.......... 62 59 48 169
Segment profit........ 295 294 102 691

As of October 31, 1999
-----------------------------------------------------

Segment assets........ $1,852 $ 814 $3,009 $5,675
Capital
expenditures (a).... 199 213 110 522

For the year ended October 31, 1998
-----------------------------------------------------

External revenues..... $6,276 $1,353 $ 219 $7,848
Intersegment
revenues............ - 606 67 673
------ ------ ------ ------
Total revenues... $6,276 $1,959 $ 286 $8,521
====== ====== ====== ======

Interest expense...... $ - $ - $ 82 $ 82
Depreciation.......... 54 63 35 152
Segment profit........ 246 186 74 506

As of October 31, 1998
-----------------------------------------------------

Segment assets........ $1,379 $ 584 $2,310 $4,273
Capital
expenditures (a).... 184 107 127 418

For the year ended October 31, 1997
-----------------------------------------------------

External revenues..... $4,999 $1,148 $ 185 $6,332
Intersegment
revenues............ - 461 54 515
------ ------ ------ ------
Total revenues... $4,999 $1,609 $ 239 $6,847
====== ====== ====== ======

Interest expense...... $ - $ - $ 73 $ 73
Depreciation.......... 47 43 22 112
Segment profit........ 129 138 67 334

As of October 31, 1997
-----------------------------------------------------

Segment assets........ $1,284 $ 526 $1,860 $3,670
Capital
expenditures (a).... 113 43 44 200

(a) Capital expenditures include the net increase in property and equipment
leased to others.

- 40 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

13. SEGMENT DATA (continued)

Reconciliation to the consolidated financial statements as of and for the
years ended October 31 is as follows:

Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Segment sales and revenues.......... $9,351 $8,521 $6,847
Other income........................ 48 37 39
Intercompany........................ (752) (673) (515)
------ ------ ------
Consolidated sales and revenues..... $8,647 $7,885 $6,371
====== ====== ======

Segment profit...................... $ 691 $ 506 $ 334
Corporate items..................... (103) (118) (126)
Manufacturing net interest income... 3 22 34
------ ------ ------
Consolidated pretax income.......... $ 591 $ 410 $ 242
====== ====== ======

Segment interest expense............ $ 103 $ 82 $ 73
Manufacturing expense
and eliminations.................. 32 23 1
------ ------ ------
Consolidated interest expense....... $ 135 $ 105 $ 74
====== ====== ======

Segment depreciation
and amortization expense.......... $ 169 $ 152 $ 112
Corporate expense................... 5 7 8
------ ------ ------
Consolidated depreciation
and amortization expense.......... $ 174 $ 159 $ 120
====== ====== ======

Segment assets...................... $5,675 $4,273 $3,670
Cash and marketable securities...... 327 869 777
Deferred taxes...................... 896 912 934
Corporate intangible pension assets. 92 124 154
Other corporate and eliminations.... (62) 11 (19)
------ ------ ------
Consolidated assets................. $6,928 $6,189 $5,516
====== ====== ======

Segment capital expenditures (a).... $ 522 $ 418 $ 200
Corporate capital expenditures...... 13 9 11
------ ------ ------
Consolidated capital expenditures... $ 535 $ 427 $ 211
====== ====== ======

(a) Capital expenditures include the net increase in property and equipment
leased to others.

Information concerning principal geographic areas as of and for the years
ended October 31 was as follows:

Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Revenues
United States..................... $7,700 $7,065 $5,807
Foreign countries................. 947 820 564

Property and equipment
United States..................... $1,188 $ 885 $ 711
Foreign countries................. 287 221 124

- 41 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

14. PREFERRED AND PREFERENCE STOCKS

The company's Nonconvertible Junior Preference Stock Series A was held for
the Retiree Supplemental Benefit Program by the Supplemental Trust. This stock
was redeemed in October 1999 at a redemption price of $1.00 per share. The UAW
holds the Nonconvertible Junior Preference Stock Series B and is currently
entitled to elect one member of the company's board of directors. At October 31,
1999, there was one share of Series B Preference stock authorized and
outstanding. The value of the preference share is minimal.

On April 20, 1999, the company's board of directors adopted a shareholder
rights plan (Rights Plan) and declared a rights dividend of one preferred share
purchase right (Right) for each outstanding share of common stock (Common
Shares) of the company to shareowners of record as of the close of business on
May 3, 1999. Subject to the terms of the Rights Plan, each Right entitles the
registered holder to purchase from the company one one-thousandth of a share of
Series A Junior Participating Preferred Stock of the company (Preferred Shares)
at a price of $175 per one one-thousandth of a Preferred Share, subject to
adjustment. The Rights are exercisable only if a person or group (Acquiring
Person) acquires 15% or more of the outstanding Common Shares and commences a
tender offer for 15% or more of the outstanding Common Shares. Upon any such
occurrence, each Right will entitle its holder (other than the Acquiring Person
and certain related parties) to purchase, at the Right's then current exercise
price, a number of Common Shares having a market value of two times such price.
Similarly, in the event the company is acquired in a merger or other business
combination and is not the surviving corporation, each Right (other than Rights
owned by the Acquiring Person and certain related parties) shall thereafter be
exercisable for a number of shares of common stock of the acquiring company
having a market value of two times the exercise price of the Right. Subject to
certain conditions, the Rights are redeemable by the company's board of
directors for $0.01 per Right and are exchangeable for Common Shares. The Rights
have no voting power and initially expire on May 3, 2009.

During 1998, the company redeemed all 4.8 million shares of its $6.00
Series G Convertible Cumulative Preferred Stock at a redemption price of $50 per
share plus accrued dividends. At October 31, 1999, there were 168,000 shares of
Series D Convertible Junior Preference Stock (Series D) outstanding and 3
million authorized and issued with an optional redemption price and liquidation
preference of $25 per share plus accrued dividends. The Series D converts into
common stock (subject to adjustment in certain circumstances) at .3125 per
share. The Series D ranks senior to common stock as to dividends and liquidation
and receives dividends at a rate of 120% of the cash dividends on common stock
as declared on an as-converted basis.

Under the General Corporation Law of the State of Delaware (DGCL),
dividends may only be paid out of surplus or out of net profits for the fiscal
year in which the dividend is declared or the preceding fiscal year, and no
dividend may be paid on common stock at any time during which the capital of
outstanding preferred stock or preference stock exceeds the net assets of the
company. At October 31, 1999, the company had a surplus of $1,283 million as
defined under DGCL.

- 42 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

15. COMMON SHAREOWNERS' EQUITY

Changes in certain shareowners' equity accounts are as follows:

Millions of dollars 1999 1998 1997
- -------------------------------------------------------------------------------

Common Stock
Beginning of year.................. $ 2,139 $ 1,659 $ 1,642
Conversion of Class B
common stock and other........... - 480 17
-------- -------- --------
End of year ..................... $ 2,139 $ 2,139 $ 1,659
======== ======== ========
Class B Common Stock
Beginning of year................. $ - $ 471 $ 491
Conversion/repurchase of stock.... - (471) (20)
-------- -------- --------

End of year .................... $ - $ - $ 471
======== ======== ========
Retained Earnings (Deficit)
Beginning of year................. $ (829) $ (1,109) $ (1,228)
Net income .................... 544 299 150
Preferred dividends............... - (11) (29)
Other ........................... (12) (8) (2)
-------- -------- --------
End of year .................... $ (297) $ (829) $ (1,109)
======== ======== ========

Common Stock Held in Treasury
Beginning of year.................. $ (214) $ (53) $ (30)
Repurchase of common stock
and other........................ (144) (189) (23)
Reissuance of treasury shares...... - 28 -
-------- -------- --------
End of year ..................... $ (358) $ (214) $ (53)
======== ======== ========

Common Stock

The company has authorized 110 million shares of common stock with a par
value of $.10 per share. At October 31, 1999 and 1998, there were 63.2 million
and 66.2 million shares of common stock outstanding, net of common stock held in
treasury, respectively.

- 43 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

15. COMMON SHAREOWNERS' EQUITY (continued)

Common Stock (continued)

In January 1998, the company repurchased 3.2 million shares of the Class B
common stock that was outstanding. During June 1998, a secondary public offering
of the common stock of the company was completed, in which the Navistar
International Transportation Corp. Retiree Supplemental Benefit Trust (Trust)
sold approximately 19.9 million shares of common stock at an offering price of
$26.50 per share. These shares represented the Class B common stock held by the
Trust which automatically converted into common stock upon the sale. In
conjunction with this offering, the company purchased 2 million of the shares
being offered. The company did not receive any proceeds from the sale of the
shares in the offering. In addition, the underwriters exercised their
over-allotment option and elected to purchase 1.1 million shares from the
company at $26.50 per share. The company offset the dilution through open market
purchases.

During 1999, the company purchased $133 million of shares as approved by
the board of directors in 1998. Additional purchases of $11 million were made in
1999 under a new share repurchase program approved by the board in October 1999.
This program provides for the purchase of up to $243 million of shares on the
open market from time to time, however, the company cannot purchase more than
4.5 million shares through March 2001 without impairing the use of its tax loss
carryforward. Through November 1999, the company purchased an additional $35
million under the new program.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive loss as of October 31 are
as follows (in millions of dollars):

Foreign
Minimum Currency Accumulated
Pension Translation Other
Liability Adjustments Comprehensive
Adjustments And Other Loss
----------- ----------- -------------

1999 ..... $ (184) $ (13) $ (197)
1998 ..... (336) 5 (331)
1997 ..... (192) - (192)

In the Statement of Comprehensive Income, the tax effects of foreign
currency translation adjustments and other were not material for each of the
years in the three year period ended October 31, 1999.

- 44 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

16. EARNINGS PER SHARE

Earnings per share was computed as follows:

Millions of dollars,
except share and per share data 1999 1998 1997
- -------------------------------------------------------------------------------

Net income......................... $ 544 $ 299 $ 150
Less dividends
on Series G preferred stock...... - 11 29
------ ------ ------
Net income applicable to common
stock (Basic and Diluted) ....... $ 544 $ 288 $ 121
====== ====== ======

Average shares outstanding (millions)
Basic............................ 65.2 69.1 73.1
Dilutive effect of options
outstanding and other
dilutive securities.......... 1.2 .9 .5
------ ------ ------
Diluted.......................... 66.4 70.0 73.6
====== ====== ======

Earnings per share
Basic............................ $ 8.34 $ 4.16 $ 1.66
Diluted.......................... 8.20 4.11 1.65

Unexercised employee stock options to purchase .2 million, .5 million and
1.5 million shares of Navistar common stock during the years ended October 31,
1999, 1998 and 1997, respectively, were not included in the computation of
diluted shares outstanding because the exercise prices were greater than the
average market prices of Navistar common stock. Additionally, the diluted
calculations for 1998 and 1997 exclude the effects of the conversion of the
Series G preferred stock as such conversion would have been anti-dilutive.

- 45 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

17. STOCK COMPENSATION PLANS

The company has stock-based compensation plans, approved by the Committee
on Compensation and Governance of the board of directors, which provide for
granting of stock options to employees for purchase of common stock at the fair
market value of the stock on the date of grant. The grants generally have a
10-year life.

The company has elected to continue to account for stock option grants to
employees and directors in accordance with Accounting Principles Board Opinion
No. 25 and related interpretations. Accordingly, no compensation cost has been
recognized for fixed stock options because the exercise prices of the stock
options equal the market value of the company's common stock at the date of
grant. Had compensation cost for the plans been determined based upon the fair
value at the grant date consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," pro forma net
income would have been $542 million in 1999, $297 million in 1998 and $147
million in 1997; pro forma diluted earnings per share would have been $8.16 in
1999, $4.09 in 1998 and $1.61 in 1997; and pro forma basic earnings per share
would have been $8.30 in 1999, $4.14 in 1998 and $1.62 in 1997. The pro forma
effect on net income for 1999 and 1998 may not be representative of the pro
forma effect on net income of future years as in 1999 and 1998, one-third of the
options granted became exercisable on each of the first, second and third
anniversaries of grant. Prior to 1998, grants were generally exercisable after
one year.

The weighted-average fair values at date of grant for options granted
during 1999, 1998 and 1997 were $8.15, $7.53 and $5.71, respectively, and were
estimated using the Black-Scholes option-pricing model with the following
assumptions:

1999 1998 1997
---- ---- ----
Risk-free interest rate........... 4.5% 5.7% 6.6%
Dividend yield.................... 0% 0% 0%
Expected volatility............... 35.1% 31.9% 29.8%
Expected life in years............ 4.0 3.5 10.0

The following summarizes stock option activity for the years ended October
31:

1999 1998 1997
--------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares in thousands Shares Price Shares Price Shares Price
- ------------------- --------------------------------------------------------

Options outstanding
at beginning
of year 2,538 $20.29 2,430 $18.73 2,346 $20.34
Granted......... 1,271 27.16 809 23.93 876 10.13
Exercised....... (563) 41.28 (592) 28.52 (715) 12.45
Canceled........ (144) 25.82 (109) 45.45 (77) 28.52
----- ------ ----- ------ ----- ------

Options
outstanding
at year-end... 3,102 $23.30 2,538 $20.29 2,430 $18.73
===== ====== ===== ====== ===== ======
Options
exercisable
at year-end... 1,468 $19.94 1,765 $18.73 1,579 $23.35
===== ====== ===== ====== ===== ======
Options
available for
grant at
year-end...... 1,564 443 -
===== ===== =====

- 46 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

17. STOCK COMPENSATION PLANS (continued)

The following table summarizes information about stock options outstanding
and exercisable at October 31, 1999.

Outstanding Options Options Exercisable
- ------------------------------------------------------------------------------- -----------------------------------

Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices (in thousands) Contractual Life Exercise Price (in thousands) Exercise Price

$ 9.31 - $ 13.75 742 6.2 $ 11.08 742 $ 11.08
17.40 - 26.70 2,045 8.0 24.80 535 23.75
27.95 - 37.51 144 6.2 33.80 82 35.74
38.10 - 61.90 171 4.5 49.54 109 49.64

- 47 -

NOTES TO FINANCIAL STATEMENTS
(Continued)

18. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------------------------------------------------------------------------------------------------
Millions of dollars,
except per share data 1999 1998 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------

Sales and revenues.......... $1,924 $1,727 $2,287 $2,042 $1,878 $1,874 $2,558 $ 2,242

Manufacturing gross margin.. 16.5% 13.4% 17.9% 14.4% 18.3% 14.5% 19.1% 18.2%

Net income.................. $ 61 $ 38 $ 96 $ 67 $ 255 $ 50 $ 132 $ 144

Earnings per share
Basic..................... $ .92 $ .43 $ 1.44 $ .90 $ 3.94 $ .73 $ 2.08 $ 2.16
Diluted................... $ .91 $ .42 $ 1.42 $ .89 $ 3.86 $ .72 $ 2.04 $ 2.14

Net income excluding tax
valuation allowance
adjustments (a)........... $ 61 $ 38 $ 96 $ 67 $ 77 $ 50 $ 132 $ 99

Market price
range-common stock
High.................... $34 3/8 $28 $53 1/2 $35 7/8 $56 1/4 $34 $51 11/16 $28 1/2
Low..................... $21 1/8 $20 1/16 $32 1/8 $27 1/4 $41 $26 1/8 $36 1/4 $17
<FN>
(a) In the third quarter of 1999 and in the fourth quarter of 1998, the
company benefited from reductions to the deferred tax asset valuation
allowance of $178 million and $45 million, respectively.
</FN>

- 48 -

SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)

The following supplemental 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

AS OF OCTOBER 31
AND FOR THE YEARS THEN ENDED

Condensed Statement of Income 1999 1998 1997
- ---------------------------------- ------ ------ ------

Sales of manufactured products.... $8,326 $7,629 $6,147
Other income...................... 49 49 44
------ ------ ------
Total sales and revenues........ 8,375 7,678 6,191
------ ------ ------
Cost of products sold............. 6,826 6,464 5,274
Postretirement benefits........... 216 174 214
Engineering and research expense.. 281 192 124
Sales, general
and administrative expense...... 433 390 332
Other expense..................... 145 137 83
------ ------ ------
Total costs and expenses........ 7,901 7,357 6,027
------ ------ ------
Income before income taxes
Manufacturing operations........ 474 321 164
Financial services operations... 117 89 78
------ ------ ------
Income before income taxes.... 591 410 242
Income tax expense............ 47 111 92
------ ------ ------

Net income........................ $ 544 $ 299 $ 150
====== ====== ======

Condensed Statement
of Financial Condition 1999 1998
- ---------------------------------- ------ ------

Cash, cash equivalents
and marketable securities....... $ 386 $ 904
Inventories....................... 604 492
Property and equipment, net....... 1,188 883
Equity in
nonconsolidated subsidiaries.... 377 324
Other assets...................... 1,527 822
Deferred tax asset, net........... 896 912
------ ------
Total assets................. $4,978 $4,337
====== ======

Accounts payable,
principally trade............... $1,386 $1,235
Postretirement benefits
liability....................... 776 927
Other liabilities................. 1,525 1,406
Shareowners' equity............... 1,291 769
------ ------
Total liabilities and
shareowners' equity........ $4,978 $4,337
====== ======

- 49 -

SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)

Navistar International Corporation (with financial services operations on an
equity basis) in millions of dollars

AS OF OCTOBER 31
AND FOR THE YEARS THEN ENDED

Condensed Statement of Cash Flow 1999 1998 1997
- -------------------------------- ------ ------ ------

Cash flow from operations
Net income........................ $ 544 $ 299 $ 150
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 126 123 97
Deferred income taxes...... 185 149 82
Deferred tax asset
valuation allowance
adjustment............... (178) (45) -
Postretirement benefits
funding less than
(in excess of) expense... 47 (373) (128)
Equity in earnings of
investees, net of
dividends received....... (18) (1) (8)
Other, net................. (18) 9 (18)
Change in operating
assets and liabilities......... (25) 331 263
------ ------ ------
Cash provided by operations...... 663 492 438
------ ------ ------

Cash flow from investment programs
Purchases of marketable
securities.................... (323) (772) (428)
Sales or maturities
of marketable securities...... 651 449 454
Capital expenditures............ (425) (300) (167)
Receivable from financial
services operations........... (553) (7) (99)
Investment in affiliates........ (71) (7) 8
Capitalized interest and other.. (17) (1) (9)
------ ------ ------
Cash used in investment programs (738) (638) (241)
------ ------ ------

Cash used in financing
activities.................... (109) (76) (76)
------ ------ ------

Cash and cash equivalents
(Decrease) increase
during the period............ (184) (222) 121
At beginning of year........... 351 573 452
------ ------ ------

Cash and cash equivalents
at end of the period......... $ 167 $ 351 $ 573
====== ====== ======

- 50 -

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA

For the Years Ended October 31
(Millions of dollars,
except share data,
units shipped and percentages) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS

Sales and revenues.......... $8,647 $7,885 $6,371 $5,754 $6,342

Net income.................. 544 299 150 65 164

Earnings per share
Basic................... 8.34 4.16 1.66 .49 1.83
Diluted (c)............. 8.20 4.11 1.65 .49 1.83

Net income excluding
tax valuation allowance
adjustments (a)........... 366 254 150 65 164

Average number of shares
outstanding (millions)
Basic................... 65.2 69.1 73.1 73.7 74.2
Diluted................. 66.4 70.0 73.6 73.8 74.3

- -------------------------------------------------------------------------------
FINANCIAL DATA

Total assets................ $6,928 $6,189 $5,516 $5,326 $5,566

Long-term debt
Manufacturing operations.. $ 445 $ 446 $ 80 $ 99 $ 117
Financial services
operations............... 1,630 1,490 1,070 1,206 1,162
------ ------ ------ ------ ------
Total debt.................. $2,075 $1,936 $1,150 $1,305 $1,279
====== ====== ====== ====== ======

Shareowners' equity......... 1,291 769 1,020 916 870

Total manufacturing
operations' long-term debt
as a percent of total
manufacturing
capitalization............ 25.2% 36.6% 7.2% 9.6% 11.7%

Return on equity............ 42.2% 38.9% 14.7% 7.1% 18.9%

- -------------------------------------------------------------------------------
SUPPLEMENTAL DATA

Capital expenditures........ $ 427 $ 302 $ 169 $ 111 $ 136
Engineering and
research expense.......... 281 192 124 129 113

- -------------------------------------------------------------------------------
OPERATING DATA

Manufacturing gross margin.. 18.0% 15.3% 14.2% 12.5% 13.8%

United States
and Canadian market
share (b)................. 25.6% 29.1% 28.3% 27.5% 26.9%

Unit shipments worldwide
Trucks.................. 129,000 127,500 104,400 95,200 112,200
OEM engines............. 286,500 213,700 184,000 163,200 154,200

(a) In fiscal years 1999 and 1998, the company benefited from reductions to
the company's deferred tax asset valuation allowance of $178 million and
$45 million, respectively.

(b) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school buses, and heavy trucks (Class 8).

(c) Diluted earnings per share excluding tax valuation allowance adjustments
for the years 1999 to 1995 were $5.52, $3.47, $1.65, $.49 and $1.83,
respectively.
- 51 -