form 10q

10-Q 1 nic2q-10q.htm FORM 10Q, SECOND QUARTER ENDED APRIL 30, 2001 form 10q

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

FORM 10-Q

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

For the quarterly period ended April 30, 2001

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

For the transition period from to

Commission file number 1-9618

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

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

4201 Winfield Road, Warrenville, Illinois 60555
----------------------------------------- -------------
(Address of principal executive offices) (Zip Code)

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

455 North Cityfront Plaza Drive, Chicago, Illinois 60611
--------------------------------------------------------
(Former address, if changed since last report)

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 31, 2001, the number of shares outstanding of the registrant's common stock was
59,389,655.

PAGE 2

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

INDEX
---------

Page
Reference
---------

Part I. Financial Information:

Item 1. Financial Statements

Statement of Income
Three Months and Six Months Ended April 30, 2001 and 2000................. 3

Statement of Financial Condition
April 30, 2001, October 31, 2000 and April 30, 2000....................... 4

Statement of Cash Flow
Six Months Ended April 30, 2001 and 2000.................................. 5

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

Additional Financial Information..................................................... 16

Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................................. 18

Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................. 25

Part II. Other Information:

Item 1. Legal Proceedings..................................................... 25

Item 4. Submission of Matters to a Vote of Security Holders................... 25

Item 6. Exhibits and Reports on Form 8-K...................................... 25

Signature ........................................................................... 26

PAGE 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements

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

Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------------------------
Three Months Ended Six Months Ended
April 30 April 30
---------------------------------------------------------------
2001 2000 2001 2000
-------------- ------------ ------------ -------------
Sales and revenues
Sales of manufactured products.............................. $ 1,709 $ 2,313 $ 3,142 $ 4,399
Finance and insurance revenue............................... 69 64 135 133
Other income 16 11 24 22
--------- --------- --------- -----------
Total sales and revenues............................ 1,794 2,388 3,301 4,554
--------- --------- --------- -----------

Costs and expenses
Cost of products and services sold.......................... 1,485 1,908 2,761 3,656
Postretirement benefits..................................... 47 61 93 109
Engineering and research expense............................ 65 76 130 147
Sales, general and administrative expense................... 137 126 258 250
Interest expense............................................ 42 33 83 68
Other expense 13 26 27 53
--------- --------- --------- -----------
Total costs and expenses............................ 1,789 2,230 3,352 4,283
--------- --------- --------- -----------

Income (loss) before income taxes............ 5 158 (51) 271
Income tax benefit (expense)................. (2) (60) 19 (103)
--------- --------- --------- -----------

Net income (loss)........................................... $ 3 $ 98 $ (32) $ 168
========= ========= ========= ===========

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

Earnings (loss) per share
Basic ............................................. $ 0.05 $ 1.61 $ (0.53) $ 2.72
Diluted $ 0.05 $ 1.58 $ (0.53) $ 2.68

Average shares outstanding (millions)
Basic ............................................. 59.5 61.0 59.5 61.8
Diluted 59.9 61.9 59.5 62.7

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

See Notes to Financial Statements.

PAGE 4

STATEMENT OF FINANCIAL CONDITION (Unaudited)
Millions of dollars
---------------------------------------------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
-------------------------------------------------------
April 30 October 31 April 30
2001 2000 2000
--------------- ----------------- --------------
ASSETS

Current assets
Cash and cash equivalents............................... $ 428 $ 297 $ 480
Marketable securities................................... - 57 89
Receivables, net........................................ 747 1,035 1,626
Inventories............................................. 718 648 726
Deferred tax asset, net................................. 199 198 221
Other assets............................................ 183 139 142
--------- -------- -----------

Total current assets............................................ 2,275 2,374 3,284
--------- -------- -----------

Marketable securities........................................... 10 37 -
Finance and other receivables, net.............................. 921 1,467 620
Property and equipment, net..................................... 1,843 1,778 1,566
Investments and other assets.................................... 149 137 143
Restricted cash and marketable securities....................... 519 97 11
Prepaid and intangible pension assets........................... 305 297 313
Deferred tax asset, net......................................... 693 664 629
--------- -------- -----------

Total assets ................................................. $ 6,715 $ 6,851 $ 6,566
========= ======== ===========

LIABILITIES AND SHAREOWNERS' EQUITY

Liabilities
Current liabilities
Notes payable and current maturities of long-term debt.. $ 391 $ 482 $ 134
Accounts payable, principally trade..................... 1,064 1,091 1,247
Other liabilities....................................... 749 742 770
--------- -------- --------

Total current liabilities....................................... 2,204 2,315 2,151
--------- -------- --------

Debt: Manufacturing operations................................ 509 437 547
Financial services operations........................... 1,629 1,711 1,541
Postretirement benefits liability............................... 682 660 658
Other liabilities............................................... 412 414 365
--------- -------- --------

Total liabilities....................................... 5,436 5,537 5,262
--------- -------- --------

Commitments and contingencies

Shareowners' equity
Series D convertible junior preference stock.................... 4 4 4
Common stock (75.3 million shares issued)....................... 2,139 2,139 2,139
Retained earnings (deficit)..................................... (177) (143) (137)
Accumulated other comprehensive loss............................ (178) (177) (193)
Common stock held in treasury, at cost
(15.9 million, 15.9 million and 16.1 million shares (509) (509) (509)
--------- -------- --------
held)

Total shareowners' equity............................... 1,279 1,314 1,304
--------- -------- --------

Total liabilities and shareowners' equity....................... $ 6,715 $ 6,851 $ 6,566
========= ======== ========

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

See Notes to Financial Statements.

PAGE 5

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

Navistar International Corporation
and Consolidated Subsidiaries
------------------------------------------
Six Months Ended April 30
------------------------------------------
2001 2000
----------------- -----------------
Cash flow from operations
Net income (loss)................................................................. $ (32) $ 168
Adjustments to reconcile net income (loss)
to cash provided by operations:
Depreciation and amortization.............................................. 112 106
Deferred income taxes...................................................... (7) 61
Postretirement benefits funding less than (in excess of) expense........... 32 (18)
Other, net................................................................. (9) (9)
Change in operating assets and liabilities, net of effects of acquisition:
Receivables................................................................ 144 133
Inventories................................................................ (60) (102)
Prepaid and other current assets........................................... 10 4
Accounts payable........................................................... (49) (162)
Other liabilities.......................................................... (40) (128)
--------------- ---------------
Cash provided by operations................................................... 101 53
--------------- ---------------

Cash flow from investment programs
Purchases of retail notes and lease receivables................................... (469) (607)
Collections/sales of retail notes and lease receivables........................... 1,151 1,001
Purchases of marketable securities................................................ (5) (157)
Sales or maturities of marketable securities...................................... 89 299
Non-current investments........................................................... (424) -
Capital expenditures.............................................................. (122) (153)
Payments for acquisition, net of cash acquired.................................... (60) -
Proceeds from sale-leasebacks..................................................... 58 -
Property and equipment leased to others........................................... (34) (32)
Investment in affiliates.......................................................... 5 14
Capitalized interest and other.................................................... (25) (17)
--------------- ---------------
Cash provided by investment programs.......................................... 164 348
--------------- ---------------

Cash flow from financing activities
Issuance of debt.................................................................. 144 182
Principal payments on debt........................................................ (104) (43)
Net decrease in notes and debt outstanding
under bank revolving credit facility and commercial
paper programs (174) (152)
Purchases of common stock......................................................... - (151)
--------------- ---------------
Cash used in financing activities............................................. (134) (164)
--------------- ---------------

Cash and cash equivalents
Increase during the period.................................................... 131 237
At beginning of the period.................................................... 297 243
--------------- ---------------

Cash and cash equivalents at end of the period.................................... $ 428 $ 480
=============== ===============

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

See Notes to Financial Statements.

PAGE 6

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

Note A. Summary of Accounting Policies

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

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

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

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

Note B. Supplemental Cash Flow Information

Consolidated interest payments during the first six months of 2001 and 2000 were $79 million and $65 million, respectively.
Consolidated tax payments made during the first six months of 2001 and 2000 were $3 million and $21 million, respectively.

Note C. Income Taxes

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

Note D. Inventories

Inventories are as follows:

April 30 October 31 April 30
Millions of dollars 2001 2000 2000
----------------------------------------------------------------------------------------------------------------------
Finished products.............................................. $ 489 $ 394 $ 415
Work in process................................................ 28 42 44
Raw materials and supplies..................................... 201 212213 267
------------- -------------- -------------
Total inventories.............................................. $ 718 $ 648 $ 726
============= ============== =============

PAGE 7

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

Note E. Financial Instruments

Adoption of SFAS 133

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

Accounting for Derivatives and Hedging Activities

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

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

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

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

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

The company documents and accounts for derivative and hedging activities in accordance with the provisions of SFAS 133. In
general, SFAS 133 requires that an entity recognize all derivatives as assets or liabilities in the statement of financial position
and measure them at fair value. When certain criteria are met, it also provides for matching the timing of gain or loss recognition
on the derivative hedging instrument with the recognition of (a) changes in the fair value or cash flows of the hedged asset or
liability attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. Changes in the fair value
of derivatives which are not designated as or which do not qualify as hedges for accounting purposes are reported in earnings.

As of April 30, 2001, the company held German mark forward contracts (maturing through 2002) with notional amounts of $15
million related to the forecasted purchase of equipment and interest rate swaps (maturing through 2005) with notional amounts of $26
million to match floating rate debt to fixed rate receivables. These instruments are both classified as cash flow hedges and
resulted in an immaterial charge to other comprehensive income for the first half of 2001. Forecasted reclassifications from other
comprehensive income into earnings are not expected to be material for the next 12 months. Ineffectiveness on these contracts was
not material for the six months ended April 30, 2001.

PAGE 8

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

Note E. Financial Instruments (continued)

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

As of April 30, 2001, Navistar Financial Corporation (NFC) had two interest rate swap agreements and three interest rate
caps outstanding. These instruments are classified as non-hedging derivative instruments. The changes in fair value of these
instruments as of April 30, 2001, were not material.

At April 30, 2001, $37 million of a Mexican subsidiary's receivables were pledged as collateral for bank borrowings.

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

Note F. Earnings Per Share

Earnings (loss) per share was computed as follows:
Three Months Ended Six Months Ended
April 30 April 30
--------------------------- ----------------------------
Millions of dollars, 2001 2000 2001 2000
except share and per share data
-------------------------------------------------------- ------------ ------------- ------------ -------------
--------------------------------------------------------

Net income (loss)...................................... $ 3 $ 98 $ (32) $ 168
========== =========== ========== ===========

Average shares outstanding (millions)
Basic ........................................ 59.5 61.0 59.5 61.8
Dilutive effect of options outstanding
and other dilutive securities........... 0.4 0.9 - 0.9
---------- ----------- ---------- -----------
Diluted 59.9 61.9 59.5 62.7
========== =========== ========== ===========

Earnings (loss) per share
Basic ........................................ $ 0.05 $ 1.61 $ (0.53) $ 2.72
Diluted $ 0.05 $ 1.58 $ (0.53) $ 2.68

The computation of diluted shares outstanding for the six months ended April 30, 2001, excludes incremental shares of 0.5
million related to employee stock options and other dilutive securities. These shares are excluded due to their anti-dilutive effect
as a result of the company's loss for the first half of 2001.

PAGE 9

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

Note G. Comprehensive Income

The components of comprehensive income (loss) are as follows:

Three Months Ended Six Months Ended
April 30 April 30
--------------------------- ----------------------------
Millions of dollars 2001 2000 2001 2000
-------------------------------------------------------- ------------ ------------- ------------ -------------
--------------------------------------------------------

Net income (loss)...................................... $ 3 $ 98 $ (32) $ 168
Other comprehensive income (loss)...................... (2) (1) (1) 4
-------- --------- -------- ---------
Total comprehensive income (loss) $ 1 $ 97 $ (33) $ 172
======== ========= ======== =========

Included in other comprehensive loss for the three months and six months ended April 30, 2001, is a $1 million and a $3 million charge,
respectively, for derivatives that had been designated as cash flow type hedges in accordance with SFAS 133, as further described in
Note E.

PAGE 10

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

Note H. Segment Data

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

For the quarter ended April 30, 2001
----------------------------------------------------------------------

External revenues............................... $ 1,239 $ 470 $ 79 $ 1,788
Intersegment revenues........................... - 150 15 165
--------- --------- --------- ---------
Total revenues............................. $ 1,239 $ 620 $ 94 $ 1,953
========= ========= ========= =========

Segment profit (loss)........................... $ (48) $ 67 $ 25 $ 44

For the six months ended April 30, 2001
----------------------------------------------------------------------

External revenues............................... $ 2,261 $ 881 $ 149 $ 3,291
Intersegment revenues........................... - 269 32 301
--------- --------- --------- ---------
Total revenues............................. $ 2,261 $ 1,150 $ 181 $ 3,592
========= ========= ========= =========

Segment profit (loss)........................... $ (139) $ 109 $ 49 $ 19

As of April 30, 2001
----------------------------------------------------------------------

Segment assets.................................. $ 1,941 $ 1,239 $ 2,402 $ 5,582

For the quarter ended April 30, 2000
----------------------------------------------------------------------

External revenues............................... $ 1,831 $ 482 $ 67 $ 2,380
Intersegment revenues........................... - 191 24 215
--------- --------- -------- --------
Total revenues............................. $ 1,831 $ 673 $ 91 $ 2,595
========= ========= ======== ========

Segment profit.................................. $ 88 $ 79 $ 20 $ 187

For the six months ended April 30, 2000
----------------------------------------------------------------------

External revenues............................... $ 3,514 $ 885 $ 139 $ 4,538
Intersegment revenues........................... - 360 45 405
--------- --------- --------- ---------
Total revenues............................. $ 3,514 $ 1,245 $ 184 $ 4,943
========= ========= ========= =========

Segment profit................................. $ 138 $ 137 $ 45 $ 320

As of April 30, 2000
----------------------------------------------------------------------

Segment assets.................................. $ 1,935 $ 897 $ 2,324 $ 5,156

PAGE 11

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

Note H. Segment Data (continued)

Reconciliation to the consolidated financial statements as of and for the three months and six months ended April 30 is as
follows:

Three Months Ended Six Months Ended
April 30 April 30
------------------------------------------ --------------------------------- --------------------------------

Millions of dollars 2001 2000 2001 2000
------------------------------------------ --------------- ------------- ------------- -------------
-------------

Segment sales and revenues............... $ 1,953 $ 2,595 $ 3,592 $ 4,943
Other income............................. 6 8 10 16
Intercompany............................. (165) (215) (301) (405)
-------- --------- -------- --------
Consolidated sales and revenues.......... $ 1,794 $ 2,388 $ 3,301 $ 4,554
======== ========= ======== ========

Segment profit........................... $ 44 $ 187 $ 19 $ 320
Corporate items.......................... (36) (32) (71) (52)
Manufacturing net interest income........ (3) 3 1 3
-------- --------- -------- --------
Consolidated pretax income (loss)........ $ 5 $ 158 $ (51) $ 271
======== ========= ======== ========

Segment assets........................... $ 5,582 $ 5,156
Cash and marketable securities........... 272 436
Deferred taxes........................... 892 850
Corporate intangible pension assets...... 36 118
Other corporate and eliminations......... (67) 6
-------- ---------
Consolidated assets...................... $ 6,715 $ 6,566
======== =========

PAGE 12

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

Note I. Restructuring Charge

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

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

Of the total pretax restructuring charge of $306 million, $124 million represented non-cash charges. Through April 30, 2001, approximately
$142 million of the charge has been incurred, and $12 million of curtailment loss related to the company's postretirement benefit
plans was reclassified as a noncurrent postretirement liability. The remaining restructuring liability of $152 million is expected
to be funded from existing cash balances and internally generated cash flows from operations.

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

Total Charges Amount Incurred Balance
(Millions of dollars) April 30, 2001
----------------------------------------------------- -------------- ----------------- -----------------------
----------------------------------------------------- -------------- ----------------- -----------------------
Severance and other benefits $ 104 $ (34) $ 70
Inventory write-downs 20 (20) -
Other asset write-downs and losses 93 (93) -
Lease terminations 33 - 33
Loss on anticipated sale of business 17 - 17
Dealer termination and exit costs 39 (7) 32
-------------- ----------------- -----------------------
-------------- ----------------- -----------------------
Total $ 306 $ (154) $ 152
============== ================= =======================

The Plan of Restructuring includes the reduction of approximately 2,100 employees from the workforce, primarily in North
America. During the quarter, approximately $11 million was paid for severance and other benefits, and employee headcount was reduced
by approximately 500. As of April 30, 2001, approximately $22 million has been paid for severance and other benefits for the
reduction of approximately 1,400 employees, and $12 million of curtailment loss has been reclassified as a noncurrent postretirement
liability. The severance and other benefits balance mainly represents costs related to future payments over the next two years for
headcount reductions already incurred and the remaining reduction of approximately 700 employees, which will be substantially
completed by late 2001 when the majority of the NGV products will be in production.

Lease termination costs include the future obligations under long-term non-cancelable lease agreements at facilities being
vacated following workforce reductions. This charge primarily consists of the estimated lease costs, net of probable sublease
income, associated with the cancellation of the company's corporate office lease at NBC Tower in Chicago, Illinois, which expires in
2010. As of April 30, 2001, less than $1 million has been incurred for lease termination costs.

PAGE 13

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

Note I. Restructuring Charge (continued)

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

Dealer termination and exit costs include the termination of certain dealer contracts in connection with the realignment of
the company's bus distribution network, and other litigation costs to implement the restructuring initiatives. As of April 30, 2001,
approximately $7 million has been paid for dealer terminations and exit costs, of which $5 million was incurred during the quarter.

Note J. Sale of Receivables

On April 1, 2001 the company adopted Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". The adoption of this statement has not had and is not expected to
have a material effect on the company's results of operations, financial condition or cash flows.

NFC securitizes and sells certain retail and wholesale receivables through Navistar Financial Retail Receivables Corporation
(NFRRC), Navistar Financial Securities Corporation (NFSC), Truck Retail Accounts Corporation (TRAC) and Truck Engine Receivables
Financing Corporation (TERFCO), all special purpose, wholly-owned subsidiaries of NFC. NFRRC, NFSC, TRAC and TERFCO have limited
recourse on the sold receivables. The terms of receivable sales generally require NFC to maintain cash reserves with the trusts and
conduits as credit enhancement. These cash reserves are restricted under the terms of the securitized sales agreements. The maximum
exposure under all receivable sale recourse provisions at April 30, 2001 was $412 million; however, management believes the recorded
reserves for losses are adequate.

NFC continues to service the receivables, for which a servicing fee is received. Servicing fees are earned on a level yield
basis over the terms of the related sold receivables. Servicing fees are typically set at 1.0% of average outstanding net receivable
balances, representing NFC's estimated costs to service the receivables.

Gains or losses on sales of receivables are dependent upon the purchase price being allocated between the carrying value of
the receivables sold and the retained interests based upon their relative fair values. Fair values are estimated based upon the
present value of future expected cash flows using assumptions for prepayment speeds and current market interest rates. These
assumptions use management's best estimates commensurate with the risks involved. Gains or losses are credited or charged to finance
and insurance revenue in the period in which the sales occur. An allowance for credit losses is provided prior to the receivable
sale and is reclassified as part of retained interest upon sale.

PAGE 14

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

Note J. Sale of Receivables (continued)

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

April 30 October 31 April 30
2001 2000 2000
----------------- --------------- ---------------

Retail notes.............................. $ 2,421 $ 1,730 $ 2,224
Wholesale notes........................... 856 883 900
Retail accounts........................... 176 80 -
------ ------ --------
Total................................ $ 3,453 $ 2,693 $ 3,124
===== ===== =====

Additional financial data for gross serviced finance receivables as of April 30, 2001 is as follows, in millions:

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

Gross serviced finance receivables........ $ 2,965 $ 513 $ 1,086 $ 337
Gross serviced finance receivables with installments past due
49 21 10 23
Credit losses net of recoveries........... 10 1 - -

During the first half of 2001, NFC sold $1,275 million of retail notes, net of unearned finance income, through NFRRC.
Aggregate net gains of $18 million were recognized on these sales. Key economic assumptions used in measuring these gains and the
related retained interest were a prepayment speed of 1.4 to 1.6, a weighted average remaining life of 41 months and a residual cash
flows discount rate of 7.85% to 9.61%.

In May 2001, NFC sold an additional $67 million of retail notes, net of unearned finance income, to an owner trust. NFC has
the ability to sell an additional $23 million of retail notes to the same owner trust on or before October 15, 2001.

At April 30, 2001, NFSC has in place a revolving wholesale note trust that provides for the funding of $1,012 million of
eligible wholesale notes. TRAC and TERFCO have in place revolving retail account conduits that each provide for the funding of $100
million of eligible retail accounts.

When receivables are sold, NFC retains interest in the securitized receivables in the form of interest-only strips,
servicing rights, cash reserve accounts and subordinated certificates. The carrying amount of these retained interests approximate
fair value and were $391 million, $317 million and $336 million at April 30, 2001, October 31, 2000 and April 30, 2000,
respectively. These amounts are included in finance and other receivables in the statement of financial condition.

PAGE 15

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

Note J. Sale of Receivables (continued)

The following table summarizes certain cash flows received from and (paid to) securitization trusts/conduits during the six
months ended April 30, 2001, in millions:

Proceeds from initial sales of receivables......................................................... $ 1,305
Proceeds from subsequent sales of receivables into revolving facilities............................ 2,767
Servicing fees received............................................................................ 16
All other cash received from trusts................................................................ 65
Purchase of delinquent or foreclosed receivables................................................... (51)
Cash used for pool buybacks........................................................................ (106)

Note K. Subsequent Events

In May 2001, the parent company completed the private placement of $400 million 9 3/8% Senior Notes due 2006. The parent
company had initially planned to raise $300 million, however, the debt issue was oversubscribed. The proceeds of the Senior Notes
are to be used for debt repayment, to fund ongoing capital development programs and for general corporate purposes. International,
exclusive of its subsidiaries, will initially guarantee the payment of the principal, premium and interest on these notes, as well as
the existing $100 million 7% senior notes due 2003 and the $250 million 8% senior subordinated notes due 2008.

PAGE 16

Navistar International Corporation and Consolidated Subsidiaries

Additional Financial Information

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

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

Three Months Ended Six Months Ended
April 30 April 30
--------------------------------- --------------------------------
Condensed Statement of Income 2001 2000 2001 2000
----------------------------------------------------- ---------------- --------------- ---------------- --------------
-----------------------------------------------------

Sales of manufactured products...................... $ 1,709 $ 2,313 $ 3,142 $ 4,399
Other income........................................ 3 8 9 16
------------ ------------ ------------ ----------
Total sales and revenues........................ 1,712 2,321 3,151 4,415
------------ ------------ ------------ ----------

Cost of products sold............................... 1,470 1,897 2,745 3,636
Postretirement benefits............................. 48 61 93 109
Engineering and research expense.................... 65 76 130 147
Sales, general and administrative expense........... 115 111 217 220
Other expenses...................................... 32 42 65 85
------------ ------------ ------------ ----------
Total costs and expenses........................ 1,730 2,187 3,250 4,197
------------ ------------ ------------ ----------

Income (loss) before income taxes
Manufacturing operations........................ (18) 134 (99) 218
Financial services operations................... 23 24 48 53
------------ ------------ ------------ ----------
Income (loss) before income taxes........... 5 158 (51) 271
Income tax benefit (expense)................ (2) (60) 19 (103)
------------ ------------ ------------ ----------
Net income (loss)................................... $ 3 $ 98 $ (32) $ 168
============ ============ ============ ==========

April 30 October 31 April 30
Condensed Statement of Financial Condition 2001 2000 2000
----------------------------------------------------------------- ---------------- ----------------- ----------------
-----------------------------------------------------------------

Cash, cash equivalents and marketable securities................ $ 359 $ 294 $ 489
Inventories..................................................... 653 597 688
Property and equipment, net..................................... 1,520 1,464 1,279
Equity in nonconsolidated subsidiaries.......................... 355 386 377
Other assets.................................................... 921 1,095 1,159
Deferred tax asset, net......................................... 885 862 850
------------- --------------- -------------
Total assets............................................ $ 4,693 $ 4,698 $ 4,842
============= =============== =============

Accounts payable, principally trade............................. $ 1,032 $ 1,087 $ 1,221
Postretirement benefits liability............................... 807 773 799
Other liabilities............................................... 1,575 1,524 1,518
Shareowners' equity............................................. 1,279 1,314 1,304
------------- --------------- -------------
Total liabilities and shareowners' equity............... $ 4,693 $ 4,698 $ 4,842
============= =============== =============

PAGE 17

Navistar International Corporation and Consolidated Subsidiaries

Additional Financial Information

Navistar International Corporation (with financial services operations on an equity basis)
in millions of dollars:
Six Months Ended
April 30
-----------------------------------------
Condensed Statement of Cash Flow 2001 2000
---------------------------------------------------------------------------
---------------- -----------------

Cash flow from operations
Net income (loss).......................................................... $ (32) $ 168
Adjustments to reconcile net income (loss)
to cash used in operations:
Depreciation and amortization....................................... 79 78
Deferred income taxes............................................... (7) 61
Postretirements benefits funding
(in excess of) less than expense................................. 32 (18)
Equity in earnings of investees,
net of dividends received........................................ 12 (20)
Other, net.......................................................... 6 (17)
Change in operating assets and liabilities,
net of effects of acquisition.......................................... (188) (401)
------------- -------------
Cash used in operations.................................................... (98) (149)
------------- -------------

Cash flow from investment programs
Purchases of marketable securities......................................... - (130)
Sales or maturities of marketable securities............................... 83 276
Capital expenditures....................................................... (122) (153)
Payments for acquisition, net of cash acquired............................. (60) -
Proceeds from sale-leasebacks.............................................. 58 -
Receivable from financial services operations.............................. 285 452
Investment in affiliates................................................... 5 14
Capitalized interest and other............................................. (28) (17)
------------- -------------
Cash provided by investment programs....................................... 221 442
------------- -------------

Cash provided by (used in) financing activities............................ 23 (49)
------------- -------------

Cash and cash equivalents
Increase during the period................................................. 146 244
At beginning of the period................................................. 213 167
------------- -------------
Cash and cash equivalents at end of the period............................. $ 359 $ 411
============= =============

PAGE 18

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

RESULTS OF OPERATIONS

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

Second Quarter Ended April 30, 2001
-----------------------------------

The company reported net income of $3 million, or $0.05 per diluted common share for the second quarter ended April 30,
2001. For the comparable quarter last year, net income was $98 million, or $1.58 per diluted common share. This change is primarily
due to continued weak, new and used truck pricing and lower new truck shipments.

The company's manufacturing operations reported a loss before income taxes of $18 million compared with pretax income of
$134 million in the second quarter of 2000. The truck segment's profit for the second quarter of 2001 decreased by $136 million and
revenues decreased $592 million compared to the same period last year. The truck segment's profit and revenue decreases are
primarily the result of reduced industry wide shipments and lower market pricing.

The engine segment's profit for the second quarter of 2001 decreased by 15% compared to a revenue decrease of 8%. The
decreases in the engine segment's profits and revenues are partially attributable to decreases in total shipments of mid-range diesel
engines. Lower profits are also attributable to unfavorable sales mix and higher employee benefit expenses.

The financial services segment's profit increased $5 million from the second quarter of 2000 to $25 million. The change in
the financial services segment's revenue is primarily due to changes in finance and insurance revenue discussed below.

Sales and Revenues. Sales and revenues for the second quarter of 2001 totaled $1,794 million, 25% lower than the $2,388
million reported for the comparable quarter in 2000. Sales of manufactured products decreased 26% for the second quarter of 2001 to
$1,709 million from the $2,313 million reported for the same period in 2000.

U.S. and Canadian industry retail sales of Class 5 through 8 trucks totaled 79,500 units in the second quarter of 2001,
which is 35% lower than the 121,600 units sold during this period in 2000. Class 8 heavy truck sales of 39,800 units during the
second quarter of 2001 were 43% lower than the 2000 level of 70,100 units. Industry sales of Class 5, 6 and 7 medium trucks,
including school buses, decreased 23% to 39,700 units. Industry sales of school buses, which accounted for 22% of the medium truck
market, decreased 16% to 8,600 units.

Market share for the second quarter of 2001 declined to 26.5% from 27.0% reported in the same period of 2000. This decrease
was the result of aggressive pricing actions by the company's competitors as well as delays in customer purchases as a result of the
new model truck introduction.

PAGE 19

Shipments of mid-range diesel engines by the company to other OEMs during the second quarter of 2001 totaled 85,300 units, a
3% increase from the same period of 2000. This increase resulted primarily from the inclusion of Maxion International Motores, S.A.
(Maxion) in the consolidated financial results for 2001. In the first quarter of 2001, Maxion became a wholly owned subsidiary of
the company.

Finance and insurance revenue of $69 million in the second quarter of 2001 increased 8% from 2000. This is primarily due to
gains on Navistar Financial Corporation's (NFC) sales of retail note receivables partially offset by lower average serviced wholesale
note and account balances.

Other income increased to $16 million from $11 million reported in the second quarter of 2000. This increase is primarily
the result of earnings on restricted marketable securities held as collateral for borrowings under NFC's revolving retail warehouse
facility.

Costs and expenses. Manufacturing gross margin was 13.9% of sales for the second quarter of 2001 compared with 18.0% for the same
period in 2000. This decrease is primarily due to the impact of lower volumes and pressure on pricing.

Postretirement benefits decreased $14 million from the second quarter of 2000 to $47 million. This decrease is due to lower
supplemental trust profit sharing provisions in 2001 related to lower profits.

Engineering and research expense decreased $11 million from the second quarter of 2000 to $65 million. This decrease
reflects a reduction in the amount of spending on the company's Next Generation Vehicle (NGV) program.

Sales, general and administrative expense increased 9% to $137 million in the second quarter of 2001 from $126 million for
the comparable quarter in 2000. This increase is due to an increase in the provision for losses on receivables driven by an increase
in repossession frequency and pricing pressure in the used truck market.

Interest expense increased $9 million from the second quarter of 2000 to $42 million, primarily due to the increase in NFC's
weighted average interest rate on all debt and an increase in the outstanding balance of the revolving retail warehouse facility.

Six Months Ended April 30, 2001
-------------------------------

The company reported a net loss of $32 million, or a $0.53 loss per diluted common share for the first six months of 2001,
primarily due to continued weak, new and used truck pricing and lower new truck shipments. Net income was $168 million, or $2.68 per
diluted common share, for the comparable period of 2000.

The company's manufacturing operations reported a loss before income taxes of $99 million compared with pretax income of
$218 million in the first half of 2000. The truck segment's profit for the first six months of 2001 decreased by $277 million and
revenues decreased $1,253 million compared to the same period last year. The truck segment's profit and revenue decreases are
primarily the result of reduced industry wide shipments and lower market pricing.

The engine segment's profit for the first half of 2001 decreased by 20% compared to a revenue decrease of 8%. The decreases
in the engine segment's profits and revenues are partially attributable to decreases in total shipments of mid-range diesel engines.
Lower profits are also attributable to unfavorable sales mix and higher employee benefit expenses.

PAGE 20

The financial services segment's profit was $49 million for the first six months of 2001, which is $4 million higher than
the same period of 2000. The change in the financial services segment's revenue is primarily due to higher gains from sale of
receivables, partially offset by lower average serviced wholesale note and account balances.

Sales and Revenues. Sales and revenues for the first six months of 2001 totaled $3,301 million, 28% lower than the $4,554
million reported for the comparable period of 2000. Sales of manufactured products decreased 29% for this period in 2001 to $3,142
million from the $4,399 million reported for the same period in 2000.

U.S. and Canadian industry retail sales of Class 5 through 8 trucks totaled 158,700 units for the first six months of 2001,
which is 32% lower than the 234,300 units sold during this period in 2000. Class 8 heavy truck sales of 82,600 units during the first
half of 2001 were 41% lower than the 2000 level of 139,200 units. Industry sales of Class 5, 6 and 7 medium trucks, including school
buses, decreased 20% to 76,100 units. Industry sales of school buses, which accounted for 19% of the medium truck market, decreased
17% to 14,700 units.

Market share for the first six months of 2001 declined to 25.8% from 26.7% reported in the same period of 2000. This
decrease was the result of aggressive pricing actions by the company's competitors, as well as delays in customer purchases as a
result of the new model truck introduction.

Shipments of mid-range diesel engines by the company to other OEMs during the first half of 2001 totaled 158,800 units, a 3%
increase from the same period of 2000. This increase resulted primarily from the inclusion of Maxion in the consolidated financial
results for 2001. In the first quarter of 2001, Maxion became a wholly owned subsidiary of the company.

Costs and expenses. Manufacturing gross margin was 12.6% of sales for the first half of 2001 compared with 17.3% for the same period
in 2000. This decrease is primarily due to the impact of lower volumes and pressure on pricing.

Postretirement benefits decreased $16 million from the first half of 2000 to $93 million. This decrease is due to lower
supplemental trust profit sharing provisions in 2001 related to lower profits.

Engineering and research expense decreased $17 million in the first half of 2001 to $130 million compared to the same period
in 2000. This decrease reflects a reduction in the amount of spending on the company's NGV program.

Interest expense increased $15 million in the first half of 2001 to $83 million, primarily due to the increase in NFC's
weighted average interest rate on all debt and an increase in the outstanding balance of the revolving retail warehouse facility.

Restructuring Charge

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

PAGE 22

Liquidity and Capital Resources

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

The company had working capital of $71 million at April 30, 2001, compared to $59 million at October 31, 2000. Cash
provided by operations during the first six months of 2001 totaled $101 million. The company had a net loss of $32 million, which
was more than offset by $144 million of non-cash items, principally depreciation and amortization. Also included was a net change in
operating assets and liabilities of $5 million.

The net source of cash resulting from the change in operating assets and liabilities included a $144 million decrease in
receivables primarily due to lower wholesale note and account balances. This was partially offset by a $60 million increase in
inventories primarily due to lower new truck shipments and higher levels of repossessions, and a $49 million decrease in accounts
payable primarily due to lower production levels during the first six months of 2001.

Investment programs provided $164 million in cash primarily reflecting a net decrease in retail notes and lease receivables
of $682 million, a net decrease in marketable securities of $84 million and $58 million of proceeds from sale-leasebacks. These were
partially offset by $424 million of non-current investments, which represents restricted marketable securities used as collateral in
NFC's revolving retail warehouse facility, a net increase in property and equipment leased to others of $34 million and capital
expenditures of $122 million. Capital expenditures were primarily made for the NGV and Next Generation Diesel (NGD) programs and for
a school bus facility in Tulsa, Oklahoma. Investment programs also used $60 million of cash to purchase the remaining 50% interest
in Maxion.

Cash used by financing activities resulted from a net decrease of $174 million in notes and debt outstanding under the bank
revolving credit facility and other commercial paper programs. This was partially offset by a $40 million net increase in long-term
debt, which includes $60 million of debt issued to finance the Maxion acquisition.

NFC has traditionally obtained the funds to provide financing to International's dealers and retail customers from sales of
finance receivables, commercial paper, short and long-term bank borrowings, medium and long-term debt and equity capital. As of
April 30, 2001, NFC's funding consisted of sold finance receivables of $3,453 million, bank and other borrowings of $1,170 million,
subordinated debt of $100 million, capital lease obligations of $393 million and equity of $304 million.

Through the asset-backed public market and private placement sales, NFC has been able to fund fixed rate retail note
receivables at rates offered to companies with higher investment grade ratings. During the first half of 2001, NFC sold $1,275
million of retail notes, net of unearned finance income, through Navistar Financial Retail Receivables Corporation (NFRRC), a special
purpose, wholly owned subsidiary of NFC. Aggregate net gains of $18 million were recognized on these sales. In May 2001, NFC sold
an additional $67 million of retail notes, net of unearned finance income, to an owner trust. NFC has the ability to sell an
additional $23 million of retail notes to the same owner trust on or before October 15, 2001. As of April 30, 2001, the remaining
shelf registration available to NFRRC for the public issuance of asset-backed securities was $618 million. Also, as of April 30,
2001, Navistar Financial Securities Corporation (NFSC), a special purpose, wholly owned subsidiary of NFC, has in place a revolving
wholesale note trust that provides for the funding of $1,012 million of eligible wholesale notes, of which $856 million has been
utilized. In the third quarter of 2001, NFC lowered the outstanding variable funding certificates held by NFSC from $75 million to
zero, increasing NFC's availability by $75 million.

PAGE 23

At April 30, 2001, available funding under NFC's bank revolving credit facilities, the revolving retail warehouse facility
and the revolving wholesale note trust was $813 million. When combined with unrestricted cash and cash equivalents, $859 million was
available to fund the general business purposes of NFC.

In November 2000, NFC established Truck Engine Receivables Financing Corporation, a special purpose wholly owned subsidiary
of NFC, for the purpose of securitizing engine accounts receivable. In November 2000, NFC securitized all of its unsecured trade
receivables generated by the sale of diesel engines and engine service parts from Navistar to Ford Motor Company. The transaction
provides for funding of $100 million and expires in 2006. As of April 30, 2001, NFC has utilized $100 million of this facility.

Truck Retail Accounts Corporation, a special purpose, wholly owned subsidiary of NFC, has in place a revolving retail
account conduit that provides for the funding of $100 million of eligible retail accounts. As of April 30, 2001, NFC has utilized
$76 million of this facility. The facility expires in August 2001 with an option for renewal.

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

Cash flow from the company's manufacturing operations, financial services operations and financing capacity is currently
sufficient to cover planned investment in the business. The company had outstanding capital commitments of $175 million at April 30,
2001, primarily for the NGV and NGD programs.

In May 2001, the company completed the private placement of $400 million 9 3/8% Senior Notes due in 2006. The company had
initially planned to raise $300 million, however, the debt issue was oversubscribed. The proceeds of the Senior Notes are to be used
for debt repayment, to fund ongoing capital development programs and for general capital purposes. International, exclusive of its
subsidiaries, will initially guarantee the payment of the principal, premium and interest on these notes, as well as the existing
$100 million 7% senior notes due 2003 and the $250 million 8% senior subordinated notes due 2008.

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

It is the opinion of management that, in the absence of significant unanticipated cash demands, current and forecasted cash
flow as well as anticipated financing actions will provide sufficient funds to meet operating requirements and capital expenditures.
Management believes that collections on the outstanding receivables portfolios as well as funds available from various funding
sources will permit the financial services operations to meet the financing requirements of International's dealers and retail
customers.
PAGE 24

New Accounting Pronouncements

Business Environment

Sales of Class 5 through 8 trucks historically have been cyclical, with demand affected by such economic factors as
industrial production, construction, demand for consumer durable goods, interest rates and the earnings and cash flow of dealers and
customers. Truck sales in the second quarter were hindered by a number of factors including high inventories of new and used trucks
as well as driver shortages, high fuel prices and high interest rates. The demand for new trucks reflected these adverse conditions,
reducing the company's U.S. and Canadian order backlog at April 30, 2001, to 19,100 units, significantly lower than the 31,100 units
at April 30, 2000. The company will continually evaluate order receipts and backlog throughout the year and will balance production
with demand as appropriate. To control costs and align production schedules with demand, the company reduced its production
schedules during the quarter through shutdown weeks at its Chatham and Springfield Assembly Plants. The company will have additional
shutdown weeks in the third quarter at its Springfield Assembly Plant to further balance production with demand.

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

In February 2001, the company announced its intent to form a joint venture with Ford to build Class 6 and 7 medium trucks at
Navistar's facility in Escobedo, Mexico. Additionally, the two companies intend to explore opportunities for greater cooperation in
diesel engines for potential application in Ford's full range of truck products.

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

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

PAGE 25

Navistar International Corporation and Consolidated Subsidiaries

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the company's market risk exposure since October 31, 2000, as
reported in the 2000 Annual Report on Form 10-K.

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

Item 1. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

At the company's Annual Meeting of Shareowners on February 20, 2001, two proposals were submitted to a
vote of the shareowners. The first proposal was to elect four directors to serve three year terms
expiring at the 2004 Annual Meeting of Shareowners. The results of the voting for the election of
directors were as follows:

Nominee Votes For Votes Withheld
------- --------- --------------
Michael N. Hammes 34,222,021 8,854,871
John R. Horne 34,100,980 8,975,912
Southwood J. Morcott 34,226,370 8,850,522
William F. Patient 34,244,244 8,832,648

Accordingly, the four nominees received a plurality of the votes cast in the election of directors at the
meeting and were elected. The names of the remaining directors who did not stand for election at the
Annual Meeting and whose terms of office as directors continue after such meeting are Y. Marc Belton,
Jerry E. Dempsey, Dr. Abbie J. Griffin, Robert C. Lannert, William F. Andrews, John D. Correnti, Allen J.
Krowe, and Paul C. Korman.

The second proposal was a shareholder proposal to request the Board of Directors to redeem the Preferred
Share Purchase Rights issued on April 20, 1999. The results of the voting on the approval of the
shareowner proposal were as follows:

Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
36,180,552 6,611,359 284,981 0

Accordingly, the number of affirmative votes cast on the proposal constituted more than a majority of the
votes cast on the proposal at the meeting, and the shareowner proposal was approved. This vote did not
itself redeem the Preferred Share Purchase Rights. That would require that the Board vote to redeem the
Preferred Share Purchase Rights.

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

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

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

10. Material Contracts E-5

(b) Reports on Form 8-K:

None

PAGE 26

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

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

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

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

June 14, 2001