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

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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

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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

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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

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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.

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     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

     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

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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

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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 -

<PAGE>

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 -

<PAGE>

     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 -

<PAGE>

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 -

<PAGE>

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 -

<PAGE>

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 -

<PAGE>

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 -

<PAGE>

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 -

<PAGE>

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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

1.    SUMMARY OF ACCOUNTING POLICIES (continued)

     New Accounting Pronouncements (continued)

     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.  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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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.

     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.

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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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 -

<PAGE>

                          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.
<TABLE>
<CAPTION>

                               Outstanding Options                                             Options Exercisable
-------------------------------------------------------------------------------        -----------------------------------
<S>      <C>                 <C>                   <C>              <C>                        <C>             <C>
                                               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
</TABLE>

                                     - 47 -

<PAGE>

                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

18.  SELECTED QUARTERLY FINANCIAL DATA  (Unaudited)
<TABLE>
<CAPTION>
                                   1st Quarter               2nd Quarter                  3rd Quarter               4th Quarter
                              ----------------------------------------------------------------------------------------------------
Millions of dollars,
except per share data          1999        1998         1999          1998          1999          1998          1999         1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>         <C>           <C>           <C>           <C>           <C>         <C>
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>
</TABLE>

                                     - 48 -

<PAGE>

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 -

<PAGE>

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 -

<PAGE>

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 -