Navistar International Corp Annual Report 2011

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FY2011 Annual Report · Navistar International Corp

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AN N UAL R E P O RT 2011

D E L I V E R I N G
R E S U LTS TO DAY …

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Navistar International Corporation
2701 Navistar Drive
Lisle, IL 60532
www.navistar.com

Printed on recycled paper

B U I L D I N G
T H E F O U N D AT I O N
F O R O U R F U T U R E

T H R O U G H I N T E G R AT I O N

Our
three-pillar
strategy

Great
Products

Competitive
Cost
Structure

Profitable
Growth

Net Sales and Revenues
In millions of dollars

Adjusted Net Income Attributable to
Navistar International Corporation
(Unaudited & Non-GAAP)
In millions of dollars

Adjusted Diluted Earnings
Navistar Per Share
(Unaudited & Non-GAAP)

Adjusted Manufacturing
Navistar Segment Profit
(Unaudited & Non-GAAP)
In millions of dollars

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$400

$350

$300

$250

$200

$150

$100

$50

$5.00

$4.00

$3.00

$2.00

$1.00

$800

$700

$600

$500

$400

$300

$200

$100

Financial Summary

In millions of dollars (except per share data)

Net Sales and Revenues

Net Income Attributable to Navistar International Corporation

Adjusted Net Income Attributable to Navistar International Corporation (Unaudited & Non-GAAP)1

Diluted Earnings Per Share Attributable to Navistar International Corporation

Adjusted Diluted Earnings Per Share (Unaudited & Non-GAAP)1

Manufacturing Segment Profit (Unaudited & Non-GAAP)1, 2

Adjusted Manufacturing Segment Profit (Unaudited & Non-GAAP)1, 2

1See the REG G Non-GAAP Reconciliation, found on the inside back cover, for additional information.
2 The Manufacturing segment collectively represents the Company’s Truck, Engine and Parts segments.

2009

$11,569

$320

$202

$4.46

$2.86

$836

$707

2010

$12,145

$223

$3.05

$741

2011

$13,958

$1,723

$402

$22.64

$5.28

$707

$882

Stock Performance | Comparison of 5 Year Cumulative Total Return | Assumes Initial Investment of $100 | October 2011

2007

2008

2009

2010

2011

$250

$200

$150

$100

$50

Navistar

227.19

108.62

119.51

173.74

151.71

NASDAQ Composite-Total Returns

114.56

73.21

80.38

93.66

101.24

S&P Construction & Farm

147.07

70.94

98.14

155.45

170.64

– Navistar – NASDAQ Composite-Total Returns – S&P 500 Construction, Farm Machinery & Heavy Truck Index

NOTES: Data complete through last fiscal year; The comparison assumes $100 was invested on October 31, 2006, in Navistar Common Stock and in each of the indices shown and assumes reinvestment of
dividends; Corporate Performance Graph with peer group uses peer group only performance (excludes only company); Peer group indices use beginning of period market capitalization weighting; Prepared by
Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2011; Index Data: Copyright S&P. Used with permission. All rights reserved.

AN N UAL R E P O RT 2011

D E L I V E R I N G

R E S U LTS TO DAY …

Navistar International Corporation

2701 Navistar Drive

Lisle, IL 60532

www.navistar.com

Printed on recycled paper

B U I L D I N G

T H E F O U N D AT I O N

F O R O U R F U T U R E

T H R O U G H I N T E G R AT I O N

Our
three-pillar
strategy

Great
Products

Competitive
Cost
Structure

Proﬁtable
Growth

Net Sales and Revenues
In millions of dollars

Adjusted Net Income Attributable to
Navistar International Corporation
(Unaudited & Non-GAAP)
In millions of dollars

Adjusted Diluted Earnings
Navistar Per Share
(Unaudited & Non-GAAP)

Adjusted Manufacturing
Navistar Segment Proﬁt
(Unaudited & Non-GAAP)
In millions of dollars

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$400

$350

$300

$250

$200

$150

$100

$50

$5.00

$4.00

$3.00

$2.00

$1.00

$800

$700

$600

$500

$400

$300

$200

$100

Financial Summary

In millions of dollars (except per share data)

Net Sales and Revenues

Net Income Attributable to Navistar International Corporation

Adjusted Net Income Attributable to Navistar International Corporation (Unaudited & Non-GAAP)1

Diluted Earnings Per Share Attributable to Navistar International Corporation

Adjusted Diluted Earnings Per Share (Unaudited & Non-GAAP)1

Manufacturing Segment Proﬁt (Unaudited & Non-GAAP)1, 2

Adjusted Manufacturing Segment Proﬁt (Unaudited & Non-GAAP)1, 2

2009

$11,569

$320

$202

$4.46

$2.86

$836

$707

2010

$12,145

$223

$3.05

$741

2011

$13,958

$1,723

$402

$22.64

$5.28

$707

$882

Stock Performance | Comparison of 5 Year Cumulative Total Return | Assumes Initial Investment of $100 | October 2011

2007

2008

2009

2010

2011

$250

$200

$150

$100

$50

Navistar

227.19

108.62

119.51

173.74

151.71

NASDAQ Composite-Total Returns

114.56

73.21

80.38

93.66

101.24

S&P Construction & Farm

147.07

70.94

98.14

155.45

170.64

– Navistar – NASDAQ Composite-Total Returns – S&P 500 Construction, Farm Machinery & Heavy Truck Index

NOTES: Data complete through last ﬁscal year; The comparison assumes $100 was invested on October 31, 2006, in Navistar Common Stock and in each of the indices shown and assumes reinvestment
of dividends; Corporate Performance Graph with peer group uses peer group only performance (excludes only company); Peer group indices use beginning of period market capitalization weighting;
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2011; Index Data: Copyright S&P. Used with permission. All rights reserved.

RRD1465cv.indd 1

1/4/12 7:02 PM

Expanding Our Business by Sustaining Customers through the Entire Life Cycle

Trucks

Common Platform

Engines

Parts and Service

Global Powertrain

Global Distribution Centers

DuraStar

ProStar+

Vesta

MN25

4.8L

7.2L

WorkStar

LoneStar

Continental Mixer

9900

9.3L

DT & 10

School Bus

TranStar

eStar

ATX-6

Brakeshoes

Blower Motor

MaxxPro

MXT

9200/9400

TerraStar

11 & 13

Fan Belt

Back-up Warning Alarm

Air Dryer Cartridge

7000 Series

TerraStar

PayStar

CityStar

7000-MV

AC Bus

DuraStar Hybrid

40’ Concept Coach

Fuel Systems

Emission Controls

Metal Castings

Brake Drum

Fuel Filter

Pin Slide New Caliper

Clutch

Mud Flap

S HAR E H O L D E R I N F O R MATI O N

Annual Meeting
The annual meeting of shareholders
will be held at 11:00 a.m. Central time
Tuesday, February 21, 2012, at:

Hyatt Lisle
1400 Corporetum Drive
Lisle, IL 60532
USA

Investor Relations
For information about shareholder
matters, please contact the investor
relations team:
Website: http://ir.navistar.com/
Telephone: (331) 332-2143
Email: investor.relations@navistar.com

SEC Filings
Filings with the U.S. Securities and
Exchange Commission, including
the latest 10-K and proxy statement,
are available on our Website at
http://ir.navistar.com/

Transfer Agent
For inquiries regarding name changes,
changes of address or missing
certificates, please contact our
shareholder service provider:
BNY Mellon Shareowner Services
P.O. Box 3315
South Hackensack, NJ 07606-1915
480 Washington Blvd.
Jersey City, NJ 07310
Telephone: (888) 884-9359

Stock Trading Information
Navistar International Corporation is
listed on the New York Stock Exchange.
Ticker Symbol: NAV

Independent Auditor
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601

Corporate Headquarters
Navistar International Corporation
2701 Navistar Dr.
Lisle, IL 60532
Telephone: (331) 332-5000

REG G NON-GAAP RECONCILIATION

(In millions except per share data)
Net Income Attributable to Navistar International Corporation

Plus:
Restructuring of North American manufacturing operations(1)
Engineering integration costs(2)
Medicare Part D ruling related to prior period(3)
Ford settlement, restructuring and related benefits(4)

Impairment of property, plant, and equipment(5)
Write-off debt issuance cost(6)
Less: Income tax valuation allowance release(7)
Adjusted income attributable to Navistar International Corporation

Diluted earnings per share attributable to Navistar International Corporation
Less: Effect of adjustments on diluted earnings per share attributable to Navistar International Corporation
Adjusted diluted earnings per share attributable to Navistar International Corporation
Weighted average number of diluted shares outstanding
Net income attributable to Navistar International Corporation
Less:

Income taxes benefit (expense)

Financial services segment profit (loss)

Corporate and eliminations
Manufacturing segment profit

Plus:
Restructuring of North American manufacturing operations(1)
Engineering integration costs(2)
Ford settlement, restructuring and related charges (benefits)(4)

Impairment of property, plant and equipment(5)
Adjusted manufacturing segment profit

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

$ 320

$ 223

$1,723

-
-
-

(160)

31
11

$ 202
$ 4.46
1.60
$ 2.86
71.8
$ 320

(37)

(519)
$ 836

-
-

(160)

-
-
-

-
-

$ 223
$ 3.05
-
$ 3.05
73.2
$ 223

(23)

(590)
$ 741

-
-

127

1,527

$ 402
$ 22.64
17.36
$ 5.28
76.1
$ 1,723

1,458

129

(571)
$ 707

124

$ (333)

$ (44)

$ 139

$ 301

$ (120)

$ 134

(17)

(310)
$ (93)

(9)

132

(178)
$ 11

(6)

136

(412)
$ 421

(94)

147

(590)
$ 838

(47)

127

(662)
$ 462

(57)

(24)

(478)
$ 693

-
-

358

$ (93)

$ 11

$ 421

$ 838

$ 462

$ 1,088

$ 707

$ 741

$ 882

1 Restructuring of North American manufacturing operations are charges primarily related to our plans to close our Chatham, Ontario heavy truck plant and Workhorse chassis plant in Union City, Indiana, and to significantly scale back operations at our
Monaco recreational vehicle headquarters and motor coach manufacturing plant in Coburg, Oregon, which totaled $58 million of restructuring charges for the year ended October 31, 2011. We also incurred an additional $5 million of other related
costs for the year ended October 31, 2011. In addition, the Company recognized $64 million of impairment charges related to certain intangible assets and property plant and equipment primarily related to these facilities. The Truck segment recognized
$124 million of restructuring of North American manufacturing operation charges for the year ended October 31, 2011.

2 Engineering integration costs relate to the consolidation of our Truck and Engine engineering operations as well as the move of our world headquarters. These costs include restructuring charges for activities at our Fort Wayne facility of $29 million for

the year ended October 31, 2011. We also incurred an additional $35 million of other related costs for the year ended October 31, 2011. Our manufacturing segment recognized $51 million of the engineering integration costs for the year ended
October 31, 2011.

3 In the fourth quarter of 2011, the company had an unfavorable ruling related to a 2010 administrative change the Company made to the prescription drug program under the OPEB plan affecting plan participants who are Medicare eligible.

4 Ford settlement, restructuring and related charges (benefits) include the impact of our settlement with Ford in 2009 as well as charges and benefits recognized related to restructuring activity at our Indianapolis Casting Corporation and Indianapolis

Engine Plant. The charges and benefits were recognized in our Engine segment with the exception of $3 million of income tax expense and $1 million of income tax benefit related to the settlement in 2009 and 2008, respectively.

5 Impairment of property and equipment in 2008 are related to impairments to the asset groups in the Engine segment’s VEE Business Unit. The 2009 impairments relate to charges recognized by the Truck segment for impairments related to asset

groups at our Chatham and Conway facilities.

6 The write-off of debt issuance costs during 2009 represent charges related to the Company’s refinancing.

7 In the third quarter of 2011, we recognized an income tax benefit of $1.476 billion from the release of a portion of our income tax valuation allowance. In the fourth quarter of 2011, we recognized an additional income tax benefit of $61 million related

to the release of a portion of our income tax valuation allowance. As domestic earnings are now taxable with the release of the income tax valuation allowance we recognized $10 million of domestic income tax expense for 2011 that would not have been
recognized had we not released a portion of the allowance. The $10 million of domestic income taxes was netted against the total benefit of $1.537 billion from the release of a portion of the income tax valuation allowance. In addition, the other 2011
adjustments included in the table above have not been adjusted to reflect their income tax effect as the adjustments are intended to represent the impact on the Company’s Consolidated Statement of Operations without the incremental income tax effect
that would result from the release of the income tax valuation allowance. The charges related to our Canadian operations would not be impacted as a full income tax valuation allowance remains for Canada.

NON-GAAP RECONCILIATIONS

The financial measures presented above are unaudited and not in accordance with, or an alternative for, financial measures presented in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information
presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the
reconciliation above, provides meaningful information and therefore, we use it to supplement our GAAP reporting by identifying items that may not be related to the core manufacturing business. Management often uses this information to assess and
measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results
of operating giving effect to the non-GAAP adjustments shown in the above reconciliation, and to provide an additional measure of performance.

FORWARD-LOOKING STATEMENTS

Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934,
as amended, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and the Company assumes no obligation to update the information included in this report. Such forward-looking
statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,”
or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see Item 1A, Risk Factors, of our Form 10-K for the fiscal year ended
October 31, 2011, which was filed on December 20, 2011. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and
could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to
reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

Expanding Our Business by Sustaining Customers through the Entire Life Cycle

Trucks

Common Platform

Engines

Parts and Service

Global Powertrain

Global Distribution Centers

DuraStar

ProStar+

Vesta

MN25

4.8L

7.2L

WorkStar

LoneStar

Continental Mixer

9900

9.3L

DT & 10

School Bus

TranStar

eStar

ATX-6

Brakeshoes

Blower Motor

MaxxPro

MXT

9200/9400

TerraStar

11 & 13

Fan Belt

Back-up Warning Alarm

Air Dryer Cartridge

7000 Series

TerraStar

PayStar

CityStar

7000-MV

AC Bus

DuraStar Hybrid

40’ Concept Coach

Fuel Systems

Emission Controls

Metal Castings

Brake Drum

Fuel Filter

Pin Slide New Caliper

Clutch

Mud Flap

S HAR E H O L D E R I N F O R MATI O N

Annual Meeting
The annual meeting of shareholders
will be held at 11:00 a.m. Central time
Tuesday, February 21, 2012, at:

Hyatt Lisle
1400 Corporetum Drive
Lisle, IL 60532
USA

SEC Filings
Filings with the U.S. Securities and
Exchange Commission, including
the latest 10-K and proxy statement,
are available on our Website at
http://ir.navistar.com/

Stock Trading Information
Navistar International Corporation is
listed on the New York Stock Exchange.
Ticker Symbol: NAV

Independent Auditor
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601

Corporate Headquarters
Navistar International Corporation
2701 Navistar Dr.
Lisle, IL 60532
Telephone: (331) 332-5000

REG G NON-GAAP RECONCILIATION

(In millions except per share data)
Net Income Attributable to Navistar International Corporation

Impairment of property, plant, and equipment(5)
Write-off debt issuance cost(6)
Less: Income tax valuation allowance release(7)
Adjusted income attributable to Navistar International Corporation

Income taxes benefit (expense)

Financial services segment profit (loss)

Corporate and eliminations
Manufacturing segment profit

Plus:
Restructuring of North American manufacturing operations(1)
Engineering integration costs(2)
Ford settlement, restructuring and related charges (benefits)(4)

Impairment of property, plant and equipment(5)
Adjusted manufacturing segment profit

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

$ 320

$ 223

$1,723

-
-
-

(160)

31
11

$ 202
$ 4.46
1.60
$ 2.86
71.8
$ 320

(37)

(519)
$ 836

-
-

(160)

-
-
-

-
-

$ 223
$ 3.05
-
$ 3.05
73.2
$ 223

(23)

(590)
$ 741

-
-

127

1,527

$ 402
$ 22.64
17.36
$ 5.28
76.1
$ 1,723

1,458

129

(571)
$ 707

124

$ (333)

$ (44)

$ 139

$ 301

$ (120)

$ 134

(17)

(310)
$ (93)

(9)

132

(178)
$ 11

(6)

136

(412)
$ 421

(94)

147

(590)
$ 838

(47)

127

(662)
$ 462

(57)

(24)

(478)
$ 693

-
-

358

$ (93)

$ 11

$ 421

$ 838

$ 462

$ 1,088

$ 707

$ 741

$ 882

groups at our Chatham and Conway facilities.

6 The write-off of debt issuance costs during 2009 represent charges related to the Company’s refinancing.

NON-GAAP RECONCILIATIONS

FORWARD-LOOKING STATEMENTS

2011I N R E V I E W

To Our Shareholders:
Over the last year, Navistar’s strategy has provided the foundation for global expansion and great
new products, allowing us a clear path to grow while containing our costs. This growth helps us
deal with two factors the company has faced for many years:

1 Industry Cyclicality. The first factor

Profitability in all Points of the Cycle

500

400

s
t
i
n
U
y
r
t
s
u
d
n

is the cyclicality of the North
American truck industry. Before the
economic downtown that began in
2007, the industry volume moved
through peaks of 450,000 units and
troughs of 260,000 units. For the last
few years, volume has been even
lower than this range. So our goal has been to make money at
the trough—then take advantage of our opportunities at the peak.

a
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R
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-
6
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a
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o
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300

100

200

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(

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i

$15

$12

(
$
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N
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t

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Class 6-8 Retail Industry Units

Net Sales and Revenues

2 Shrinking Employee Base. The second factor is the shrinking of our employee base from
more than 114,000 employees in International Harvester days, to less than a sixth of that
today. So we have needed to fund substantial post-retirement healthcare and pension plans
that are based on that former size.

In addition, we are committed to providing our shareholders with appropriate returns on their
investment in us. When you put these together, growth is the path to take.

When we started this strategy, we were a $7 billion company, and we committed ourselves to
double in size. We accomplished that goal by investing in a manner that makes the most of the
funds we have available.

Between 2001 and 2005, we invested a total of $1.4 billion in capital expenditures.
But from 2006 to 2010, we invested less than $1.1 billion—and are on track to achieve our
revenue goals.

We have accomplished this with integration and by leveraging our assets in North America and
globally for great products and profitable growth. Together, these have created the scale that
gives us a competitive cost structure—one that continues to deliver profits in tough times and
good times alike. In 2011, with a North American industry volume of 262,000 units, our income
was higher than it was in 2006, when the industry sold 450,000 units.

Great Products:
International®
ProStar®

Spec for spec, the
ProStar commands
the highest residual
value in its class

Market Share

School Bus 48% Market Share

Heavy Truck 17% Market Share

#1 #1

Medium Truck 41% Market Share

Severe Service 34% Market Share

Continued Investment in Great Products
Our investment during tough times has positioned us for continued success and profitability as our
industry recovers and volumes expand.

+ The 1-2-3 Strategy. We make the most of our investments by leveraging the key components
of our integrated product platform: one common chassis, two global cab platforms and three
engine families.

+ Portfolio Expansion. We use these components
to expand our product portfolio more quickly and
cost-effectively. Since 2007, we have nearly
quadrupled our portfolio using this strategy.

By making use of our assets, we have developed
differentiated, customer-centric products that serve
a wide range of market segments:

+ Brand Strength. Our brands are number one

in medium truck, school bus and severe service,
and number two in heavy truck.

+ Diversification. And we are well diversified in
not just commercial trucks, but engines, parts,
defense and our global businesses.

2 | NAVI STAR 2011 AN N UAL R E PORT

Diversified Manufacturing Revenue
FY2011 Actual Revenues

Bus

Parts

Medium
Truck

Engine

Military

Heavy
Truck

Severe
Service
Truck

Rest of
World

The Results of Our
Customer-Centric Strategy
In 2011, this product development strategy changed
the way the industry does business. We continued
to leverage our assets and focus on what matters
to customers, including fluid economy, low weight,
unique features and customization, and lowest total
cost of ownership.

One major success has been our ability to anticipate
and lead the industry’s move to 13-liter engines:

15L to 13L Conversion. Our 13-liter MaxxForce® big
bore engine delivers the horsepower and torque that are
needed for most heavy applications, with lower weight
and better fuel economy than a 15-liter engine.

International® ProStar®+. This 13-liter engine has
been very effective in the International ProStar+, a
lightweight, fuel-efficient heavy truck.

International® LoneStar®. We have introduced the
new LoneStar with a 13-liter MaxxForce engine. This
engine is now offered at 500 horsepower, an impressive
rate for this segment.

As a result of these successful moves, over 90 percent
of our heavy trucks now use our 13-liter engine. And
we also led the way industry-wide as, for the first
time, 13-liter engines are the number-one choice of
U.S. Class 8 truck customers. Meanwhile, no other
competitor has yet integrated a 13-liter engine into its
heavy products with comparable success.

Another big success this year was our ability to
complement our Class 6-7 platform with the new
International® TerraStar® Class 4-5 product:

+ By leveraging our past investment in medium-duty
trucks, we were able to move quickly and cost-
effectively from zero to five percent in the growing
Class 4-5 segment.

+ We anticipate this share will improve in 2012 as we

continue to offer new options in this segment.

Meanwhile, with the introduction of our new MaxxForce
15-liter engine, which shares turbos, fuel system,
electronics and controls with our MaxxForce 13, we
are the only OEM capable of fully integrating our own
engines throughout our entire product lineup. And we
continue to believe we have a significant advantage,
thanks to MaxxForce® Advanced EGR. This technology

Providing Simplicity to Our Customers

MaxxForce® Wins
Best Class 8 Heavy Duty Engine

~ J.D. Power and Associates

uses in-cylinder combustion alone, avoiding the hassles
of liquid urea. And most importantly, our customers don’t
have to change a thing.

This strategy also makes possible our leadership in
fluid economy, which is based on diesel fuel plus liquid
urea consumed. This is the new standard of comparison
for the industry, and independent test results show
our trucks have a 1 percent to 2.5 percent advantage
in this area. And remember, Navistar is the only
manufacturer in the world meeting today’s emissions
standards without the added weight and maintenance
of NOx aftertreatment systems.

The market has had a positive response to our strategy.
This is shown not just by our strong sales and market
share, but also by increased interest in being part of
our industry-leading dealer network. In North America,
a number of successful dealer groups have acquired
additional dealerships, and over the last 18 months,
16 new dealers have joined our network in key market
areas, driving improved performance in those markets.
Meanwhile, many current dealers have made significant

2011 AN N UAL R E PORT NAVI STAR | 3

Leveraging Assets

Catosa dealership in Torreon, Mexico

capital investments, strengthening our footprint, service
capabilities and customer accessibility.

As we look forward, we intend to continue growing our
best dealers and looking for additional opportunities. We

2011 Product Lineup

4 | NAVI STAR 2011 AN N UAL R E PORT

already have an unmatched dealer network in the U.S.
and Canada, with nearly 900 retail locations. And we
are also backing up that dealer network with integrated
customer support, using our high-tech OnCommand™
customer support system and the integrated customer
care center that is being built at our new world
headquarters in west suburban Chicago.

Leveraging Commercial
Platforms for Defense

With the products and support capabilities in place
for our core North American business, we have been
able to grow a sustainable defense business that has
delivered on its $1.5 to $2 billion revenue target for
five years running.

+ We have leveraged our commercial platforms
and manufacturing expertise to deliver new
products in a way that is flexible, cost-effective
and customer-centric.

+ Instead of waiting for customers to define their
requirements, we have consistently anticipated
defense customers’ evolving needs.

+ And as a result, we have built a sustainable

defense business.

One defense example is our successful introduction
of Mine-Resistant Ambush Protected (MRAP) vehicles.
The International® MaxxPro® MRAP vehicle was
developed quickly and cost-effectively to protect our
troops, leveraging our proven International® WorkStar®

platform, our MaxxForce® engines, and our commercial
truck manufacturing expertise.

Since then, we have continued to create new products
that flexibly address the military’s needs, including:

+ The MaxxPro Recovery vehicle,

+ The MaxxPro Dash ambulance, and

+ The MaxxPro flatbed truck.

We have nine major
MaxxPro variants in or
on their way to theater
today. All told, we have
fielded more than
32,000 military vehicles
since 2004, including
the MaxxPro family, the
International® MXT™,
and vehicles based
on the International®
PayStar® and WorkStar platforms.

Our

Leveraging

Assets

Today, there are continued opportunities in the U.S.
defense market as customers look for new, cost-
effective solutions. The latest
example is a brand-new product, the International®
Saratoga™ light tactical vehicle, which we introduced
in October 2011:

+ The Saratoga leverages common commercial

components, including engine, transmission and
independent suspension systems.

+ It weighs less than half of traditional MRAP vehicles,

and represents less than half the cost.

+ It also optimizes mobility, transportability

and survivability.

This product is a prime example of the commercial
practices that are of greater interest to military
customers at a time of reduced U.S. defense spending.

Navistar currently has more than 9,000 vehicles
supporting Afghan Security Forces. In all, we now have
defense vehicles deployed in 26 countries, ranging from
Canada to Singapore, South Africa and a number of
nations in the Middle East:

+ For many of these U.S. allies, there is interest in
building defense preparedness even as the U.S.
explores reductions of its own direct involvement.

+ And we offer strong global capabilities in integrated
logistics support, providing sustainment and support
for our vehicles and others.

E X PA N D I N G G LO B A L LY

+ This includes the capability to conduct refurbishment,

field maintenance training, and body swaps that
extend the lives of existing vehicles.

All these factors provide consistent revenue
opportunities for our defense business going forward.

Profitable Growth
Around the World
Our ultimate goal is to obtain 50 percent of our global
revenues outside North America. To do this, we intend
to expand globally as we have done in defense, by
leveraging our commercial products and technologies
and taking a customer-centric approach that focuses
squarely on marketplace needs. We made important
investments in our global strategy in recent years, and in
2011 we saw our global growth take shape as revenues
outside of North America grew to more than $3 billion.

One key is distribution:

+ We’ve added to our own distribution base by

joining with partners, such as Mahindra in India and
Caterpillar in other markets.

+ We have established hundreds of global distribution
points that enable us to offer our proven products
and technologies around the world.

+ And we are also developing our own local

leadership capability, creating partnerships with
strong local players and using their knowledge,
people and assets to execute our strategy
more quickly.

Game Changer: The International® Saratoga™ uses
integration and common commercial components to
change how the defense industry approaches tactical
wheeled vehicles.

2011 AN N UAL R E PORT NAVI STAR | 5

Global Growth

Mexico
2007:42K
2014: 35K

Central America:
We tripled our overall
volume in Latin
America.

Other LA
2007:41K
2014: 40K

We have also established local product
development centers in Brazil, India and China,
which give us added flexibility, agility and the ability to
quickly develop products tailored for each local region.

While the real impact is in the future, we are already
seeing good progress. In 2011:

+ $3 Billion in Global Revenue. We doubled the
number of medium- and heavy-duty trucks sold
outside North America.

+ We tripled our overall volume in Latin America

outside the Mercosur, launching two new products—
the ProStar® and TranStar®—and targeting a broad
spectrum of customers, ranging from on-the-road
vehicles to mining to construction.

+ And we introduced new trucks on three continents,

including Asia, South America and Africa.

Our growing business in South America, where we
have been located the longest, shows the success of
the integrated approach we plan to pursue around the
world. This includes leveraging our assets in trucks,
engines, parts and support:

+ We already have a strong, well-established brand

presence in South America, starting with our MWM
engine subsidiary and expanding from there.

+ We’ve developed a best-in-class, customer-centered
distribution network there—in fact, our three biggest

6 | NAVI STAR 2011 AN N UAL R E PORT

North
America
2007: 437K
2014: 430K

Western
Europe
2007: 344K
2014: 359K

USA: We are leveraging our
integrated product platform
into new sectors that diversify
our business.

Sales/Service

Manufacturing

Brazil: We introduced the
AeroStar™ concept truck, the most
aerodynamic, modern cabover in
the world today.

Mercosur
2007:111K
2014: 155K

South
Africa
2007:22K
2014: 22K

dealers worldwide, based on numbers of deliveries,
are located in South America.

+ In 2011, South America became the location for the
launch of our first-ever bus chassis manufactured
outside North America.

+ We have already achieved market leadership in

several South American markets.

+ And with the introduction of the ProStar in 2011 and
the TranStar in 2012, we expect the same type of
growth we’ve already seen in Latin America.

Brazil is a rapidly growing market for us, and we’ve been
able to deliver product quickly there:

+ In addition to the ProStar, during 2011 we launched
updated versions of the International® 9800 and the
International® 4400 in Brazil.

Turkey
2007:26K
2014: 33K

Middle
East
2007:91K
2014: 105K

Russia
2007: 141K
2014: 145K

India
2007: 270K
2014: 344K

China
2007: 725K
2014: 1M

China: Our goal is to be
a top five player in this
one-million-unit market.

India: Our volume
doubled in 2011,
and our products won
Commercial Vehicle
and HCV Truck of the
Year Awards.

Australia
2007:23K
2014: 26K

Australia: We continue
to leverage Caterpillar’s
distribution network.

South

Africa

2007:22K

2014: 22K

+ We also introduced the AeroStar™ cabover concept
truck at the Fenatran truck show in Brazil. Leveraging
our own MaxxForce 13 engine in a Euro V format,
it is the most aerodynamic, modern cabover truck in
the world today.

+ Going forward, we plan to expand our cabover
product in Brazil, and to strengthen our local
manufacturing capabilities there.

We are also moving quickly in other global markets:

+ Truck of the Year. In India, where our volume

doubled in 2011, our Mahindra Navistar products
won the Commercial Vehicle of the Year and HCV
Truck of the Year awards. During the year, we
completed launches of our full portfolio of Mahindra
Navistar trucks. We are continuing to develop strong
India distribution coverage and dealer capabilities.

+ In 2012, we expect our first exports out of India to
be to markets including South Africa, where our
truck sales doubled in 2011, and where we recently
displayed the award-winning MN 25 and introduced
the new MetroStar® cabover concept vehicle.

+ Having moved to the next stage of our relationship
with Caterpillar, we will continue to leverage the
Cat distribution network where appropriate, such
as Australia.

+ We will also participate in many developing markets,

such as Israel, Russia and Saudi Arabia.

+ We have set the goal of becoming a top-five player
in China, which is the world’s largest market for
commercial trucks, with an annual volume of one
million units. We believe our joint venture with JAC,
once it is approved by Chinese authorities, will deliver
products that represent the best of American and
Chinese design, quality and cost.

All told, we are now selling trucks in 50 countries
worldwide. And, we are also finding closely related
adjacent markets to expand profitably, such as bus, light-
duty and all-makes parts.

2011 AN N UAL R E PORT NAVI STAR | 7

Engine Expansion

Leveraging our assets, integrating our products
and controlling our destiny

Leveraging into Adjacent
Niches with Engines and
Components
In 2011, our OEM engine business grew to over
$2.1 billion in revenue when the segment’s primary
purpose is to support global vehicles. We also
continued to control our own destiny through Pure
Power Technologies, which uses compacted graphite
iron material in its castings for smaller and more
powerful engines.

+ In the highly profitable on-highway engine segment,

we are leveraging our proven on-road product
portfolio, our leading emissions technology, and our
strong Navistar parts and service network.

+ In 2011, we met our goal of making our engine
families emissions-ready around the world, from
Euro II through Euro V and from EPA 1998 through
EPA 2010. We have now integrated our family of
engines into our truck models.

8 | NAVI STAR 2011 AN N UAL R E PORT

+ Our MWM engine business in South America is
showing strong growth, thanks to an expanding
regional economy.

+ MWM has also secured many global engine sales

opportunities with vehicle makers, including exports
to Korea, the Middle East and the former Soviet
Union.

+ We are building engines in India for our joint venture

with Mahindra, as well as for other customers.

+ And our engine business has also expanded into new
market segments, including marine, motor homes,
terminal tractors, fire and rescue, custom chassis bus
and generator sets.

We have also continued our expansion into the
components business with Pure Power Technologies,
LLC, which leverages our leading technologies for
our own benefit and that of other customers. Its key
capabilities include:

By pursuing a threefold
strategy— internal integration,
expanded OEM sales,
and components and
parts—we are builiding a
global engine company,
one that has the opportunity
to double its revenues
without significant new
capital investment.

+ Air, fuel and aftertreatment systems, which are

attracting attention from third-party customers. Our
high-pressure fuel injection system enables emission
reduction without complex aftertreatment, and can be
used with the higher sulfur content diesel fuels that
are available in some emerging markets. We continue
to develop new aftertreatment solutions, and during
2011, we acquired the aftertreatment technologies of
Eaton Corp.

+ Our metal casting operations also have a diverse

portfolio of customers. We offer distinctive
technologies, including the ductile iron lost foam
casting process, which permits complex-shaped
castings with a high degree of dimensional accuracy
while saving machining time, cost and money. Pure
Power also has the only two foundries in the U.S.
that can produce up to big bore-sized engines using
compacted graphite iron material. This enables us to
produce engines of smaller size and weight, but with
higher torque and horsepower.

Our growing components business enables us to
control our own destiny, including a greater share of
revenue from our own truck and engine products. It also
allows us to expand our portfolio of customers outside
the company. Pure Power already derives 20 percent of
its revenues from other OEMs, and this year, it won new
contracts for emissions components from customers in
Europe and Asia.

By pursuing this threefold strategy—internal integration,
expanded OEM sales, and components and parts—we
are in effect building a global engine company, and one
that has the opportunity to double its revenues without
significant new capital investment.

Strong Support from Parts
and Finance
Our parts business continues to perform well as a
support business for our vehicles and engines. Parts
has strong revenue and profit streams along with
double-digit top-line growth.

2011 AN N UAL R E PORT NAVI STAR | 9

Our Future

By moving from
focused facilities to a
flexible manufacturing
strategy we will save
$200 million annually.

+ It is growing along with our truck, engine and

+ We continue to provide strong support for dealers who

components businesses, as well as on its own.

rely on NFC to support their floor plan.

+ It is also reaching more customers through more

+ And we are positioned well for an increase in business

all-makes sales.

during 2012, as the markets continue to recover.

+ And it is expanding globally, with dealers in Latin

America leading the way.

North American Parts Sales

1 0 % + A v e r a g e C A G R *

)
s
n
o

i
l
l
i

m
n

$
(

e
u
n
e
v
e
R

$2,000

$1,500

$1,000

$500

2009

2010
U.S., Canada, Mexico, Excludes Military

2011

*Compound Annual Growth Rate

We expect even better parts growth as our new
products continue to flow into the global marketplace.

Our wholesale finance business at Navistar Financial
Corp. (NFC) also grew in 2011:

+ We have been successful securing adequate

funding, through refinancing and new facilities, that
positions the wholesale business to achieve our
operating and financial objectives.

10 | NAVI STAR 2011 AN N UAL R E PORT

Meanwhile, our strategy for the retail finance business
is delivering on our expectations. And in alignment with
Navistar’s global strategy, NFC is also expanding its
capabilities to support the sale of Navistar products in a
number of select markets worldwide.

Continued Improvements in
Competitive Cost Structure
With all these components in place, the stage is set for
profitable growth on a global basis. And great products
and profitable growth create the scale that enables
our competitive cost structure. Our cost structure also
benefits from our integrated product development
strategy, which gives us maximized scale for purchasing
and logistics.

Our integrated product development also enables flexible
manufacturing:

+ Because we have common platforms and

common manufacturing processes, each one of
our manufacturing facilities is capable of making
any product.

+ By moving from focused facilities to flexible

manufacturing, we have minimized logistics costs.

+ Since 2008, we have already saved approximately

+ We’ve succeeded in new markets, such as

$275 million using this strategy, and we will continue
to apply it as we expand globally.

With this year’s closure of our long-idled Chatham plant
and rationalization of our RV and chassis manufacturing
capacity, we are well positioned in capacity terms.
A new leased facility in Alabama offers us vehicle
manufacturing synergies with our two Huntsville
engine facilities.

s
s
o
L
/
t
fi
o
r
P

t
n
e
m
g
e
S
g
n
i
r
u
t
c
a
f
u
n
a
M
d
e
t
s
u
d
A

)
s
n
o

i
l
l
i

m
n

s
$
(

Our lean order-to-delivery efforts show the potential
to improve our lead time by 50 percent and reduce
our working capital by 45 percent. We will continue
to drive cost improvement in our truck and engine
businesses through continued focus on lean
order-to-delivery, engine integration and design,
and reducing product costs while maintaining
consistently high quality.

Meanwhile, our recent consolidation of all product
development into a single, integrated organization
delivers a number of benefits:

+ The unified product development hub at our
new world headquarters brings together the
work of our product development centers there,
as well as Brazil, India and China.

+ Fresh thinking and attraction of world-class

technical expertise supports our drive to deliver
innovative, differentiated products.

+ By physically residing in one location, our integrated

product development team drives synergy with the rest
of the enterprise, while clearly focusing on the voice of
the customer and dealer.

Revolutionizing the Market
The common denominator for all of our strategies is that
we are revolutionizing the way we do business, in a way
that is making us more competitive and profitable, while
also setting a new standard for the industry.

+ We have anticipated customer needs for great new
products and technologies, such as hassle-free
emissions technology and new, lightweight engines that
deliver power and torque while improving fuel economy.

+ We have leveraged existing platforms to enter new

product sectors with minimal investment, as we have
done with the new TerraStar.

defense, by leveraging our commercial platforms
and manufacturing expertise to deliver new
products that anticipate requirements for flexibility
and cost-efficiency.

+ And we’ve done all this in a cost-effective way that

makes the most of our investment dollars.

Adjusted Manufacturing Segment Profit (Loss)
Improved segment profit on lower retail industry volume

1,200

1,000

800

600

400

200

$1,088

$838

$882

$707

$741

$421

$462

$11

(200)

($93)

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

C
a
s
s
6
-
8
R
e
t
a

i
l

n
d
u
s
t
r
y
U
n
i
t
s

Adjusted Manufacturing Segment Profit/Loss

Class 6-8 Retail Industry Units

Note: This chart contains non-GAAP information; please see the REG G in appendix for a detailed reconciliation.

From 2012 through 2014, we expect continued
growth from our global expansion, our OEM engine
strategy and our leveraging into adjacent businesses.
By following our three-pillar strategy—great products,
profitable growth and competitive cost structure—we
intend to continue to grow profitably. We continue
to strive toward our long-term goal of $20 billion
in revenues and commensurate segment profits at
the average of the cycle. As we grow globally and
the North America economy improves in the years
ahead, we are well positioned to generate consistent,
sustainable earnings that will drive value for our
shareholders.

Sincerely,

D a n i e l C . U s t i a n
Chairman, President and Chief Executive Officer
Navistar International Corporation

2011 AN N UAL R E PORT NAVI STAR | 11

Leadership

Navistar Board of Directors (From left to right) James H. Keyes, Stanley A. McChrystal, Daniel C. Ustian, Michael N. Hammes,

John D. Correnti, Eugenio Clariond, David D. Harrison, Steven J. Klinger, Dennis D. Williams, and Diane H. Gulyas.

B OA R D O F D I R E C TO R S

Daniel C. Ustian
Chairman, President and Chief
Executive Officer of Navistar
International Corporation
Committee: 1

Eugenio Clariond
Retired Chairman and Chief Executive
Officer of Group IMSA, S.A., a producer
of steel, plastic, aluminum and other
related products
Committees: 3, 4

John D. Correnti
Chairman and Chief Executive Officer of
Steel Development Company, LLC, a steel
mill operational and development company
Committees: 2 (Chair), 3, 5

Diane H. Gulyas
President of Performance Polymers, which
contains three business units—engineering
polymers, elastomers and films—E.I. duPont
de Nemours & Company, a science-
based products and services company
Committee: 4

Michael N. Hammes
Lead Director, Retired Chairman and Chief
Executive Officer of Sunrise Medical Inc.,
a designer, manufacturer and marketer
of home medical equipment worldwide
Committees: 1, 2, 3 (Chair), 4 (Chair)

David D. Harrison
Retired Executive Vice President and
Chief Financial Officer of Pentair, Inc.,
a global manufacturing company
Committees: 2, 5

James H. Keyes
Retired Chairman of the Board of
Johnson Controls, Inc., an automotive
system and facility management and
control company
Committees: 1, 2, 3, 5 (Chair)

Steven J. Klinger
Retired President and Chief Operating
Officer of Smurfit-Stone Container
Corporation, a global paperboard and
paper-based packaging company
Committees: 2, 5

Stanley A. McChrystal
Retired Four-Star General
United States Army
Committee: 4

Dennis D. Williams
Secretary, Treasurer and Director of
Agricultural Implement and Transnational
Departments, United Auto Workers, an
international union
Committee: 4

COMMITTEES
1. Executive 2. Compensation
3. Nominating and Governance
4. Finance 5. Audit

12 | NAVI STAR 2011 AN N UAL R E PORT

E X E C U T I V E O F F I C E R S

Daniel C. Ustian, Chairman, President
and Chief Executive Officer

Andrew J. (A. J.) Cederoth,
Executive Vice President and Chief
Financial Officer

Steven K. Covey, Senior Vice
President, Chief Ethics Officer and
General Council

James M. Moran, Vice President
and Treasurer

Richard C. Tarapchak, Vice President
and Controller

Curt A. Kramer, Corporate Secretary

Depak T. Kapur, President, Truck Group

Phyllis E. Cochran, President,
Parts Group

Greg W. Elliott, Senior Vice President,
Human Resources and Administration

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

(Mark One)

Form 10-K

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

For the fiscal year ended October 31, 2011

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
(State or other jurisdiction of incorporation or organization)

36-3359573
(I.R.S. Employer Identification No.)

2701 Navistar Drive,
Lisle, Illinois
(Address of principal executive offices)

60532

(Zip Code)

Registrant’s telephone number, including area code (331) 332-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common stock (par value $0.10)
Cumulative convertible junior preference stock, Series D (par value $1.00)

New York Stock Exchange
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes

As of April 30, 2011, the aggregate market value of common stock held by non-affiliates of the registrant was approximately $5.0 billion. For purposes of the
foregoing calculation only, executive officers and directors of the registrant, and pension and 401(k) plans of the registrant have been deemed to be affiliates.

As of November 30, 2011, the number of shares outstanding of the registrant’s common stock was 70,186,498, net of treasury shares.

Documents incorporated by reference: Portions of the Company's proxy statement for the 2012 annual meeting of stockholders to be held on February 21, 2012
are incorporated by reference in Part III.

NAVISTAR INTERNATIONAL CORPORATION FISCAL YEAR 2011 FORM 10-K
TABLE OF CONTENTS

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business.............................................................................................................................................................
Risk Factors .......................................................................................................................................................
Unresolved Staff Comments..............................................................................................................................
Properties...........................................................................................................................................................
Legal Proceedings .............................................................................................................................................
[Removed and Reserved] ..................................................................................................................................

PART II

Item 5.

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ...........................................................................................................................................................
Selected Financial Data .....................................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations ............................
Quantitative and Qualitative Disclosures about Market Risk ...........................................................................
Financial Statements and Supplementary Data .................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................
Controls and Procedures....................................................................................................................................
Other Information..............................................................................................................................................

PART III

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Directors, Executive Officers, and Corporate Governance ...............................................................................
Executive Compensation ...................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .........
Certain Relationships and Related Transactions, and Director Independence..................................................
Principal Accountant Fees and Services............................................................................................................

Item 15.

Exhibits and Financial Statement Schedules.....................................................................................................
Signatures ..........................................................................................................................................................

PART IV

Page

4
12
16
16
17
19

20
21
22
55
57
137
137
138

139
139
139
139
139

140
141

EXHIBIT INDEX:
Exhibit 3
Exhibit 4
Exhibit 10
Exhibit 12
Exhibit 18
Exhibit 21
Exhibit 23.1
Exhibit 24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1
Exhibit 99.2

Disclosure Regarding Forward-Looking Statements

Such forward-looking statements include, but are not limited to, statements concerning:

•

•
•

•

estimates we have made in preparing our financial statements;

our development of new products and technologies;

the anticipated sales, volume, demand and markets for our products;

the anticipated performance and benefits of our products and technologies, including our exhaust gas recirculation
technologies;

our business strategies and long-term goals and activities to accomplish such strategies and goals;

anticipated benefits from acquisitions, strategic alliances, and joint ventures we complete;

our expectations and estimates relating to restructuring activities, including restructuring charges and operational
flexibility, savings, and efficiencies;

our expectations relating to our retail finance receivables and retail finance revenues;
our anticipated capital expenditures;

our expectations relating to payments of taxes;

our expectations relating to warranty costs;

estimates relating to pension plan contributions;

trends relating to commodity prices; and

anticipated trends, expectations, and outlook relating to matters affecting our financial condition or results of
operations.

These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or similar
expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and
assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many
factors that could affect our actual financial results or results of operations and could cause actual results to differ materially
from those in the forward-looking statements. Factors that could cause or contribute to differences in our future financial results
include those discussed in Item 1A, Risk Factors, set forth in Part I, as well as those discussed elsewhere in this report. All
future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained herein or referred to above. Except for our ongoing obligations to disclose material
information as required by the federal securities laws, we do not have any obligations or intention to release publicly any
revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of
unanticipated events.

Available Information

We are subject to the reporting and information requirements of the Exchange Act and as a result, are obligated to file annual,
quarterly, and current reports, proxy statements, and other information with the United States (“U.S.”) Securities and Exchange
Commission (“SEC”). We make these filings available free of charge on our website (http://www.navistar.com) as soon as
reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not
constitute part of this Annual Report on Form 10-K. In addition, the SEC maintains a website (http://www.sec.gov) that
contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically
file with, or furnish to, the SEC. Any materials we file with, or furnish to, the SEC may also be read and/or copied at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330.

PART I

Item 1.

Business

Navistar International Corporation (“NIC”), incorporated under the laws of the State of Delaware in 1993, is a holding
company whose principal operating subsidiaries are Navistar, Inc. and Navistar Financial Corporation (“NFC”). References
herein to the “Company,” “we,” “our,” or “us” refer to NIC and its subsidiaries, and certain variable interest entities of which
we are the primary beneficiary. We report our annual results for our fiscal year, which ends October 31. As such, all references
to 2011, 2010, and 2009 contained within this Annual Report on Form 10-K relate to the fiscal year unless otherwise indicated.

Overview

We are an international manufacturer of International® brand commercial and military trucks, IC Bus (“IC”) brand buses,
MaxxForce brand diesel engines, Workhorse® Custom Chassis (“WCC”) brand chassis for motor homes and step vans, and
Monaco® RV (“Monaco”) recreational vehicles (“RV”), as well as a provider of service parts for all makes of trucks and trailers.
Additionally, we are a private-label designer and manufacturer of diesel engines for the pickup truck, van, and sport utility
vehicle (“SUV”) markets. We also provide retail, wholesale, and lease financing of our trucks and parts.

Our Strategy

Our long-term strategy is primarily focused on our three pillars; focused on continuing to produce Great Products, at a
Competitive Cost Structure, while attaining Profitable Growth.

Great Products

•

Growing our product lines, including an enhanced line of our Class 8 ProStar® and LoneStar® trucks and Class 4/5
TerraStarTM trucks manufactured under the International brand, an expanded line of our engines, including our new
11, 13 and 15L Big-Bore engines, manufactured under the MaxxForce® brand, and additional products
manufactured and marketed under the Company's other proprietary brands, including IC and Monaco

Maintaining strong market share in our “traditional” classes, which include School buses and Class 6 through 8
medium and heavy trucks in the U.S. and Canada

Focusing on engine research and development in order to have a competitive advantage using Advanced Exhaust
Gas Recirculation (“EGR”), coupled with other strategies, for compliance with ongoing emissions standards

Introducing our advanced engine technology in new markets

Competitive Cost Structure

•

Continuing our seamless integration of MaxxForce branded engines in our complimentary product lines, including
the establishment of our new MaxxForce 11, 13 and 15L Big-Bore engines

Reducing material cost by increasing global sourcing, leveraging scale benefits, finding synergies among strategic
partnerships, reducing manufacturing conversion costs, and seeking opportunities for vertical integration

Leveraging commonality in our product platforms through our integrated product strategy, including chassis, cabs
and engine families

III

Profitable Growth

•

Working in cooperation with the U.S. military to provide an extensive line of defense vehicles and product support,
including but not limited to, Mine Resistant Ambush Protected (“MRAP”) vehicles and other vehicles derived from
our existing truck platforms

Minimizing the impact of cyclicality in our North American markets by growing our Truck and Parts segments and
“expansion” markets sales, which include Mexico, international export, U.S. and non-U.S. military, RV,
commercial bus, commercial step van, and other truck and bus markets

Broadening our Engine segment customer base within the commercial truck market, other consumer and specialty
vehicle products, and other non-vehicle-based platforms

The key enablers to our long-term strategy are the ability to Leverage Our Assets and Those of Our Partners and engaging in
activities designed to allow us to Control Our Destiny, as described below.

Leverage Our Assets and Those of Our Partners

•

Growing in our North American markets and globally through strategic partnerships, including through our joint
ventures with Mahindra & Mahindra Ltd. (“Mahindra”) for truck and engine markets in India, our alliance with

•

Caterpillar Inc. (“Caterpillar”) for markets in North America and various markets outside of the Indian
subcontinent, and our pending ventures with Anhui Jianghuai Automobile Co. Ltd. (“JAC”) for truck and engine
markets in China, each of which is intended to increase our speed to market, while reducing risk and lowering the
cost of our investment.

Maintaining product and plant flexibility to fully utilize our existing facilities, people, and technologies, as well as
leveraging our integrated product strategy to more quickly and cost effectively expand our product portfolio

Attaining further operating efficiencies and economies of scale through consolidating and centralizing certain
facilities and functions, including the consolidation of our executive management, certain business operations, and
product development at a new world headquarters site in Lisle, Illinois and the development of a testing and
validation center at our Melrose Park facility, as well as other actions including the closure of our Chatham, Ontario
heavy truck plant and the restructuring of our WCC and Monaco operations

•

Containing costs by combining global purchasing relationships to achieve scale and sourcing throughout the world

Control Our Destiny

•

Controlling the development process and associated intellectual property of our products

Utilizing key supplier competencies to reduce costs of components and improve quality

Ensuring the health and growth of our distribution network to provide our products to key markets

Our Operating Segments

We operate in four industry segments: Truck, Engine, Parts (collectively called “manufacturing operations”), and Financial
Services, which consists of NFC and our foreign finance operations (collectively called “financial services operations”).
Corporate contains those items that do not fit into our four segments. Selected financial data for each segment can be found in
Note 16, Segment reporting, to the accompanying consolidated financial statements.

Truck Segment

The Truck segment manufactures and distributes a full line of Class 4 through 8 trucks and buses in the common carrier, private
carrier, government, leasing, construction, energy/petroleum, military vehicle, and student and commercial transportation
markets under the International and IC brands. This segment also produces chassis for motor homes and commercial step-van
vehicles under the WCC brand, RVs, including non-motorized towables, under the Monaco family of brands, and concrete
mixers under the Continental Mixers brand. The Truck segment is our largest operating segment based on total external sales
and revenues.

The Truck segment's manufacturing operations in the U.S. and Mexico (collectively called “North America”) consist
principally of the assembly of components manufactured by our suppliers, although this segment also produces certain sheet
metal components, including truck cabs.

We compete primarily in the School bus and Class 6 through 8 medium and heavy truck markets within the U.S. and Canada,
which we consider our “traditional” markets. We continue to grow in “expansion” markets, which include Mexico, international
export, U.S. and non-U.S. military, RV, commercial step-van, and other truck and bus markets. In recent years, we have
successfully grown our “expansion” market by increasing our sales to the U.S. military. The products we sell to the U.S.
military are derivatives of our commercial vehicles and allow us to leverage our manufacturing and engineering expertise,
utilize existing plants, and seamlessly integrate our engines. This segment engages in various strategic joint ventures to further
our product reach to the global markets including our Mahindra Navistar Automotives Ltd. (“MNAL”) joint venture with
Mahindra and our Blue Diamond Truck (“BDT”) joint venture with Ford Motor Company (“Ford”). In December 2011, Ford
notified the Company of its intention to dissolve the BDT joint venture effective December 2014. We also sell International
and CAT branded trucks in North America, as well as in various global markets through our alliance with Caterpillar and our
NC2 Global, LLC (“NC2”) operations, which became a wholly owned subsidiary of Navistar in September 2011.

We market our commercial products through our extensive independent dealer network in North America, which offers a
comprehensive range of services and other support functions to our end users. Our commercial trucks are distributed in
virtually all key markets in North America, as well as select markets outside of North America, through our distribution and
service network comprised of 783 U.S. and Canadian dealer and retail outlets, 84 Mexican dealer locations, and 107
international dealer locations, as of October 31, 2011. We occasionally acquire and operate dealer locations (“Dealcors”) for the
purpose of transitioning ownership. In addition, our network of used truck centers and International certified used truck
dealers in the U.S. and Canada provides trade-in support to our dealers and national accounts group, and markets all makes and
models of reconditioned used trucks to owner-operators and fleet buyers. The sales and revenues of our Truck segment largely
reflect chargeouts, which we define as trucks that have been invoiced to customers.

The markets in which the Truck segment competes are subject to considerable volatility and fluctuation in response to cycles in
the overall business environment. These markets are particularly sensitive to the industrial sector, which generates a significant
portion of the freight tonnage hauled. Government regulation has impacted, and will continue to impact, trucking operations as
well as the efficiency and specifications of trucking equipment.

The Class 4 through 8 truck and bus markets in North America are highly competitive. Major U.S.-controlled domestic
competitors include: PACCAR Inc. (“PACCAR”) and Ford. Competing foreign-controlled domestic manufacturers include:
Freightliner and Western Star (both subsidiaries of Daimler-Benz AG (“Mercedes Benz”)), and Volvo and Mack (both
subsidiaries of Volvo Global Trucks). Major U.S. military vehicle competitors include: BAE Systems, Force Protection, Inc.,
General Dynamics Land Systems, and Oshkosh Truck. In addition, smaller, foreign-controlled market participants such as Isuzu
Motors America, Inc. (“Isuzu”), UD Trucks North America (formerly known as Nissan Diesel America, Inc. (“UD Trucks”)),
Hino (a subsidiary of Toyota Motor Corporation (“Toyota”)), and Mitsubishi Motors North America, Inc. (“Mitsubishi”) are
competing in the U.S. and Canadian markets with primarily imported products. For the RV business, our major competitors
include: Thor Industries, Inc., Forest River, Inc., Tiffin Motorhomes, Inc., Winnebago Industries, Inc., and Fleetwood RV, Inc.
In Mexico, the major domestic competitors are Kenmex (a subsidiary of PACCAR) and Mercedes Benz.

Engine Segment

The Engine segment designs and manufactures diesel engines across the 50 through 550 horsepower range under the
MaxxForce brand name for use primarily in our International branded Class 6 and 7 medium trucks, Class 8 heavy trucks, and
military vehicles. The Engine segment also produces diesel engines for all IC Bus and Monaco applications. In addition to
providing high-tech diesel engines for Navistar captive applications, our engines are also sold to global original equipment
manufacturers (“OEMs”) for various on-and-off-road applications. Our engines are sold in all areas of the world for use in an
assortment of applications utilizing the MaxxForce brand name. Also, we offer contract manufacturing services to OEMs for
the assembly of their engines. Our strategy is to continue our efforts to expand our Engine segment sales and profitability and
to grow our global presence through our South America subsidiary and joint ventures. The Engine segment is our second
largest operating segment based on total external sales and revenues.

To control cost and technology, the Engine segment has expanded its operations to include Pure Power Technologies, LLC
(“PPT”), a components company focused on air, fuel, and aftertreatment systems to meet more stringent Euro and U.S.
Environmental Protection Agency (“EPA”) emission standards. Also included in the Engine segment is our Blue Diamond
Parts (“BDP”) joint venture with Ford, which manages the sourcing, merchandising, and distribution of certain service parts for
North American Ford vehicles.

The Engine segment has engaged in various strategic joint ventures to further product reach to global markets, including our
joint venture in India with Mahindra called Mahindra-Navistar Engines Private Ltd (“MNEPL”).

The Engine segment has manufacturing operations in the U.S., Brazil, and Argentina. The operations at these facilities consist
principally of the assembly of components manufactured by PPT and our suppliers, as well as machining operations relating to
steel and grey iron components, and certain higher technology components necessary for our engine manufacturing operations.

In South America, our subsidiary, MWM International Industria De Motores Da America Do Sul Ltda. (“MWM”) merged into
another wholly-owned subsidiary, International Indústria de Motores da América do Sul Ltda (“IIAA”) in 2011 and is now
known as IIAA. IIAA is a leader in the South American mid-range diesel engine market, sells products in more than 35
countries on five continents, and provides customers with additional engine offerings in the agriculture, marine, and light truck
markets.

In the U.S. and Canada mid-range commercial truck diesel engine market, our primary competitors are Cummins Inc.
(“Cummins”), Mercedes Benz, Isuzu, and Hino. In South America, IIAA competes with Mitsubishi and Toyota in the Mercosul
pickup and SUV markets; Cummins, Mercedes Benz, and Fiat Powertrain (“FPT”) in the light and medium truck markets;
Mercedes Benz, Cummins, Scania, MAN, Volvo, and FPT in the heavy truck market; Mercedes Benz in the bus market; New
Holland (a subsidiary of CNH Global N.V.), Sisu Diesel (a subsidiary of AGCO Corporation), and John Deere in the
agricultural market; and Scania and Cummins in the stationary market. In Mexico, we compete in Classes 4 through 8 with our
MaxxForce 4.8, 7, DT, and 9 engines, facing competition from Cummins, Isuzu, Hino, Mercedes Benz, and Ford. The
introduction of the our MaxxForce 11, 13, and 15L Big-Bore engines in Mexico will depend on the availability of low sulfur
diesel fuel throughout the country.

Parts Segment

The Parts segment supports our brands of International commercial and military trucks, IC buses, WCC chassis, MaxxForce
engines, as well as our other product lines, by providing customers with proprietary products together with a wide selection of

other standard truck, trailer, and engine service parts. We distribute service parts in North America and the rest of the world
through the dealer network that supports our Truck and Engine segments.

We believe our extensive dealer channel provides us with an advantage in serving our customers by having our parts available
when and where our customers require service. Goods are delivered to our customers either through one of our eleven regional
parts distribution centers in North America or through direct shipment from our suppliers for parts not generally stocked at our
distribution centers. We have a dedicated parts sales team within North America, as well as national account teams focused on
large fleet customers and a government and military team. In addition, we serve global customers with dedicated sales teams
and distribution centers in South Africa and Brazil. In conjunction with the Truck sales and technical service group, we provide
an integrated support team that works to find solutions to support our customers.

Financial Services Segment

The Financial Services segment provides and manages retail, wholesale, and lease financing of products sold by the Truck and
Parts segments and their dealers within the U.S. and Mexico. Substantially all revenues earned by the Financial Services
segment are derived from supporting the sales of our vehicles and products. We also finance wholesale and retail accounts
receivable, of which substantially all revenues earned are received from the Truck and Parts segments. The Financial Services
segment continues to meet the primary goal of providing and managing financing to our customers in U.S. and Mexico markets
by arranging cost effective funding sources, while working to mitigate credit losses and impaired vehicle asset values. This
segment provided wholesale financing for 90% and 96% of our new truck inventory sold by us to our dealers and distributors in
the U.S. in 2011 and 2010, respectively.

The Financial Services segment manages the relationship with Navistar Capital (an alliance with GE Capital) which provides
retail financing in the U.S. GE Capital has provided financing to support the sale of our products in Canada for over 20 years.
This segment is also facilitating financing relationships in other countries to support the Company's global expansion
initiatives.

Government Contracts

As a U.S. government contractor, we are subject to specific regulations and requirements as mandated by our contracts. These
regulations include Federal Acquisition Regulations, Defense Federal Acquisition Regulations, and the Code of Federal
Regulations. We are also subject to routine audits and investigations by U.S. government agencies such as the Defense Contract
Management Agency and Defense Contract Audit Agency. These agencies review and assess compliance with contractual
requirements, cost structure, cost accounting, and applicable laws, regulations, and standards.

Many of our existing U.S. government contracts extend over multiple years and are conditioned upon the continuing
availability of congressional appropriations. In addition, our U.S. government contracts generally permit the contracting
government agency to terminate the contract, in whole or in part, either for the convenience of the government or for default
based on our failure to perform under the contract.

Engineering and Product Development

Our engineering and product development programs are focused on product improvements, innovations, and cost reductions,
and the related costs are incurred by our Truck and Engine segments. As a truck manufacturer, we have focused on further
development of our existing products such as military vehicles, Big-Bore engines, ProStar and LoneStar trucks as well as
modifications of our trucks to accommodate our MaxxForce engines. As a diesel engine manufacturer, we have incurred
research, development, and tooling costs to design our engine product lines to meet emissions regulatory requirements and to
provide engine solutions to support a global marketplace. The Company participates in very competitive markets with constant
changes in regulatory requirements and technology and, accordingly, the Company continues to believe that a strong
commitment to engineering and product development is required to drive long-term growth. Our engineering and product
development expenditures were $532 million in 2011 compared to $464 million in 2010 and $433 million in 2009.

We continue to invest in research, development, and tooling equipment to design and produce our engine product lines to meet
EPA and California Air Resources Board (“CARB”) emissions requirements. EGR, combined with other strategies, is our
solution to meet ongoing emissions requirements. Advancements in EGR technology have resulted in reductions in emissions
of nitrogen oxides (“NOx”) from 1.2 or more grams per brake horsepower-hour through 2009 to 0.5 grams in 2010, to as low as
0.39 grams in 2011, with additional reductions in process. Our engines meet current EPA and CARB certification requirements
because of emissions credits we earned from 2007 through 2009 via the early adoption of technologies that reduced NOx levels
beyond what was then mandated. We continue to invest in our EGR technology, combined with other strategies, to meet
current EPA emission requirements in North America and Euro V emissions requirements in South America, as well as evaluate
our emissions strategies on a platform-by-platform basis to achieve the best long-term solution for our customers in each of our

vehicle applications. We believe that coupling EGR with our other emission strategies will provide a significant competitive
advantage over our competition's products. Our continued investment in research and development includes the further
enhancement of our advanced EGR technology and the ongoing development of reliable, high-quality, high-performance and
fuel-efficient products.

Acquisitions, Strategic Agreements, and Joint Ventures

We continuously seek and evaluate opportunities in the marketplace that provide us with the ability to leverage new technology,
expand our engineering expertise, provide access to “expansion” markets, and identify component and material sourcing
alternatives. During the recent past, we have entered into a number of collaborative strategic relationships and have acquired
businesses that allowed us to generate manufacturing efficiencies, economies of scale, and market growth opportunities. We
also routinely re-evaluate our existing relationships to determine whether they continue to provide the benefits we originally
envisioned as well as review potential partners for new opportunities. We consider the following joint ventures and businesses
an integral part of our long-term growth strategy:

•

In 2006, we completed a joint venture with Mahindra, a leading Indian manufacturer of multi-utility vehicles and tractors
to produce commercial trucks and buses in India. In 2008, we signed a second joint venture agreement with Mahindra to
produce diesel engines for medium and heavy commercial trucks and buses in India. We have a 49% ownership in each
joint venture, which operate under the names of MNAL and MNEPL, respectively. These joint ventures provide us
engineering services, as well as advantages of scale and global sourcing for a more competitive cost structure, and afford
us the opportunity to enter markets in India that have significant growth potential for commercial vehicles and diesel
power. In 2010, MNAL launched a family of commercial trucks and tractors in the range of 25, 31, 40 and 49 ton with
MNEPL engines (equivalent gross vehicle weight ranges of approximately 56,000 pounds up to 109,000 pounds).

In 2009, we signed a strategic agreement with Caterpillar to design and develop a new proprietary, purpose-built heavy-
duty CAT vocational truck, the CT660, for the North American market, which was launched in March 2011. These trucks
are sold and serviced though the Caterpillar North American dealer network. In September 2011, we also signed a non-
binding memorandum of understanding with Caterpillar to develop a new, cab-over-engine CAT vocational truck, in
addition to the CT660, that will be sold globally.

In 2009, we acquired all of the membership interests and certain assets associated with the amplified common rail
injector business of Continental Diesel Systems US, LLC (“CDS”). CDS was a leading manufacturer of injectors used in
fuel systems that are installed into various diesel engines. We believe the acquired company, renamed PPT, will allow us
to further vertically integrate research and development, engineering, and manufacturing capabilities to produce world-
class diesel power systems and advanced emissions control systems. The seamless integration of the fuel, air, and
aftertreatment systems that PPT provides is enabled by the focus on optimized solutions through combining the design,
development, analysis, and manufacturing into a single company. While PPT currently focuses primarily on
intercompany customers, we anticipate that this business will provide additional external opportunities in the future.

In 2010, we signed a joint venture agreement with JAC to develop, build, and market advanced diesel commercial
engines in China. NC2 also signed a joint venture agreement with JAC to develop, build, and market advanced
commercial vehicles in China. The engine joint venture will focus on meeting emerging needs of the Chinese commercial
truck market with Euro V compliant technology and will provide application engineering development, product design
and technology advancements, to support the truck joint venture and other engine requirements of JAC's product
portfolio. A dedicated manufacturing facility in Hefei, China is expected to be constructed to produce JAC and the
Navistar-designed MaxxForce diesel engines. The formation of the joint ventures is pending necessary approvals from
the Chinese government, and is subject to finalization of certain ancillary agreements among the parties.
In September 2011, certain aspects of our NC2 joint venture with Caterpillar were restructured and the joint venture
agreement was terminated. In addition, we acquired all of Caterpillar's ownership interest in NC2, thereby increasing the
Company's equity interest in NC2 from 50% to 100%. Under the terms of the new relationship, NC2 became a wholly
owned subsidiary of Navistar and through a new brand licensing agreement, both International and CAT-branded trucks
will be distributed through both International and Caterpillar dealers outside of the United States. NC2 has launched
CAT-branded on-highway trucks in the Australian market, where it assembles and distributes commercial trucks under
both the International and CAT brands, and has initiated operations in Brazil.

Backlog

Our worldwide backlog of unfilled truck orders (subject to cancellation or return in certain events) at October 31, 2011 and
2010 was approximately $2.4 billion and $1.8 billion, or 32,000 units and 24,000 units, respectively. Production of our
October 31, 2011 backlog is expected to be substantially completed during 2012. Although the backlog of unfilled orders is
one of many indicators of market demand, other factors such as changes in production rates, internal and supplier available
capacity, new product introductions, and competitive pricing actions may affect point-in-time comparisons.

Employees

As our business requirements change, fluctuations may occur within our workforce from year to year. The following tables
summarize the number of employees worldwide as of the dates indicated and an additional subset of active union employees
represented by the United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”), and other unions,
for the periods as indicated. See Item 1A, Risk Factors, for further discussion related to the risk associated with labor and work
stoppages.

Employees worldwide
Total active employees ....................................................................................................
Total inactive employees(A) .........................................................................................
Total employees worldwide.............................................................................................

Total active union employees
Total UAW.......................................................................................................................
Total other unions............................................................................................................

As of October 31,

2011

2010

2009

19,000
1,800
20,800

15,800
2,900
18,700

15,100
2,800
17,900

As of October 31,

2011

2010

2009

2,000
3,900

1,700
2,400

2,600
1,900

__________________
(A) Employees are considered inactive in certain situations including disability leave, leave of absence, layoffs, and work stoppages. Included within inactive employees are
approximately 1,000 employees as of October 31, 2011, and approximately 1,100 employees as of October 31, 2010 and 2009, represented by the National Automobile,
Aerospace and Agricultural Implement Workers of Canada ("CAW") at our Chatham, Ontario heavy truck plant related to the expiration of the CAW contract on June 30, 2009.
In 2011, the Company committed to close this facility due to an inability to reach a collective bargaining agreement with the CAW.

Patents and Trademarks

We continuously obtain patents on our inventions and own a significant patent portfolio. Additionally, many of the components
we purchase for our products are protected by patents that are owned or controlled by the component manufacturer. We have
licenses under third-party patents relating to our products and their manufacture and grant licenses under our patents. The
monetary royalties paid or received under these licenses are not material.

Our primary trademarks are an important part of our worldwide sales and marketing efforts and provide instant identification of
our products and services in the marketplace. To support these efforts, we maintain, or have pending, registrations of our
primary trademarks in those countries in which we do business or expect to do business. We grant licenses under our
trademarks for consumer-oriented goods, such as toy trucks and apparel, outside the product lines that we manufacture. The
monetary royalties received under these licenses are not material.

Supply

We purchase raw materials, parts, and components from numerous outside suppliers. To avoid duplicate tooling expenses and
to maximize volume benefits, single-source suppliers fill a majority of our requirements for parts and components.

The impact of an interruption in supply will vary by commodity and type of part. Some parts are generic to the industry while
others are of a proprietary design requiring unique tooling, which require additional effort to relocate. However, we believe our
exposure to a disruption in production as a result of an interruption of raw materials and supplies is no greater than the industry
as a whole. In order to alleviate losses resulting from an interruption in supply, we maintain contingent business interruption
insurance for loss of earnings and/or extra expense directly resulting from physical loss or damage at a direct supplier location.

While we believe we have adequate assurances of continued supply, the inability of a supplier to deliver could have an adverse
effect on production at certain of our manufacturing locations.

Impact of Government Regulation

Truck and engine manufacturers continue to face significant governmental regulation of their products, especially in the areas
of environmental and safety matters. New on-highway emissions standards commenced in the U.S. on January 1, 2007, which
reduced allowable particulate matter and allowable NOx and have reached the last phase-in period effective with engine model
year 2010. This change in emissions standards resulted in a significant increase in the cost of our products to meet these
emissions levels.

In 2010, the initial phase-in of on-board diagnostics requirements commenced for the initial family of truck engines and those

products have also been certified. The phase-in for the remaining engine families occurs in 2013. Canadian heavy-duty engine
emissions regulations essentially mirror those of the EPA. In Mexico, we offer EPA 2004 and Euro IV engines that comply with
current standards in that country.

Truck manufacturers are also subject to various noise standards imposed by federal, state, and local regulations. The engine is
one of a truck's primary sources of noise, and we therefore work closely with OEMs to develop strategies to reduce engine
noise. We are also subject to the National Traffic and Motor Vehicle Safety Act (“Safety Act”) and Federal Motor Vehicle
Safety Standards (“Safety Standards”) promulgated by the National Highway Traffic Safety Administration (“NHTSA”).

Government regulation related to climate change is under consideration at the U.S. federal and state levels. Because our
products use fossil fuels, they may be impacted indirectly due to regulation, such as a cap and trade program, affecting the cost
of fuels. On May 21, 2010, President Obama directed the EPA and the Department of Transportation to adopt rules by July 30,
2011 setting greenhouse gas emission and fuel economy standards for medium and heavy-duty engines and vehicles beginning
with model year 2014. EPA and NHTSA issued proposed rules on November 30, 2010. We have been active participants in the
discussions surrounding the development of regulations and filed comments with the EPA on the proposed rules on January 31,
2011. The final rules, which were issued on September 15, 2011, begin to apply in 2014 and are fully implemented in model
year 2017. The agencies' stated goals for these rules were to increase the use of currently existing technologies. The Company
plans to comply with these rules through use of existing technologies and implementation of emerging technologies as they
become available. In addition to the U.S., Canada and Mexico are also considering the adoption of fuel economy and or
greenhouse gas regulations. We expect that heavy duty fuel economy rules will be under consideration in other global
jurisdictions in the future. These standards will impact development costs for vehicles and engines as well as the cost of
vehicles and engines. There will also be administrative costs arising from the implementation of the rules. These standards may
also create opportunities for the Company, which has pursued the development of hybrid and electric vehicles and has sought
incentives for the development of technology to improve fuel economy.

Our facilities may be subject to regulation related to climate change and climate change may also have some impact on the
Company's operations. However, these impacts are currently uncertain and the Company cannot predict the nature and scope of
those impacts.

EXECUTIVE OFFICERS OF NIC

The following selected information for each of our current executive officers (as defined by regulations of the SEC) was
prepared as of November 30, 2011.

Daniel C. Ustian, 61, has served as President and Chief Executive Officer of NIC since 2003 and Chairman of the Board of
Directors of NIC since 2004. He has also held numerous positions with Navistar, Inc., including serving as Chairman of
Navistar, Inc. since 2004, President and Chief Executive Officer since 2003, and as a director since 2002. Prior to these
positions, he served as President and Chief Operating Officer of Navistar Inc. from 2002 to 2003, President of the Engine
Group of Navistar, Inc. from 1999 to 2002, and Group Vice President and General Manager of Engine & Foundry Group of
Navistar, Inc. from 1993 to 1999. He is a member of the Business Roundtable and Society of Automotive Engineers. In March
2011, Mr. Ustian joined the board of directors at AGCO Corporation.

Andrew J. Cederoth, 46, has served as Executive Vice President and Chief Financial Officer of NIC since September 2009.
Mr. Cederoth has also served as a director of Navistar, Inc. since April 2009, and Executive Vice President and Chief Financial
Officer at Navistar, Inc. since September 2009. Prior to these positions he was interim principal financial officer and Senior
Vice President-Corporate Finance of NIC from June 2009 to September 2009, Senior Vice President-Corporate Finance from
April 2009 to June 2009 of NIC, Vice President and Chief Financial Officer of the Engine Division of Navistar, Inc. from 2006
to April 2009, Vice President and Treasurer of Navistar Financial Corporation from 2001 to 2005.

Steven K. Covey, 60, has served as Senior Vice President and General Counsel of NIC since 2004 and Chief Ethics Officer
since 2008. Mr. Covey has also served as Senior Vice President and General Counsel of Navistar, Inc. since 2004 and Chief
Ethics Officer since 2008. Prior to these positions, Mr. Covey served as Deputy General Counsel of Navistar, Inc. from April
2004 to September 2004 and as Vice President and General Counsel of Navistar Financial Corporation from 2000 to 2004.
Mr. Covey also served as Corporate Secretary for NIC from 1990 to 2000; and Associate General Counsel of Navistar, Inc.
from 1992 to 2000.

James M. Moran, 46, has served as Vice President and Treasurer of NIC since 2008. Mr. Moran also served as Vice President
and Treasurer of Navistar, Inc. since 2008. Prior to these positions, Mr. Moran served as Vice President and Assistant Treasurer
of both NIC and Navistar, Inc. from 2007 to 2008 and Director of Corporate Finance of Navistar, Inc. from 2005 to 2007. Prior
to joining NIC, Mr. Moran served as Vice President and Treasurer of R.R. Donnelley & Sons Company, an international
provider of print and print related services, from 2003 to 2004 and Assistant Treasurer of R.R. Donnelley & Sons Company
from 2002 to 2003. Prior to that, Mr. Moran held various positions in corporate finance, strategic planning, and credit and
collections at R.R. Donnelley & Sons Company.

Richard C. Tarapchak, 46, has served as Vice President and Controller (Principal Accounting Officer) of NIC since March
2010. Prior to this position, Mr. Tarapchak served as Vice President-Strategic Initiatives of Navistar, Inc. from 2008 to March
2010. Mr. Tarapchak also served as Vice President-Chief Financial Officer of the Truck Group of Navistar, Inc. from 2005 to
2008, Director-Corporate Financial Analysis of Navistar, Inc. from 2003 to 2005 and Director, Finance-Operations of Navistar,
Inc. from 2000 to 2003.

Curt A. Kramer, 43, has served as Corporate Secretary of NIC since 2007. Mr. Kramer has also served as Associate General
Counsel and Corporate Secretary of Navistar, Inc. since 2007. Prior to these positions, Mr. Kramer served as General Attorney
of Navistar, Inc. from April 2007 to October 2007, Senior Counsel of Navistar, Inc. from 2004 to 2007, Senior Attorney of
Navistar, Inc. from 2003 to 2004 and Attorney of Navistar, Inc. from 2002 to 2003. Prior to joining Navistar, Inc., Mr. Kramer
was in private practice.

D.T. (Dee) Kapur, 59, has served as President of the Truck Group of Navistar, Inc. since 2003. Prior to joining Navistar, Inc.,
Mr. Kapur was employed by Ford from 1976 to 2003, most recently serving as Executive Director of North American Business
Revitalization, Value Engineering from 2002 to 2003; Executive Director of Ford Outfitters, North American Truck, from 2001
to 2002; and Vehicle Line Director, Full Size Pick-ups and Utilities from 1997 to 2001.

Phyllis E. Cochran, 59, has served as President of the Parts Group of Navistar, Inc. since November 2009. Prior to this
position, Ms. Cochran served as Senior Vice President and General Manager of the Parts Group of Navistar, Inc. since 2007,
and Vice President and General Manager of the Parts Group of Navistar, Inc. from 2004 to 2007. Ms. Cochran was also Chief
Executive Officer and General Manager of Navistar Financial Corporation from 2003 to 2004. Ms. Cochran was Executive
Vice President and General Manager of Navistar Financial Corporation from 2002 to 2003. Ms. Cochran also served as Vice
President of Operations for Navistar Financial Corporation from 2000 to 2002; and Vice President and Controller for Navistar
Financial Corporation from 1994 to 2000. She is a director of The Mosaic Company, a world leading producer and marketer of
concentrated phosphate and potash crop nutrients. She is a director of Women in Trucking, a not for profit organization to
promote employment of women in the truck industry.

Gregory W. Elliott, 50, has served as Senior Vice President, Human Resources and Administration of Navistar, Inc. since
2008. Prior to this position, Mr. Elliott served as Vice President, Corporate Human Resources and Administration of Navistar,
Inc. from 2004 to 2008 and as Vice President, Corporate Communications of Navistar, Inc., from 2000 to 2004. Prior to joining
Navistar, Inc., Mr. Elliott served as Director of Executive Communications of General Motors Corporation from 1997 to 1999.

Item 1A.

Risk Factors

Our financial condition, results of operations, and cash flows are subject to various risks, many of which are not exclusively
within our control that may cause actual performance to differ materially from historical or projected future performance. We
have in place an Enterprise Risk Management (“ERM”) process that involves systematic risk identification and mitigation
covering the categories of Strategic, Financial Operational and Compliance risk. The goal of ERM is not to eliminate all risk,
but rather to identify, assess and rank risks; assign, mitigate and monitor risks; and report the status of our risk to the
Management Risk Committee and the Board of Directors and its committees. The risks described below could materially and
adversely affect our business, financial condition, results of operations, or cash flows. These risks are not the only risks that we
face and our business operations could also be affected by additional factors that are not presently known to us or that we
currently consider to be immaterial to our operations.

Our solutions for meeting U.S. federal and state emissions requirements may not be successful or may be more costly than
planned.

Truck and engine manufacturers continue to face significant governmental regulation of their products, especially in the areas
of environment and safety. In that regard, we have incurred, and will continue to incur, significant research, development, and
tooling costs to design and produce our engine product lines to meet EPA and CARB emissions requirements. The new on-
highway heavy duty emissions standards that came into effect in the U.S. for the 2007 model year reduced allowable particulate
matter and allowable NOx. This change in emissions standards resulted in a significant increase in the cost of our products to
meet these emissions levels. An emissions cap as part of the phase-in process for the heavy duty engines came into effect for
the model year 2010. In addition, regulations requiring on-board diagnostics began the initial phase-in during 2010 for truck
engines and are a part of our product plans. Full phase-in of on-board diagnostics regulations will occur in 2013.

Most other truck and engine manufacturers have chosen liquid-based urea SCR systems to address the 2010 emissions
standards. We are addressing the 2010 emissions requirements for our core applications through advances in engine emissions
controls and continue to explore other cost effective alternative solutions for meeting these emissions standards. In 2011 and
2010, our engines met EPA and CARB certification requirements because of emissions credits we earned from 2007 through
2009 via the early adoption of technologies that reduced NOx levels beyond what was then mandated. The rate of usage of
these emissions credits is dependent upon a variety of factors, including sales, product mix, and improvements in technologies.
For some categories of engines we make, we expect to use our remaining emissions credits some time in 2012. We are engaged
in ongoing discussions with officials from both EPA and CARB regarding potential regulatory solutions that would permit us to
continue uninterrupted production of all of our engines. Our solutions for meeting U.S. federal and state emissions
requirements may not be successful or may be more costly than planned.

Our ability to execute our strategy is dependent upon our ability to attract, train and retain qualified personnel.

Our continued success depends, in part, on our ability to identify, attract, motivate, train and retain qualified personnel. Because
our future success is dependent on our ability to continue to enhance and introduce new products, we are particularly dependent
on our ability to identify, attract, motivate, train and retain qualified engineers with the requisite education, background and
industry experience. With the consolidation of our engineering activities in the new corporate headquarters in Lisle, Illinois, we
are adding a significant number of new employees. Training and development of newly hired engineering resources is key to
our engineering integration. We intend to continue to devote significant resources to recruit, train and retain qualified
employees and any failure to do so could impair our ability to execute our strategy and could have an adverse effect on our
financial condition and results of operations.

As we expand our global footprint through joint ventures, strategic alliances and other business initiatives, to effectively
manage these global operations, we will need to recruit, train, assimilate, motivate and retain qualified experienced employees
around the world. If there are an insufficient number of qualified local residents available, we may have difficulty obtaining
and retaining expatriates to service new global markets. This could limit our access to high potential talent and may negatively
impact our ability to build a successful global business.

In addition, as some of our key personnel approach retirement age, we need to have appropriate succession plans in place and
to successfully implement such plans. If we cannot attract and retain qualified personnel or effectively implement appropriate
succession plans, it could have a material adverse impact on our business. While we follow a disciplined, ongoing succession
planning process and have succession plans in place for senior management and other key executives, these do not guarantee
12

that the services of qualified senior executives will continue to be available to us at particular moments in time.

Our business may be adversely affected by government contracting risks.

We derived approximately 13%, 15%, and 25% of our revenues for 2011, 2010, and 2009, respectively, from the U.S.
government. Many of our existing U.S. government contracts extend over multiple years and are conditioned upon the
continuing availability of congressional appropriations. Congress usually appropriates funds on a fiscal-year basis and if the
congressional appropriations for a program under which we are contractors are not made, or are reduced or delayed, our
contract could be cancelled or government purchases under the contract could be reduced or delayed, which could adversely
affect our financial condition, results of operations, and cash flows. Although we have multiple bids and quotes, there are no
guarantees that they will be awarded to us in the future or that volumes will be similar to volumes under previously awarded
contracts. In addition, U.S. government contracts generally permit the contracting government agency to terminate the contract,
in whole or in part, either for the convenience of the government or for default based on our failure to perform under the
contract. If a contract is terminated for convenience, we would generally be entitled to the payment of our allowable costs and
an allowance for profit on the work performed. If one of our government contracts were to be terminated for default, we could
be exposed to liability and our ability to obtain future contracts could be adversely affected.

We may not achieve all of the expected benefits from our current business strategies and initiatives.

As part of our growth strategy, we have completed acquisitions and joint ventures and expect we will continue to explore a
number of potential additional joint ventures and strategic alliances, as well as other business initiatives. We cannot provide
assurance that we will complete the joint ventures, strategic alliances or business initiatives we are exploring, or that our
previous or future acquisitions, joint ventures, strategic alliances or business initiatives will be successful or will generate the
expected benefits. If we are unable to successfully integrate newly acquired businesses with existing businesses, we may not
realize the synergies we expect from acquisitions. In addition, we cannot provide assurance that we will not have disputes arise
with our joint venture partners and that such disputes will not lead to litigation or otherwise have a material adverse effect on
the joint ventures or our relationships with our joint venture partners. Failure to successfully manage and integrate these and
potential future acquisitions, joint ventures and strategic alliances could materially impact our financial condition, results of
operations and cash flows.

Federal regulations and fuel economy rules may increase costs.

Additional changes to on-highway emissions or performance standards as well as compliance with additional environmental
requirements are expected to add to the cost of our products and increase the capital-intensive nature of our business. In that
regard, EPA and the Department of Transportation have issued final rules on greenhouse gas emissions and fuel economy for
medium and heavy duty vehicles and engines. The standards establish required minimum fuel economy and greenhouse gas
emissions levels for both engines and vehicles primarily through the increased use of existing technology. The rules, which
apply to our engines and vehicles, initially come into effect in 2014 and are fully implemented in model year 2017. These
standards will increase costs of development for engines and vehicles and administrative costs arising from implementation of
the standard. In addition, other regulatory proposals under consideration may adversely affect our business.

Our products are subject to export limitations and we may be prevented from shipping our products to certain nations or
buyers.

We are subject to federal licensing requirements with respect to the sale and support in foreign countries of certain of our
products and the importation of components for our products. In addition, we are obligated to comply with a variety of federal,
state and local regulations and procurement policies, both domestically and abroad, governing certain aspects of our
international sales and support, including regulations promulgated by, among others, the U.S. Departments of Commerce,
Defense and State and the U.S. Department of Justice.

Such licenses may be denied for reasons of U.S. national security or foreign policy. In the case of certain large orders for
exports of defense equipment, the Department of State must notify Congress at least 15 to 30 days, depending on the size and
location of the sale, prior to authorizing certain sales of defense equipment and services to foreign governments. During that
time, Congress may take action to block the proposed sale. We can give no assurances that we will continue to be successful in
obtaining the necessary licenses or authorizations or that Congress will not prevent or delay certain sales. Any significant
impairment of our ability to sell products outside of the U.S. could negatively impact our financial condition, results of
operations and cash flows.

For products and technology exported from the U.S. or otherwise subject to U.S. jurisdiction, we are subject to U.S. laws and
regulations governing international trade and exports, including, but not limited to International Traffic in Arms Regulations,
Export Administration Regulations, the Foreign Military Sales program and trade sanctions against embargoed countries, and

destinations administered by the Office of Foreign Assets Control, U.S. Department of the Treasury. A determination by the
U.S. government that we have failed to comply with one or more of these export controls or trade sanctions could result in civil
or criminal penalties, including the imposition of significant fines, denial of export privileges, loss of revenues from certain
customers, and debarment from participation in U.S. government contracts.

We are subject to the Foreign Corrupt Practices Act (the “FCPA”) and other laws which prohibit improper payments to foreign
governments and their officials by U.S. and other business entities. We operate in countries known to experience corruption.
Our operations in such countries create the risk of an unauthorized payment by one of our employees or agents which could be
in violation of various laws including the FCPA.

Additionally, the failure to obtain applicable governmental approval and clearances could materially and adversely affect our
ability to continue to service the government contracts we maintain. Exports of some of our products to certain international
destinations may require shipment authorization from U.S. export control authorities, including the U.S. Departments of
Commerce and State, and authorizations may be conditioned on end-use restrictions.

Our international business is also highly sensitive to changes in foreign national priorities and government budgets. Sales of
military products are affected by defense budgets (both in the U.S. and abroad) and U.S. foreign policy.

We must comply with numerous miscellaneous federal national security laws, procurement regulations, and procedures, as
well as the rules and regulations of foreign jurisdictions, and our failure to comply could adversely affect our business.

We must observe laws and regulations relating to the formation, administration and performance of federal government
contracts that affect how we do business with our clients and impose added costs on our business. For example, the Federal
Acquisition Regulations, foreign government procurement regulations and the industrial security regulations of the Department
of Defense and related laws include provisions that:

•

allow our government clients to terminate or not renew our contracts if we come under foreign ownership, control or
influence;

allow our government clients to terminate existing contracts for the convenience of the government;

require us to prevent unauthorized access to classified information; and

require us to comply with laws and regulations intended to promote various social or economic goals.

We are subject to industrial security regulations of the U.S. Department of State, Department of Commerce and the Department
of Defense and other federal agencies that are designed to safeguard against foreigners' access to classified or restricted
information. As we expand our operations internationally, we will also become subject to the rules and regulations of foreign
jurisdictions. If we were to come under foreign ownership, control or influence, we could lose our facility security clearances,
which could result in our federal government customers terminating or deciding not to renew our contracts and could impair
our ability to obtain new contracts.

A failure to comply with applicable laws, regulations or procedures, including federal regulations regarding the procurement of
goods and services and protection of classified information, could result in contract termination, loss of security clearances,
suspension or prohibition from contracting with the federal government, civil fines and damages and criminal prosecution and
penalties, any of which would materially adversely affect our business.

We have significant under-funded postretirement obligations.

The under-funded portion of our projected benefit obligation was $1.8 billion and $1.5 billion for pension benefits at
October 31, 2011 and 2010, respectively, and $1.5 billion and $653 million for postretirement healthcare benefits at October 31,
2011 and 2010, respectively. Moreover, we have assumed expected rates of return on plan assets and growth rates of retiree
medical costs and the failure to achieve the expected rates of return and growth rates, as well as reductions in interest rates,
could have an adverse impact on our under-funded postretirement obligations, financial condition, results of operations and
cash flows. The volatility in the financial markets affects the valuation of our pension assets and liabilities, resulting in
potentially higher pension costs and higher levels of under-funding in future periods. The requirements set forth in the
Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended, as
applicable to our U.S. pension plans (including such timing requirements) mandated by the Pension Protection Act of 2006 to
fully fund our U.S. pension plans, net of any current or possible future legislative or governmental agency relief, could also
have an adverse impact on our business, financial condition, results of operations and cash flows even though the recently
enacted pension funding relief legislation Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of
2010 (the “PRA 2010”) has reduced our funding requirements over the next five years.

Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages.

We obtain materials and manufactured components from third-party suppliers. Some of our suppliers are the sole source for a
particular supply item. Any delay in receiving supplies could impair our ability to deliver products to our customers and,
accordingly, could have a material adverse effect on our business, financial condition, results of operations, and cash flows. The
volatility in the financial markets and uncertainty in the automotive sector could result in exposure related to the financial
viability of certain of our key third-party suppliers. In response to financial pressures, suppliers may also exit certain business
lines, or change the terms on which they are willing to provide products. In addition, many of our suppliers have unionized
workforces which could be subject to work stoppages as a result of labor relations issues.

We are exposed to political, economic, and other risks that arise from operating a multinational business.

We have significant operations in foreign countries, primarily in Canada, Mexico, Brazil, Argentina, and India. We are also
developing operations in the Peoples' Republic of China. Accordingly, our business is subject to the political, economic, and
other risks that are inherent in operating in those countries and internationally. These risks include, among others:

•

trade protection measures and import or export licensing requirements;

tax rates in certain foreign countries that exceed those in the U.S. and the imposition of withholding requirements for
taxes on foreign earnings;

difficulty in staffing and managing international operations and the application of foreign labor regulations;

multiple and potentially conflicting laws, regulations, and policies that are subject to change;

currency exchange rate risk; and

changes in general economic and political conditions in countries where we operate, particularly in emerging markets.

We may discover defects in vehicles potentially resulting in delays in new model launches, recall campaigns, or increased
warranty costs.

Meeting or exceeding many government-mandated safety standards is costly and often technologically challenging, especially
where one or more government-mandated standards may conflict. Government safety standards require manufacturers to
remedy defects related to motor vehicle safety through safety recall campaigns, and a manufacturer is obligated to recall
vehicles if it determines that they do not comply with a safety standard. Should we or government safety regulators determine
that a safety or other defect or noncompliance exists with respect to certain of our vehicles, there could be a delay in the launch
of a new model or a significant increase in warranty claims, the costs of which could be substantial.

The markets in which we compete are subject to considerable cyclicality.

Our ability to be profitable depends in part on the varying conditions in the truck, bus, mid-range diesel engine, and service
parts markets, which are subject to cycles in the overall business environment and are particularly sensitive to the industrial
sector, which generates a significant portion of the freight tonnage hauled. Truck and engine demand is also dependent on
general economic conditions, interest rate levels and fuel costs, among other external factors.

We operate in the highly competitive North American truck market.

The North American truck market in which we operate is highly competitive. Our major U.S.-controlled domestic competitors
include: PACCAR and Ford. The competing foreign-controlled domestic manufacturers include: Freightliner and Western Star
(both subsidiaries of Mercedes Benz), and Volvo and Mack (both subsidiaries of Volvo Global Trucks). The major U.S. military
vehicle competitors include: BAE Systems, Force Protection, Inc., General Dynamics Land Systems, and Oshkosh Truck. In
addition, smaller, foreign-controlled and market participants such as Isuzu, UD Trucks (formerly known as Nissan North
America, Inc.), Hino (a subsidiary of Toyota), and Mitsubishi are competing in the U.S. and Canadian markets with primarily
imported products. In Mexico, the major domestic competitors are Kenmex (a subsidiary of PACCAR) and Mercedes Benz.

The intensity of this competition, which is expected to continue, results in price discounting and margin pressures throughout
the industry and adversely affects our ability to increase or maintain vehicle prices. Many of our competitors have greater
financial resources, which may place us at a competitive disadvantage in responding to substantial industry changes, such as
changes in governmental regulations that require major additional capital expenditures. In addition, certain of our competitors
may have lower overall labor costs.

We could incur restructuring and impairment charges as we continue to evaluate opportunities to restructure our business
and rationalize our manufacturing operations in an effort to optimize the cost structure.

We continue to evaluate opportunities to restructure our business and rationalize our manufacturing operations in an effort to

optimize the cost structure which could include, among other actions, additional rationalization of our manufacturing
operations. These actions could result in significant charges which could adversely affect our financial condition and results of
operations. Future actions could result in restructuring and related charges, including but not limited to impairments, employee
termination costs and charges for pension and other post retirement contractual benefits and pension curtailments that could be
significant. We have substantial amounts of long-lived assets, including goodwill and intangible assets, which are subject to
periodic impairment analysis and review. Identifying and assessing whether impairment indicators exist, or if events or changes
in circumstances have occurred, including market conditions, operating results, competition and general economic conditions,
requires significant judgment. A result of any of the above future actions could result in charges that could have an adverse
effect on our financial condition and results of operations.

Our business may be adversely impacted by work stoppages and other labor relations matters.

We are subject to risk of work stoppages and other labor relations matters because a significant portion of our workforce is
unionized. As of October 31, 2011, approximately 55% of our hourly workers and 5% of our salaried workers are represented
by labor unions and are covered by collective bargaining agreements. Many of these agreements include provisions that limit
our ability to realize cost savings from restructuring initiatives such as plant closings and reductions in workforce. Our current
collective bargaining agreement with the UAW will expire in October 2014. Any strikes, threats of strikes, or other resistance in
connection with the negotiation of new labor agreements or otherwise could materially adversely affect our business as well as
impair our ability to implement further measures to reduce structural costs and improve production efficiencies. A lengthy
strike that involves a significant portion of our manufacturing facilities could have a material adverse effect on our financial
condition, results of operations, and cash flows.

We are involved in pending litigation and an adverse resolution of such litigation may adversely affect our business,
financial condition, results of operations and cash flows.

Litigation can be expensive, lengthy, and disruptive to normal business operations. The results of complex legal proceedings
are often uncertain and difficult to predict. An unfavorable outcome of a particular matter described in our periodic filings or
any future legal proceedings could have a material adverse effect on our business, financial condition, results of operations or
cash flows. For additional information regarding certain lawsuits in which we are involved, see Item 3, Legal Proceedings, and
Note 15, Commitments and contingencies, to the accompanying consolidated financial statements.

Item 1B.

Unresolved Staff Comments

We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued
180 days or more preceding the end of 2011 that remain unresolved.

Item 2.

Properties

In North America, we operate seventeen manufacturing and assembly facilities, which contain in the aggregate approximately
13 million square feet of floor space. Of these seventeen facilities, thirteen are owned and four are subject to leases. Eleven
plants manufacture and assemble trucks, buses, and chassis, while six plants are used to build engines. Of these six plants that
build engines, three manufacture diesel engines, one manufactures fuel injectors, one manufactures grey iron castings, and one
manufactures ductile iron castings.

Our principal product development and engineering facilities are currently located in Lisle, Illinois, Melrose Park, Illinois, Fort
Wayne, Indiana, Madison Heights, Michigan, and Columbia, South Carolina. The Parts segment has eight distribution centers
in the U.S., two in Canada, and one in Mexico.

In addition, we own or lease other significant properties in the U.S. and Canada including vehicle and parts distribution centers,
sales offices, and our headquarters which is currently located in Lisle, Illinois. In addition, we own and operate manufacturing
plants in both Brazil and Argentina, which contain a total of 1 million square feet of floor space for use by our South American
engine subsidiaries.

A majority of the activity of the Financial Services segment is conducted from leased headquarters in Schaumburg, Illinois. The
Financial Services segment also leases an office in Mexico.

Not included above are the former Indianapolis, Indiana Engine Plant ("IEP") and the Chatham, Ontario Plant, both of which
have ceased production activities. In addition, effective January 1, 2012, we will begin leasing a 2.3 million square foot
manufacturing facility in Cherokee, Alabama.

We believe that all of our facilities have been adequately maintained, are in good operating condition, and are suitable for our

current needs. These facilities, together with planned capital expenditures, are expected to meet our needs in the foreseeable
future.

Item 3.

Legal Proceedings

Overview

We are subject to various claims arising in the ordinary course of business, and are parties to various legal proceedings that
constitute ordinary, routine litigation incidental to our business. The majority of these claims and proceedings relate to
commercial, product liability, and warranty matters. In our opinion, apart from the actions set forth below, the disposition of
these proceedings and claims, after taking into account recorded accruals and the availability and limits of our insurance
coverage, will not have a material adverse effect on our business or our financial condition, results of operations, and cash
flows.

Retiree Health Care Litigation

In April 2010, the UAW and others (“Plaintiffs”) filed a “Motion of Plaintiffs Art Shy, UAW, et al for an Injunction to Compel
Compliance with the 1993 Settlement Agreement” (the “Shy Motion”) in the U.S. District Court for the Southern District of
Ohio (the "Court"). The Shy Motion sought to enjoin the Company from implementing an administrative change relating to
prescription drug benefits under a healthcare plan for Medicare-eligible retirees (the “Part D Change”). Specifically, Plaintiffs
claimed that the Part D Change violated the terms of a June 1993 settlement agreement previously approved by the Court (the
"1993 Settlement Agreement"). That 1993 Settlement Agreement resolved a class action originally filed in 1992 regarding the
restructuring of the Company's then applicable retiree health care and life insurance benefits. In May 2010, the Company filed
its Opposition to the Shy Motion.

The Part D Change was effective July 1, 2010, and made the Company's prescription drug coverage for post-65 retirees (“Plan
2 Retirees”) supplemental to the coverage provided by Medicare. Plan 2 Retirees paid the premiums for Medicare Part D drug
coverage under the Part D Change.

In February 2011, the Court ruled on the Shy Motion (the “February 2011 Order”). The February 2011 Order sustained the
Plaintiffs' argument that the Company did not have authority to unilaterally substitute Medicare Part D for the prescription drug
benefit that Plaintiffs had been receiving under the 1993 Settlement Agreement. However, the February 2011 Order denied as
moot Plaintiffs' request for injunctive relief to prevent the Company from implementing the Part D Change, because the change
already had gone into effect. In February 2011, the Company filed a notice of appeal concerning the February 2011 Order.

On September 30, 2011, the Court issued an order directing the Company to reinstate the prescription drug benefit that was in
effect before the Company unilaterally substituted Medicare Part D for the prior prescription drug benefit (the “September 2011
Order”). The September 2011 Order also requires the Company to reimburse Plan 2 Retirees for any Medicare Part D
premiums they have paid since the Part D Change and the extra cost, if any, for the retirees' prescriptions under the Part D
Change. On October 14, 2011, the Company filed a notice of appeal concerning the September 2011 Order. Pending the
appeal of the February 2011 Order and the September 2011 Order, Plan 2 Retirees will not pay premiums for Medicare Part D
drug coverage and the prescription drug formulary available to such retirees will reflect the prescription drug benefit in effect
prior to the implementation of the Part D Change.

FATMA Notice

IIAA, formerly known as Maxion International Motores S/A (“Maxion”), now a wholly owned subsidiary of the Company,
received a notice in July 2010 from the State of Santa Catarina Environmental Protection Agency (“FATMA”) in Brazil. The
notice alleged that Maxion had sent wastes to a facility owned and operated by a company known as Natureza and that soil and
groundwater contamination had occurred at the Natureza facility. The notice asserted liability against Maxion and assessed an
initial penalty in the amount of R$2 million (the equivalent of approximately US$1.2 million at October 31, 2011), which is not
due and final until all administrative appeals are exhausted. Maxion was one of numerous companies that received similar
notices. IIAA filed an administrative defense in August 2010 and has not yet received a decision following that appearance.
IIAA disputes the allegations in the notice and intends to vigorously defend itself.

6.0 Liter Diesel Engine Litigation

Navistar, Inc. for negligent performance of contractual duty (related to Navistar's former contract with Ford), unfair
competition, and unjust enrichment. For relief, the Burns Action sought dollar damages sufficient to remedy the alleged defects,
compensate the alleged damages incurred by the proposed class, and compensate plaintiffs' counsel. The Burns Action also
asked the Court to award punitive damages and restitution/disgorgement.

After the Burns Action was filed, nineteen additional putative class action lawsuits making materially identical allegations
against Navistar, Inc. were filed in federal courts in various parts of the country (the “Additional Actions”). The Additional
Actions sought to certify in several different states classes similar to the proposed California class in the Burns Action. The
theories of liability and relief sought in the Additional Actions were substantially similar to the Burns Action.

In April and May 2011, the Judicial Panel on Multidistrict Litigation transferred Burns and all but one (the "Saxby Case") of
the Additional Actions to the Northern District of Illinois, where the Custom Underground case (another similar case pending in
Chicago, where Navistar, Inc. is not a defendant) is pending, for consolidated pre-trial proceedings (“MDL”).

In May 2011, all plaintiffs in the consolidated matter filed a voluntary Notice of Dismissal dismissing Navistar, Inc. without
prejudice. In June 2011, the Saxby Case was transferred to the MDL court. On September 8, 2011, the parties entered into and
filed with the Court a Stipulation of Dismissal, which confirms the dismissal of Navistar, Inc. without prejudice from those
cases in which Navistar had filed a responsive pleading, as well as the Saxby Case.

On May 20, 2011, 9046-9478 Quebec Inc. ("Quebec") filed a motion to authorize the bringing of a class action against
Navistar, Inc. and Navistar Canada, Inc. (collectively, "Navistar Defendants"), as well as Ford and Ford Motor Company of
Canada, Limited (collectively, "Ford Defendants") in Superior Court in Quebec, Canada (the "Quebec Action"). The Quebec
Action seeks authorization to bring a claim on behalf of a class of Canadian owners and lessees of model year 2003-07 Ford
vehicles powered by the 6.0L Power Stroke® engine that Navistar, Inc. previously supplied to Ford. Quebec alleged that the
engines in question have design and manufacturing defects, and that Navistar Defendants and Ford Defendants are solidarily
liable for those defects. For relief, the Quebec Action seeks dollar damages sufficient to remedy the alleged defects,
compensate the alleged damages incurred by the proposed class, and compensate plaintiffs' counsel. The Quebec Action also
asks the Court to order the Navistar Defendants and the Ford Defendants to recall, repair, or replace the Ford vehicles at issue
free of charge. The motion to authorize the bringing of the class action was presented in August 2011, and the hearing was
continued to an as yet undetermined date. A new case management conference is expected at the beginning of 2012.

We also have been made aware of the Kruse Technology Partnership vs. Ford lawsuit filed against Ford regarding potential
patent infringement of three patents in the U.S. District Court for the Central District of California. An amended complaint
against Ford was filed by Kruse in August 2010. The amended complaint alleges that Ford has infringed the patents by sale or
use of engines, such as the Power Stroke diesel engines. The general subject matter of the patents is pilot injection of fuel in the
combustion cycle. Navistar, Inc. formerly supplied Power Stroke diesel engines to Ford, although today Ford manufactures its
own Power Stroke engines. In the Ford/Navistar Settlement Agreement of January 9, 2009, Navistar agreed to indemnify Ford
for claims of infringement based upon Ford's manufacture, sale or use of the 6.0 and 6.4 liter Power Stroke engines sold by
Navistar to Ford. Ford has not requested Navistar to defend Ford at this time. The judge assigned to the Kruse Technology
Partnership vs. Ford case has stayed the case pending resolution of a similar suit against Daimler Chrysler, Detroit Diesel,
Freightliner, Western Star, Volkswagen, Cummins, and Chrysler Group. On November 14, 2011, Kruse disclaimed all the
claims in one of the patents (US 6,405,704), which effectively terminates the patent rights for this patent. The remaining two
Kruse patents continue to be re-examined by the U.S. Patent Office.

Lis Franco de Toledo, et. al. vs. Syntex do Brasil and IIAA

In 1973 Syntex do Brasil Industria e Comercio Ltda. (“Syntex”), a predecessor of our Brazilian engine manufacturing
subsidiary formerly known as MWM, filed a lawsuit in Brazilian court against Dr. Lis Franco de Toledo and others
(collectively, “Lis Franco”). Syntex claimed Lis Franco had improperly terminated a contract which provided for the transfer
from Lis Franco to Syntex of a patent for the production of a certain vaccine. Lis Franco filed a counterclaim, alleging that he
was entitled to royalties under the contract. In 1975, the Brazilian trial court ruled in favor of Lis Franco, a decision which was
affirmed on appeal in 1976. In 1984, while the case was still pending, Syntex' owner, Syntex Comercio e Participacoes Ltds
(“Syntex Parent”) sold the stock of Syntex to MWM, and in connection with that sale Syntex Parent agreed to indemnify and
hold harmless MWM for any and all liabilities of Syntex, including its prior pharmaceutical operations (which had been
previously spun-off to another subsidiary wholly-owned by the Syntex parent) and any payments that might be payable under
the Lis Franco lawsuit. In the mid to late 1990s, Syntex Parent was merged with an entity known as Wyeth Industrica
Farmaceutica Ltds (“Wyeth”).

In 1999, Lis Franco amended its pleadings to add MWM to the lawsuit as a defendant. In 2000, Wyeth acknowledged to the
Brazilian court its sole responsibility for amounts due in the Lis Franco lawsuit and MWM asked the court to be dismissed

from that action. The judge denied that request. MWM appealed and lost.

In his pleadings, Lis Franco alleged that the royalties payable to him were approximately R$42 million. MWM believed the
appropriate amount payable is approximately R$16 million. In December 2009, the court appointed expert responsible for the
preparation of the royalty calculation filed a report with the court indicating royalty damages of R$68 million. MWM
challenged the expert's calculation. In August 2010, the court asked the parties to consider the appointment of a new
expert. MWM agreed with this request but Lis Franco objected and, in December 2010, the court accepted and ratified the
expert's calculation as of May 2010 in the amount of R$74 million (the equivalent of approximately US$43.8 million at
October 31, 2011) and entered judgment against MWM. In May 2010, MWM filed a lawsuit against Wyeth, seeking
recognition that Wyeth is liable for any and all liabilities, costs, expenses and payments related to the Lis Franco lawsuit.

In September 2010, MWM filed a motion for clarification of the decision which would suspend the enforcement of the
decision. The Brazilian court denied this motion and MWM appealed the matter to the Rio de Janeiro State Court of Appeals
(the “Court of Appeals”). In January 2011, the Court of Appeals granted the appeal and issued an injunction suspending the
lower court's decision and judgment in favor of Lis Franco. In January 2011, MWM merged into IIAA and is now known as
IIAA. An expert appointed by the Court of Appeals submitted his calculation report on October 24, 2011, and determined the
amount to be R$10.85 million (the equivalent of US$6.4 million at October 31, 2011). The Court of Appeals is now reviewing
the expert’s calculation criteria report and the parties' comments to that report.

Deloitte & Touche LLP

In April 2011, the Company filed a complaint against Deloitte & Touche LLP (“Deloitte”) in the Circuit Court of Cook County,
Illinois County Department, Law Division for fraud, fraudulent concealment, negligent misrepresentation, violation of the
Illinois Consumer Fraud and Deceptive Business Practices Act, professional malpractice, negligence, breach of contract and
breach of fiduciary duty. The matters giving rise to the allegations contained in the complaint arise from Deloitte's service as
the Company's independent auditor prior to April 2006 and the Company is seeking monetary damages against Deloitte. In May
2011, Deloitte filed a Notice of Removal to remove the case to the United States District Court for the Northern District of
Illinois. In June 2011, the Company filed in the federal court a motion to remand the case to Illinois Circuit Court. On July 8,
2011, Deloitte filed a motion to dismiss the Company's complaint and in August 2011, the Company responded to Deloitte's
motion to dismiss. On October 28, 2011, the court remanded the case back to the Circuit Court of Cook County, Illinois and
denied the motion to dismiss as moot. The parties are awaiting transfer to Illinois State Court and assignment of a judge.

Westbrook vs. Navistar. et. al.

In April 2011, a False Claims Act qui tam complaint against Navistar, Inc., Navistar Defense, LLC, a wholly owned subsidiary
of the Company, and unrelated third parties was unsealed by the United States District Court for the Northern District of Texas.
The complaint was initially filed in August 2010 by a qui tam relator on behalf of the federal government. The complaint
alleged violations of the False Claims Act based on allegations that parts of vehicles delivered by Navistar Defense were not
painted according to the contract specification, and improper activities in dealing with one of the vendors who painted certain
of the vehicle parts. The complaint seeks monetary damages and civil penalties on behalf of the federal government, as well as
costs and expenses. The U.S. government notified the court that it has declined to intervene at this time. The Company was
served with the False Claims Act qui tam complaint in July 2011 and a scheduling order has been issued in the case. Following
the service and unsealing of the complaint, the Company and the other named defendants filed motions to dismiss. The parties
are currently briefing the issues in the motions to dismiss as well as other matters in the case.

Asbestos and Environmental Matters

Along with other vehicle manufacturers, we have been subject to an increase in the number of asbestos-related claims in recent
years. In general, these claims relate to illnesses alleged to have resulted from asbestos exposure from component parts found
in older vehicles, although some cases relate to the alleged presence of asbestos in our facilities. In these claims we are not the
sole defendant, and the claims name as defendants numerous manufacturers and suppliers of a wide variety of products
allegedly containing asbestos. We have strongly disputed these claims, and it has been our policy to defend against them
vigorously. It is possible that the number of these claims will continue to grow, and that the costs for resolving asbestos related
claims could become more significant in the future. We have also 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
that allegedly received wastes from current or former Company locations.

Item 4.

[Removed and Reserved]

PART II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information

Our common stock is listed on the New York Stock Exchange (“NYSE”), under the stock symbol “NAV.” The following is the
high and low market price per share of our common stock from NYSE for each quarter of 2011 and 2010:

Year Ended October 31, 2011

High

Low

Year Ended October 31, 2010

High

Low

1st Qtr ..........................................
2nd Qtr .........................................
3rd Qtr .........................................
4th Qtr...........................................

66.39
71.49
70.40
52.36

48.32
58.49
50.05
30.01

1st Qtr ...........................................
2nd Qtr ..........................................
3rd Qtr...........................................
4th Qtr...........................................

41.52
52.43
58.00
53.83

31.53
36.79
44.00
40.58

Number of Holders

As of November 30, 2011, there were approximately 12,345 holders of record of our common stock.

Dividend Policy

Holders of our common stock are entitled to receive dividends when and as declared by the Board of Directors out of funds
legally available therefore, provided that, so long as any shares of our preferred stock and preference stock are outstanding, no
dividends (other than dividends payable in common stock) or other distributions (including purchases) may be made with
respect to the common stock unless full cumulative dividends, if any, on our shares of preferred stock and preference stock
have been paid. Under the General Corporation Law of the State of Delaware, dividends may only be paid out of surplus or out
of net profits for the year in which the dividend is declared or the preceding 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 our net assets.

Payments of cash dividends and the repurchase of common stock are currently limited due to restrictions contained in our debt
agreements. We have not paid dividends on our common stock since 1980 and do not expect to pay cash dividends on our
common stock in the foreseeable future.

Recent Sales of Unregistered Securities

Our directors who are not employees receive an annual retainer and meeting fees payable at their election either in shares of our
common stock or in cash. A director may also elect to defer any portion of such compensation until a later date. Each such
election is made prior to December 31st for the next calendar year. For calendar and fiscal year 2011, the Board of Directors
mandated that at least $15,000 of the annual retainer be paid in the form of shares of our common stock. During the fourth
quarter ended October 31, 2011, one director elected to defer annual retainer and/or meeting fees in shares, and was credited
with an aggregate of 1,093 deferred stock units (each such stock unit corresponding to one share of common stock) at prices
ranging from $32.20 to $42.07. These stock units were issued to our director without registration under the Securities Act, in
reliance on Section 4(2) based on the directors' financial sophistication and knowledge of the Company.

Issuer Purchases of Equity Securities

Period
08/01/2011 - 08/31/2011..............
09/01/2011 - 09/30/2011..............
10/01/2011 - 10/31/2011..............
Total

Total Number of
Shares (or Units)
Purchased

272,666

56,450

2,542,609

2,871,725

Average Price Paid
Per Share (or Unit)
42.37
$

38.30

39.33

Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number (or
Approximate Dollar Value) of
Shares (or Units) That May Yet
Be Purchased Under the Plans
or Programs (A)(B)

272,666

56,450

2,542,609

2,871,725

2,167,340

5,516

81,363,388

_______________
(A) On December 14, 2010, we announced that our Board of Directors authorized a stock repurchase program which commenced on January 31, 2011 to

acquire up to $25 million worth of Company common stock. The repurchase program expires on December 31, 2011.

(B) On September 7, 2011, we announced that a special committee of the Board of Directors authorized a stock repurchase program which commenced on

October 6, 2011 to acquire up to $175 million worth of Company common stock. The repurchase program expires on March 15, 2012.

Item 6.

Selected Financial Data

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and the notes to the
accompanying consolidated financial statements for additional information regarding the financial data presented below,
including matters that might cause this data not to be indicative of our future financial condition or results of operations.

We operate in four industry segments: Truck, Engine, Parts, and Financial Services. A detailed description of our segments,
products, and services, as well as additional selected financial data is included in “Our Operating Segments” in Item 1,
Business, and in Note 16, Segment reporting, to the accompanying consolidated financial statements.

Five-Year Summary of Selected Financial and Statistical Data

As of and for the Years Ended October 31,

2011(A)

2010

2009

2008

2007

(in millions, except per share data)
RESULTS OF OPERATIONS DATA
Sales and revenues, net..............................................................
Income (loss) before extraordinary gain....................................
Extraordinary gain, net of tax....................................................
Net income (loss).......................................................................

Less: Net income attributable to non-controlling
interest...................................................................................

Net income (loss) attributable to Navistar International
Corporation................................................................................
Basic earnings (loss) per share:
Income (loss) attributable to Navistar International
Corporation before extraordinary gain ......................................
Extraordinary gain, net of tax....................................................
Net income (loss) attributable to Navistar International
Corporation................................................................................
Diluted earnings (loss) per share:
Income (loss) attributable to Navistar International
Corporation before extraordinary gain ......................................
Extraordinary gain, net of tax....................................................
Net income (loss) attributable to Navistar International
Corporation................................................................................
Weighted average number of shares outstanding:
Basic ..........................................................................................
Diluted .......................................................................................

BALANCE SHEET DATA
Total assets.................................................................................
Long-term debt:(B)......................................................................
Manufacturing operations ..................................................
Financial services operations .............................................
Total long-term debt ..................................................................
Redeemable equity securities ....................................................

___________________________

$ 13,958
1,778
—
1,778

$ 12,145
267
—
267

$ 11,569
322
23
345

$ 14,724
134
—
134

$ 12,295
(120)
—
(120)

—

1,723

223

320

134

(120)

23.66
—

3.11
—

4.18
0.33

1.89
—

(1.70)
—

23.66

3.11

4.51

1.89

(1.70)

22.64
—

3.05
—

4.14
0.32

1.82
—

(1.70)
—

22.64

3.05

4.46

1.82

(1.70)

72.8
76.1

71.7
73.2

71.0
71.8

70.7
73.2

70.3
70.3

$ 12,291

9,730

$ 10,028

$ 10,390

$ 11,448

1,881
1,596
3,477
5

$
$

1,841
2,397
4,238
8

$
$

1,670
2,486
4,156
13

$
$

1,639
3,770
5,409
143

$
$

1,665
4,418
6,083
140

$
$

(A) In 2011, the Company recognized an income tax benefit of $1.5 billion from the release of a portion of our deferred tax valuation allowance.
(B) Exclusive of current portion of long-term debt.

Item 7.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) is designed to provide
information that is supplemental to, and should be read together with, our consolidated financial statements and the
accompanying notes. Information in MD&A is intended to assist the reader in obtaining an understanding of (i) our
consolidated financial statements, (ii) the changes in certain key items within those financial statements from year-to-year,
(iii) the primary factors that contributed to those changes, (iv) any changes in known trends or uncertainties that we are aware
of and that may have a material effect on our future performance, and (v) how certain accounting principles affect our
consolidated financial statements. In addition, MD&A provides information about our business segments and how the results of
those segments impact our results of operations and financial condition as a whole.

Executive Summary

For 2011, we recognized net income attributable to Navistar International Corporation of $1.7 billion, or $22.64 of diluted
earnings per share compared to $223 million, or $3.05 of diluted earnings per share for 2010. Included in the 2011 results is the
$1.5 billion benefit from the release of a portion of the Company's income tax valuation allowance. The valuation allowance
release was based on our assessment that it is more likely than not that we will realize a substantial portion of our domestic
deferred tax assets and is reflective of our continued positive outlook of the Company's operations. Adjusting to exclude the net
impact of the release of the income tax valuation allowance and certain other items that are not considered to be part of the
ongoing business, we recognized net income attributable to Navistar International Corporation of $402 million, or $5.28 of
diluted earnings per share for 2011, as reconciled in the table below.

During 2011, we delivered strong performance as total industry volumes within the U.S and Canada School bus and Class 6
through 8 medium and heavy truck (our “traditional”) markets continued to improve. Our Truck segment benefited from
increases in worldwide unit chargeouts, including both our “traditional” and “expansionary” businesses. We delivered on our
expected military sales, included within our Truck and Parts segment sales, of approximately $2.0 billion in 2011. The results
of our Truck segment also reflect the impact of impairment and restructuring charges, as well as other actions, that we expect
will optimize our operations and provide future benefits. Our Engine segment displayed improved performance over the prior
year, as well as continued sequential quarterly improvements. The improvements were largely driven by increased
intercompany sales and improved margins, primarily relating to our MaxxForce 11 and 13L Big-Bore engines, and continued
strong performance within South America. Our performance also reflects increased commercial sales within the U.S. and
Canada for our Parts segment and solid results from our Financial Services segment.

As the U.S. and global markets recover from the recession, and with the average age of the U.S. truck fleet at recent highs, we
believe there will be a continuing increase in industry units from the historic lows experienced in 2009. We expect further
improvements in our Parts business, as customers continue to maintain older equipment and increase their overall fleet
utilization, and we see benefits from the exclusive use of our MaxxForce engines within our trucks. We anticipate the
“traditional” truck industry retail deliveries to be in the range of 275,000 units to 310,000 units for 2012. We continue to
expand our global footprint with improved sales in our existing export markets, as well as product launches through our NC2
operations in Australia and Brazil, as well as our MNAL and MNEPL joint ventures with Mahindra in India.

EGR, combined with other strategies, is our solution to meet ongoing emissions requirements. Advancements in EGR
technology have resulted in reductions in emissions of NOx from 1.2 or more grams per brake horsepower-hour through 2009
to 0.5 grams in 2010, to as low as 0.39 grams in 2011, with additional reductions in process. Our engines meet current EPA and
CARB certification requirements because of emissions credits we earned from 2007 through 2009 via the early adoption of
technologies that reduced NOx levels beyond what was then mandated. For some categories of engines we make, we expect to
use our remaining emissions credits some time in 2012. We are engaged in ongoing discussions with officials from both EPA
and CARB regarding potential regulatory solutions that would permit us to continue uninterrupted production of all of our
engines. We continue to invest in our EGR technology to meet current EPA emission requirements in North America and Euro
V emissions requirements in South America, and we believe that coupling EGR with our other emission strategies will provide
a significant competitive advantage over our competition's products.

Adjusted net income and adjusted diluted earnings per share attributable to Navistar International Corporation reconciliation:

(in millions, except per share data)
Net income attributable to Navistar International Corporation..........................................................................

Plus:

Engineering integration costs(A) .................................................................................................................
Restructuring of North American manufacturing operations(B)
Impact of Medicare Part D legal ruling(C) ..................................................................................................

Less:

Net impact of income tax valuation allowance release(D) ..........................................................................
Adjusted net income attributable to Navistar International Corporation ...........................................................

Diluted earnings per share attributable to Navistar International Corporation ..................................................
Effect of adjustments on diluted earnings per share attributable to Navistar International Corporation...........

Adjusted diluted earnings per share attributable to Navistar International Corporation....................................
Diluted weighted shares outstanding..................................................................................................................

Adjusted Truck segment profit reconciliation:

For the Year Ended
October 31, 2011

1,723

127

1,527
402

22.64
(17.36)
5.28

76.1

For the Year Ended
October 31, 2011

(in millions)
Truck segment profit..........................................................................................................................................

Plus:

Adjusted Truck segment profit...........................................................................................................................

336

124
509

______________________
(A) Engineering integration costs relate to the consolidation of our truck and engine engineering operations as well as the move of our world headquarters.

These costs include restructuring charges for activities at our Fort Wayne facility of $29 million. We also incurred $35 million of other related costs. Our
Truck segment recognized $49 million of the engineering integration costs for the year ended October, 31, 2011. For more information, see Note 2,
Restructurings and impairments, to the accompanying consolidated financial statements.

(B) Restructuring of North American manufacturing operations are charges primarily related to our plans to close our Chatham, Ontario heavy truck plant and
Workhorse chassis plant in Union City, Indiana, and to significantly scale back operations at our Monaco recreational vehicle headquarters and motor
coach manufacturing plant in Coburg, Oregon. These costs include restructuring charges of $58 million and other related costs of $5 million. In addition,
the Company recognized $64 million of impairment charges related to certain intangible assets and property plant and equipment primarily related to
these facilities. Our Truck segment recognized $5 million and $124 million of restructuring of North American manufacturing operation charges for the
three months and year ended October 31, 2011. For more information, see Note 2, Restructurings and impairments, to the accompanying consolidated
financial statements.
In the fourth quarter of 2011, the Company had an unfavorable ruling related to a 2010 administrative change the Company made to the prescription drug
program under the OPEB plan affecting plan participants who are Medicare eligible. As a result the Company recognized approximately $15 million of
expense for postretirement benefits.

(C)

(D) In the third quarter of 2011, we recognized an income tax benefit of $1.476 billion from the release of a portion of our income tax valuation allowance. In

the fourth quarter of 2011, we recognized an additional income tax benefit of $61 million related to the release of a portion of our income tax valuation
allowance. As domestic earnings are now taxable with the release of the income tax valuation allowance we recognized $10 million of domestic income
tax expense for 2011 that would not have been recognized had we not released a portion of the income tax valuation allowance. The $10 million of
domestic income taxes were netted against the total benefit of $1.537 billion from the release of a portion of the income tax valuation allowance. In
addition, the other adjustments included in the table above have not been adjusted to reflect their income tax effect as the adjustments are intended to
represent the impact on the Company's Consolidated Statement of Operations without the incremental income tax effect that would result from the release
of the income tax valuation allowance. The charges related to our Canadian operations would not be impacted as a full income tax valuation allowance
remains for Canada.

The financial measures of adjusted net income and adjusted diluted earnings per share attributable to Navistar International Corporation are unaudited and are
not in accordance with, or an alternative for, U.S. GAAP. The non-GAAP financial information presented should be considered supplemental to, and not as a
substitute for, or superior to, financial measures calculated in accordance with GAAP. We believe that adjusted net income and diluted earnings per share
attributable to Navistar International Corporation, excluding the impacts of the release of the income tax valuation allowance and certain other items that are
not considered to be part of our ongoing business, improves the comparability of year to year results, and is representative of our underlying performance. We
have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analysis of
operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in these reconciliations, and to provide an additional
measure of performance.

Business Outlook and Key Trends

For our Truck segment, we expect benefits from further improvements in our “traditional” volumes as the industry continues to
increase from the historic lows experienced in 2009 and 2010. According to ACT Research, the average age of the truck fleet
was 6.7 years at the beginning of 2011, which is the highest average age since 1979. We anticipate higher sales in 2012 for
truck replacement as our customers refresh aging fleets. We also expect demand for trucks to increase as freight volumes and
rates continue to improve as the economy recovers. In addition to increased demand, we expect to further benefit from
improved revenues and margins associated with the exclusive use of our proprietary engines. We expect to realize benefits from
plant optimization actions taken during the trough of the truck cycle. Finally, we anticipate positive contributions from business
acquisitions and investments made during this period.

Within our Engine segment, we expect our South American operations to continue to be a key contributor to overall sales and
profitability. As markets continue to improve in North America, we anticipate further increases in our intercompany sales to our
Truck segment, driven by sales of our MaxxForce 11 and 13L engines, as well as additional OEM sales for commercial,
consumer, and specialty vehicle products. Beginning in 2010, MaxxForce engines were used in the entire North America
vehicle offering of our Truck segment as compared to outside sourcing for various model engines in prior years. We have made
investments in engineering and product development for our proprietary engines and expect to continue to make significant
investments in attaining the 0.2 NOx emissions levels, as well as for other product innovations, cost reductions, and fuel-usage
efficiencies.

As freight volumes and rates increase in conjunction with the economic recovery, we expect our Parts segment volumes will
continue to improve within our commercial markets in the U.S. and Canada. In addition, we anticipate incremental Parts sales
due to the relatively high overall age of the current U.S. truck fleet and through the exclusive use of our MaxxForce engines in
our trucks, as well as the fulfillment of additional military orders.

Certain trends have affected our results of operations for 2011 as compared to 2010 and 2009. In addition, we expect that
certain key trends will impact our future results of operations. Some of these factors are as follows:

•

“Traditional” Truck Market—The “traditional” truck markets in which we compete are typically cyclical in nature and
are strongly influenced by macro-economic factors such as industrial production, demand for durable goods, capital
spending, oil prices and consumer confidence.

Worldwide Engine Unit Sales—Our worldwide engine unit sales are impacted primarily by North America truck demand
and sales in South America, our largest engine market outside of the North American market. These markets are impacted
by consumer demand for products that use our engines as well as macro-economic factors such as oil prices and
construction activity. Our worldwide engine unit sales were 243,600 units in 2011, 240,400 units in 2010, and 269,300
units in 2009. In 2009, we settled our legal dispute with Ford and continued our North American supply agreement for
diesel engines with Ford through December 31, 2009. As a result, our 2010 North American unit sales to Ford were
24,900 units as compared to 101,500 units for 2009. Our 2011 worldwide engine unit sales were primarily to our Truck
segment in North America and to external customers in South America. We also made certain OEM sales for
commercial, consumer, and specialty vehicle products in North America, which have not historically been significant to
our Engine segment, but are expected to grow in 2012. Additionally within our South America operations, we expect to
transition of a portion of our volumes to lower margin contract manufacturing for certain customers. We expect to offset
this future impact with increased global engine and parts sales by our South American operations.

Military Sales—In 2011, we continued to leverage existing products and plants to meet the urgent demand of the U.S.
military and our North Atlantic Treaty Organization (“NATO”) allies. Our U.S. military sales were $2.0 billion, $1.8
billion and $2.8 billion in 2011, 2010, and 2009, respectively, and consisted of MRAP vehicles, lower-cost militarized
commercial trucks, and sales of parts and services. In 2011, we received additional orders for MRAP variants, including
recovery vehicles, Dash vehicles, and ambulances, which were substantially delivered in 2011. The remaining MRAP
units were delivered during the first quarter of 2012, and we have not received further orders. We continue to expect that
over the long-term our military business will generate approximately $1.5 billion to $2 billion in annual sales.

Global Economy—The global economy, and in particular the economies in the U.S. and Brazil markets, are continuing to
recover, and the related financial markets have stabilized. The impact of the economic recession and financial turmoil on
the global markets poses continued risk as customers may postpone spending in response to tighter credit, negative
financial news and/or declines in income or asset values. Lower demand for our customers' products or services could
also have a material negative effect on the demand for our products. In addition, there could be exposure related to the
financial viability of certain key third-party suppliers, some of which are our sole source for particular components.
Lower expectations of growth and profitability have resulted in impairments of long-lived assets in the past and we could
continue to experience pressure on the carrying values of our assets if conditions persist for an extended period of time.

•

2010 Emissions Standards—We have chosen EGR, combined with other technologies, as our solution to meet the 2010

emissions standards. We believe coupling EGR with other emissions strategies gives our products advantages over our
competitors' liquid-based urea SCR solution and enables us to maintain flexibility in meeting emission requirements. Our
2010 emissions strategy places the burden and responsibility of meeting the 2010 emissions standards on the Company
versus our competitors' liquid-based urea SCR solution that places that burden on the customer. We believe that our
customer-friendly solution provides our products with a significant competitive advantage in North America, because
most truck and engine manufacturers have chosen liquid-based urea SCR as the solution to meet 2010 emission
standards. We continue to invest in our EGR technology, combined with other strategies, to meet current EPA emission
requirements in North America and Euro V emissions requirements in South America, as well as evaluate our emissions
strategies on a platform-by-platform basis to achieve the best long-term solution for our customers in each of our vehicle
applications. Our continued investment in research and development includes the further enhancement of our advanced
EGR technology to reach 0.2 NOx emissions as well as the ongoing development of reliable, high-quality, high-
performance, and fuel-efficient products.

In 2011 and 2010, our engines met EPA and CARB certification requirements because of emissions credits we earned
from 2007 through 2009 via the early adoption of technologies that reduced NOx levels beyond what was then mandated.
The rate of usage of these emissions credits is dependent upon a variety of factors, including sales, product mix and
improvements in technologies. For some categories of engines we make, we expect to use our remaining emissions
credits some time in 2012. We plan to submit certification applications to both EPA and CARB in the near future. We
believe that our engines meet both agencies' certification requirements. We are engaged in ongoing discussions with
officials from both EPA and CARB regarding potential regulatory solutions that would permit us to continue
uninterrupted production of all of our engines. We cannot predict the outcome of these discussions nor the effect they
may have on our business or our financial condition, results of operation or cash flows.

13 Liter / 15 Liter Engine Strategy—In conjunction with our EGR strategy, we only offer vehicles equipped with
MaxxForce engines in the U.S. and Canada. For our Class 8 heavy and severe service lines, we offer our MaxxForce 11
and 13L engines, and launched our MaxxForce 15L engine during 2011. The Company has taken significant strides to
demonstrate to our customers that, in many applications that historically used a 15L engine, our MaxxForce 13L provides
sufficient horsepower and torque.

Impact of Government Regulation—Truck and engine manufacturers continue to face significant governmental regulation
of their products, especially in the areas of environmental and safety matters. Truck manufacturers are also subject to
various noise standards imposed by federal, state, and local regulations. Government regulation related to climate change
is under consideration at the U.S. federal and state levels. Because our products use fossil fuels, they may be impacted
indirectly due to regulation, such as a cap and trade program, affecting the cost of fuels. In 2011, the EPA and NHTSA
issued final rules setting greenhouse gas emission and fuel economy standards for medium and heavy-duty engines and
vehicles, which begin to apply in 2014 and are fully implemented in model year 2017. The Company plans to comply
with these rules through the use of existing technologies and implementation of emerging technologies as they become
available.

Warranty Costs—In 2010, we introduced changes to our engine line-up in response to 2010 emissions requirements
("2010 Engines"). Emissions regulations in the U.S. and Canada have resulted in rapid product development cycles,
driving significant changes from previous engine models. Historically, warranty experience for launch-year engines has
been higher compared to the prior model-year engines; however, over time we are able to refine both the design and
manufacturing process to reduce both the volume and the severity of warranty claims. We have made substantial
investments in engineering, product development, and testing within our 2010 Engines to mitigate some of the warranty
exposure. Our proactive actions related to the launch of the 2010 Engines resulted in lower initial warranty costs and
more rapid improvements than previous launches. Also contributing to higher warranty costs in 2011 is the use of all
MaxxForce engines in our North America product offering compared to previous outside sourcing for various engine
models for which warranty costs were included in the engine purchase price.

Raw Material Commodity Costs—Commodity costs, which include steel, precious metals, resins, and petroleum
products, increased by $112 million in 2011, decreased by $49 million in 2010, and increased by $23 million in 2009, as
compared to the corresponding prior years. We continue to look for opportunities to mitigate the effects market-based
commodity cost increases through a combination of design changes, material substitution, alternate supplier resourcing,
global sourcing efforts, pricing performance, and hedging activities. The objective of this strategy is to ensure cost
stability and competitiveness in an often volatile global marketplace. Generally, the impact of commodity costs
fluctuation in the global market will be reflected in our financial results on a time lag, and to a greater or lesser degree
than incurred by our supply base depending on many factors including the terms of supplier contracts, special pricing
arrangements, and any commodity hedging strategies employed.

•

Facilities Optimization—We continue to seek further opportunities for manufacturing and operating efficiencies within
our facilities. In early 2010, we announced and implemented our plan to consolidate bus production within our Tulsa IC

Bus facility. We are consolidating our executive management, certain business operations, and product development into
a 1.2 million square foot, world headquarters site in Lisle, Illinois, which we will complete in the first quarter of fiscal
2012, and we are consolidating our testing and validation center in our Melrose Park facility, which we expect to
complete in 2013. In July 2011, we announced our intention to close our Chatham, Ontario truck manufacturing plant and
Union City, Indiana chassis plant, and to significantly scale back operations at our Monaco headquarters and motor coach
manufacturing plant in Coburg, Oregon. We continue to develop plans for efficient transitions related to these activities
and evaluate other options to continue the optimization of our operations.

Joint Ventures and Other Investments—We continue to make substantial investments in joint ventures and other
businesses that are considered key growth opportunities to our core operations, as well as important expansionary
markets. In India, our joint ventures with Mahindra sell commercial trucks and buses, as well as diesel engines for
medium and heavy commercial trucks and buses. We sell International and CAT branded trucks in North America, as well
as in various global markets through our alliance with Caterpillar and our NC2 operations, which became a wholly owned
subsidiary of Navistar, Inc. in September 2011. In addition, we expect to finalize our China engine joint venture with JAC
in 2012. The Company has also made recent acquisitions that present opportunities to further vertically integrate our
operations and our product offerings, including Continental Mixer in 2010 and both PPT and Monaco in 2009.

GE Capital Alliance—In March 2010, we entered into a three-year Operating Agreement with GE (the "GE Operating
Agreement"). Under the terms of the agreement, GE became our preferred source of retail customer financing for
equipment offered by us and our dealers in the U.S. We provide GE a loss sharing arrangement for certain credit losses,
and under limited circumstances NFC retains the rights to originate retail customer financing. Loan originations under the
GE Operating Agreement began in the third quarter of 2010, which will continue to reduce NFC originations and
portfolio balances in the future. We expect retail finance receivables and retail finance revenues to continue to decline as
our retail portfolio pays down.

•

Results of Operations and Segment Results of Operations

The following information summarizes our Consolidated Statements of Operations and illustrates the key financial indicators
used to assess our consolidated financial results.

Results of Operations for 2011 as Compared to 2010

2011

2010

Change

% Change

(in millions, except per share data and % change)
Sales and revenues, net ...............................................................................
Costs of products sold .................................................................................
Restructuring charges (benefit) ...................................................................
Impairment of property and equipment and intangible assets ....................
Selling, general and administrative expenses .............................................
Engineering and product development costs ..............................................
Interest expense...........................................................................................
Other income, net ........................................................................................
Total costs and expenses .............................................................................
Equity in loss of non-consolidated affiliates...............................................
Income before income tax benefit (expense ) .............................................
Income tax benefit (expense) ......................................................................
Net income ..................................................................................................
Less: Net income attributable to non-controlling interests .........................
Net income attributable to Navistar International Corporation...................
Diluted earnings per share...........................................................................

$
$

13,958
11,262
92
64
1,434
532
247
(64)
13,567
(71)
320
1,458
1,778
55
1,723
22.64

$
$

12,145
9,741
(15)
—
1,406
464
253
(44)
11,805
(50)
290
(23)
267
44
223
3.05

$
$

1,813
1,521
107
64
28
68
(6)
(20)
1,762
(21)
30
1,481
1,511
11
1,500
19.59

15
16
N.M.
N.M.
2
15
(2)
45
15
42
10
N.M.
N.M.
25
N.M.
N.M.

_________________
N.M.

Not meaningful.

Sales and revenues, net

Our sales and revenues, net are categorized by geographic region based on the location of the customer sale. Sales and
revenues, net by geographic region are as follows:

Total

U.S. and Canada

Rest of World (“ROW”)

2011

2010

Change

%
Change

2011

2010

Change

%
Change

2011

2010

Change

%
Change

(in millions,
except % change)

Truck.........................

$ 9,738

$ 8,207

$ 1,531

Engine.......................

Parts ..........................

Financial Services.....

Corporate and
Eliminations..............

3,791

2,155

291

2,986

1,885

309

805

270

(18)

(2,017)

(1,242)

(775)

Total..........................

$ 13,958

$ 12,145

$ 1,813

(6)

$ 8,330

$ 7,393

937

1,692

1,937

227

1,611

1,718

254

219

(27)

(1,512)

(1,056)

(456)

$ 10,674

$ 9,920

754

(11)

$ 1,408

814

2,099

1,375

218

167

594

724

(505)

(186)

(319)

$ 3,284

$ 2,225

$ 1,059

172

Truck segment sales increased $1.5 billion, primarily due to higher "traditional” and worldwide volumes, improved pricing
across all “traditional” classes, and increased ROW sales, predominantly due to strong sales volumes in South America.
Partially offsetting these increases were lower military revenues, decreased volumes of our School buses, and decreased used
truck sales.

Engine segment sales increased $805 million, primarily due to increased intercompany sales driven by the strengthening of the
North America truck market and a shift in product mix to higher revenue units, particularly our MaxxForce 11 and 13L Big-
Bore engines. These increases were partially offset by the loss of the Ford business in North America in 2010.

Parts segment sales increased $270 million, primarily due to increases in our U.S. and Canada commercial markets, reflecting
higher volumes and improved pricing to recover higher material and freight-related expenses, as well as improvements within
our global parts business.

Financial Services segment revenues decreased compared to the prior year primarily driven by a decrease in the average retail
finance receivable balance, partially offset by improved wholesale note revenues on increased wholesale balances. The decline
in the average retail finance receivable balance was driven by decreased retail loan originations, which are now funded under
the GE Operating Agreement.

Costs of products sold

Cost of products sold increased by $1.5 billion compared to the prior year, which was consistent with our growth in sales and
revenues. This increase was across our Truck, Engine, and Parts segments. The increase in costs of products sold was primarily
due to higher costs of “traditional” units equipped with our proprietary 2010 Engines, a shift in product mix to higher cost Big-
Bore engines, and increased commodity costs, particularly steel and rubber. Partially offsetting these contributors to the
increase in cost of products sold were manufacturing cost efficiencies largely due to our flexible manufacturing strategy and
other actions.

Our warranty costs were higher, primarily due to increased volumes, as well as the exclusive use of our MaxxForce engines in
our “traditional” product offerings, as compared to previous outside sourcing for various engine models in which warranty
costs were included in the engine purchase price. In addition, we recognized increased adjustments to pre-existing warranties
of $28 million primarily related to changes in our estimated warranty costs per unit on 2007 emission standard engines and
various authorized field campaigns.

Restructuring charges

Restructuring charges in 2011 were $92 million, compared to a net reversal of $15 million in the prior year. The restructuring
charges in 2011 were primarily related to the actions taken in 2011 at our Fort Wayne facility, Springfield Assembly Plant,
Chatham heavy truck plant, WCC plant in Union City, Indiana, and Monaco recreational vehicle headquarters and motor coach
manufacturing plant in Coburg, Oregon within our Truck segment.

The restructuring benefit in 2010 was primarily comprised of a $16 million favorable settlement of a portion of contractual
obligations related to the IEP and Indianapolis Casting Corporation ("ICC") restructuring and $10 million of reversals of our
remaining restructuring reserves for ICC as a result of our decision to continue operations at ICC. These amounts were
recognized at our Engine segment. For more information, see Note 2, Restructurings and impairments, to the accompanying

consolidated financial statements.

Impairment of property and equipment and intangible assets

In 2011, we recognized impairments of property and equipment and intangible assets of $64 million, primarily in our Truck
segment, relating to charges at our Chatham, Ontario plant and WCC subsidiary. The impairment charges reflect the impact of
the closure of the Chatham facility, and market deterioration and reduction in demand below previously anticipated levels for
our WCC subsidiary. For additional information, see Note 2, Restructurings and Impairments, to the accompanying
consolidated financial statements.

Selling, general and administrative expenses

2011

2010

Change

%
Change

(in millions, except % change)
Selling, general and administrative expenses, excluding items presented
separately below ..........................................................................................
Postretirement benefits expense allocated to selling, general and
administrative expenses...............................................................................
Dealcor expenses .........................................................................................
Incentive compensation and profit sharing..................................................
Provision for doubtful accounts...................................................................
Total selling, general and administrative expenses .....................................

1,175

1,014

161

98
112
63
(14)
1,434

157
145
63
27
1,406

(59)
(33)
—
(41)
28

(38)
(23)
—
N.M.
2

_______________
N.M.

Not meaningful.

Selling, general and administrative expenses were largely flat as compared to the prior year, reflecting increases in our Truck,
Engine, and Parts segments, partially offset by a decrease in the Financial Services segment. Compared to the prior year,
selling, general and administrative expenses increased primarily due to incremental selling and sales support expenses due to
the higher commissions-related expenses, providing service support for our proprietary engines, engineering integration costs,
and other expenses related to the move of our world headquarters.

Partially offsetting these increases in selling, general and administrative expenses were decreased postretirement benefits
expense allocated to selling, general and administrative expenses, a net reversal of the provision for doubtful accounts, and
decreased Company-owned Dealcor expenses due to the sale of certain Company-owned dealerships. Postretirement benefits
expense decreased largely due to a lower interest cost component, reflecting lower discount rates, and higher expected return on
assets, primarily driven by higher values of plan assets based upon the October 2010 measurement. For more information, see
Note 11, Postretirement benefits, to the accompanying consolidated financial statements. The net reversal of the provision for
doubtful accounts was attributable to declines in retail portfolio balances and actual charge-offs. In addition, the stabilization of
the used truck market has resulted in increased demand and improved pricing for used equipment.

Engineering and product development costs

Engineering and product development costs, which are incurred by our Truck and Engine segments, increased by $68 million
as compared to the prior year. The increase was primarily due to our ongoing improvements to our EGR and other technologies
to meet emissions regulations at 0.2 NOx emissions levels in North America and Euro V emissions regulations in South
America, and new product programs within our Truck and Engine segments for the North American and global markets. Also
contributing to the increase in engineering and product development costs were engineering integration costs related to the
consolidation of our Truck and Engine segment engineering operations.

Engineering and product development costs are incurred by our Truck and Engine segments for product innovations, cost
reductions, and to enhance product and fuel-usage efficiencies. The Company participates in very competitive markets with
constant changes in regulatory requirements and technology and, accordingly, the Company continues to believe that a strong
commitment to engineering and product development is required to drive long-term growth.

Interest expense

Interest expense for 2011 was largely flat as compared to the prior year. Changes in interest expense attributable to the lower
average debt balances were largely offset by slightly higher interest rates. For more information, see Note 10, Debt, and Note
14, Financial instruments and commodity contracts, to the accompanying consolidated financial statements.

Other income, net

Other income, net was $64 million for 2011, compared to $44 million in 2010. In 2011, other income, net included a $10
million benefit relating to the extinguishment of a financing liability for equipment within our Engine segment. In 2010, other
income, net was primarily comprised of reductions to reserves within our Truck and Engine segments for certain value added
taxes in Brazil that were reassessed and determined to be recoverable.

Equity in loss of non-consolidated affiliates

Equity in loss of non-consolidated affiliates is derived from our ownership interest in partially-owned affiliates, which are not
consolidated. Losses of $71 million and $50 million reported in 2011 and 2010, respectively, are primarily reflective of
continued investment and start-up losses associated with certain joint ventures, primarily our joint ventures with Mahindra and
NC2 prior to our acquisition of Caterpillar's ownership interest of NC2 in September 2011. For more information, see Note 9,
Investments in and advances to non-consolidated affiliates, to the accompanying consolidated financial statements.

Income tax benefit (expense)

In 2011, we realized an income tax benefit of $1.5 billion, primarily attributable to the release of a portion of our deferred tax
valuation allowances during the year. Excluding the release of deferred tax valuation allowances, our tax expense in 2011 was
$79 million, which includes a $42 million tax benefit related to the resolution of audits in various jurisdictions. In 2010, our tax
expense was $23 million, which includes a U.S. alternative minimum tax benefit of $29 million from the carryback of
alternative minimum taxable losses to prior years. Our 2010 income tax expense on U.S. and Canadian operations was limited
to current state income taxes, alternative minimum taxes net of refundable credits and other discrete items.

We have $360 million of U.S. net operating losses and $208 million of general business credits as of October 31, 2011. We
expect our cash payments of U.S. taxes will be minimal, for so long as we are able to offset our U.S. taxable income by these
U.S. net operating losses and tax credits, however our foreign taxes will continue to grow as we increase our global presence.
We continue to maintain valuation allowances for certain foreign operations, principally Canada, and for certain state deferred
tax assets which we believe on a more likely than not basis will not be realized. For additional information, see Note 12,
Income taxes, to the accompanying consolidated financial statements.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests is the result of our consolidation of subsidiaries in which we do not own
100%. Our net income attributable to non-controlling interests was $55 million and $44 million in 2011 and 2010, respectively,
and substantially relates to Ford's non-controlling interest in our BDP subsidiary.

Segment Results of Operations for 2011 as Compared to 2010

We define segment profit as net income attributable to Navistar International Corporation excluding income tax expense. For
additional information about segment profit, see Note 16, Segment reporting, to the accompanying consolidated financial
statements. The following sections analyze operating results as they relate to our four segments and do not include intersegment
eliminations:

Truck Segment

(in millions, except % change)
Truck segment sales - U.S. and Canada .....................................................
Truck segment sales - ROW.......................................................................
Total Truck segment sales, net ...................................................................
Truck segment profit ..................................................................................

$
$

8,330
1,408
9,738
336

$
$

7,393
814
8,207
424

$
$

937
594
1,531
(88)

13
73
19
(21)

2011

2010

Change

%
Change

Segment sales

The Truck segment sales increase of $1.5 billion, or 19%, was largely due to a significant increase in our “traditional” and
worldwide volumes. These increases included a 46% increase in chargeouts within our Class 6 and 7 medium truck class and
19% within our Class 8 heavy truck class. Average sales prices of trucks across all our “traditional” classes also increased in
2011, primarily due to the use of our proprietary 2010 Engines. Partially offsetting these increases were lower military

revenues, decreased volumes of our School buses, and decreased used truck sales as we have reduced our inventory of used
trucks. The decrease in our military revenues was primarily driven by lower chargeouts, partially offset by increases in the
average sales price due to a shift in product mix. Our ROW sales increased predominantly due to strong sales volumes in South
America, reflecting a general economic recovery, as well as the strengthening of the global economy.

Segment profit

The Truck segment profit in 2011 decreased $88 million, and included $173 million of charges related to the restructuring of
our North American manufacturing operations and engineering integration costs. Restructuring of our North American
manufacturing operations primarily related to actions taken at our Chatham, Ontario heavy truck plant and our WCC
subsidiary, and included restructuring and related charges of $63 million. Additionally, the segment recognized $61 million of
impairment charges related to certain intangible assets and property and equipment, primarily related to these facilities. The
Truck segment incurred $49 million of engineering integration costs, related to the consolidation of our engineering operations
within our Truck and Engine segments. These actions are expected to contribute to our flexible manufacturing strategy and
increase operational efficiencies. For further information, see Note 2, Restructurings and impairments, to the accompanying
consolidated financial statements. Also contributing to the segment profit decrease was the 2010 recognition of a benefit
relating to a reduction in reserves for certain value added taxes in Brazil of $30 million.

Excluding the current year charges for restructuring, impairments and engineering integration costs, our Truck segment profit
was $509 million, which represented an increase of $85 million, and reflected higher “traditional” and worldwide volumes.
Also contributing to the remaining increase was higher margins from sales of used equipment, due to the stabilization of the
used truck market and increased demand for used trucks, as well as savings associated with manufacturing cost efficiencies,
reflecting our flexible manufacturing strategy, prior restructuring actions, and other manufacturing performance improvements.
Partially offsetting this increase were shifts in our “traditional” product mix, including lower School bus volumes, and
increased commodity costs. Our Truck segment also experienced higher engineering and product development expenses of $53
million, primarily relating to new product programs, and increased selling, general and administrative costs largely due to
higher employee-related expenses related to increased sales volumes, as well as recent product launches and costs relating to
providing service support for our proprietary engines.

Engine Segment

(in millions, except % change)
Engine segment sales - U.S. and Canada ...................................................
Engine segment sales - ROW.....................................................................
Total Engine segment sales, net .................................................................
Engine segment profit ................................................................................

$
$

1,692
2,099
3,791
84

$
$

1,611
1,375
2,986
51

$
$

81
724
805
33

5
53
27
65

2011

2010

Change

%
Change

Segment sales

Engine segment ROW sales increased by $724 million, or 53%, primarily due to intercompany sales to our truck assembly
facility in Mexico, largely driven by the strengthening of the North America truck market. Additionally, the increase in ROW
sales reflected strong demand, the effects of exchange rates, and improved pricing, particularly in South America.

Engine segment sales in the U.S. and Canada increased by $81 million, or 5%, primarily due to increased intercompany sales
due to the strengthening of the North America truck market and a shift in product mix to higher revenue units, including our
MaxxForce 11 and 13L Big-Bore engines. Our Engine segment also experienced improved sales of $22 million relating to our
BDP operations due to increased component sales. These increases were partially offset by decreased volumes in North
America related to the loss of the Ford business in 2010, which generated sales of $190 million in fiscal 2010.

Segment profit

The increase in Engine segment profit of $33 million was reflective of improved operational performance due to higher
volumes and product mix related to intercompany sales and the continued improvement in performance, as well as the effects
of exchange rates, particularly in South America. Partially offsetting the improved operational performance was the loss of the
North American Ford business in early 2010. Selling, general and administrative expenses increased, primarily reflecting
higher employee-related expenses related to increased sales volumes, and higher pre-existing warranty expenses of $36 million,
primarily related to changes in our estimated warranty cost per unit on 2007 emission standard engines. Engineering and
product development expenses increased, largely due to ongoing improvements to our EGR and other technologies to meet
emissions regulations at 0.2 NOx emissions levels, efforts to meet Euro V emissions regulations in South America, and other

product programs, partially offset by reductions of engineering and product development costs related to 2007 emission
standard engines, as well as the launch of our proprietary 2010 Engines. Also in 2011, Engine segment profit included a $10
million benefit relating to the extinguishment of a financing liability for equipment. In 2010, Engine segment profit included a
$27 million benefit relating to the reduction of previously recorded restructuring accruals.

Parts Segment

(in millions, except % change)
Parts segment sales - U.S. and Canada.......................................................
Parts segment sales - ROW ........................................................................
Total Parts segment sales, net.....................................................................
Parts segment profit....................................................................................

$
$

1,937
218
2,155
287

$
$

1,718
167
1,885
266

$
$

219
51
270
21

13
31
14
8

2011

2010

Change

%
Change

Segment sales

Parts segment sales increased by $270 million, or 14%, primarily driven by increases in our U.S. and Canada commercial
markets, as well as improvements within ROW sales. The increase in the U.S. and Canada commercial markets reflects higher
volumes and improved pricing to recover higher material and freight-related expenses. The increase in ROW was primarily
driven by higher volumes, reflecting improving economic conditions, particularly in Latin America.

Segment profit

The increase in Parts segment profit of $21 million was largely driven by increases in sales in our U.S. and Canada commercial
markets. Partially offsetting this increase was an overall shift in mix with increased sales of non-proprietary parts and a shift in
order mix within the military business, reflecting a switch from fielding to sustainment orders that have lower associated
margins. Selling, general and administrative expenses increased, primarily driven by incremental costs relating to higher sales
volumes and infrastructure investments to support domestic and global growth.

Financial Services Segment

(in millions, except % change)
Financial Services segment revenues - U.S. and Canada(A) .......................
Financial Services segment revenues - ROW.............................................
Total Financial Services segment revenues, net .........................................
Financial Services segment profit...............................................................

$
$

227
64
291
129

$
$

254
55
309
95

$
$

(27)
9
(18)
34

(11)
16
(6)
36

2011

2010

Change

%
Change

________________________
(A) Our Financial Services segment does not have Canadian operations.

Segment revenues

Our Financial Services segment revenues decreased by $18 million, or 6%, primarily due to lower average retail finance
receivable balances partially offset by improved wholesale note revenues on increased wholesale balances. The decline in the
average retail finance receivable balance was driven by lower volumes of U.S. retail loan originations that, beginning in the
third quarter of 2010, are now funded under the GE Operating Agreement. This arrangement will continue to reduce NFC retail
originations and portfolio balances as prior loans are paid down and new U.S. loan originations are funded by GE. In 2011, the
average finance receivable balances were $3.1 billion, which were relatively flat as compared to the prior year. Aggregate
intercompany interest revenue and fees, which are charged primarily to the Truck and Parts segments, were $91 million in
2011, as compared to $90 million in 2010.

The following table presents contractual maturities of finance receivables for our Financial Services segment. For more
information, see Note 4, Finance receivables, to the accompanying consolidated financial statements.

(in millions, except % change)
Due in one year ..........................................................................................
Due in two years.........................................................................................
Due in three years.......................................................................................
Thereafter ...................................................................................................
Gross finance receivables...........................................................................

2,253
361
240
189
3,043

1,881
526
359
377
3,143

372
(165)
(119)
(188)
(100)

20
(31)
(33)
(50)
(3)

2011

2010

Change

%
Change

Segment profit

The Financial Services segment profit increase of $34 million, or 36%, was predominantly driven by lower selling, general and
administrative costs. The decrease in selling, general and administrative costs reflects lower provisions for loan losses of $31
million, primarily due to lower retail-related charge-offs, due to improved stabilization of the industry, as well as declines in the
retail portfolio balance. Selling, general and administrative costs were also favorably impacted by decreased employee-related
expenses largely driven by headcount reductions relating to the GE Operating Agreement. Interest expense in 2011 was slightly
down as compared to the prior year, primarily due to lower average debt balances offset by slightly higher interest rates.

Results of Operations for 2010 as Compared to 2009

2010

2009

Change

%
Change

(in millions, except per share data and % change)
Sales and revenues, net .................................................................................
Costs of products sold...................................................................................
Restructuring charges (benefit).....................................................................
Impairment of property and equipment ........................................................
Selling, general and administrative expenses ...............................................
Engineering and product development costs ................................................
Interest expense ............................................................................................
Other income, net..........................................................................................
Total costs and expenses...............................................................................
Equity in income (loss) of non-consolidated affiliates .................................
Income before income tax expense and extraordinary gain .........................
Income tax expense.......................................................................................
Income before extraordinary gain.................................................................
Extraordinary gain, net of tax .......................................................................
Net income....................................................................................................
Less: Net income attributable to non-controlling interests...........................
Net income attributable to Navistar International Corporation ....................

$ 12,145
9,741
(15)
—
1,406
464
253
(44)
11,805
(50)
290
(23)
267
—
267
44
223

$ 11,569
9,366
59
31
1,344
433
251
(228)
11,256
46
359
(37)
322
23
345
25
320

576
375
(74)
(31)
62
31
2
184
549
(96)
(69)
14
(55)
(23)
(78)
19
(97)

Diluted earnings per share: ...........................................................................
Income attributable to Navistar International Corporation before
extraordinary gain ...............................................................................
Extraordinary gain, net of tax .............................................................
Net income attributable to Navistar International Corporation...........

3.05
—
3.05

4.14
0.32
4.46

(1.09)
(0.32)
(1.41)

____________________
Not meaningful (“N.M.”)

5
4
N.M.
(100)
5
7
1
(81)
5
N.M.
(19)
(38)
(17)
(100)
(23)
76
(30)

(26)
(100)
(32)

Sales and revenues, net

Our sales and revenues, net by geographic region, are as follows:

Total

U.S. and Canada

ROW

2010

2009

Change

%
Change

2010

2009

Change

%
Change

2010

2009

Change

%
Change

(in millions,
except % change)

Truck......................

Engine....................

Parts .......................

Financial Services .

Corporate and
Eliminations ..........

$ 8,207
2,986
1,885
309

7,297

2,690

2,173

348

(1,242)

(939)

Total.......................

$ 12,145

$ 11,569

910

296

(288)

(39)

(303)

576

(13)

(11)

$ 7,393
1,611
1,718
254

6,807

1,836

2,038

268

(1,056)

(869)

$ 9,920

$ 10,080

586

(225)

(320)

(14)

(187)

(160)

814
1,375
167
55

490

854

135

(186)

(70)

$ 2,225

$ 1,489

(12)

(16)

(5)

(2)

324

521

(25)

(116)

736

(31)

166

Truck segment sales increased $910 million in 2010 compared to the prior year, reflecting improvements in our commercial
business and the benefits of a shift in product mix. Chargeouts of our “traditional” units were 6,400 units higher, as compared
to the prior year, with a greater mix of Class 8 heavy trucks contributing to higher overall revenue. We experienced market
share improvements in Class 6 and 7 medium and maintained strong market share in our other “traditional” classes. Further
contributing to the increase were improved ROW sales driven by the strengthening global economy, as well as the impact of
consolidating our BDT operations. Partially offsetting the increase in segment sales was a 14% decrease within our defense
business, primarily as a result of lower sales of higher revenue per unit military vehicles driven by the timing of prior year
deliveries to the U.S. military.

Engine segment sales increased $296 million compared to the prior year, primarily due to increased engine sales in South
America, the impact of consolidating our BDP operations, and increased intercompany activity. These increases were partially
offset by the expiration of our contract with Ford to supply diesel engines for their F-Series and E-Series vehicles in the U.S.
and Canada, resulting in a decrease of 76,600 units sold to Ford in 2010 as compared to the prior year.

Parts segment sales decreased $288 million compared to the prior year, largely because of declines in U.S. military sales which
were the result of the fulfillment of higher military vehicle fielding orders in the prior year. Lower military sales were partially
offset by improvements in our commercial markets in the U.S as well as increased ROW sales.

Financial Services segment revenues decreased $39 million compared to the prior year, primarily reflecting declines in average
finance receivables of $362 million. The declines in average finance receivable balances represent the effect of a reduction in
loan originations due to the economic environment in the U.S. and Mexico markets in 2010, 2009, and 2008, as well as
customer payments on existing balances and originations under the GE Operating Agreement.

Costs of products sold

Consistent with increased sales and revenues, costs of products sold increased by $375 million compared to the prior year. The
impact on costs of products sold from increased overall revenues included higher “traditional” unit chargeouts, increased
Engine segment shipments, the impact of consolidating our BDP and BDT operations, and the prior year acquisition of
Monaco. Partially offsetting these increases were manufacturing cost efficiencies in our Class 8 heavy truck and School bus
product lines, lower net adjustments of accruals for pre-existing warranty, and improved material costs. Excluding the reversal
of the warranty costs of $75 million related to our settlement with Ford in 2009 (the "Ford Settlement"), product warranty costs,
including extended warranty program costs and net of vendor recoveries (“product warranty costs”), decreased by $63 million
due to higher pre-existing warranty adjustments and higher costs per-unit in 2009. Commodity costs, which include steel,
precious metals, resins, and petroleum products, decreased by $49 million in 2010 as compared to the prior year.

Restructuring charges (benefit)

Restructuring charges of $59 million in 2009 related to restructuring actions at our IEP and ICC locations. Restructuring
charges representing a benefit of $15 million in 2010 include $16 million due to the favorable settlement of a portion of
contractual obligations related to the IEP and ICC restructuring and $10 million attributable to the reversal of our remaining
restructuring reserves for ICC as a result of our decision to continue operations at ICC. Also related to the ratification of a new
collective bargaining agreement at ICC, we incurred $6 million of charges in Costs of products sold for supplemental
unemployment and healthcare benefits. In addition, our Truck segment recognized $9 million of restructuring charges for
personnel costs for employee termination and related benefits resulting from the UAW contract ratification and planned wind-
down of UAW positions at our Fort Wayne facility. For more information, see Note 2, Restructurings and impairments, to the

accompanying consolidated financial statements.

Impairment of property and equipment

Impairment of property and equipment was $31 million in 2009 and related to changes in our business and volumes at the
Chatham and Conway locations within our Truck segment. In 2008, we incurred impairment charges of $358 million as a result
of permanently lower Ford volumes in our Engine segment. For additional information about these items, see Note 2,
Restructurings and impairments, to the accompanying consolidated financial statements.

Selling, general and administrative expenses

2010

2009

Change

%
Change

(in millions, except % change)
Selling, general and administrative expenses, excluding items presented
separately below ............................................................................................
Postretirement benefits expense allocated to selling, general and
administrative expenses.................................................................................
Dealcor expenses ...........................................................................................
Incentive compensation and profit-sharing ...................................................
Provision for doubtful accounts.....................................................................
Personnel costs for employee terminations ...................................................
Total selling, general and administrative expenses .......................................

1,016

858

158

157
145
63
27
(2)
1,406

205
162
54
52
13
1,344

(48)
(17)
9
(25)
(15)
62

(23)
(10)
17
(48)
N.M.
5

Selling, general and administrative expenses increased by $62 million compared to the prior year primarily due to increased
costs related to our South American engine operations, the consolidation of our BDP operations, and increased incentive
compensation and profit sharing. In 2010, our South American engine operations incurred $46 million of increased expenses
largely due to increased engine shipments during 2010. In conjunction with a period of lower volumes in the prior year, our
South American operations limited selling, general and administrative expenses during 2009. The consolidation of our BDP
operations resulted in additional selling, general and administrative expenses of $24 million. Furthermore, the increase in our
incentive compensation and profit-sharing expenses reflects our improved 2010 performance and our actual 2009 performance
compared to our management incentive targets. These increases were partially offset by reductions in our postretirement
benefits expenses, lower Dealcor expenses due to the sale of certain company-owned dealerships and lower costs at our
remaining facilities, as well as continued focus on our cost reduction initiatives. Postretirement benefits
expenses decreased by $48 million largely due to lower interest expense from decreased discount rates and changes made to
our OPEB plans relating to Medicare Part D. For more information, see Note 11, Postretirement benefits, to the accompanying
consolidated financial statements.

Engineering and product development costs

Engineering and product development costs increased by $31 million compared to the prior year, primarily due to the
development and launch of our proprietary 2010 Engines, efforts to develop our MaxxForce 15 engine, and improving our EGR
and other technologies to meet ongoing emissions regulations. Partially offsetting the increase were engineering costs incurred
in the prior year within our Truck segment related to military vehicles that were not repeated in 2010.

Interest expense

Interest expense for 2010 was relatively flat as compared to the prior year, reflecting higher interest rates in our manufacturing
operations, largely offset by lower debt balances in our Financial Services operations and lower derivative interest expense. In
October 2009, we completed the sale of our 8.25% Senior Notes due 2021 (the "Senior Notes") and our 3.0% Senior
Subordinated Convertible Notes due 2014 (the "Convertible Notes"). As a result of the new accounting guidance for convertible
debt adopted November 1, 2009, we reclassified $114 million of the original principal amount on the Convertible Notes to
additional paid in capital, resulting in a discount that will be amortized into interest expense. The offering discount and
underwriter fees on the Senior Notes and Convertible Notes are amortized to interest expense over their respective lives
resulting in effective rates of 8.96% and 8.42%, respectively. For more information, see Note 10, Debt, and Note 14, Financial
instruments and commodity contracts, to the accompanying consolidated financial statements.

Other income, net

Other income, net was $44 million for 2010 and was primarily comprised of reductions to reserves in the second quarter within

our Truck and Engine segments for certain value added taxes in Brazil that were reassessed and determined to be recoverable.
For 2009, other income, net of $228 million largely related to the Ford Settlement and related charges within our Engine
segment.

Equity in (loss) income of non-consolidated affiliates

Equity in (loss) income of non-consolidated affiliates is derived from our ownership interest in partially-owned affiliates, which
are not consolidated. We reported a loss of $50 million in 2010, which was primarily reflective of our continued investment and
start-up losses associated with certain joint ventures, as compared to income of $46 million for 2009 that principally related to
our equity in income from our BDP joint venture. As part of the Ford Settlement, we increased our interests in the BDT and
BDP joint ventures with Ford to 75% in the third quarter of 2009. As a result, the BDT and BDP operations were consolidated
beginning June 1, 2009 and accordingly are not included in equity in (loss) income of non-consolidated affiliates prospectively.
For more information, see Note 9, Investments in and advances to non-consolidated affiliates, to the accompanying
consolidated financial statements.

Income tax expense

Income tax expense was $23 million in 2010 as compared to $37 million in 2009. Our income tax expense on U.S. and
Canadian operations was limited to current state income taxes, alternative minimum tax net of refundable credits, and other
discrete items. In 2010, we recognized a U.S. alternative minimum tax benefit of $29 million, as a result of legislation that
provides for the refund of alternative minimum taxes from the carryback of alternative minimum taxable losses to prior years.
We have $461 million of U.S. net operating losses as of October 31, 2010. For additional information, see Note 12, Income
taxes, to the accompanying consolidated financial statements.

Extraordinary gain, net of tax

In 2009, we completed the purchase of certain assets of the former RV manufacturing business of Monaco Coach Corporation.
Due to the fair market value of the acquired assets exceeding the purchase price, we recognized an extraordinary gain of $23
million in 2009.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests is the result of our consolidation of subsidiaries in which we do not own
100%. Substantially all of the $44 million and $25 million of net income attributable to non-controlling interests for 2010 and
2009, respectively, relates to Ford's non-controlling interest in BDP.

Out of period adjustments

Our reported net income for 2009 included immaterial out-of-period adjustments of $29 million. For more information, see
Note 1, Summary of significant accounting policies, to the accompanying consolidated financial statements.

Segment Results of Operations for 2010 as Compared to 2009

We define segment profit (loss) as net income (loss) attributable to Navistar International Corporation excluding income tax
expense. For additional information about segment profit (loss), see Note 16, Segment reporting, to the accompanying
consolidated financial statements. The following sections analyze operating results as they relate to our four segments and do
not include intersegment eliminations:

Truck Segment

(in millions, except % change)
Truck segment sales - U.S. and Canada......................................................
Truck segment sales - ROW .......................................................................
Total Truck segment sales, net....................................................................
Truck segment profit...................................................................................

$
$

7,393
814
8,207
424

$
$

6,807
490
7,297
147

$
$

586
324
910
277

9
66
12
188

2010

2009

Change

%
Change

Segment sales

Truck segment sales increased by $910 million as compared to the prior year largely as a result of higher unit volume in our

commercial business partially offset by a decrease in defense sales. Our commercial business sales increased primarily as a
result of increases in our “traditional” business, and further benefited from an increase in the average sales price across all of
our “traditional” classes due to favorable pricing and a shift in product mix. Our ROW sales improved largely due to the
strengthening of the global economy, as well as the consolidation of our BDT operations that increased sales by $115 million.
Also contributing to the increase in sales was an improvement in used truck sales driven by increased demand and increases in
used equipment prices, and the acquisition of Monaco that resulted in additional sales of $128 million for 2010.

Chargeouts of “traditional” units were 6,400 units higher in 2010 compared to the prior year, with a greater mix of Class 8
heavy and Class 8 severe service trucks contributing to higher overall revenue. While chargeouts on our “expansionary”
business including military increased by 4,700 units in aggregate as compared to the prior year, we were negatively impacted
by the effects of product mix and lower sales of higher revenue per unit military vehicles driven by the timing of prior year
deliveries to the U.S. military.

Segment profit

Truck segment profit increased by $277 million as compared to the prior year, to $424 million for 2010. The increase was
primarily due to increased commercial chargeouts, as well as further material cost improvements and manufacturing
efficiencies that translated into improved margins on our vehicles. We further benefited from the stabilization of the used truck
market and improved demand for used equipment. In addition, engineering and product development costs decreased by $20
million in 2010 primarily related to lower military vehicle development costs and we recognized impairment charges of $31
million in 2009 related to changes in our business and volumes at the Chatham and Conway locations, that were not repeated in
2010. Finally, we recognized a benefit in 2010 from a $30 million reduction in reserves for certain value added taxes in Brazil
that were reassessed and determined to be recoverable. Partially offsetting the increase in segment profit were lower defense
chargeouts primarily due to fewer orders from the U.S military compared to the prior year, the extraordinary gain of $23
million in 2009 related to our purchase of Monaco, and increased equity in loss of non-consolidated affiliates of $51 million as
we continued to incur start-up losses and make ongoing investments in our joint ventures.

Engine Segment

2010

2009

Change

%
Change

(in millions, except % change)
Engine segment sales - U.S. and Canada...................................................
Engine segment sales - ROW ....................................................................
Total Engine segment sales, net.................................................................
Engine segment profit(A) ............................................................................

$
$

1,611
1,375
2,986
51

$
$

1,836
854
2,690
253

$
$

(225)
521
296
(202)

(12)
61
11
(80)

_________________________
(A)

Included in Engine segment profit for 2009 was income of $160 million from the Ford Settlement, net of related charges.

Segment sales

The increase in Engine segment sales for 2010 compared to prior year was primarily due to increased engine sales in South
America, including favorable foreign exchange impacts of $134 million, the impact of consolidating our BDP operations, and
increased intercompany sales driven by higher unit volumes as well as a shift in product mix to higher revenue units. These
increases were partially offset by decreased volumes in North America due to the loss of the Ford business. While sales of
engines to Ford in the U.S. and Canada decreased by 76,600 units in 2010 as compared to the prior year, the Engine segment
benefited from a ramp up in purchases by Ford during the first quarter prior to the expiration of the supply contract. ROW sales
increased in 2010 primarily due to strong demand, the effects of favorable exchange rates, and increases in the price per engine
in South America. The impact of consolidating our BDP operations further increased Engine segment sales in the U.S. and
Canada by $378 million for 2010.

Segment profit

In 2010, the Engine segment recognized decreased segment profits of $69 million, excluding the effects of the Ford Settlement,
largely due to lower volumes in North America due to the loss of the Ford business, partially offset by higher sales volumes and
improved manufacturing performance in South America. Overall, Engine segment profit decreased $202 million for 2010
compared to the prior year, which included a $160 million benefit from the Ford Settlement net of restructuring and related
charges. Further contributing to the decrease were lower volumes in North America due to the loss of the Ford business,
increased selling, general and administrative expenses and engineering and product development costs, and a $14 million
charge relating to the settlement of various tax contingencies in Brazil in 2010. Increased selling, general and administrative

expenses were largely driven by higher sales and marketing expenses, including unfavorable foreign exchange, in South
America of $25 million as a result of our increased engine shipments in 2010. In conjunction with a period of lower volumes in
the prior year, our South American operations limited selling, general and administrative expenses. Further driving increased
selling, general and administrative expenses were field testing costs associated with the launch of our proprietary 2010 Engines.
In addition, engineering and product development costs increased by $49 million largely due to our proprietary 2010 Engines
as well as the development of our MaxxForce 15 engine and other product programs. Partially offsetting the decreases in
segment profit were lower net adjustments of accruals for pre-existing warranties of $52 million, the positive impact of the
consolidation of BDP results of $25 million, and a benefit of $16 million due to the settlement of a portion of our other
contractual costs related to our 2009 restructuring charges at IEP and ICC.

Parts Segment

(in millions, except % change)
Parts segment sales - U.S. and Canada ......................................................
Parts segment sales - ROW........................................................................
Total Parts segment sales, net ....................................................................
Parts segment profit ...................................................................................

$
$

1,718
167
1,885
266

$
$

2,038
135
2,173
436

$
$

(320)
32
(288)
(170)

(16)
24
(13)
(39)

2010

2009

Change

%
Change

Segment sales

The decrease in Parts segment sales was largely due to declines in U.S. military sales of $489 million, which were
predominately driven by the fulfillment of higher military vehicle fielding orders in the prior year as compared to 2010. The
decreases were partially offset by improvements in our commercial markets in the U.S and our global businesses, as well as the
favorable impacts of foreign exchange on our Canadian operations of $27 million.

Segment profit

The decrease in Parts segment profit of $170 million was primarily due to the decrease in military sales, partially offset by
improvements in commercial sales.

Financial Services Segment

(in millions, except % change)
Financial Services segment revenues - U.S. and Canada(A) .....................
Financial Services segment revenues - ROW...........................................
Total Financial Services segment revenues, net .......................................
Financial Services segment profit (loss)...................................................

$
$

_________________________
(A) Our Financial Services segment does not have Canadian operations or revenues.

Segment revenues

2010

2009

Change

%
Change

254
55
309
95

$
$

268
80
348
40

$
$

(14)
(25)
(39)
55

(5)
(31)
(11)
138

Our Financial Services segment revenues declined as compared to the prior year primarily due to a decrease of $362 million in
the average finance receivable balance, to $2.9 billion as of October 31, 2010. The decline in the average finance receivable
balance was primarily due to customer payments and a reduction in financing originations as a result of fewer vehicle and
service parts sales, and reflects the overall declining trend of financing originations whereby the retail portfolio has liquidated
faster than new acquisitions have been financed. Furthermore, loan originations under the GE Operating Agreement began in
the third quarter of 2010, which will continue to reduce NFC originations and portfolio balances in the future. Partially
offsetting the decline in loan originations was $524 million of wholesale notes, less fair value discounts, resulting from the
consolidation of the Master Trust as of July 31, 2010. Wholesale note balances related to the Master Trust, less fair value
discounts, were $700 million at October 31, 2010. Securitization income included in our Financial Services segment revenues
decreased to $35 million as of October 31, 2010 as a result of an adverse change in the fair value of our retained interests in
sold receivables, as well as the consolidation of the Master Trust due to Master Trust income subsequent to July 31, 2010 being
included in financing revenue rather than securitization income. Aggregate interest revenue and fees, charged primarily to the
Truck and Parts segments, were $90 million and $79 million in 2010 and 2009, respectively.

The following table presents contractual maturities of finance receivables for our Financial Services segment, which primarily
drives Financial Services segment revenues. For more information, see Note 4, Finance receivables, to the accompanying
consolidated financial statements.

(in millions, except % change)
Due in one year .........................................................................................
Due in two years .......................................................................................
Due in three years .....................................................................................
Thereafter ..................................................................................................
Gross finance receivables..........................................................................

1,881
526
359
377
3,143

1,831
696
478
494
3,499

50
(170)
(119)
(117)
(356)

3
(24)
(25)
(24)
(10)

2010

2009

Change

%
Change

Segment profit

The increase in Financial Services segment profit was largely attributable to decreased interest expense and lower provision for
loan loss of $15 million as portfolio balances, charge-offs and specific reserves have declined, partially offset by lower
revenues. Derivative expense, included within interest expense, decreased by $36 million in 2010 compared to the prior year
due to a decrease in forward interest rate curves in the prior year causing net fair values to decrease significantly. Additionally,
the average notional amounts of amortizing interest rate swap derivatives were lower, and all swaps were eventually eliminated
during 2010 in conjunction with the pay-off of variable-rate debt. Interest expense further decreased by $23 million compared
to the prior year primarily due to lower debt balances more than offsetting higher interest rates on existing debt during 2010.
Financial Services debt balances were $2.9 billion and $3.4 billion as of October 31, 2010 and 2009, respectively. The lower
borrowings were primarily due to lower average balances of our finance receivables.

Supplemental Information

The following tables provide additional information on Truck segment industry retail units, market share data, order units,
backlog units, chargeout units, and Engine segment shipments. These tables present key metrics and trends that provide
quantitative measures on the performance of our Truck and Engine segments.

We define our “traditional” markets to include U.S. and Canada School bus and Class 6 through 8 medium and heavy truck. We
classify militarized commercial vehicles sold to the U.S. and Canadian militaries as Class 8 severe service within our
“traditional” markets.

Industry retail deliveries

The following table summarizes approximate industry retail deliveries, for our “traditional” truck market, categorized by
relevant class, according to Wards Communications and R.L. Polk & Co.:

2011(A)

2010(B)

2009(B)

Change

%
Change

Change

%
Change

2011 vs. 2010

2010 vs. 2009

(in units)
“Traditional” Markets (U.S. and Canada)
School buses ...........................................
Class 6 and 7 medium trucks ..................
Class 8 heavy trucks ...............................
Class 8 severe service trucks ..................

Total “traditional” markets.........................
Combined class 8 trucks .........................
Navistar “traditional” retail deliveries ....

18,600
64,600
139,700
39,400

262,300
179,100
73,000

20,900
46,400
92,600
34,600

22,600
39,800
77,700
40,500

194,500
127,200
65,400

180,600
118,200
65,000

(2,300)
18,200
47,100
4,800

67,800
51,900
7,600

(11)
39
51
14

35
41
12

(1,700)
6,600
14,900
(5,900)

13,900
9,000
400

(8)
17
19
(15)

8
8
1

_________________________
(A)
(B)

Beginning in 2011, our competitors are reporting certain RV and commercial bus chassis units consistently with how we report these units.
Industry retail deliveries for 2010 and 2009 have been recast to include 3,200 units, and 6,200 units, respectively, to reflect our new methodology
for categorization of “traditional” units whereby militarized commercial vehicles sold to the U.S. and Canadian militaries are classified as Class 8
severe service within our “traditional” markets.

Retail delivery market share

The following table summarizes our approximate retail delivery market share percentages, for our “traditional” truck market,
based on market-wide information from Wards Communications and R.L. Polk & Co.:

“Traditional” Markets (U.S. and Canada)

School buses ............................................................................................................
Class 6 and 7 medium trucks...................................................................................
Class 8 heavy trucks ................................................................................................
Class 8 severe service trucks ...................................................................................
Total “traditional” markets..........................................................................................
Combined class 8 trucks..........................................................................................

48%
41
17
35
28
21

59%
38
24
40
34
28

61%
35
25
43
36
31

2011(A)

2010(B)

2009(B)

_________________________
(A)

(B)

Beginning in 2011, our competitors are reporting certain RV and commercial bus chassis units consistently with how we report these units, on which
the calculation of retail delivery market share is based.
As footnoted in the Industry retail deliveries table, Retail delivery market share for 2010 and 2009 has been recast to reflect our new methodology
for categorization of “traditional” units whereby militarized commercial vehicles sold to the U.S. and Canadian militaries are classified as Class 8
severe service within our “traditional” markets.

Truck segment net orders

We define orders as written commitments received from customers and dealers during the year to purchase trucks. Net orders
represent new orders received during the year less cancellations of orders made during the same year. Orders do not represent
guarantees of purchases by customers or dealers and are subject to cancellation. Orders may be either sold orders, which will be
built for specific customers, or stock orders, which will generally be built for dealer inventory for eventual sale to customers.
These orders may be placed at our assembly plants in the U.S. and Mexico for destinations anywhere in the world and include
trucks, buses, and military vehicles. Historically, we have had an increase in net orders for stock inventory from our dealers at
the end of the year due to a combination of demand, and from time to time we offer incentives to the dealers. Increases in stock
orders typically translate to higher chargeouts for our Truck segment and increased dealer inventory. The following table
summarizes our approximate net orders for “traditional” units:

2011

2010(A)

2009(A)

Change

%
Change

Change

%
Change

2011 vs. 2010

2010 vs. 2009

(in units)
“Traditional” Markets (U.S. and
Canada)

School buses ........................................
Class 6 and 7 medium trucks...............
Class 8 heavy trucks ............................
Class 8 severe service trucks ...............
Total “traditional” markets......................
Combined class 8 trucks......................

8,600
28,000
29,600
13,100
79,300
42,700

7,800
17,700
20,200
13,300
59,000
33,500

18,300
15,100
19,900
15,100
68,400
35,000

800
10,300
9,400
(200)
20,300
9,200

10
58
47
(2)
34
27

(10,500)
2,600
300
(1,800)
(9,400)
(1,500)

(57)
17
2
(12)
(14)
(4)

_________________________
(A) Truck segment net orders for 2010 and 2009 have been recast to include 3,300 units and 3,900 units, respectively, to reflect our new methodology for
categorization of “traditional” units whereby militarized commercial vehicles sold to the U.S. and Canadian militaries are classified as Class 8 severe
service within our “traditional” markets.

Truck segment backlogs

We define order backlogs (“backlogs”) as orders yet to be built as of the end of the period. Our backlogs do not represent
guarantees of purchases by customers or dealers and are subject to cancellation. Although the backlog of unbuilt orders is one
of many indicators of market demand, other factors such as changes in production rates, internal and supplier available
capacity, new product introductions, and competitive pricing actions may affect point-in-time comparisons. Order backlogs
exclude units in inventory awaiting additional modifications or delivery to the end customer. The following table summarizes
our approximate backlog for “traditional” units:

2011

2010(A)

2009(A)

Change

%
Change

Change

%
Change

2011 vs. 2010

2010 vs. 2009

(in units)
“Traditional” Markets (U.S. and
Canada)

School buses.......................................
Class 6 and 7 medium trucks..............
Class 8 heavy trucks ...........................
Class 8 severe service trucks ..............
Total “traditional” markets....................
Combined class 8 trucks.....................

1,200
6,100
9,300
3,400
20,000
12,700

1,500
4,700
6,300
3,100
15,600
9,400

5,800
6,100
7,800
3,500
23,200
11,300

(300)
1,400
3,000
300
4,400
3,300

(20)
30
48
10
28
35

(4,300)
(1,400)
(1,500)
(400)
(7,600)
(1,900)

(74)
(23)
(19)
(11)
(33)
(17)

_________________________
(A) Truck segment backlog as of October 31, 2010 and October 31, 2009 have been recast to include 1,000 units and 1,200 units, respectively, to reflect our

new methodology for categorization of “traditional” units whereby militarized commercial vehicles sold to the U.S. and Canadian militaries are classified
as Class 8 severe service within our “traditional” markets.

Truck segment chargeouts

We define chargeouts as trucks that have been invoiced to customers. The units held in dealer inventory represent the principal
difference between retail deliveries and chargeouts. The following tables summarize our approximate “traditional” chargeouts:

(in units)
“Traditional” Markets (U.S. and Canada)
School buses ....................................................
Class 6 and 7 medium trucks...........................
Class 8 heavy trucks ........................................
Class 8 severe service trucks ...........................
Total “traditional” markets..........................
Non "traditional" military(B) ............................
“Expansion” markets(C) ....................................
Total worldwide units(D).................................
Combined class 8 trucks...........................
Combined military(E) ................................

2011

2010(A)

2009(A)

Change

%
Change

Change

%
Change

2011 vs. 2010

2010 vs. 2009

9,200
27,100
25,700
13,300
75,300
1,400
31,700
108,400
39,000
3,700

12,400
18,500
21,600
14,000
66,500
1,400
19,100
87,000
35,600
4,600

13,800
13,000
19,100
17,200
63,100
1,600
11,100
75,800
36,300
7,900

(3,200)
8,600
4,100
(700)
8,800
—
12,600
21,400
3,400
(900)

(26)
46
19
(5)
13
—
66
25
10
(20)

(1,400)
5,500
2,500
(3,200)
3,400
(200)
8,000
11,200
(700)
(3,300)

(10)
42
13
(19)
5
(13)
72
15
(2)
(42)

_________________________
(A)

Truck segment chargeouts for 2010 and 2009 have been recast to include 3,200 units and 6,200 units, respectively, to reflect our new methodology
for categorization of “traditional” units whereby militarized commercial vehicles sold to the U.S. and Canadian militaries are classified as Class 8
severe service within our “traditional” markets.

(B)
(C)
(D)
(E)

Excludes U.S. and Canada militarized commercial units included in "traditional" markets Class 8 severe service trucks.

Includes 6,700 units, 3,800 units, and 1,100 units 2011, 2010, and 2009, respectively, related to BDT.

Chargeouts for 2011, 2010, and 2009 exclude 2,800 units, 4,000 units, and 1,000 units, respectively, related to RV towables.
Includes all units reported as non "traditional" military, along with 2,100 units, 3,200 units, and 6,200 units for 2011, 2010, and 2009, respectively,
reported within "traditional" markets Class 8 severe service, and 200 units and 100 units for 2011 and 2009, respectively, reported within
"expansion" markets.

Engine segment shipments

2011

2010

2009

Change

%
Change

Change

%
Change

2011 vs. 2010

2010 vs. 2009

(in units)
OEM sales-South America(A) ..........
Ford sales-U.S. and Canada ............
Intercompany sales..........................
Other OEM sales .............................
Total sales........................................

138,600
—
88,800
16,200
243,600

132,800
24,900
68,500
14,200
240,400

99,200
101,500
57,300
11,300
269,300

5,800
(24,900)
20,300
2,000
3,200

4
(100)
30
14
1

33,600
(76,600)
11,200
2,900
(28,900)

34
(75)
20
26
(11)

_________________________
(A)

Includes 27,000 units, 22,300 units, and 11,700 units in 2011, 2010, and 2009, respectively, related to Ford.

Liquidity and Capital Resources

(in millions)
Cash and cash equivalents ...................................................................................................
Marketable securities ...........................................................................................................
Cash, cash equivalents and marketable securities at end of the period ...............................

539
718
1,257

585
586
1,171

1,212
—
1,212

2011

2010

2009

Cash Requirements

We generate cash flow from the sale of trucks, diesel engines, and parts and from product financing provided to our dealers and
retail customers by the financial services operations. It is our opinion that, in the absence of significant unanticipated cash
demands, current and forecasted cash flow from our manufacturing operations, financial services operations, and financing
capacity will provide sufficient funds to meet anticipated operating requirements, capital expenditures, equity investments, and
strategic acquisitions. We also believe 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 our dealers.

Our manufacturing operations are generally able to access sufficient sources of financing to support our business plan. In
October 2011, we signed a definitive loan agreement relating to a five-year inventory secured, asset-based revolving senior line
of credit, facility in an aggregate principal amount of $355 million (the "Asset-Based Credit Facility"), replacing the $200
million asset-based revolving senior credit facility, originally signed in June 2007. As of October 31, 2011, we had no
borrowings under the Asset-Based Credit Facility with the availability to draw up to $283 million under the terms of the
agreement. On November 4, 2011, we borrowed $100 million under the Asset-Based Credit Facility to redeem a portion of our
8.25% Senior Notes, due in 2021.

Consolidated cash, cash equivalents and marketable securities of $1.3 billion at October 31, 2011 includes $38 million of cash
and cash equivalents attributable to BDT and BDP, as well as an immaterial amount of cash and cash equivalents of certain
variable interest entities ("VIEs") that is generally not available to satisfy our obligations. For additional information on the
consolidation of BDT and BDP, see Note 1, Summary of significant accounting policies, to the accompanying consolidated
financial statements.

We generate operating cash flows through our US and non-U.S. operations. We are not presently aware of any restrictions on
the repatriation of these funds, although the funds are considered permanently invested in these foreign subsidiaries. If these
funds were needed to fund our operations or satisfy obligations in the U.S., they could be repatriated and their repatriation into
the U.S. would cause us to incur additional U.S. income taxes and foreign withholding taxes. Any additional taxes could be
offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent
on the income tax laws and other circumstances at the time any of these amounts were repatriated.

Cash Flow Overview

Manufacturing
Operations

Financial
Services
Operations
and
Adjustments

Condensed
Consolidated
Statement of
Cash Flows

(in millions)
For the Year Ended October 31, 2011
Net cash provided by (used in) operating activities.........................................

Net cash provided by (used in) investing activities .........................................

Net cash provided by (used in) financing activities.........................................

Effect of exchange rate changes on cash and cash equivalents .......................

Increase (decrease) in cash and cash equivalents ............................................

Cash and cash equivalents at beginning of the year ........................................

680
(617)
(106)
(3)
(46)
534

Cash and cash equivalents at end of the year...................................................

488

200
(206)
6

—

880
(823)
(100)
(3)
(46)
585

539

Manufacturing
Operations

Financial
Services
Operations
and
Adjustments

Condensed
Consolidated
Statement of
Cash Flows

(in millions)
For the Year Ended October 31, 2010
Net cash provided by operating activities........................................................

Net cash provided by (used in) investing activities .........................................

Net cash used in financing activities................................................................

Effect of exchange rate changes on cash and cash equivalents .......................

Decrease in cash and cash equivalents.............................................................

Cash and cash equivalents at beginning of the year ........................................

409
(916)
(110)
(1)
(618)
1,152

698

482
(1,190)
1
(9)
60

Cash and cash equivalents at end of the year...................................................

534

1,107
(434)
(1,300)
—
(627)
1,212

585

Manufacturing
Operations

Financial
Services
Operations
and
Adjustments

Condensed
Consolidated
Statement of
Cash Flows

(in millions)
For the Year Ended October 31, 2009
Net cash provided by operating activities........................................................
Net cash provided by (used in) investing activities .........................................
Net cash provided by (used in) financing activities.........................................
Effect of exchange rate changes on cash and cash equivalents .......................
Increase (decrease) in cash and cash equivalents ............................................
Increase in cash and cash equivalents upon consolidation of BDP and BDT..
Cash and cash equivalents at beginning of the year ........................................
Cash and cash equivalents at end of the year...................................................

534
(282)
36

297

775

704

70
(800)
—
(26)
—

1,238
(212)
(764)
9

271

861

1,152

1,212

______________________
Manufacturing Operations cash flows and Financial Services Operations cash flows (collectively “non-GAAP financial information”) are not in accordance with, nor an alternative
for, GAAP. The non-GAAP financial information should be considered supplemental to, and not as a substitute for, nor superior to, financial measures calculated in accordance with
GAAP. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the reconciliation above, provides meaningful information and therefore we use it to
supplement our GAAP reporting by identifying items that may not be related to the core manufacturing business. Management often uses this information to assess and measure the
performance and liquidity of our operating segments. Our Manufacturing Operations, for this purpose, include our Truck segment, Engine segment, Parts segment, and Corporate
items which includes certain eliminations. The reconciling differences between these non-GAAP financial measures and our GAAP consolidated financial statements in Item 1,
Financial Statements, are our Financial Services Operations and adjustments required to eliminate certain intercompany transactions between Manufacturing Operations and
Financial Services Operations. Our Financial Services Operations cash flows are presented consistent with their treatment in our Condensed Consolidated Statements of Cash Flows
and may not be consistent with how they would be treated on a stand-alone basis. We have chosen to provide this supplemental information to allow additional analyses of operating

results, to illustrate the respective cash flows giving effect to the non-GAAP adjustments shown in the above reconciliation and to provide an additional measure of performance and
liquidity.

Manufacturing Operations

Manufacturing Cash Flow from Operating Activities

Net cash provided by operating activities was $680 million for 2011, compared to $409 million for 2010 and $534 million for
2009. The increase in cash provided by operating activities in 2011 compared to 2010 is mainly due to higher cash earnings
(net income exclusive of non-cash expenses) and an increase in current liabilities, including a larger increase in accounts
payable from higher truck and engine volumes in 2011. This was partially offset by an increase in inventory in 2011 as
compared to a decrease in 2010 and a larger increase in accounts receivable in 2011, mainly due to the timing of military sales.

The decrease in cash provided by operating activities in 2010 as compared with 2009 was due to the cash received as part of the
Ford Settlement in 2009 as well as increased receivables partially offset by an increase in accounts payable. The increase in
receivables in 2010 compared to 2009 was due primarily to an increase in sales at the end of the year by our Truck and Engine
segments. The increase in payables in 2010 compared to 2009 was primarily attributable to a small increase in payables in 2010
compared to a large decrease in 2009 when volumes declined significantly from the prior year.

Cash paid during the year for interest, net of amounts capitalized, was $115 million, $76 million, and $95 million in 2011,
2010, and 2009, respectively. The increase of $39 million in 2011, as compared to 2010, resulted primarily from the timing of
interest payments on our Senior Notes and higher average debt balances. The decrease of $19 million in 2010, as compared to
2009, resulted primarily from the timing of interest payments on our Senior Notes.

The Company paid $9 million and $27 million of income taxes in 2011 and 2010, respectively, and received net refunds of
income taxes of $5 million in 2009. During 2011, the gross cash paid of $37 million, which was primarily due to higher levels
of taxable income of our foreign subsidiaries, was partially offset by $28 million of domestic federal refunds received. The cash
paid during 2010 was due primarily to higher levels of taxable income of our foreign subsidiaries. The net cash refund received
during fiscal year 2009 was due primarily to refunds received from the carry back of foreign net operating losses.

The Company paid $193 million, $219 million, and $140 million for 2011, 2010, and 2009, respectively for costs associated
with postretirement benefits including pension and postretirement health care expenses for employees and surviving spouses
and dependents, the funding of Trust assets and other payments. This does not include any cash payments made from Trust
assets to beneficiaries. The decrease in cash paid by the Company for 2011 compared to 2010 was due primarily to lower
payments of other post-employment benefits.

Manufacturing Cash Flow from Investing Activities

Cash used in investing activities was $617 million for 2011, compared with $916 million in 2010 and $282 million in 2009.
The net decrease in cash used in investing activities for 2011 compared to 2010 was primarily attributable to a net decrease in
investments in highly liquid marketable securities and a net decrease in investments in non-consolidated affiliates, which was
partially offset by an increase in capital expenditures related to ongoing manufacturing operations and engineering integration.
The net increase in cash used in investing activities for 2010 compared to 2009 was primarily due to increased investments in
highly liquid marketable securities, investment in non-consolidated affiliates, primarily related to NC2, and increased capital
expenditures, which were partially offset by a decrease in cash paid for acquisitions. There were no significant business
acquisitions during 2010 compared to 2009 when the company acquired assets of Monaco Coach Corporation.

Manufacturing Cash Flow from Financing Activities

Cash used in financing activities was $106 million in 2011, compared to cash used of $110 million in 2010 and cash provided
of $36 million in 2009. The net decrease in cash used in financing activities for 2011 compared to 2010 was attributable to
increased third party retail financing at our Company-owned Dealcor dealers. In addition, we received proceeds of $91 million
in 2011 from the reimbursements of qualifying capital expenditures under certain tax-exempt bond financing, in which: (i) the
Illinois Finance Authority issued and sold $135 million aggregate principal amount of Recovery Zone Facility Revenue Bonds
due October 15, 2040, and (ii) The County of Cook, Illinois issued and sold $90 million aggregate principal amount of
Recovery Zone Facility Revenue Bonds, also due October 15, 2040 (collectively, the "Tax Exempt Bonds") that we did not
receive in the previous year. These increases in cash were partially offset by an increase in principal payments under capital
lease obligations. Additionally, pursuant to separate resolutions passed by our Board of Directors in December 2010 and
September 2011, the Company repurchased an aggregate amount of $125 million of its common stock. For additional
information, see Note 17, Stockholders' deficit, to the accompanying consolidated financial statements.

The increase in cash used in financing activities for 2010 compared with 2009 was primarily the result of a decrease in net

borrowings and dividend payments from BDP to Ford. Prior to our increased interest in BDP on June 1, 2009, we did not
consolidate BDP and accordingly dividend payments from BDP to Ford were not reflected in our Consolidated Statement of
Cash Flows. Lower borrowing in 2010 was due to the 2009 refinancing which resulted in the issuance of our Senior Notes and
Convertible Notes. Also contributing to the year over year difference is the fact that in 2010 we received cash due to the
exercise of stock options whereas in 2009 we used cash for the repurchase of stock.

Financial Services Operations

Financial Services and Adjustments Cash Flow from Operating Activities

Cash provided by operating activities was $200 million in 2011, compared to $698 million in 2010 and $704 million in 2009.
The net decrease in cash provided by operating activities for 2011 compared to 2010 was due primarily to the smaller margin
by which liquidations of finance receivables exceeded originations, resulting from an increase in originations of dealer
financings and retail accounts. This decrease was partially offset by an increase in intercompany payables to our manufacturing
operations.

The net decrease in cash provided by operating activities in 2010 compared with 2009 was due primarily to an increase in cash
used to support net working capital partially offset by an increase in net income. The increase in cash used to support net
working capital in 2010 was primarily attributable to the close out of interest rate swap derivatives in conjunction with the
refinancing of variable-rate debt, and payments on intercompany payables to our manufacturing operations, partially offset by a
higher liquidation rate of our finance receivables portfolio and a reduction in inventories. The decline in the finance receivables
portfolio in 2010 resulted from fewer loan originations due to declining industry demand and the impact of the GE Operating
Agreement, combined with customer payments on existing balances. The decrease in inventory was attributable to vehicle sales
exceeding lease terminations and decreased repossessions as portfolio performance continues to stabilize. The increase in net
income was attributable to a decrease in interest expense resulting from lower debt balances partially offset by lower revenues.

Cash paid during the year for interest, net of amounts capitalized, was $93 million, $95 million, and $116 million in 2011,
2010, and 2009, respectively. The decrease of $2 million in 2011 compared to 2010 is a result of lower average debt balances
as retail loans are now funded through the GE Operating Agreement, partially offset by the consolidation of the wholesale note
owner trust. The decrease of $21 million in 2010 compared to 2009 is due primarily to lower average debt balances.

Financial Services and Adjustments Cash Flow from Investing Activities

Cash used in investing activities was $206 million in 2011, compared with cash provided of $482 million in 2010 and $70
million in 2009. Changes in cash collateral required under our secured borrowings were the primary uses and sources of cash
from investing activities in 2011 and 2010. The investment in cash collateral in the 2011 period was the result of the over-
collateralization of the retail securitization transaction completed in April 2011 and the accumulation of cash in anticipation of
the maturity of $250 million of investor notes in January 2012.

The net increase in cash provided by investing activities in 2010 compared to 2009 was primarily a result of additional
receivables pledged, in lieu of cash collateral, under the Truck Retail Installment Paper Corporation ("TRIP") revolving credit
facility. TRIP is a special purpose, wholly-owned subsidiary of NFC. The TRIP credit facility, which matured and was repaid in
June 2010, was required to maintain a combined balance of $500 million of receivables or cash collateral at all times. This cash
collateral was classified as restricted cash and cash equivalents.

Financial Services and Adjustments Cash Flow from Financing Activities

Cash provided by financing activities was $6 million in 2011, compared to cash used of $1.2 billion in 2010 and $800 million
in 2009. Cash used in financing activities represents periodic payments on our funding facilities in excess of new funding
requirements. Funding requirements declined sharply during the 2010 period as retail loan originations began funding through
the GE Operating Agreement. Funding requirements declined less in the 2011 period as an increase in originations of dealer
financings and retail accounts substantially offset the decline in funding requirements relating to retail loan originations.

The net increase in cash used in financing activities in 2010 compared to 2009 was due primarily to a net payment of balances
outstanding under our credit facilities, principally NFC's refinancing of its $1.4 billion term loan and revolving credit facility
with an $815 million facility in December 2009, and NFC's repayment of the $500 million TRIP credit facility in June 2010.

Debt

See Note 10, Debt, to the accompanying consolidated financial statements for a description of our credit facilities and long-
term debt obligations.

Funding of Financial Services

The Financial Services segment has traditionally obtained the funds to provide financing to our dealers and retail customers
from sales of finance receivables, short and long-term bank borrowings, medium and long-term debt, and commercial paper in
Mexico. As of October 31, 2011, our funding consisted of asset-backed securitization debt of $1.7 billion, bank borrowings and
revolving credit facilities of $1.1 billion, commercial paper of $70 million, and borrowings of $70 million secured by operating
and finance leases.

We use a number of Special Purpose Entities ("SPE") to securitize and sell receivables. Navistar Financial Security Corporation
(“NFSC”) finances wholesale notes, Navistar Financial Retail Receivables Corporation (“NFRRC”) and Navistar Financial
Asset Corporation (“NFASC”) finances retail notes and finance leases, International Truck Leasing Corporation (“ITLC”)
finances operating leases and some finance leases, and Truck Retail Accounts Corporation's ("TRAC") finances retail accounts.
We used TRIP, a $500 million revolving retail warehouse facility, to temporarily fund retail notes and retail finance leases until
the outstanding debt facility matured and was paid in June 2010.

During 2011, NFRRC issued secured notes totaling $120 million. In 2010 NFRRC issued secured notes totaling $1.2 billion in
which a portion of the proceeds were used to pay-off certain existing retail secured borrowings and close out the related interest
rate swap positions. The remaining portion was used to pay-off the revolving retail warehouse facility within TRIP of $500
million at maturity on June 15, 2010. Our securitization arrangements for retail notes and finance leases do not qualify for sales
accounting treatment. As a result, the transferred receivables and associated secured borrowings are included on the
Consolidated Balance Sheet and no gain or loss is recognized on these transfers.

NFSC has in place a master trust agreement with Navistar Financial Dealer Note Master Trust (“Master Trust”), which was a
qualifying special purpose entity (“QSPE”). Effective July 31, 2010, we amended the master trust agreement with the Master
Trust. The amendment disqualified the Master Trust as a QSPE and therefore required the Master Trust to be evaluated for
consolidation as a VIE. As we are the primary beneficiary of the Master Trust, the Master Trust's assets and liabilities were
consolidated into the assets and liabilities of the Company. Previously, these securitization transactions were accounted for as
sales and accordingly were not carried on our Consolidated Balance Sheets.

Our Mexican financial services operations include Navistar Financial, S.A. de C.V., Sociedad Financiera de Objeto Multiple,
Entidad No Regulada (“NFM”), and Navistar Comercial S.A. de C.V., which provide vehicle financing and insurance to our
dealers and retail customers in Mexico.

The following table sets forth the utilization under our bank credit and revolving funding facilities in place as of October 31,
2011:

Instrument Type

Total
Amount

Purpose of Funding

Matures or Expires

Amount
Utilized

Company

(in millions)
NFSC.......
TRAC ......

Revolving retail account conduit

NFC .........
NFM ........

Credit agreement
Bank lines and commercial paper

______________________
(A) NFM can borrow up to $100 million, if not used by NFC.

Revolving wholesale note trust

1,100

Eligible wholesale notes

100

808
428

Eligible retail accounts

(A)

Finance receivables and
general corporate purposes
General corporate purposes

930

758
348

2012

2012
2012-2016

As of October 31, 2011, the aggregate amount available to fund finance receivables under the various facilities was
$308 million.

In November 2011, NFC completed the sale of $224 million of two-year investor notes within the wholesale note trust funding
facility.

TRAC, our consolidated SPE, utilizes a $100 million funding facility arrangement that provides for the funding of eligible
retail accounts receivables. Subsequent to the adoption of new accounting guidance on accounting for transfers of financial
assets, transfers of finance receivables from our Financial Services segment to the TRAC funding facility completed prior to
November 1, 2010 retained their sale accounting treatment while transfers of finance receivables subsequent to November 1,
2010 no longer receive sale accounting treatment. There were no remaining outstanding retained interests as of October 31,
2011.

In November 2009, we completed the sale of $350 million of three-year investor notes within the wholesale note trust funding
45

facility. This sale was eligible for funding under the U.S. Federal Reserve's TALF program. In April 2010, our Variable Funding
Certificate (“VFC”) facility was paid off and replaced with the Variable Funding Note (“VFN”). In July 2011, the VFN was
renewed until July 2012.

In February 2010, NFC completed the sale of $250 million of two-year investor notes within the wholesale note trust funding
facility. This sale was also eligible for funding under the TALF program. In addition, in February 2010, NFC paid off investor
notes of $212 million upon maturity.

In December 2011, the bank credit facility was refinanced with a five-year $840 million facility consisting of a $340 million
term loan and a $500 million revolving line of credit including a sub-revolver of up to $200 million for NIC's Mexican finance
subsidiaries. The new facility is subject to customary operational and financial covenants. Quarterly principal payments on the
term portion will be $4 million for the first eight quarters, $9 million for the next 11 quarters, with a final payment at maturity
of $213 million. The bank credit facility in place at October 31, 2011, was scheduled to mature in December 2012.

We 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. Under these agreements, if NFC's
consolidated income before interest expense and income taxes is less than 125% of its interest expense, NIC or Navistar, Inc.
must make income maintenance payments to NFC to achieve the required ratio. No such payments were required for the year
ended October 31, 2011.

Derivative Instruments

The Company uses derivative financial instruments as part of our overall interest rate, foreign currency, and commodity risk
management strategies to reduce our interest rate exposure, to potentially increase the return on invested funds, to reduce
exchange rate risk for transactional exposures denominated in currencies other than the functional currency, and to minimize
commodity price volatility. The fair values of these derivatives are recorded as assets or liabilities on a gross basis in our
Consolidated Balance Sheets. For more information on derivatives and related market risks, see Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, and Note 14, Financial instruments and commodity contracts, to the accompanying
consolidated financial statements.

In October 2009, in connection with the sale of the Convertible Notes, the Company purchased call options for $125 million.
The call options covered 11,337,870 shares of common stock, subject to adjustments, at an exercise price of $50.27. The call
options were intended to minimize share dilution associated with the Convertible Notes. In addition, the Company also entered
into separate warrant transactions whereby, the Company sold warrants for $87 million to purchase in the aggregate 11,337,870
shares of common stock, subject to adjustments, at an exercise price of $60.14 per share of common stock. As the call options
and warrants are indexed to our common stock, we recognized them in permanent equity in Additional paid in capital.

Capital Resources

We expend capital to support our operating and strategic plans. Such expenditures include investments to meet regulatory and
emissions requirements, maintain capital assets, develop new products or improve existing products, and to enhance capacity or
productivity. Many of the associated projects have long lead-times and require commitments in advance of actual spending.

Business units provide their estimates of costs of capital projects, expected returns, and benefits to senior management. Those
projects are evaluated from the perspective of expected return and strategic importance, with a goal to maintain annual capital
expenditures in the $250 million to $350 million range, exclusive of capital expenditures for equipment leased to others.
Additionally, over the next two years we anticipate a temporary increase in capital expenditures (above and beyond the
aforementioned range). This temporary increase is related to the purchase of a new office campus in Lisle, Illinois, and a
technical research center, along with the refurbishment and enhancement of our facility in Melrose Park, Illinois. The majority
of the capital expenditures for these projects will be financed through Tax Exempt Bonds. See Note 10, Debt, to the
accompanying consolidated financial statements.

Pension and Other Postretirement Benefits

Generally, our pension plans are funded by contributions made by us. Our policy is to fund the pension plans in accordance
with applicable U.S. and Canadian government regulations and to make additional contributions from time to time. At
October 31, 2011, we have met all legal funding requirements. We contributed $134 million and $115 million to our pension
plans in 2011 and 2010, respectively.

In 2010, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 was signed into law,
which provides, among other things, the ability to reduce and defer required pension contributions that otherwise would have

been required under the Pension Protection Act of 2006. In 2012, we expect to contribute $187 million to meet the minimum
required contributions for all plans. We currently expect that from 2013 through 2015, the Company will be required to
contribute at least $170 million per year to the plans, depending on asset performance and discount rates.

Other postretirement benefit obligations, such as retiree medical, are primarily funded in accordance with a 1993 Settlement
Agreement between us, our employees, retirees, and collective bargaining organizations, which eliminated certain benefits
provided prior to that date and provided for cost sharing between us and participants in the form of premiums, co-payments,
and deductibles. Our contributions totaled $2 million in each of 2011 and 2010. We expect to contribute $2 million to our other
post-employment benefit plans during 2012.

As part of the 1993 Settlement Agreement, a Base Program Trust was established in June 1993 to provide a vehicle for funding
the health care liability through our contributions and retiree premiums. A separate independent Retiree Supplemental Benefit
Program was also established, which included our contribution of Class B Common Stock, originally valued at $513 million, to
potentially reduce retiree premiums, co-payments, and deductibles and provide additional benefits in subsequent periods. In
addition to the Base Program Trust, we are contingently obligated to make profit sharing contributions to the Retiree
Supplemental Benefit Trust to potentially improve upon the basic benefits provided through the Base Program Trust. These
profit sharing contributions are determined by means of a calculation as established through the 1993 Settlement Agreement.
There were no profit sharing contributions to the Retiree Supplemental Benefit Trust during the three years ended October 31,
2011.

The funded status of our plans is derived by subtracting the actuarially-determined present value of the projected benefit
obligations at year end from the end of year fair value of plan assets.

The under-funded status of our pension plans increased by $253 million during 2011 primarily due to a decrease in the discount
rate used to determine the present value of the projected benefit obligations. Our actual return on assets during 2011 was
approximately 4% for the U.S. Pension plans. The weighted average discount rate used to measure the postretirement benefit
obligation ("PBO") was 4.2% at October 31, 2011 compared to 4.8% at October 31, 2010.

The under-funded status of our health and life insurance benefits increased by $884 million primarily due to a court ruling
ordering the reinstatement of the prescription drug benefits which existed prior to July 1, 2010 for participants who are
Medicare eligible, as well as a change in the estimate of the future rate of increase of reimbursements from Medicare for retiree
medical benefits.

We continue to seek opportunities to control our pension and other postretirement benefits expenses.

Off-Balance Sheet Arrangements

We enter into various arrangements not recognized in our Consolidated Balance Sheets that have or could have an effect on our
financial condition, results of operations, liquidity, capital expenditures, or capital resources. The principal off-balance sheet
arrangements that we enter into are guarantees and sales of receivables. The following discussions address each of these items:

Guarantees

We occasionally provide guarantees that could obligate us to make future payments if the primary entity fails to perform under
its contractual obligations. These include residual value guarantees, stand-by letters of credit and surety bonds, credit and
purchase commitments and indemnifications. We have recognized liabilities for some of these guarantees in our Consolidated
Balance Sheets as they meet recognition and measurement provisions. In addition to the liabilities that have been recognized,
we are contingently liable for other potential losses under various guarantees that are not recognized in our Consolidated
Balance Sheets. We do not believe claims that may be made under such guarantees would have a material effect on our
financial condition, results of operations, or cash flows. For more information, see Note 15, Commitments and contingencies, to
the accompanying consolidated financial statements.

Sales of Receivables

Our financial services operations typically sell, for legal purposes, our finance receivables to third parties while continuing to
service the receivables thereafter. In these securitization transactions, we transfer receivables to a bankruptcy remote SPE. The
SPE then transfers the receivables to a legally isolated entity that is typically a trust or a conduit, which then issues asset-
backed securities to investors. Most of our securitization arrangements currently do not qualify for sales accounting treatment.
As a result, the transferred receivables and the associated secured borrowings are included in our Consolidated Balance Sheets
and no gain or loss is recorded for these transactions.

Prior the amendment of the Master Trust and the adoption of new accounting guidance on accounting for transfers of financial

assets, for accounting purposes, our transfers of wholesale notes and retail accounts receivables are treated as sales; our
transfers of other receivables are treated as secured borrowings. We recorded sales by removing receivables from the
Consolidated Balance Sheet and recording gains and losses in Finance revenues.

Effective July 31, 2010, our Financial Services segment amended the wholesale trust agreement with the Master Trust. The
amendment disqualified the Master Trust as a QSPE and therefore required the Master Trust to be evaluated for consolidation
as a VIE. As we are the primary beneficiary of the Master Trust, the Master Trust's assets and liabilities are consolidated into
the assets and liabilities of the Company. As a result of the amendment, we recognized $337 million of receivables at fair value,
net of intercompany eliminations and retained interests previously carried on our Consolidated Balance Sheet. Previously,
transfers of wholesale notes to the Master Trust were accounted for as sales and accordingly were not carried on our
Consolidated Balance Sheets. There were no remaining outstanding retained interests as of October 31, 2011 and 2010.

We use another SPE, TRAC, which utilizes a $100 million conduit funding arrangement, which provides for funding of eligible
accounts receivable. Subsequent to the adoption of new accounting guidance on accounting for transfers of financial assets,
transfers of finance receivables from our Financial Services segment to the TRAC funding facility completed prior to
November 1, 2010 retained their sale accounting treatment while transfers of finance receivables subsequent to November 1,
2010 no longer receive sale accounting treatment. There were no remaining outstanding retained interests as of October 31,
2011. We had retained interests of $53 million as of October 31, 2010, which were recorded in Finance receivables, net. The
TRAC funding facility is secured by $174 million of retail accounts and $33 million of cash equivalents as of October 31,
2011, and $54 million of retail accounts and $21 million of cash equivalents as of October 31, 2010. The TRAC funding facility
had $92 million and $22 million of outstanding borrowings as of October 31, 2011 and 2010, respectively. In total, proceeds
from the sales of retail notes and wholesale notes that were accounted for as sales and accordingly not carried on the
Consolidated Balance Sheet amounted to $3.5 billion and $4.2 billion in 2010 and 2009, respectively.

Contractual Obligations

The following table provides aggregated information on our outstanding contractual obligations as of October 31, 2011, or
subsequent to October 31, 2011 for certain items as footnoted below:

Payments Due by Year Ending October 31,

Total

2012

2013-
2014

2015-
2016

2017 +

(in millions)
Type of contractual obligation:
Long-term debt obligations(A) .......................................................
Interest on long-term debt (A)(B).....................................................
Financing arrangements and capital lease obligations(C) ..............
Operating lease obligations(D) .......................................................
Purchase obligations(E)..................................................................
Total..............................................................................................

4,844
1,454
128
317
117
6,860

$ 1,344
171
39
52
110
$ 1,716

1,317
265
85
93
7
1,767

181
239
1
72
—
493

2,002
779
3
100
—
2,884

______________________
(A) Amounts include the borrowing of $100 million under the Asset-Based Credit Facility in November 2011, reflected as being due in 2017. Also, the amounts reflect the NFC

refinancing of its bank credit facility in December 2011 with a five-year revolving line of credit and term loan, totaling $840 million, which shifted certain debt maturities to be
largely due in 2017. For additional information, see Note 10, Debt, to the accompanying consolidated financial statements.

(B) Amounts represent estimated contractual interest payments on outstanding debt. Rates in effect as of October 31, 2010 are used for variable rate debt. For more information, see

Note 10, Debt, to the accompanying consolidated financial statements.

(C) We lease many of our facilities as well as other property and equipment under financing arrangements and capital leases in the normal course of business including $10 million

of interest obligation. For more information, see Note 7, Property and equipment, net, to the accompanying consolidated financial statements.

(D) Amounts include agreements relating to a facility in Cherokee, Alabama, which we signed in October 2011 and will take possession of on January 1, 2012. Lease obligations

for facility closures are included in operating leases. Future operating lease obligations are not recognized in our Consolidated Balance Sheet. For more information, see Note 7,
Property and equipment, net, to the accompanying consolidated financial statements.
Purchase obligations include various commitments in the ordinary course of business that would include the purchase of goods or services and they are not recognized in our
Consolidated Balance Sheet.

(E)

Due to the uncertainty with respect to the timing of cash payments associated with the settlement of audits with taxing
authorities because of existing net operating loss carry forwards, the preceding table excludes uncertain tax positions of $19
million. We do not expect to make significant payments of these liabilities within the next year. For additional information, see
Note 12, Income taxes, to the accompanying consolidated financial statements.

In addition to the above contractual obligations, we are also required to fund our pension plans in accordance with the
requirements of the PPA. As such, we expect to contribute $187 million in 2012 to meet the minimum required contributions
for all plans. We currently expect that from 2013 through 2015, the Company will be required to contribute at least $170

million to the plans per year depending on asset performance and discount rates in the next several years. For additional
information, see Note 11, Postretirement benefits, to the accompanying consolidated financial statements.

Other Information

Income Taxes

We file a consolidated U.S. federal income tax return for NIC and its eligible domestic subsidiaries. Our non-U.S. subsidiaries
file income tax returns in their respective local jurisdictions. We account for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carry
forwards. Deferred tax liabilities and assets at the end of each period are determined using enacted tax rates.

A valuation allowance is required to be established or maintained when, based on currently available information and other
factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for
income taxes provides that important factors in determining whether a deferred tax asset will be realized are whether there has
been sufficient taxable income in recent years and whether sufficient taxable income is expected in future years in order to
utilize the deferred tax asset.

We believe that our evaluation of deferred tax assets and our maintenance of a valuation allowance against such assets involve
critical accounting estimates because they are subject to, among other things, estimates of future taxable income in the U.S. and
in other non-U.S. tax jurisdictions. These estimates are susceptible to change and dependent upon events that may or may not
occur. Our assessment of the valuation allowance is material to the assets reported on our Consolidated Balance Sheet and
changes in the valuation allowance may be material to our results of operations. We intend to continue to assess our valuation
allowance in accordance with the guidance on accounting for income taxes.

The guidance on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial statements. Under the guidance, we may recognize
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement.

The guidance on accounting for uncertainty in income taxes also provides guidance on de-recognition and classification, and
requires companies to elect and disclose their method of reporting interest and penalties on income taxes. We recognize interest
and penalties related to uncertain tax positions as part of Income tax expense. Total interest and penalties related to our
uncertain tax positions are immaterial.

As of October 31, 2011 and October 31, 2010, the net amount of liability for uncertain tax provisions was $19 million and $91
million, respectively. If these unrecognized tax benefits are recognized, all but $4 million would impact our effective tax rate.
While it is probable that the liability for unrecognized tax benefits may increase or decrease during the next twelve months, we
do not expect any such change would have a material effect on our financial condition, results of operations, or cash flows.

Environmental Matters

We have been named a 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 that allegedly received wastes from current or former Company locations. Based on information
available to us which, in most cases, consists of data related to quantities and characteristics of material generated at current or
former Company locations, material allegedly shipped by us to these disposal sites, 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 our share, if any, of the
probable costs and accruals are recorded in our consolidated financial statements. These accruals are generally recognized no
later than completion of the remedial feasibility study and are not discounted to their present value. We review all accruals on a
regular basis and believe that, based on these calculations; our share of the potential additional costs for the cleanup of each site
will not have a material effect on our financial condition, results of operations, or cash flows.

Three sites formerly owned by us, (i) Solar Turbines in San Diego, California, (ii) the Canton Plant in Canton, Illinois, and
(iii) Wisconsin Steel in Chicago, Illinois, were identified as having soil and groundwater contamination. Two sites in Sao Paulo,
Brazil, where we are currently operating, were identified as having soil and groundwater contamination. While investigations
and cleanup activities continue at these and other sites, we believe that we have adequate accruals to cover costs to complete
the cleanup of all sites.

Impact of Environmental Regulation

Government regulation related to climate change is under consideration at the U.S. federal and state levels. Because our
products use fossil fuels, they may be impacted indirectly due to regulation, such as a cap and trade program, affecting the cost
of fuels. On May 21, 2010, President Obama directed the EPA and the Department of Transportation to adopt rules by July 30,
2011 setting greenhouse gas emission and fuel economy standards for medium and heavy-duty engines and vehicles beginning
with model year 2014. EPA and NHTSA issued proposed rules on November 30, 2010. We have been active participants in the
discussions surrounding the development of regulations and filed comments with the EPA on the proposed rules on January 31,
2011. The final rules, which were issued on September 15, 2011, begin to apply in 2014 and are fully implemented in model
year 2017. The agencies' stated goals for these rules were to increase the use of currently existing technologies. The Company
plans to comply with these rules through use of existing technologies and implementation of emerging technologies as they
become available. In addition to the U.S., Canada, and Mexico are also considering the adoption of fuel economy and or
greenhouse gas regulations. We expect that heavy duty fuel economy rules will be under consideration in other global
jurisdictions in the future. These standards will impact development costs for vehicles and engines as well as the cost of
vehicles and engines. There will also be administrative costs arising from the implementation of the rules. These standards may
also create opportunities for the Company, which has pursued the development of hybrid and electric vehicles and has sought
incentives for the development of technology to improve fuel economy.

Securitization Transactions

We finance receivables using a process commonly known as securitization, whereby asset-backed securities are sold via public
offering or private placement. In a typical securitization transaction, we transfer a pool of finance receivables to a bankruptcy
remote SPE. The SPE then transfers the receivables to a legally isolated entity, generally a trust or a conduit, in exchange for
securities of the trust which are then retained or sold into the public market or privately placed. These securities are issued by
the trust and are secured by future collections on the receivables sold to the trust. These transactions are subject to the
provisions of the guidance on accounting for transfers and servicing of financial assets and extinguishment of liabilities.

When we securitize receivables, we may have retained interests in the receivables sold (transferred). The retained interests may
include senior and subordinated securities, undivided interests in receivables and over-collateralizations, restricted cash held for
the benefit of the trust, and interest-only strips. Our retained interests are the first to absorb any credit losses on the transferred
receivables because we have the most subordinated interests in the trust, including subordinated securities, the right to receive
excess spread (interest-only strip), and any residual or remaining interests of the trust after all asset-backed securities are repaid
in full. Our exposure to credit losses on the transferred receivables is limited to our retained interests. The SPE's assets are
available to satisfy the creditors' claims against the assets prior to such assets becoming available for the SPE's own uses or the
uses of our affiliated companies. Since the transfer constitutes a legal sale, we are under no obligation to repurchase any
transferred receivable that becomes delinquent in payment or otherwise is in default. We are not responsible for credit losses on
transferred receivables other than through our ownership of the lowest tranches in the securitization structures. We do not
guarantee any securities issued by trusts.

We, as seller and the servicer of the finance receivables, are obligated to provide certain representations and warranties
regarding the receivables. Should any of the receivables fail to meet these representations and warranties, we, as servicer, are
required to repurchase the receivables.

Effective November 1, 2010, none of our wholesale notes, retail notes and finance leases securitization arrangements qualify
for sales accounting treatment under the guidance on accounting for transfers and servicing of financial assets and
extinguishment of liabilities. As a result, such sold receivables and associated secured borrowings are included on the
Consolidated Balance Sheet and no gain or loss is recognized for these transactions.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our
consolidated financial statements, we use estimates and make judgments and assumptions about future events that affect the
reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. Our assumptions, estimates, and
judgments are based on historical experience, current trends, and other factors we believe are relevant at the time we prepare
our consolidated financial statements.

Our significant accounting policies are discussed in Note 1, Summary of significant accounting policies, to the accompanying
consolidated financial statements and should be reviewed in connection with the following discussion. We believe that the

following policies are the most critical to aid in fully understanding and evaluating our reported results as they require us to
make difficult, subjective, and complex judgments. In determining whether an estimate is critical, we consider if:

•

the nature of the estimate or assumption is material due to the levels of subjectivity and judgment necessary to account
for highly uncertain matters or the susceptibility of such matters to change, or

the impact of the estimate and assumption on financial condition or operating performance is material.

Pension and Other Postretirement Benefits

We provide pension and other postretirement benefits to a substantial portion of our employees, former employees, and their
beneficiaries. The assets, liabilities, and expenses we recognize and disclosures we make about plan actuarial and financial
information are dependent on the assumptions used in calculating such amounts. The primary assumptions include factors such
as discount rates, health care cost trend rates, inflation, expected return on plan assets, retirement rates, mortality rates, rate of
compensation increases, and other factors including management's plans regarding plant rationalization activities. Changes to
our business environment could result in changes to the assumptions, the effects of which could be material.

•

Plant rationalization activities impact the determination of whether a plan curtailment or settlement has occurred. Key
considerations include, but are not limited to, expected future service credit, the remaining years of recall rights of the
workforce, and the extent to which minimum service requirements (in the case of healthcare benefits) have been met.

The discount rates are obtained by matching the anticipated future benefit payments for the plans to the Citigroup yield
curve to establish a weighted average discount rate for each plan.

Health care cost trend rates are developed based upon historical retiree cost trend data, short term health care outlook, and
industry benchmarks and surveys. The inflation assumptions used are based upon both our specific trends and nationally
expected trends.

The expected return on plan assets is derived from historical plan returns, expected long-term performance of asset
classes, asset allocations, input from an external pension investment advisor, and risks and other factors adjusted for our
specific investment strategy. The focus is on long-term trends and provides for the consideration of recent plan
performance.

Retirement rates are based upon actual and projected plan experience.

Mortality rates are developed from actual and projected plan experience.

The rate of compensation increase reflects our long-term actual experience and our projected future increases including
contractually agreed upon wage rate increases for represented employees.

The sensitivities stated below are based upon changing one assumption at a time, but often economic factors impact multiple
assumptions simultaneously.

October 31, 2011

Obligations

2012 Expense

Pension

OPEB

Pension

OPEB

(in millions)
Discount rate
Increase of 1.0% .........................................................................
Decrease of 1.0%........................................................................

Expected return on assets
Increase of 1.0% .........................................................................
Decrease of 1.0%........................................................................

(372)
405

(194)
227

(3)
(1)

(24)
24

(4)
4

As modeled above, net periodic postretirement benefits expense is not highly sensitive to changes in discount rates in the
current interest rate environment due to the relatively short duration of the closed plans. For the large US pension plans, a 1%
decrease in the discount rate would result in a decrease in interest expense which exceeds the increase in the amortization of
losses and higher service costs which would occur under this scenario.

Allowance for Doubtful Accounts

The allowance for doubtful accounts for finance receivables is established through a charge to the Selling, general and
administrative expenses. The allowance is an estimate of the amount required to absorb losses on the existing portfolio of

finance receivables that may become uncollectible. We have two portfolio segments of finance receivables based on the type of
financing inherent to each portfolio. The retail portfolio segment represents loans or leases to end-users for the purchase or
lease of vehicles. The wholesale portfolio segment represents loans to dealers to finance their inventory. As the initial
measurement attributes and the monitoring and assessment of credit risk or the performance of the receivables are consistent
within each of our receivable portfolios, the Company determined that each portfolio consists of one class of receivable.
Finance receivables are charged off to the Allowance for Doubtful Accounts when amounts due from the customers are
determined to be uncollectible. The estimate of the required allowance for both the retail portfolio segment and the wholesale
portfolio segment is based upon three factors: (i) a historical component based upon a weighted average of actual loss
experience from the most recent three years, (ii) a qualitative component based upon current economic and portfolio quality
trends, and (iii) a specific reserve component. The qualitative component is the result of analysis of asset quality trend statistics
from the most recent four quarters. In addition, we also analyze specific economic indicators such as tonnage, fuel prices, and
gross domestic product for additional insight into the overall state of the economy and its potential impact on our portfolio. To
the extent that our judgments about these risk factors and conditions are not accurate, an adjustment to our allowance for losses
may materially impact our results of operations or financial condition. If we were to apply a hypothetical increase and decrease
of ten basis points to the historical loss rate used in calculating the allowance for losses, the required allowance, as of
October 31, 2011, would increase from $34 million to $35 million or decrease to $32 million.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the financial statement carrying values
of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recorded with respect to net
operating losses and other tax attribute carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the years in which temporary differences are expected to be recovered or settled. Valuation allowances are
established when, based on currently available information and other factors, it is more likely than not that all or a portion of a
deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
the income of the period that includes the enactment date.

The ultimate recovery of deferred tax assets is dependent upon the amount and timing of future taxable income and other
factors such as the taxing jurisdiction in which the asset is to be recovered. A high degree of judgment is required to determine
if, and the extent to which, valuation allowances should be recorded against deferred tax assets. We have provided valuation
allowances at October 31, 2011 and 2010 aggregating $322 million and $1.8 billion, respectively, against such assets based on
our assessment of past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Of
these amounts, $4 million relate to net operating losses for which subsequently recognized tax benefits will be allocated to
additional paid in capital. Although we believe that our approach to estimates and judgments as described herein is reasonable,
actual results could differ and we may be exposed to increases or decreases in income taxes that could be material.

Under the guidance on accounting for uncertainty in income taxes, we recognize the tax benefit from an uncertain tax position
claimed or expected to be claimed on a tax return only, if it is more likely than not that the tax position will be sustained on
examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement.

As of October 31, 2011 and October 31, 2010, the amount of liability for uncertain tax provisions was $19 million and $91
million, respectively. If these unrecognized tax benefits are recognized, all but $4 million would impact our effective tax rate.
However, to the extent we continue to maintain a valuation allowance against certain deferred tax assets, the impact may be in
the form of an increase in the deferred tax asset related to our NOL carry forward, which would be offset by a valuation
allowance. While it is probable that the liability for unrecognized tax benefits may increase or decrease during the next twelve
months, we do not expect any such change would have a material effect on our financial condition, results of operations, or
cash flows.

Impairment of Long-Lived Assets

We test long-lived assets or asset groups (other than goodwill and intangible assets with indefinite lives as discussed below) for
recoverability when events and circumstances indicate that the carrying value of an asset or asset group may not be
recoverable. Estimates of undiscounted future cash flows used to test the recoverability of a long-lived asset or asset group

include only the future cash flows that are directly associated with and that are expected to arise as a direct result of the use and
eventual disposition of the asset or asset group. If the asset or asset group is determined to not be recoverable, an impairment
loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value.

Our impairment loss calculations require us to apply judgments in estimating future cash flows and asset fair values. This
judgment includes developing cash flow projections and assessing probability weightings to certain business scenarios. Other
assets could become impaired in the future or require additional charges as a result of declines in profitability due to changes in
volume, market pricing, cost, manner in which an asset is used, physical condition of an asset, laws and regulations, or the
business environment. Significant adverse changes to our business environment and future cash flows could cause us to record
additional impairment charges in future periods, which could be material.

Goodwill

Goodwill represents the excess of the cost of an acquired business over the amounts assigned to the net assets. Goodwill is not
amortized but is tested for impairment at a reporting unit level on an annual basis or more frequently, if circumstances change
or an event occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Goodwill is tested for impairment based on a two-step test. The first step, used to identify potential impairment, compares the
fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test
shall be performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of
reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds
the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow
projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and
market conditions, and selecting an appropriate control premium. The income approach is based on discounted cash flows
which are derived from internal forecasts and economic expectations for each respective reporting unit. In 2011, we did not
recognize any material goodwill impairments, and the fair values of each of our reporting units with goodwill exceeded its
respective carrying amount by 8% or more. However, we could recognize goodwill impairment charges in the future if we have
declines in profitability due to changes in volume, market pricing, cost, or the business environment. Significant adverse
changes to our business environment and future cash flows could cause us to record impairment charges in future periods,
which could be material.

Indefinite-Lived Intangible Assets

An intangible asset determined to have an indefinite useful life is not amortized until its useful life is determined to no longer
be indefinite. Indefinite-lived intangible assets are evaluated each reporting period to determine whether events and
circumstances continue to support an indefinite useful life. Indefinite-lived intangible assets are tested for impairment annually,
or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists
of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. If the carrying amount of an
indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Significant judgment is applied when evaluating if an intangible asset has a finite useful life. In addition, for indefinite-lived
intangible assets, significant judgment is applied in testing for impairment. This judgment includes developing cash flow
projections, selecting appropriate discount rates, identifying relevant market comparables, and incorporating general economic
and market conditions. We could recognize impairment charges in the future as a result of declines in the fair values of our
indefinite-lived intangible assets, which could be material.

Contingency Accruals

Product liability lawsuits and claims

We are subject to product liability lawsuits and claims in the normal course of business. We record product liability accruals for
the self-insured portion of any pending or threatened product liability actions.

We obtain a third-party actuarial analysis to assist with the determination of the expected ultimate losses for claims and
consequently the related reserve on our Consolidated Balance Sheet. The actual settlement values of outstanding claims in the
aggregate may differ from these estimates due to many circumstances including but not limited to the discovery and evolution
of information related to individual claims, changes in the legal and regulatory environment, product development trends, and
changes in the frequency and/or severity of claims relative to historical experience.

The reserve for product liability was $46 million as of October 31, 2011 and a hypothetical 10% change in claim amount would
increase or decrease this accrual by $5 million.

Environmental remediation matters

We are subject to claims by various governmental authorities regarding environmental remediation matters.

With regard to environmental remediation, many factors are involved including interpretations of local, state, and federal laws
and regulations, and whether wastes or other hazardous material are contaminating the surrounding land or water or have the
potential to cause such contamination.

As of October 31, 2011, we have accrued $21 million for environmental remediation. Although we believe that the estimates
and judgments discussed herein are reasonable, actual results could differ and we may be exposed to increases or decreases in
our accrual that could be material.

Asbestos claims

We are subject to claims related to illnesses alleged to have resulted from asbestos exposure from component parts found in
older vehicles, although some claims relate to the alleged presence of asbestos in our facilities. Numerous factors including tort
reform, jury awards, and the number of other solvent companies identified as co-defendants will impact the number of claims
filed against the Company.

The estimate of the asbestos liability is subject to uncertainty. Such uncertainty includes some reliance on industry data to
project the future frequency of claims received by us, the long latency period associated with asbestos exposures and the types
of diseases that will ultimately manifest, and unexpected future inflationary trends. Historically, actual damages paid out to
individual claimants have not been material. Although we believe that our estimates and judgments related to asbestos related
claims are reasonable, actual results could differ and we may be exposed to increases or decreases in our accrual that could be
material.

Product Warranty

We record a liability for standard and extended warranty for products sold as well as for certain claims outside the contractual
obligation period. As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability
for such programs is recorded when we commit to a recall action, which generally occurs when it is announced. When
collection is reasonably assured, we also estimate and recognize the amount of warranty claim recoveries to be received from
our suppliers.

Product warranty estimates are established using historical information about the nature, frequency, and average cost of
warranty claims. Initial warranty estimates for new model year products are based on the previous model year product's
warranty experience until the product progresses through its life cycle and related claims data becomes mature. Warranty
claims are influenced by factors such as new product introductions, technological developments, the competitive environment,
and the costs of component parts. Recent emissions standards have resulted in rapid product development cycles and have
included significant changes from previous engine models. We estimate warranty claims and take action to improve vehicle
quality and minimize warranty claims. Actual payments for warranty claims could differ from the amounts estimated requiring
adjustments to the liabilities in future periods.

Although we believe that the estimates and judgments discussed herein are reasonable, actual results could differ and we may
be exposed to increases or decreases in our warranty accrual that could be material.

Recently Issued Accounting Standards

Accounting guidance that has not yet become effective with respect to our consolidated financial statements is described below,
together with our assessment of the potential impact it may have on our consolidated financial statements:

In September 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance on the testing of goodwill
impairment to allow an entity the option to assess qualitative factors to determine whether performing the current two step
goodwill impairment testing process is necessary. Under the option, the calculation of the reporting unit's fair value is not
required to be performed unless as a result of the qualitative assessment, it is more likely than not that the fair value of the
reporting unit is less than the unit's carrying amount. This new guidance is effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Our effective
date is November 1, 2012. The adoption of this guidance impacts testing steps only, and therefore adoption will not have an

impact on our consolidated financial statements.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the new guidance
allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to
as the statement of comprehensive income, or in two separate but consecutive statements. The new guidance eliminates the
current option to report other comprehensive income and its components in the statement of changes in equity. While the new
guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net
income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2011. Our effective date is November 1, 2012. The
adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In May 2011, the FASB issued new guidance to clarify the application of existing fair value measurement requirements and to
change particular principles or requirements for measuring fair value or for disclosing information about fair value
measurements. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. Our
effective date is February 1, 2012. The adoption of this guidance is not expected to have a material impact on our consolidated
financial statements.

In January 2010, the FASB issued new guidance regarding disclosures about fair value measurements. The guidance requires
new disclosures related to activity in Level 3 fair value measurements. This guidance requires purchases, sales, issuances, and
settlements to be presented separately in the rollforward of activity in Level 3 fair value measurements and is effective for
fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Our effective date is
November 1, 2011. When effective, we will comply with the disclosure provisions of this guidance.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Our primary market risks include fluctuations in interest rates and currency exchange rates. We are also exposed to changes in
the prices of commodities used in our manufacturing operations. Commodity price risk related to our current commodity
financial instruments are not material. We do not hold a material portfolio of market risk sensitive instruments for trading
purposes.

We have established policies and procedures to manage sensitivity to interest rate and foreign currency exchange rate market
risk. These procedures include the monitoring of our level of exposure to each market risk, the funding of variable rate
receivables primarily with variable rate debt, and limiting the amount of fixed rate receivables that 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 our exposure to exchange rate risk.

Interest rate risk

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. We measure our interest
rate risk by estimating the net amount by which the fair value of all of our 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. At October 31, 2011 and 2010, the net fair value of our liabilities with exposure to interest rate risk was $5.2 billion
and $6.0 billion, respectively. Assuming a hypothetical instantaneous 10% adverse change in interest rates as of October 31,
2011 and 2010, the fair value of these liabilities would increase by $84 million and $38 million, respectively. At October 31,
2011 and 2010, the net fair value of our assets with exposure to interest rate risk was $3.0 billion and $3.5 billion, respectively.
Assuming a hypothetical instantaneous 10% adverse change in interest rates as of October 31, 2011 and 2010, the fair value of
these assets would decrease by $54 million and $22 million, respectively. Our 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.

Commodity price risk

We are exposed to changes in the prices of commodities, particularly for aluminum, copper, precious metals, resins, diesel fuel,
and steel and their impact on the acquisition cost of various parts used in our manufacturing operations. We have been able to
mitigate the effects of price increases via a combination of design changes, material substitution, global sourcing, and price
performance. In certain cases, we use derivative instruments to reduce exposure to price changes. During 2011, we purchased
approximately $545 million of commodities subject to market risk. Assuming a hypothetical instantaneous 10% adverse change
in commodity pricing during 2011, we would have incurred an additional $54 million of costs. Commodity price risk associated
with our derivative position at October 31, 2011 and 2010 is not material to our operating results or financial position.

Foreign currency risk

Foreign currency risk is the risk that we will incur economic losses due to adverse changes in foreign currency exchange rates.
Our primary exposures to foreign currency exchange rate fluctuations are the Canadian dollar/U.S. dollar, Mexican peso/
U.S. dollar, Euro/U.S. dollar, and Brazilian real/U.S. dollar. At October 31, 2011 and 2010, the net fair value of our liabilities
with exposure to foreign currency risk was $302 million and $56 million, respectively. Assuming that no offsetting derivative
financial instruments exist, the reduction in earnings from a hypothetical instantaneous 10% adverse change in quoted foreign
currency spot rates applied to foreign currency sensitive instruments would be $30 million at October 31, 2011. At October 31,
2011 and 2010, the net fair value of our assets with exposure to foreign currency risk was $217 million and $140 million,
respectively. Assuming that no offsetting derivative financial instruments exist, the reduction in earnings from a hypothetical
instantaneous 10% adverse change in quoted foreign currency spot rates applied to foreign currency sensitive instruments
would be $22 million at October 31, 2011.

For further information regarding models, assumptions and parameters related to market risk, please see Note 13, Fair value
measurements, and Note 14, Financial instruments and commodity contracts, to the accompanying consolidated financial
statements.

Item 8.

Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm..................................................................................................
Consolidated Statements of Operations for the years ended October 31, 2011, 2010, and 2009..........................................
Consolidated Balance Sheets as of October 31, 2011 and 2010 ...........................................................................................
Consolidated Statements of Cash Flows for the years ended October 31, 2011, 2010, and 2009 ........................................
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended October 31, 2011, 2010, and 2009

Notes to Consolidated Financial Statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Summary of significant accounting policies .................................................................................................................
Restructurings and impairments ....................................................................................................................................
Acquisition and disposal of businesses .........................................................................................................................
Finance receivables .......................................................................................................................................................
Allowance for doubtful accounts...................................................................................................................................
Inventories .....................................................................................................................................................................
Property and equipment, net..........................................................................................................................................
Goodwill and other intangible assets, net......................................................................................................................
Investments in and advances to non-consolidated affiliates..........................................................................................
Debt ...............................................................................................................................................................................
Postretirement benefits ..................................................................................................................................................
Income taxes..................................................................................................................................................................
Fair value measurements ...............................................................................................................................................
Financial instruments and commodity contracts ...........................................................................................................
Commitments and contingencies...................................................................................................................................
Segment reporting .........................................................................................................................................................
Stockholders' equity (deficit).........................................................................................................................................
Earnings per share .........................................................................................................................................................
Stock-based compensation plans...................................................................................................................................
Supplemental cash flow information.............................................................................................................................
Condensed consolidating guarantor and non-guarantor financial information .............................................................
Selected quarterly financial data (Unaudited) ...............................................................................................................

Page
58
59
60
61
62

63
73
76
78
81
83
84
86
87
90
95
105
107
111
113
118
121
124
124
128
128
135

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Navistar International Corporation:

We have audited the accompanying Consolidated Balance Sheets of Navistar International Corporation and subsidiaries (the
Company) as of October 31, 2011 and 2010, and the related Consolidated Statements of Operations, Stockholders' Equity
(Deficit), and Cash Flows for each of the years in the three-year period ended October 31, 2011. We also have audited Navistar
International Corporation's internal control over financial reporting as of October 31, 2011, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A(c)
of the Company's October 31, 2011 annual report on Form 10-K. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Navistar International Corporation and subsidiaries as of October 31, 2011 and 2010, and the results of their
operations and their cash flows for each of the years in the three-year period ended October 31, 2011, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the Company has maintained, in all material respects, effective
internal control over financial reporting as of October 31, 2011, based on criteria established in Internal Control-Integrated
Framework issued by COSO.

The Company acquired NC2 Global, LLC during 2011, and management excluded from its assessment of internal controls over
financial reporting as of October 31, 2011, NC2 Global, LLC's internal control over financial reporting associated with
approximately 1% of total assets and less than 1% of total revenues included in the consolidated financial statements of the
Company as of and for the year ended October 31, 2011. Our audit of internal control over financial reporting of the Company
also excluded an evaluation of the internal control over financial reporting of NC2 Global, LLC.

/s/ KPMG LLP

Chicago, Illinois
December 20, 2011

Navistar International Corporation and Subsidiaries

Consolidated Statements of Operations

(in millions, except per share data)
Sales and revenues
Sales of manufactured products, net......................................................................................
Finance revenues ...................................................................................................................
Sales and revenues, net...................................................................................................

Costs and expenses
Costs of products sold ...........................................................................................................
Restructuring charges (benefit) .............................................................................................
Impairment of property and equipment and intangible assets...............................................
Selling, general and administrative expenses........................................................................
Engineering and product development costs.........................................................................
Interest expense .....................................................................................................................
Other income, net ..................................................................................................................
Total costs and expenses.................................................................................................
Equity in income (loss) of non-consolidated affiliates..........................................................
Income before income tax benefit (expense) and extraordinary gain ...................................
Income tax benefit (expense).................................................................................................
Income before extraordinary gain .........................................................................................
Extraordinary gain, net of tax................................................................................................
Net income.............................................................................................................................
Less: Net income attributable to non-controlling interests....................................................
Net income attributable to Navistar International Corporation.....................................
Basic earnings per share:

Income attributable to Navistar International Corporation before extraordinary gain...

Extraordinary gain, net of tax.........................................................................................
Net income attributable to Navistar International Corporation

Diluted earnings per share:

Income attributable to Navistar International Corporation before extraordinary gain...
Extraordinary gain, net of tax.........................................................................................
Net income attributable to Navistar International Corporation .............................

Weighted average shares outstanding:

Basic ...............................................................................................................................
Diluted............................................................................................................................

For the Years Ended October 31,

2011

2010

2009

$ 13,758
200
13,958

$ 11,926
219
12,145

$ 11,300
269
11,569

11,262
92
64
1,434
532
247
(64)
13,567
(71)
320
1,458
1,778
—
1,778
55

1,723

23.66
—
23.66

22.64
—
22.64

72.8
76.1

9,741
(15)
—
1,406
464
253
(44)
11,805
(50)
290
(23)
267
—
267
44
223

3.11
—
3.11

3.05
—
3.05

71.7
73.2

9,366
59
31
1,344
433
251
(228)
11,256
46
359
(37)
322
23
345
25
320

4.18
0.33
4.51

4.14
0.32
4.46

71.0
71.8

See Notes to Consolidated Financial Statements

Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

(in millions, except per share data)
ASSETS
Current assets

Cash and cash equivalents.......................................................................................................................
Restricted cash and cash equivalents ......................................................................................................
Marketable securities...............................................................................................................................
Trade and other receivables, net..............................................................................................................
Finance receivables, net ..........................................................................................................................
Inventories...............................................................................................................................................
Deferred taxes, net...................................................................................................................................
Other current assets .................................................................................................................................
Total current assets..........................................................................................................................................
Restricted cash and cash equivalents ..............................................................................................................
Trade and other receivables, net......................................................................................................................
Finance receivables, net ..................................................................................................................................
Investments in non-consolidated affiliates......................................................................................................

Property and equipment, net............................................................................................................................
Goodwill..........................................................................................................................................................
Intangible assets, net .......................................................................................................................................
Deferred taxes, net...........................................................................................................................................
Other noncurrent assets ...................................................................................................................................
Total assets .....................................................................................................................................................
LIABILITIES and STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities
Current liabilities

Notes payable and current maturities of long-term debt .........................................................................
Accounts payable ....................................................................................................................................
Other current liabilities............................................................................................................................
Total current liabilities ....................................................................................................................................
Long-term debt................................................................................................................................................
Postretirement benefits liabilities ....................................................................................................................
Deferred taxes, net...........................................................................................................................................
Other noncurrent liabilities..............................................................................................................................
Total liabilities........................................................................................................................................
Redeemable equity securities .......................................................................................................................
Stockholders’ equity (deficit)

As of October 31,

2011

2010

$
$

539
100
718
1,219
2,198
1,714
474
273
7,235
227
122
715
60

1,570
319
234
1,583
226
12,291

1,379
2,122
1,297
4,798
3,477
3,210
59
719
12,263
5

585
—
586
987
1,770
1,568
83
256
5,835
180
44
1,145
103

1,442
324
262
63
332
9,730

632
1,827
1,130
3,589
4,238
2,097
142
588
10,654
8

Series D convertible junior preference stock ..................................................................................................

Common stock ($0.10 par value per share, 220.0 and 110.0 shares authorized, at the respective dates,
75.4 shares issued at both dates) .....................................................................................................................
Additional paid in capital ................................................................................................................................
Accumulated deficit ........................................................................................................................................
Accumulated other comprehensive loss..........................................................................................................
Common stock held in treasury, at cost (4.9 and 3.6 shares, at the respective dates).....................................
Total stockholders’ deficit attributable to Navistar International Corporation........................................
Stockholders’ equity attributable to non-controlling interests ........................................................................
Total stockholders’ equity (deficit).......................................................................................................
Total liabilities and stockholders’ equity (deficit)......................................................................................

7
2,253
(155)
(1,944)
(191)
(27)
50
23
12,291

7
2,206
(1,878)
(1,196)
(124)
(981)
49
(932)
9,730

See Notes to Consolidated Financial Statements

Navistar International Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)

Cash flows from operating activities

Net income ..................................................................................................................................................................

1,778

267

345

For the Years Ended October 31,

2011

2010

2009

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization..............................................................................................................................

Depreciation of equipment leased to others..........................................................................................................

290

Deferred taxes, including change in valuation allowance ....................................................................................

(1,513)

Impairment of property and equipment, goodwill, and intangible assets .............................................................

Amortization of debt issuance costs and discount ................................................................................................

Stock-based compensation....................................................................................................................................

Provision for doubtful accounts, net of recoveries ...............................................................................................

Equity in loss of non-consolidated affiliates, net of dividends.............................................................................

Other non-cash operating activities ......................................................................................................................

Changes in other assets and liabilities, exclusive of the effects of businesses acquired and disposed:

Trade and other receivables ............................................................................................................................

Finance receivables.........................................................................................................................................
Inventories.......................................................................................................................................................

Accounts payable ............................................................................................................................................

Other assets and liabilities ..............................................................................................................................
Net cash provided by operating activities.........................................................................................................

Cash flows from investing activities

Purchases of marketable securities .............................................................................................................................

Sales or maturities of marketable securities................................................................................................................

Net change in restricted cash and cash equivalents ....................................................................................................

Capital expenditures....................................................................................................................................................

Purchase of equipment leased to others ......................................................................................................................

Proceeds from sales of property and equipment .........................................................................................................

Investments in non-consolidated affiliates..................................................................................................................

Proceeds from sales of affiliates .................................................................................................................................

Acquisition of intangibles ...........................................................................................................................................

Business acquisitions, net of cash received ................................................................................................................
Net cash used in investing activities ..................................................................................................................

(6)

(15)

(212)

8
(129)

247

164

880

(1,562)

1,430

(147)

(429)

(71)

(65)

(26)

Cash flows from financing activities

Proceeds from issuance of securitized debt ................................................................................................................

Principal payments on securitized debt.......................................................................................................................

Proceeds from issuance of non-securitized debt.........................................................................................................

Principal payments on non-securitized debt ...............................................................................................................

Net increase (decrease) in notes and debt outstanding under revolving credit facilities ............................................

Principal payments under financing arrangements and capital lease obligations.......................................................

Debt issuance costs .....................................................................................................................................................

Purchase of treasury stock ..........................................................................................................................................

Call options and warrants, net.....................................................................................................................................

Proceeds from exercise of stock options.....................................................................................................................

Dividends paid by subsidiaries to non-controlling interest.........................................................................................
Net cash used in financing activities..................................................................................................................
Effect of exchange rate changes on cash and cash equivalents...................................................................................
Increase (decrease) in cash and cash equivalents.........................................................................................................
Increase in cash and cash equivalents upon consolidation of Blue Diamond Parts and Blue Diamond Truck.....
Cash and cash equivalents at beginning of the year ....................................................................................................
Cash and cash equivalents at end of the year...............................................................................................................

599

(708)

214

(107)

137

(86)

(11)

(125)

—

(53)

(100)

(3)

(46)

—

585

539

See Notes to Consolidated Financial Statements

265

—

(136)

546
122

(72)

(160)

1,107

(1,876)

1,290

515

(234)

(45)

(97)

(15)

(2)

1,460

(1,579)

687

(883)

(866)

(62)

(35)

—

(57)

(1,300)

—

(627)

—

1,212

288

(18)

197

391
135

(204)

(142)

1,238

(382)

384

(151)

(46)

(44)

—

(60)

(212)

349

(1,191)

1,868

(1,793)

159

(42)

(40)

(29)

(38)

(20)

(764)

271

861

585

1,212

(823)

(434)

Navistar International Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)

Series D
Convertible
Junior
Preference
Stock

Common
Stock

Additional
Paid-in
Capital

Comprehensive
Income (Loss)

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss

Common
Stock
Held in
Treasury,
at cost

Stockholders'
Equity
Attributable
to Noncontrolling
Interests

Total

1,966

(2,421)

(957)

(137)

320

(830)

(733)

(413)

(733)

(29)

(6)

130

(3)

(38)

110

$ (1,532)

345

(830)

(6)

130

(29)

(38)

110

(20)

(in millions)
Balance as of October 31, 2008 .................

Net income ...................................................

Other comprehensive income (loss):

Foreign currency translation adjustments ....

Postretirement benefit adjustment................

Total other comprehensive loss.............

Total comprehensive loss.............................

Stock options recorded as redeemable
equity securities............................................

Redeemable equity securities modification .

Transfer from redeemable equity securities
upon exercise or expiration of stock options

Stock-based compensation ...........................

Stock ownership programs...........................

Stock repurchase programs ..........................

Call options and warrants, net ......................

Equity component of convertible debt
instruments ...................................................

Cash dividends paid to non-controlling
interest ..........................................................

Non-controlling interest upon consolidation
of BDP and BDT..........................................

Other.............................................................

Balance as of October 31, 2009 .................

2,181

(2,101)

(1,690)

(149)

Net income ...................................................

Other comprehensive income:

Foreign currency translation adjustments ....

Postretirement benefit adjustment................

Total other comprehensive income........

Total comprehensive income........................

Transfer from redeemable equity securities
upon exercise or expiration of stock options

Stock-based compensation ...........................

Stock ownership programs...........................

Cash dividends paid to non-controlling
interest ..........................................................

Other.............................................................

223

472

494

717

—

494

Balance as of October 31, 2010 .................

2,206

(1,878)

(1,196)

(124)

Net income ...................................................

Other comprehensive loss:

Foreign currency translation adjustments ....

Postretirement benefit adjustment (net of
$430 tax benefit) ..........................................

Total other comprehensive loss.............

Total comprehensive income........................

Transfer from redeemable equity securities
upon exercise or expiration of stock options

Stock-based compensation ...........................

Stock ownership programs...........................

Stock repurchase programs ..........................

Forward contract for accelerated stock
repurchase program ......................................

Impact to additional paid-in capital for
valuation allowance release..........................

Cash dividends paid to non-controlling
interest ..........................................................

Other.............................................................

(1)

1,723

(19)

(729)

(748)

975

(748)

(105)

(8)

(20)

Balance as of October 31, 2011..................

2,253

(155)

(1,944)

(191)

See Notes to Consolidated Financial Statements
62

(3)

(57)

(53)

(1)

(3)

$ (1,687)

267

472

(57)

(932)

1,778

(19)

(729)

(105)

(20)

(53)

(2)

Navistar International Corporation

Notes to Consolidated Financial Statements

1. Summary of significant accounting policies

Organization and Description of the Business

Navistar International Corporation (“NIC”), incorporated under the laws of the State of Delaware in 1993, is a holding
company whose principal operating subsidiaries are Navistar, Inc. and Navistar Financial Corporation (“NFC”). References
herein to the “Company,” “we,” “our,” or “us” refer collectively to NIC, its subsidiaries, and certain variable interest entities
(“VIEs”) of which we are the primary beneficiary. We operate in four principal industry segments: Truck, Engine, Parts
(collectively called “manufacturing operations”), and Financial Services, which consists of NFC and our foreign finance
operations (collectively called “financial services operations”). These segments are discussed in Note 16, Segment reporting.

Our fiscal year ends on October 31. All references to 2011, 2010, and 2009 relate to the fiscal year unless otherwise indicated.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the assets, liabilities, and results of operations of our
manufacturing operations, majority-owned dealers, wholly-owned financial services subsidiaries, and VIEs of which we are the
primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated
amounts. Certain reclassifications were made to prior years' amounts to conform to the 2011 presentation.

Variable Interest Entities

We are the primary beneficiary of several VIEs, primarily joint ventures, established to manufacture or distribute products and
enhance our operational capabilities. We have determined for certain of our VIEs that we are the primary beneficiary as we
have the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and have the
obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE. Accordingly, we include in our consolidated financial statements the assets
and liabilities and results of operations of those entities, even though we may not own a majority voting interest. The liabilities
recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather they represent
claims against the specific assets of the consolidated entities. Assets of these entities are not available to satisfy claims against
our general assets.

We are the primary beneficiary of our Blue Diamond Parts (“BDP”) and Blue Diamond Truck (“BDT”) joint ventures with
Ford Motor Company ("Ford"). As a result, our Consolidated Balance Sheets include assets of $306 million and $312 million
and liabilities of $158 million and $150 million as of October 31, 2011 and 2010, respectively, from BDP and BDT, including
$38 million and $16 million of cash and cash equivalents, at the respective dates, which are not readily available to satisfy our
other obligations. The creditors of BDP and BDT do not have recourse to our general credit.

Our Financial Services segment consolidates several VIEs. As a result, our Consolidated Balance Sheets include assets of $1.8
billion and $1.7 billion as of October 31, 2011 and 2010, respectively and liabilities of $1.5 billion and $1.6 billion as of
October 31, 2011 and 2010, respectively, all of which are involved in securitizations that are treated as borrowings. In addition,
our Consolidated Balance Sheets include assets of $468 million and $353 million and related liabilities of $216 million and
$236 million as of October 31, 2011 and 2010, respectively, all of which are involved in structures in which we transferred
assets in transactions that do not qualify for sale accounting treatment and are therefore treated as borrowings. Investors that
hold securitization debt have a priority claim on the cash flows generated by their respective securitized assets to the extent that
those trusts are entitled to make principal and interest payments. Investors in securitizations of these entities have no recourse
to the general credit of NIC or any other consolidated entity.

Prior to the adoption of new guidance on accounting for transfers of financial assets on November 1, 2010, our Financial
Services segment did not consolidate the assets and liabilities of the conduit funding facility of Truck Retail Accounts
Corporation (“TRAC”), our consolidated special purpose entity (“SPE”), as we were not the primary beneficiary of the conduit
and transfers of finance receivables to the facility qualified for sale accounting treatment. TRAC retained residual economic
interests in the future cash flows of the securitized assets that were owned by the conduit. We carried these retained interests as
an asset, included in Finance receivables, net on our Consolidated Balance Sheets. Subsequent to the adoption of the new
accounting guidance, previous transfers of finance receivables from our Financial Services segment to the TRAC conduit
retained their sales accounting treatment while prospective transfers of finance receivables no longer receive sale accounting
treatment.

We are also involved with other VIEs, which we do not consolidate because we are not the primary beneficiary. Our financial
support and maximum loss exposure relating to these non-consolidated VIEs is not material to our financial condition, results
of operations, or cash flows.

We use the equity method to account for our investments in entities that we do not control under the voting interest or variable
interest models, but where we have the ability to exercise significant influence over operating and financial policies. Equity in
(loss) income of non-consolidated affiliates includes our share of the net (loss) income of these entities.

2010 Out-Of-Period Adjustments

Included in the results of operations for the year ended October 31, 2010 are certain out-of-period adjustments. These
adjustments represent corrections of prior-period errors primarily related to the following: (i) an understatement of our net
obligation for pension benefits of $3 million in 2009 and $2 million in 2008 and (ii) an understatement of our deferred tax
assets of $5 million related to an error in the application of accounting guidance for defined benefits related to our reserve for
certain disability programs for our Canadian operation in 2008. Correcting these errors, which were not material to any of the
related periods, resulted in a $10 million decrease to Net income for the year ended October 31, 2010.

2009 Out-Of-Period Adjustments

Included in the results of operations for the year ended October 31, 2009 are certain out-of-period adjustments. These
adjustments represent corrections of prior-period errors primarily related to the following: (i) overstatement of Accounts
payable of $9 million due to processing errors in our Truck segment that originated in the fourth quarter of 2008,
(ii) overstatement in accruals of $10 million due to errors in self-insurance reserve calculations and related intercompany
transaction eliminations between our financial services operations and our manufacturing operations that originated primarily
in periods prior to 2008, and (iii) overstatement of our warranty accrual in our Engine segment of $10 million as a result of
non-warranty related costs being included in the warranty accrual estimation process that originated primarily in periods prior
to 2008. Correcting these errors, which were not material to any of the related periods, resulted in a $29 million increase to Net
income for the year ended October 31, 2009.

Use of Estimates

The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles
(“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses. Significant estimates and assumptions are used for, but are not limited to, pension and other postretirement benefits,
allowance for doubtful accounts, income tax contingency accruals and valuation allowances, product warranty accruals,
asbestos and other product liability accruals, asset impairment, and litigation-related accruals. Actual results could differ from
our estimates.

Reversal of tax reserve for change in estimate

Under the Brazilian tax system, the state government levies a tax on the incremental value added to goods or service
(commonly known as “value added tax” or “VAT”). The VAT is computed based on the value added to the taxed item which is
then included in the price of products sold and purchased. We periodically review our VAT credit balances for recoverability
based primarily on projected sales and purchases. In the past, we determined that a portion of our VAT credits were not
recoverable and accordingly provided an allowance against the balance not expected to be recovered. In conjunction with the
review that occurred during the second quarter of 2010, we reevaluated our VAT credit balance and reserve and concluded that
based on actions taken to facilitate changes in sales mix between domestic and export and production locations, it was probable
that previously reserved VAT credits will be utilized. As a result, we recognized a material pre-tax adjustment for this change in
estimate in Other income, net of $42 million, or $0.58 per diluted share, in 2010.

Concentration Risks

Our financial condition, results of operations, and cash flows are subject to concentration risks related to concentrations of
union employees and one customer. As of October 31, 2011, approximately 6,000, or 55%, of our hourly workers and
approximately 450, or 5%, of our salaried workers are represented by labor unions and are covered by collective bargaining
agreements. Our collective bargaining agreement with the National Automobile, Aerospace and Agricultural Implement
Workers of Canada expired on June 30, 2009. On July 29, 2011 we committed to close the Chatham, Ontario facility. For
further information regarding anticipated employee related costs associated with that closing, see Note 2, Restructurings and

impairments. For discussion of customer concentrations, see Note 16, Segment reporting. Additionally, our future operations
may be affected by changes in governmental procurement policies, budget considerations, changing national defense
requirements, and global, political, and economic developments in the U.S. and certain foreign countries (primarily Canada,
Mexico, and Brazil).

Revenue Recognition

Our manufacturing operations recognize revenue when we meet four basic criteria: (i) persuasive evidence that a customer
arrangement exists, (ii) the price is fixed or determinable, (iii) collectibility is reasonably assured, and (iv) delivery of product
has occurred or services have been rendered. Sales are generally recognized when risk of ownership passes.

Sales to fleet customers and governmental entities are recognized in accordance with the terms of each contract. Revenue on
certain customer requested bill and hold arrangements is not recognized until after the customer is notified that the product
(i) has been completed according to customer specifications, (ii) has passed our quality control inspections, and (iii) is ready for
delivery based upon the established delivery terms.

An allowance for sales returns is recorded as a reduction to revenue based upon estimates using historical information about
returns. For the sale of service parts that include a core component, we record revenue on a gross basis including the fair
market value of the core. A core component is the basic forging or casting, such as an engine block, that can be remanufactured
by a certified remanufacturing supplier. When a dealer returns a core within the specified eligibility period, we provide a core
return credit, which is applied to the customer's account balance. At times, we may mark up the core charge beyond the amount
we are charged by the supplier. This mark up is recorded as a liability, as it represents the amount that will be paid to the dealer
upon return of the core component and is in excess of the fair value to be received from the supplier.

Concurrent with our recognition of revenue, we recognize price allowances and the cost of incentive programs in the normal
course of business based on programs offered to dealers or fleet customers. Estimates are made for sales incentives on certain
vehicles in dealer stock inventory when special programs that provide specific incentives to dealers are offered in order to
facilitate sales to end customers.

Truck sales to the U.S. and foreign governments, of non-commercial products manufactured to government specifications, are
recognized using the units-of-delivery measure under the percentage-of-completion accounting method as units are delivered
and accepted by the government.

Certain terms or modifications to U.S. and foreign government contracts may be unpriced; that is, the work to be performed is
defined, but the related contract price is to be negotiated at a later date. In situations where we can reliably estimate a profit
margin in excess of costs incurred, revenue and gross margin are recorded for delivered contract items. Otherwise, revenue is
recognized when the price has been agreed with the government and costs are deferred when it is probable that the costs will be
recovered.

Shipping and handling amounts billed to our customers are included in Sales of manufactured products, net and the related
shipping and handling costs incurred are included in Costs of products sold.

Financial services operations recognize revenue from retail notes, finance leases, wholesale notes, retail accounts, and
wholesale accounts as Finance revenues over the term of the receivables utilizing the effective interest method. Certain direct
origination costs and fees are deferred and recognized as adjustments to yield and are reported as part of interest income over
the life of the receivable. Loans are considered to be impaired when we conclude there is a high likelihood the customer will
not be able to make full payment after reviewing the customer's financial performance, payment ability, capital-raising
potential, management style, economic situation, etc. The accrual of interest on such loans is discontinued when the collection
of the account becomes doubtful (“non-accrual status loans”). Finance revenues on these loans are recognized only to the
extent cash payments are received. We resume accruing interest on these accounts when payments are current according to the
terms of the loans and future payments are reasonably assured.

Operating lease revenues are recognized on a straight-line basis over the life of the lease. Recognition of revenue is suspended
when management determines the collection of future revenue is not probable. Recognition of revenue is resumed if collection
again becomes probable.

Selected receivables are securitized and sold to public and private investors with limited recourse. Our financial services
operations continue to service the sold receivables and receive fees for such services. Gains or losses on sales of receivables
that qualify for sales accounting treatment are credited or charged to Finance revenues in the period in which the sale occurs.
Discount accretion is recognized on an effective yield basis and is included in Finance revenues.

Cash and Cash Equivalents

All highly liquid financial instruments with maturities of 90 days or less from date of purchase, consisting primarily of
U.S. Treasury bills, federal agency securities, and commercial paper, are classified as cash equivalents.

Restricted cash and cash equivalents are related to our securitized facilities, senior and subordinated floating rate asset-backed
notes, wholesale trust agreements, indentured trust agreements, letters of credit, Environmental Protection Agency
requirements, and workers compensation requirements. The restricted cash and cash equivalents for our securitized facilities is
restricted to pay interest expense, principal, or other amounts associated with our securitization agreements.

Marketable Securities

Marketable securities consist of available-for-sale securities and are measured and reported at fair value. The difference
between amortized cost and fair value is recorded as a component of Accumulated other comprehensive loss (“AOCL”) in
Stockholders' Equity (Deficit), net of taxes. Most securities with remaining maturities of less than twelve months and other
investments needed for current cash requirements are classified as current in our Consolidated Balance Sheets. Gains and losses
on the sale of marketable securities are determined using the specific identification method and are recorded in Other (income)
expenses, net.

We evaluate our investments in marketable securities at the end of each reporting period to determine if a decline in fair value
is other than temporary. When a decline in fair value is determined to be other than temporary, an impairment charge is
recorded and a new cost basis in the investment is established. Our marketable securities are classified as Level 1 in the fair
value hierarchy.

Derivative Instruments

We utilize derivative instruments to manage certain exposure to changes in foreign currency exchange rates, interest rates, and
commodity prices. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date.
Changes in the fair value of these derivative instruments are recognized in our operating results or included in AOCL,
depending on whether the derivative instrument is a fair value or cash flow hedge and whether it qualifies for hedge accounting
treatment. The Company elected to apply the normal purchase and normal sale exclusion to certain commodity contracts that
are entered into to be used in production within a reasonable time during the normal course of business. For the years ended
October 31, 2011, 2010, and 2009, none of our derivatives qualified for hedge accounting and all changes in the fair value of
our derivatives, except for those qualifying under the normal purchases and normal sales exception, were recognized in our
operating results.

Gains and losses on derivative instruments are recognized in Costs of products sold, Interest expense, or Other (income)
expenses, net depending on the underlying exposure. The exchange of cash associated with derivative transactions is classified
in the Consolidated Statements of Cash Flows in the same category as the cash flows from the items subject to the economic
hedging relationships.

Trade and Finance Receivables

Trade Receivables

Trade accounts receivable and trade notes receivable primarily arise from sales of goods to independently owned and operated
dealers, original equipment manufacturers (“OEMs”), and commercial customers in the normal course of business.

Finance Receivables

Finance receivables consist of the following:

Retail notes - Retail notes primarily consist of fixed rate loans to commercial customers to facilitate their purchase of new
and used trucks, trailers, and related equipment.

Finance leases - Finance leases consist of direct financing leases to commercial customers for acquisition of new and
used trucks, trailers, and related equipment.

Wholesale notes - Wholesale notes primarily consist of variable rate loans to our dealers for the purchase of new and used
trucks, trailers, and related equipment.

Retail accounts - Retail accounts consist of short-term accounts receivable that finance the sale of products to commercial

customers.

Wholesale accounts - Wholesale accounts consist of short-term accounts receivable primarily related to the sales of items
other than trucks, trailers, and related equipment (e.g. service parts) to dealers.

Finance receivables are classified as held-to-maturity and are recorded at gross value less unearned income and are reported net
of allowances for doubtful accounts. Unearned revenue is amortized to revenue over the life of the receivable using the
effective interest method. Our financial services operations purchase the majority of the wholesale notes receivable and some
retail notes and accounts receivable arising from our manufacturing operations. The financial services operations retain as
collateral a security interest in the equipment associated with retail notes, wholesale notes, and finance leases.

Sales of Finance Receivables

We sell finance receivables using a process commonly known as securitization, whereby asset-backed securities are sold via
public offering or private placement. These transactions are accounted for either as a sale with gain or loss recorded at the date
of sale and a retained interest recorded, or as secured borrowings. Most of our securitization and receivable sale arrangements
currently do not qualify for sales accounting treatment. As a result, the transferred receivables and the associated secured
borrowings are included in our Consolidated Balance Sheets and no gain or loss is recorded for these transactions.

Prior to an amendment to the Master Trust on July 31, 2010, our wholesale note securitization arrangements qualified for sale
accounting treatment whereby the notes receivable were removed from our Consolidated Balance Sheets. Gains or losses from
these sales were recognized in the period of sale based upon the relative fair value of the portion sold and the portions allocated
to the retained interests, and are included in Finance revenues. Additionally, transfers of retail accounts made to a bank conduit
funding facility prior to November 1, 2010, qualified for sale accounting treatment.

For those transfers that previously qualified for sales accounting treatment, we retained interests in the receivables sold
(transferred). The retained interests in retail accounts included receivables used as over-collateralization (“excess sellers'
interests”) and cash reserves held for the benefit of the trust. Prior to July 31, 2010, the retained interest also included excess
sellers' interest, cash reserves and interest only strips relating to wholesale notes. We carried these retained interests as an asset,
included in Finance receivables, net on our Consolidated Balance Sheets. Our exposure to credit losses on the transferred
receivables was limited to our retained interests. Other than being required to repurchase receivables that fail to satisfy certain
representations and warranties provided at the time of the securitization, we are under no obligation to repurchase any
transferred receivable that becomes delinquent in payment or otherwise is in default. The holders of the asset-backed securities
have no recourse to us or our other assets for credit losses on transferred receivables, and have no ability to require us to
repurchase their securities. We do not guarantee any securities issued by trusts.

We determined the fair value of our retained interests by discounting the future expected cash flows. The future expected cash
flows were primarily affected by expected payment speeds and default rates. We estimated the payment speeds for the
receivables sold, the discount rate used to determine the present value of the excess sellers' interests and cash reserves, and the
anticipated net losses on the receivables in order to calculate the gain or loss on arrangements that previously qualified for sales
treatment. Estimates were based on historical experience, anticipated future portfolio performance, market-based discount rates,
and other factors and were calculated separately for each securitized transaction. In addition, we remeasured the fair values of
the retained interests on a quarterly basis and recognized changes in Finance revenues as required. The retained interests are
classified as trading.

We also act as servicer of transferred receivables in exchange for a fee. The servicing duties include collecting payments on
receivables and preparing monthly investor reports on the performance of the receivables that are used by the trustee to
distribute monthly interest and principal payments to investors. While servicing the receivables, we apply the same servicing
policies and procedures that are applied to our owned receivables. The servicing income received by us is adequate to
compensate us for our servicing responsibilities. Therefore, no servicing asset or liability is recorded.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is established through a charge to Selling, general and administrative expenses. The
allowance is an estimate of the amount required to absorb probable losses on trade and finance receivables that may become
uncollectible. The receivables are charged off when amounts due are determined to be uncollectible.

Pursuant to the adoption of new accounting guidance relating to disclosures about the allowance for losses and credit quality of
finance receivables, we determined that we have two portfolio segments of finance receivables based on the type of financing
inherent to each portfolio. The retail portfolio segment represents loans or leases to end-users for the purchase or lease of

vehicles. The wholesale portfolio segment represents loans to dealers to finance their inventory. As the initial measurement
attributes and the monitoring and assessment of credit risk or the performance of the receivables are consistent within each of
our receivable portfolios, the Company determined that each portfolio consisted of one class of receivable.

Troubled loan accounts are specifically identified and segregated from the remaining owned loan portfolio. The expected loss
on troubled accounts is fully reserved in a separate calculation as a specific reserve. A specific reserve is recorded if it is
determined that the account is impaired, and if the value of the underlying collateral is less than the principal balance of the
loan. We calculate a general reserve on the remaining loan portfolio by applying loss ratios which are determined using
historical loss experience in conjunction with current portfolio quality trends. The historical loss experience and portfolio
quality trends of the retail portfolio segment compared to the wholesale portfolio segment are inherently different. In addition,
we analyze specific economic indicators such as tonnage, fuel prices, and gross domestic product for additional insight into the
overall state of the economy and its potential impact on our portfolio.

To establish a specific reserve in the loss allowance for impaired accounts, we look at many of the same factors discussed
above but also consider the financial strength of the customer or dealer and key management, the timeliness of payments, the
number and location of satellite locations (especially for the dealer), the number of dealers of competitor manufacturers in the
market area, the type of equipment normally financed, and the seasonality of the business.

Repossessions

Gains or losses arising from the sale of repossessed collateral supporting finance receivables and operating leases are
recognized in Selling, general and administrative expenses. Repossessed assets are recorded within Inventories at the lower of
historical cost or fair value, less estimated costs to sell.

Inventories

Inventories are valued at the lower of cost or market. Cost is principally determined using the first-in, first-out (“FIFO”) and
average cost methods.

Property and Equipment

We report land, buildings, leasehold improvements, machinery and equipment (including tooling and pattern equipment),
furniture, fixtures, and equipment, and equipment leased to others at cost, net of depreciation. We initially record assets under
capital lease obligations at the lower of their fair value or the present value of the aggregate future minimum lease payments.
We depreciate our assets using the straight-line method over the shorter of the lease term or the estimated useful lives of the
assets. The ranges of estimated useful lives are as follows:

Buildings ............................................................................................................................................................................
Leasehold improvements ...................................................................................................................................................
Machinery and equipment..................................................................................................................................................
Furniture, fixtures, and equipment.....................................................................................................................................
Equipment leased to others ................................................................................................................................................

Years
20 - 50
3 - 20
3 - 12
3 - 15
1 - 10

Long-lived assets are 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.

We depreciate trucks, tractors, and trailers leased to customers under operating lease agreements on a straight-line basis to the
equipment's estimated residual value over the lease term. The residual values of the equipment represent estimates of the value
of the assets at the end of the lease contracts and are initially recorded based on estimates of future market values. Realization
of the residual values is dependent on our future ability to market the equipment. We review residual values periodically to
determine that recorded amounts are appropriate and the equipment has not been impaired.

Maintenance and repairs of property and equipment are expensed as incurred. We capitalize replacements and improvements
that increase the estimated useful life or productive capacity of an asset and we capitalize interest on major construction and
development projects while in progress.

Gains or losses on disposition of property and equipment are recognized in Other (income) expenses, net.

We test for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an
asset or asset group (hereinafter referred to as “asset group”) may not be recoverable by comparing the sum of the estimated
undiscounted future cash flows expected to result from the operation of the asset group and its eventual disposition to the
carrying value. If the sum of the undiscounted future cash flows is less than the carrying value, the fair value of the asset group
is determined. The amount of impairment is calculated by subtracting the fair value of the asset group from the carrying value
of the asset group.

Goodwill and Other Intangible Assets

We evaluate goodwill and other intangible assets not subject to amortization for impairment annually or more frequently
whenever indicators of potential impairment exist. A significant amount of judgment is involved in determining if an indicator
of impairment has occurred. Such indicators may include, among others, (i) a significant decline in expected future cash flows,
(ii) a sustained, significant decline in equity price and market capitalization, (iii) a significant adverse change in legal factors or
in the business climate, (iv) unanticipated competition, and (v) slower growth rates. Goodwill is considered impaired when the
fair value of a reporting unit is determined to be less than the carrying value including goodwill. The amount of impairment
loss is determined based on a comparison of the implied fair value of the goodwill of the reporting unit to the actual carrying
value. Intangible assets not subject to amortization are considered impaired when the fair value of the intangible asset is
determined to be less than the carrying value.

In 2011, the Company changed the date of our annual impairment assessments for goodwill and indefinite-lived intangible
assets from October 31st to August 1st. The Company believes that the August 1st date is preferable as it better aligns with the
annual preparation of our long-term strategic plan, as well as provides additional time to complete the assessment prior to the
filing of our Annual Report on Form 10-K.

We use the present value of estimated future cash flows to establish the estimated fair value of our reporting units as of the
testing date. This approach includes many assumptions related to future growth rates, discount rates, market comparables,
control premiums and tax rates, among other considerations. Changes in economic and operating conditions impacting these
assumptions could result in an impairment of goodwill in future periods. When available and as appropriate, we use
comparative market multiples to corroborate the estimated fair value.

Intangible assets subject to amortization are also evaluated for impairment periodically or when indicators of impairment are
determined to exist. We test for impairment of intangible assets subject to amortization by comparing the sum of the estimated
undiscounted future cash flows expected to result from the use of the asset to the carrying value. If the sum of the estimated
undiscounted future cash flows is less than the carrying value, the fair value of the asset group is determined. The amount of
impairment, if any, is calculated by subtracting the fair value of the asset from the carrying value of the asset. Our impairment
loss calculations require us to apply judgments in estimating future cash flows and asset fair values. This judgment includes
developing cash flow projections and assessing probability weightings to certain business scenarios. Intangible assets could
become impaired in the future or require additional charges as a result of declines in profitability due to changes in volume,
market pricing, cost, manner in which an asset is used, physical condition of an asset, laws and regulations, or the business
environment. Significant adverse changes to our business environment or expected future cash flows could cause us to record
additional impairment charges in future periods, which could be material. We amortize the cost of intangible assets over their
respective estimated useful lives, generally on a straight-line basis. The ranges for the amortization periods are generally as
follows:

Customer base and relationships........................................................................................................................................
Trademarks.........................................................................................................................................................................
Supply agreements .............................................................................................................................................................
Other ..................................................................................................................................................................................

Years
3 - 15
20
3
3 - 18

Investments in and Advances to Non-consolidated Affiliates

Equity method investments are recorded at original cost and adjusted periodically to recognize (i) our proportionate share of the
investees' net income or losses after the date of investment, (ii) additional contributions made and dividends or distributions
received, and (iii) impairment losses resulting from adjustments to fair value.

We assess the potential impairment of our equity method investments and determine fair value based on valuation
methodologies, as appropriate, including the present value of estimated future cash flows, estimates of sales proceeds, and

external appraisals. If an investment is determined to be impaired and the decline in value is other than temporary, we record an
appropriate write-down.

Debt Issuance Costs

We amortize debt issuance costs and premiums over the remaining life of the related debt using the effective interest method.
The related income or expense is included in Interest expense. We record discounts or premiums as a direct deduction from, or
addition to, the face amount of the debt.

Pensions and Postretirement Benefits

We use actuarial methods and assumptions to account for our pension plans and other postretirement benefit plans. Pension and
other postretirement benefits expense includes the actuarially computed cost of benefits earned during the current service
period, the interest cost on accrued obligations, the expected return on plan assets, the straight-line amortization of net actuarial
gains and losses and plan amendments, and adjustments due to settlements and curtailments.

Engineering and Product Development Costs

Engineering and product development costs arise from ongoing costs associated with improving existing products and
manufacturing processes and for the introduction of new truck and engine components and products, and are expensed as
incurred.

Advertising Costs

Advertising costs are expensed as incurred and are included in Selling, general and administrative expenses. These costs
totaled $31 million, $27 million, and $15 million for the years ended October 31, 2011, 2010 and 2009 respectively.

Contingency Accruals

We accrue for loss contingencies associated with outstanding litigation for which we have determined it is probable that a loss
has occurred and the amount of loss can be reasonably estimated. Our asbestos, product liability, environmental, and workers
compensation accruals also include estimated future legal fees associated with the loss contingencies, as we believe we can
reasonably estimate those costs. In all other instances, legal fees are expensed as incurred. These expenses may be recorded in
Costs of products sold, Selling, general and administrative expenses, or Other (income) expenses, net. These estimates are
based on our expectations of the scope, length to complete, and complexity of the claims. In the future, additional adjustments
may be recorded as the scope, length, or complexity of outstanding litigation changes.

Warranty

We generally offer one to five-year warranty coverage for our truck and engine products and our service parts. Terms and
conditions vary by product, customer, and country. Optional extended warranty contracts can be purchased for periods ranging
from one to ten years. We accrue warranty related costs under standard warranty terms and for claims that we choose to pay as
an accommodation to our customers even though we are not contractually obligated to do so. Warranty revenues related to
extended warranty contracts are amortized to income, over the life of the contract, using the straight-line method. Costs under
extended warranty contracts are expensed as incurred. We base our warranty accruals on estimates of the expected warranty
costs that incorporate historical information, as well as assumptions about the nature, frequency, and average cost of future
warranty claims. Initial warranty estimates for new model year products are based on the previous model year product's
warranty experience until the product progresses through its life cycle and related claims data becomes more mature. For initial
warranty estimates related to new launch year products, we also consider historic experience from previous launches. When
collection is reasonably assured, we also estimate the amount of warranty claim recoveries to be received from our suppliers
and record them in Other current assets and Other noncurrent assets. Recoveries related to specific product recalls, in which a
supplier confirms its liability under the recall, are recorded in Trade and other receivables, net. Warranty costs are included in
Costs of products sold.

Accrued product warranty and deferred warranty revenue activity is as follows:

(in millions)
Balance, at beginning of year .................................................................................................
Costs accrued and revenues deferred .....................................................................................
Acquisitions............................................................................................................................
Adjustments to pre-existing warranties(A) ..............................................................................
Payments and revenues recognized........................................................................................
Warranty adjustment related to legal settlement(B) .................................................................
Balance, at end of year ....................................................................................................
Less: Current portion..............................................................................................................
Noncurrent accrued product warranty and deferred warranty revenue...........................

2011

2010

2009

506
407
5
79
(399)
—
598
263
335

492
269
—
51
(306)
—
506
252
254

602
217
—
114
(366)
(75)
492
246
246

_______________
(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims

experience deviates from historic and expected trends. In the third quarter of 2011, we recorded adjustments for changes in estimates of $30 million, or $0.39 per diluted share.
In the second quarter of 2011, we recorded adjustments for changes in estimates of $27 million, or $0.34 per diluted share. In the third quarter of 2010, we recorded adjustments
for changes in estimates of $25 million, or $0.34 per diluted share. In the second quarter of 2009, we recorded material adjustments for changes in estimates of $61 million or
$0.86 per diluted share.

(B) See Note 2, Restructurings and impairments, under Ford related restructuring activity for discussion regarding warranty adjustments related to the Ford Settlement.

The amount of deferred revenue related to extended warranty programs at October 31, 2011, 2010, and 2009 was $257 million,
$167 million, and $139 million, respectively. Revenue recognized under our extended warranty programs in 2011, 2010, and
2009 was $53 million, $46 million, and $41 million, respectively.

Stock-based Compensation

We have various plans that provide for the granting of stock-based compensation to certain employees, directors, and
consultants, which are described more fully in Note 19, Stock-based compensation plans. Shares are issued upon option
exercise from Common stock held in treasury.

For transactions in which we obtain employee services in exchange for an award of equity instruments, we measure the cost of
the services based on the grant date fair value of the award. We recognize the cost over the period during which an employee is
required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). Costs
related to plans with graded vesting are generally recognized using a straight-line method. Cash flows resulting from tax
benefits for deductions in excess of compensation cost recognized are included in financing cash flows.

Foreign Currency Translation

We translate the financial statements of foreign subsidiaries whose local currency is their functional currency to U.S. dollars
using period-end exchange rates for assets and liabilities and weighted average exchange rates for each period for revenues and
expenses. Differences arising from exchange rate changes are included in the Foreign currency translation adjustments
component of AOCL.

For foreign subsidiaries whose functional currency is the U.S. dollar, we remeasure non-monetary balance sheet accounts and
the related income statement accounts at historical exchange rates. 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. We recognized net foreign currency transaction gains (losses) of $(1) million, $7 million and $36 million in 2011,
2010, and 2009, respectively which were recorded in Other income, net.

Income Taxes

We file a consolidated U.S. federal income tax return for NIC and its eligible domestic subsidiaries. Our non-U.S. subsidiaries
file income tax returns in their respective local jurisdictions. We account for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carry
forwards. Deferred tax assets and liabilities at the end of each period are determined using enacted tax rates. A valuation

allowance is established or maintained when, based on currently available information and other factors, it is more likely than
not that all or a portion of a deferred tax asset will not be realized.

Under the guidance on accounting for uncertainty in income taxes, we recognize the tax benefit from an uncertain tax position
claimed or expected to be claimed on a tax return only if it is more likely than not that the tax position will be sustained on
examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. The guidance on accounting for uncertainty in income taxes also provides guidance on
de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods.

Earnings Per Share

The calculation of basic earnings per share is based on the weighted average number of our common shares outstanding during
the applicable period. The calculation for diluted earnings per share recognizes the effect of all potential dilutive common
shares that were outstanding during the respective periods, unless their impact would be anti-dilutive.

Diluted earnings per share recognizes the dilution that would occur if securities or other contracts to issue common stock were
exercised or converted into shares using the treasury stock method.

Recently Adopted Accounting Standards

As of August 1, 2011, we adopted new guidance which provides additional guidance to creditors for evaluating whether a
modification or restructuring of a receivable is a troubled debt restructuring. The new guidance requires creditors to evaluate
modifications and restructuring of receivables using a more principles-based approach, which may result in more modifications
and restructurings being considered troubled debt restructurings. The adoption of this guidance did not have a material impact
on our consolidated financial statements.

As of January 31, 2011, we adopted new guidance regarding disclosures about the credit quality of financing receivables and
the allowance for credit losses. The guidance requires disaggregated information about the credit quality of financing
receivables and the allowance for credit losses based on portfolio segment and class, as well as disclosure of credit quality
indicators, and past due information. We have complied with the disclosure requirements of the new guidance within Note 5,
Allowance for doubtful accounts.

As of November 1, 2010, we adopted new guidance on accounting for transfers of financial assets. The guidance eliminates the
concept of a qualifying special purpose entity (“QSPE”), changes the requirements for derecognizing financial assets, and
requires additional disclosures in order to enhance information reported to users of financial statements by providing greater
transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in
and exposure to the risks related to transferred financial assets. Upon adoption, transfers of finance receivables from our
Financial Services segment to the TRAC funding conduit no longer receive sale accounting treatment. The adoption of this
guidance did not have a material impact on our consolidated financial statements.

As of November 1, 2010, we adopted new guidance regarding the consolidation of VIEs. The guidance amends the
determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate the VIE,
by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis includes, among other things,
consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic
performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be
significant to the VIE. This guidance also requires continuous reassessments of whether an enterprise is the primary beneficiary
of a VIE. Prior guidance required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when
specific events had occurred. QSPEs, which were previously exempt from the application of this guidance, are now subject to
the provisions of this guidance. The guidance also requires enhanced disclosures about an enterprise’s involvement with a VIE.
The adoption of this guidance did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance on the testing of goodwill

impairment to allow an entity the option to assess qualitative factors to determine whether performing the current two step
goodwill impairment testing process is necessary. Under the option, the calculation of the reporting unit's fair value is not
required to be performed unless as a result of the qualitative assessment, it is more likely than not that the fair value of the
reporting unit is less than the unit's carrying amount. This new guidance is effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. Our effective
date is November 1, 2012. The adoption of this guidance impacts testing steps only, and therefore adoption will not have an
impact on our consolidated financial statements.

In May 2011, the FASB issued new guidance to clarify the application of existing fair value measurement requirements and to
change particular requirements for measuring fair value and for disclosing information about fair value measurements. This
guidance is effective for interim and annual periods beginning on or after December 15, 2011. Our effective date is February 1,
2012. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

2. Restructurings and impairments

The Company recognized $92 million of restructuring charges for the year ended October 31, 2011, primarily related to
restructuring activities at our Fort Wayne facility, Springfield Assembly Plant, Chatham heavy truck plant, Workhorse chassis
plant in Union City, Indiana, and Monaco recreational vehicle (“RV”) headquarters and motor coach manufacturing plant in
Coburg, Oregon within our Truck segment. The Company recognized $15 million of benefits related to restructuring activity in
2010 related to our Indianapolis Engine Plant (“IEP”) and our Indianapolis Casting Corporation foundry (“ICC”) and $59
million of restructuring charges in 2009 in the Engine segment related to changes in our Ford strategy. The restructuring
charges recorded are based on restructuring plans that have been committed to by management and are, in part, based upon
management's best estimates of future events. Changes to the estimates may require future adjustments to the restructuring
liabilities.

The Company is utilizing proceeds from our October 2010 Tax Exempt Bond financing to finance the relocation of the
Company’s world headquarters site, the expansion of an existing warehouse facility, and the development of certain industrial
facilities to facilitate the consolidation of certain operations. In the first quarter of 2011, the Company finalized the purchase of
the property and buildings that we are developing into our new world headquarters site. We continue to develop plans for
efficient transitions related to these activities and the optimization of our operations and management structure. Restructuring
charges related to these activities incurred at the Fort Wayne facility include $29 million for the year ended October 31, 2011.
In addition, we incurred other related charges of $35 million for the year ended October 31, 2011, included in Engineering and
product development costs and Selling, general and administrative expenses. We anticipate additional charges, excluding any
potential lease vacancy charges, to range between $70 million and $90 million through 2013.

Fort Wayne and Springfield restructuring activity

In the first quarter of 2011, the Company committed to a plan to wind-down and transfer certain operations at our Fort Wayne
facility. As a result of the restructuring activities, the Truck segment recognized $29 million of restructuring charges for the
year ended October 31, 2011. The restructuring charges consisted of $13 million in personnel costs for employee termination
and related benefits, $7 million of charges for pension and other postretirement contractual termination benefits and $9 million
of employee relocation costs. In addition, certain employees at our Springfield Assembly Plant accepted retirement and
separation incentive agreements.

We expect the restructuring charges, excluding pension and other postretirement costs, will be paid over the next two to three
years.

On October 30, 2010, our United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”)
represented employees ratified a new four-year labor agreement that replaced the prior contract that expired October 1, 2010.
The new contract allows the Company additional flexibility in manufacturing decisions and includes provisions for the wind-
down of UAW positions at our Fort Wayne facility. As a result of the contract ratification and planned wind-down of UAW
positions at our Fort Wayne facility, the Truck segment recognized $9 million of restructuring charges in the fourth quarter of
2010. The restructuring charges consisted of $5 million in personnel costs for employee termination and related benefits and $4
million of charges for pension and other postretirement contractual termination benefits.

Chatham restructuring activity and impairment of property and equipment

In the third quarter of 2011, the Company committed to close its Chatham, Ontario heavy truck plant, which has been idled
since June 2009 due to an inability to reach a collective bargaining agreement with the CAW. Under the Company's flexible
manufacturing strategy, products previously built in Chatham were transitioned to other assembly plants in North America. The
commitment to close the plant was driven by economic, industry and operational conditions that rendered the plant
uncompetitive. As a result of the restructuring activities, the Truck segment recognized $48 million of restructuring charges for
the year ended October 31, 2011. The restructuring charges consisted of $7 million in personnel costs for employee termination
and related benefits, $33 million of charges for pension and other postretirement statutory and contractual termination benefits
and related charges, and $8 million of other costs. Ultimate pension and postretirement costs and termination benefits are
subject to employee negotiation and acceptance rates. We anticipate additional charges of $30 million to $70 million in future
periods. We expect the restructuring charges, excluding pension and other postretirement costs, will be paid over the next year.

In the third quarter of 2011, the Truck segment recognized $8 million of charges for impairments of property and equipment at
our Chatham facility. The closure of the facility permanently eliminated future cash flows and those carrying values were
determined to not be fully recoverable. We utilized the cost approach and market approach to determine the fair value of certain
assets within the asset group. The impairment charges reflect the impact of the restructuring activities and closure of the
Chatham facility.

In the fourth quarter of 2009, the Truck segment recognized $26 million of charges for impairments of property and equipment
related to asset groups at our Chatham facilities. The asset groups were reviewed for recoverability by comparing the carrying
values to estimated future cash flows and those carrying values were determined to not be fully recoverable. We utilized the
cost approach and market approach to determine the fair value of assets within the asset groups. The impairments at our
Chatham facility reflected a slower than expected recovery of industry volumes and the continuation of our unresolved
negotiations with the CAW.

Custom Products restructuring activity and impairment of property and equipment and intangible assets

In the third quarter of 2011, the Company committed to a restructuring plan of its Workhorse Custom Chassis ("WCC") and
Monaco RV ("Monaco") recreational vehicles (collectively "Custom Products") operations, including the closure of our Union
City, Indiana chassis facility and the wind-down and transfer of certain operations at our RV motor coach plant in Coburg,
Oregon. Production from our Union City plant will be transitioned to a new chassis manufacturing plant in an existing facility
in Springfield, Ohio. The commitment to close the Union City plant was driven by the close proximity of the facility in relation
to the Company's other plants and suppliers, as well as the improved layout of the new facility. Our Monaco RV headquarters
in Coburg will be closed and relocated to the Company's new corporate campus in Lisle, Illinois. In addition, the production of
Class A motor coaches will be transitioned to an existing RV manufacturing facility in Wakarusa, Indiana. The Company plans
to continue producing RV towables and maintain certain administrative functions in facilities in Oregon, as well as maintain a
RV service center there. The commitment to relocate the Monaco RV headquarters, and consolidate all gas and diesel motorized
RVs at the Wakarusa plant, was made to improve operating efficiencies and drive integration.

As a result of these restructuring activities, the Truck segment recognized $10 million of restructuring charges for the year
ended October 31, 2011. The restructuring charges consisted of $6 million in personnel costs for employee termination and
related benefits and $4 million of charges due to a curtailment of other postretirement employee benefit plan and postretirement
contractual termination benefits. These actions are expected to be completed by the second quarter of 2012 and we anticipate
additional charges of $10 million to $20 million in future periods. We expect the restructuring charges, excluding other
postretirement costs, will be paid over the next two years.

In third quarter of 2011, the Truck segment recognized $51 million of charges for impairments of intangible assets, primarily

customer relationships and trade names, associated with the Workhorse asset group. The asset group was reviewed for
recoverability by comparing the carrying value to estimated future undiscounted cash flows and those carrying values were
determined to not be fully recoverable. We utilized the income and market approach to determine the fair value of the asset
group. The impairment charges for the asset group reflect market deterioration and reduction in demand below previously
anticipated levels.

Ford related restructuring activity

In the first quarter of 2010, the Company recognized $17 million of restructuring benefits related to the 2009 restructuring
activity at our IEP and ICC locations. The restructuring benefit primarily related to the settlement of a portion of our other
contractual costs for $16 million within the restructuring liability.

In the first quarter of 2009, we reached a settlement agreement with Ford whereby we agreed to settle our respective lawsuits
against each other (the "Ford Settlement"). The result of the Ford Settlement resolves all prior warranty claims, resolves the
selling price for our engines going forward, and allows Ford to pursue a separate strategy related to diesel engines in its
products. Additionally, both companies agreed to end their current North America supply agreement for diesel engines as of
December 31, 2009 (the agreement was otherwise set to expire July 2012). Also in the first quarter of 2009, we received a $200
million cash payment from Ford, which was recorded as a gain in Other income, net, and we reversed our previously recorded
warranty liability of $75 million, which was recorded as a reduction of Costs of products sold. In the third quarter of 2009, we
increased our interest in our BDP and BDT joint ventures with Ford to 75%. We recognized a gain of $23 million in Other
income, net in connection with the increased equity interests in BDP. The increased equity interest in BDT did not result in a
gain or loss. For additional information on the consolidations of BDP and BDT, see Note 3, Acquisitions and disposals of
businesses. For additional information on the Ford Settlement, see Note 15, Commitments and contingencies.

Also in the first quarter of 2009, with the changes in Ford's strategy, we announced our intention to close IEP and ICC and the
Engine segment recognized $58 million of restructuring charges. The restructuring charges consisted of $21 million in
personnel costs for employee termination and related benefits, $16 million of charges for pension and other postretirement
contractual termination benefits and a pension curtailment, and $21 million of other contractual costs. In the fourth quarter of
2009, the Engine segment recognized an additional $4 million of charges for benefits to terminated employees. Net of first
quarter adjustments of $3 million reducing personnel costs for employee termination, the Engine segment recognized $59
million of restructuring charges for the year ended October 31, 2009. In the third quarter of 2010, we reached agreement with
ICC employees represented by the United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”)
and decided to continue operations at ICC. As a result, we reversed our remaining restructuring reserve of $6 million and $4
million of charges for pension and other postretirement contractual termination benefits associated with the previously planned
action at ICC.

In addition to the restructuring charges, in 2009, the Engine segment recognized other related charges for inventory valuation
and low volume adjustments of $105 million, of which $81 million and $24 million were recognized in Costs of products sold
and Other income, net, respectively. Offsetting the charges were warranty recoveries of $29 million, of which $26 million and
$3 million were recognized in Other income, net and Costs of products sold, respectively. Included in these charges and
offsetting recoveries was the impact of our settlement with Continental Automotive Systems US, Inc. (“Continental”).

In the fourth quarter of 2009, we agreed to settle our commercial dispute related to Continental's low volume damages claim
and our counter claim related to quality issues for products primarily sold to Ford. Through this settlement, our ongoing
business relationships were restructured and all existing claims between the Company and Continental were settled. The
settlement agreement with Continental was a multiple element arrangement which, among other things, included an agreement
for the Company to acquire all membership interests, certain assets, and assume certain liabilities of Continental Diesel
Systems US, LLC (“CDS”), a wholly owned subsidiary of Continental. In addition to a cash payment of $18 million to
Continental, we determined the fair value of consideration exchanged included $29 million of warranty recoveries offset by $27
million of low volume adjustments. Net of the reversal of existing balances, we recognized a net charge of $2 million related to
the settlement. For additional information on the acquisition of CDS, see Note 3, Acquisitions and disposals of businesses. For
additional information on the settlement with Continental, see Note 15, Commitments and contingencies.

Reconciliation of restructuring liability

The following table summarizes the 2011 activity in the restructuring liability related to Fort Wayne, Springfield, Chatham, and
Custom Products, which excludes pension and other postretirement contractual termination benefits:

Balance at
October 31, 2010

Additions

Payments

Adjustments

Balance at
October 31, 2011

(in millions)
Employee termination charges ............................
Employee relocation costs...................................
Other ....................................................................
Restructuring liability...................................

5
—
—
5

31
9
8
48

(5)
(9)
—
(14)

—
—
—
—

31
—
8
39

The following table summarizes the 2010 activity in the restructuring liability related to Ford, which excludes pension and
other postretirement contractual termination benefits charges, and the pension curtailment:

Balance at
October 31, 2009

Additions

Payments

Adjustments

Balance at
October 31, 2010

(in millions)
Employee termination charges ............................
Other contractual costs ........................................
Restructuring liability...................................

3. Acquisitions and disposals of businesses

NC2 Global, LLC

—

(12)
(5)
(17)

(8)
(16)
(24)

—

In September 2009, NC2 Global, LLC (“NC2”) was established as a joint venture with Caterpillar Inc. (“Caterpillar”) to
develop, manufacture, and distribute conventional and cab-over truck designs to serve the global commercial truck market. In
September 2011, Navistar, Inc. restructured our relationship with Caterpillar resulting in the termination of the joint venture
agreement and the Company subsequently acquired all of Caterpillar's ownership interest in NC2, thereby increasing the
Company's equity interest in NC2 from 50% to 100%. To acquire the increased interest, Navistar, Inc. entered into a $40
million floating rate promissory note with Caterpillar, under which the principal amount will be repaid over a 4 year term with
16 quarterly installments. We have consolidated the operating results of NC2 within our Truck segment since September 30,
2011. The effects of accounting for this acquisition were not material.

Blue Diamond Parts

In August 2001, BDP was formed as a joint venture between Ford and Navistar, Inc. (collectively, the “Members”), with Ford
owning 51% and Navistar owning 49%. BDP manages the sourcing, merchandising, and distribution of various spare parts for
vehicles the Members sell in North America. These spare parts are primarily for Navistar diesel engines in Ford trucks,
commercial truck parts, and certain parts for F650/750 and Low-Cab Forward trucks produced for Ford by BDT. Substantially
all of BDP's transactions are between BDP and the Members.

In June 2009, pursuant to the provisions of the Ford Settlement, we increased our equity interest in BDP from 49% to 75%,
effective June 1, 2009. Our voting interest in BDP remains 50%. The receipt of additional equity interest from Ford was among
the various components of the Ford Settlement, and no additional consideration was paid to Ford in connection with the
increase in equity interest in BDP. We determined the fair value of the increased interest in BDP based on a discounted cash
flow model utilizing BDP's estimated future cash flows. The fair value of the increased interest, net of settlement of an
executory contract, was $23 million and we recognized a gain of this amount in Other income, net in our Engine segment in the
third quarter of 2009.

With the increase in our equity interest, we determined that we are now the primary beneficiary of BDP and have consolidated
the operating results of BDP since June 1, 2009. As a result of the BDP acquisition, we recognized an intangible asset for
customer relationships of $45 million and have assigned a useful life of nine years. For additional information on the Ford
related restructuring activity, see Note 2, Restructurings and impairments.

The unaudited pro forma financial information in the table below summarizes the combined results of operations of Navistar
and BDP as though BDP had been combined as of the beginning of the periods presented. The unaudited pro forma financial

information is presented for informational purposes only and is not indicative of the results of operations that would have been
achieved if the acquisition had taken place at the beginning of the periods, or that may result in the future.

(in millions, except per share data)
Sales and revenue, net ...............................................................................................................................................
Income before extraordinary gain .............................................................................................................................
Net income ................................................................................................................................................................
Less: Net income attributable to non-controlling interest.........................................................................................
Net income attributable to Navistar International Corporation.................................................................................

Pro forma basic earnings per share attributable to Navistar International Corporation:

Income attributable to Navistar International Corporation before extraordinary gain....................................
Extraordinary gain, net of tax..........................................................................................................................
Net income attributable to Navistar International Corporation.......................................................................

Pro forma diluted earnings per share attributable to Navistar International Corporation:

2009(A)

(Unaudited)

11,702

295

343

318

4.15

0.33

4.48

4.11

0.32

4.43

______________________
(A) Effective June 1, 2009, BDP changed its fiscal year from December 31 to October 31. Also effective June 1, 2009, BDP is accounted for as a consolidated subsidiary. The

unaudited pro forma financial information for the year ended October 31, 2009, as presented above, reflects the change in fiscal year and is based on the historical unaudited
Consolidated Statement of Operations of BDP for the seven months ended May 31, 2009 (through the date of acquisition) and results of operations of BDP from June 1, 2009
through October 31, 2009 are included in our Consolidated Statement of Operations.

Monaco Coach Corporation

In June 2009, we acquired certain assets of Monaco Coach Corporation, a former recreational vehicle manufacturer, for cash
consideration of approximately $50 million including transaction costs and the payment of certain tax liabilities of $5
million. The acquisition fits our strategy of leveraging our assets to expand our diesel business, serving the end customer, and
complements our WCC business. The fair value assigned to the net assets acquired exceeded the purchase price and was
allocated as a pro rata reduction of the amounts that would have otherwise been assigned to noncurrent assets that are not held-
for-sale, including property and equipment and other intangible assets. The excess that remained after reducing to zero the
amounts that otherwise would have been assigned to noncurrent assets was $23 million and was recognized in Extraordinary
gain, net of tax in our Truck segment. The fair values of the assets and liabilities as of the acquisition date after the pro rata
allocations were $73 million of Inventories, $1 million of Other noncurrent assets, and $1 million of Other current liabilities.
The results of operations for Monaco have been included in the Consolidated Statements of Operations since its acquisition in
our Truck segment.

Blue Diamond Truck

BDT was formed in September 2001 as a joint venture between us and Ford to manufacture and develop certain medium and
light commercial trucks for sale to us and Ford. Historically, BDT has not resulted in material amounts of Equity in income of
non-consolidated affiliates. In June 2009, pursuant to the provisions of the Ford Settlement, we increased our equity interest in
BDT from 51% to 75%, effective June 1, 2009. Our voting interest in BDT remains 50%. The receipt of additional equity
interest from Ford was among the various components of the Ford Settlement, and no additional consideration was paid to Ford
in connection with the increase in equity interest in BDT.

We determined the fair value of the increased interest in BDT based on a discounted cash flow model utilizing BDT's estimated
future cash flows. No gain or loss was recognized in connection with the increased equity interest in BDT. The settlement of
executory contracts did not impact the transaction as they approximated fair value. With the increase in our equity interest, we
determined that we are now the primary beneficiary of BDT and have consolidated the operating results of BDT since June 1,
2009 in our Truck segment. As we are consolidating BDT as a result of being the primary beneficiary of the VIE, we recorded
the initial consolidation based on 100% of the fair values of BDT's assets and liabilities. For additional information on the Ford
related restructuring activity, see Note 2, Restructurings and impairments. In December 2011, Ford notified the Company of its

intention to dissolve the BDT joint venture effective December 2014.

Continental Diesel Systems US, LLC

In October 2009, we acquired all of the membership interests and certain assets and assumed certain liabilities associated with
CDS's Amplified Common Rail injector business, for total consideration of approximately $20 million consisting of $18
million of cash and $2 million of net consideration related to the settlement of prior disputes between the Company and
Continental. CDS is a leading manufacturer of injectors used in fuel systems that are installed into various diesel engines. The
acquired company, renamed Pure Power Technologies, LLC ("PPT"), will allow us to further vertically integrate research and
development, engineering and manufacturing capabilities to produce world-class diesel power systems and advanced emissions
control systems.

The fair value assigned to the net assets acquired exceeded the purchase price and the excess was allocated as a pro rata
reduction of the amounts that would have otherwise been assigned to noncurrent assets including property and equipment and
other intangible assets. As the acquisition closed on October 31, 2009, the assets and liabilities of CDS were consolidated into
our Consolidated Balance Sheet effective October 31, 2009, while the results of operations were consolidated into our
Consolidated Statements of Operations beginning November 1, 2009 in our Engine segment. For additional information on the
settlement of prior disputes between the Company and Continental, see Note 2, Restructurings and impairments.

Workhorse Custom Chassis Escrow

As part of our 2005 acquisition of WCC, $25 million of the purchase price was set aside in an escrow account to be used to
indemnify us for certain contingencies assumed upon acquisition. As of October 31, 2009, $16 million remained in escrow and
we asserted claims in excess of that amount for reimbursement from the seller. In 2009, we received $9 million from the escrow
account as resolution to our asserted claims. The purchase price was reduced by $7 million and was recorded as a reduction to
goodwill and we recognized $2 million in Costs of products sold.

Dealer operations

We acquire and dispose of dealerships from time to time to facilitate the transition of dealerships from one independent owner
to another. These dealerships are included in our consolidated financial statements from their respective dates of acquisition in
our Truck segment. We did not acquire any dealerships in 2011, 2010, or 2009.

We sold four, three, and four of our Dealcors during the years ended October 31, 2011, 2010, and 2009, respectively. The gains
or losses associated with the sales of these Dealcors were not material.

4. Finance receivables

Finance receivables are receivables of our financial services operations, which generally can be repaid without penalty prior to
contractual maturity. Total finance receivables reported on the Consolidated Balance Sheets are net of an allowance for
doubtful accounts. Total on-balance sheet assets of our financial services operations net of intercompany balances are $3.5
billion and $3.3 billion, as of October 31, 2011 and October 31, 2010, respectively. Included in total assets are on-balance sheet
finance receivables of $2.9 billion as of both October 31, 2011 and October 31, 2010.

Our finance receivables by major classification are as follows:

(in millions)
Retail portfolio ......................................................................................................................................
Wholesale portfolio...............................................................................................................................
Amounts due from sales of receivables ................................................................................................
Total finance receivables................................................................................................................
Less: Allowance for doubtful accounts.................................................................................................
Total finance receivables, net.........................................................................................................
Less: Current portion, net(A) ..................................................................................................................
Noncurrent portion, net..................................................................................................................

2011

2010

1,613
1,334
—
2,947
(34)
2,913
(2,198)
715

1,917
1,006
53
2,976
(61)
2,915
(1,770)
1,145

_______________
(A)

The current portion of finance receivables is computed based on contractual maturities. Actual cash collections typically vary from the contractual
cash flows because of prepayments, extensions, delinquencies, credit losses, and renewals.

As of October 31, 2011, contractual maturities of our finance receivables are as follows:

Retail Portfolio

Wholesale
Portfolio

Total

(in millions)
Due in:

2012..........................................................................................................
2013..........................................................................................................
2014..........................................................................................................
2015..........................................................................................................
2016..........................................................................................................
Thereafter.................................................................................................
Gross finance receivables ..................................................................................
Unearned finance income ..................................................................................
Total finance receivables..........................................................................

919
361
240
125
47
17
1,709
(96)
1,613

1,334
—
—
—
—
—
1,334
—
1,334

2,253
361
240
125
47
17
3,043
(96)
2,947

Securitizations

Our financial services operations transfer wholesale notes, retail accounts receivable, retail notes, finance leases, and operating
leases through SPEs, which generally are only permitted to purchase these assets, issue asset-backed securities, and make
payments on the securities. In addition to servicing receivables, our continued involvement in the SPEs includes an economic
interest in the transferred receivables and, historically, managing exposure to interest rates using interest rate swaps, interest
rate caps, and forward contracts. In 2010, certain sales of retail accounts receivables were considered to be sales in accordance
with guidance on accounting for transfers and servicing of financial assets and extinguishment of liabilities, and were
accounted for off-balance sheet. For sales that do qualify for off-balance sheet treatment, an initial gain (loss) is recorded at the
time of the sale while servicing fees and excess spread income are recorded as revenue when earned over the life of the finance
receivables.

We received net proceeds of $4.5 billion, $1.5 billion, and $346 million from securitizations of finance receivables and
investments in operating leases accounted for as secured borrowings in 2011, 2010, and 2009, respectively.

Off-Balance Sheet Securitizations

Effective July 31, 2010, our Financial Services segment amended the wholesale trust agreement with the Navistar Financial
Dealer Note Master Trust (“Master Trust”). The amendment disqualified the Master Trust as a QSPE and therefore required the
Master Trust to be evaluated for consolidation as a VIE. As we are the primary beneficiary of the Master Trust, the Master
Trust’s assets and liabilities are consolidated into the assets and liabilities of the Company. Components of available wholesale
note trust funding facilities were as follows:

Maturity

October 31,
2011

October 31,
2010

As of

(in millions)
Variable funding notes ("VFN").................................................................................
Investor notes .............................................................................................................
Investor notes .............................................................................................................
Total wholesale note funding ...........................................................................

July 2012
October 2012
January 2012

500

350
250
1,100

500
350
250
1,100

Unutilized funding related to the variable funding facilities was $170 million and $500 million at October 31, 2011 and
October 31, 2010, respectively.

TRAC, our consolidated SPE, utilizes a $100 million funding facility arrangement that provides for the funding of eligible
retail accounts receivables. Subsequent to the adoption of new accounting guidance on accounting for transfers of financial
assets, transfers of finance receivables from our Financial Services segment to the TRAC funding facility completed prior to
November 1, 2010 retained their sale accounting treatment, while transfers of finance receivables subsequent to November 1,
2010 no longer receive sale accounting treatment. There were no remaining outstanding retained interests as of October 31,
2011.

The TRAC funding facility has been refinanced with a maturity date of March 2012. The facility is secured by $174 million of
retail accounts and $33 million of cash equivalents as of October 31, 2011, as compared to $54 million of retail accounts and
$21 million of cash equivalents as of October 31, 2010. There were $9 million and $78 million of unutilized funding at
October 31, 2011 and October 31, 2010, respectively. As of October 31, 2011, all pledged receivables of the SPE are
consolidated.

Retained Interests in Off-Balance Sheet Securitizations

Retained interests in off-balance sheet securitizations of $53 million at October 31, 2010, represented our over-collateralization
of the TRAC conduit funding facility. As of October 31, 2011, all retail accounts sold into the conduit prior to November 1,
2010 were liquidated; therefore there were no retained interests in off-balance sheet securitizations.

When retained interests are recorded, we estimate the payment speeds for the receivables sold, the discount rate used to
determine the fair value of our retained interests, and the anticipated net losses on the receivables in order to calculate the initial
gain or loss on the sale of the receivables. Estimates are based on historical experience, anticipated future portfolio
performance, market-based discount rates and other factors and are made separately for each securitization transaction. The fair
value of our retained interests is based on these assumptions. We re-evaluate the fair value of our retained interests on a
monthly basis and recognize changes in current income as required. Our retained interests are recognized as an asset in Finance
receivables, net.

The following is a summary of our retained interests, or amounts due from sales of receivables:

(in millions)
Excess seller's interests..............................................................................................................................................
Interest only strip.......................................................................................................................................................
Restricted cash reserves.............................................................................................................................................
Total amounts due from sales of receivables......................................................................................................

32
—
21
53

October 31,
2010

The key economic assumptions related to the valuation of our retained interests related to our retail account securitization are as
follows:

Discount rate..............................................................................................................................................................
Estimated credit losses ..............................................................................................................................................
Payment speed (percent of portfolio per month).......................................................................................................

October 31,
2010

7.3%
—
88.5%

The sensitivity of our retained interests to an immediate adverse change of 10 percent and 20 percent in each assumption is not
material. The effect of a variation of a particular assumption on the fair value of the retained interests is calculated based upon
changing one assumption at a time. Oftentimes however, changes in one factor may result in changes in another, which in turn
could magnify or counteract these sensitivities.

Finance Revenues

Finance revenues derived from receivables that are both on and off-balance sheet consist of the following:

(in millions)
Finance revenues from on-balance sheet receivables:

Retail notes and finance leases revenue ............................................................................................
Operating lease revenue ....................................................................................................................
Wholesale notes interest....................................................................................................................
Retail and wholesale accounts interest..............................................................................................
Total finance revenues from on-balance sheet receivables.........................................................................
Revenues from off-balance sheet securitization:

Fair value adjustments..................................................................................................................
Excess spread income...................................................................................................................
Servicing fees revenue .................................................................................................................
Gain (loss) on sale of finance receivables ....................................................................................
Securitization income .................................................................................................................................
Gross finance revenues ...............................................................................................................................
Less: Intercompany revenues............................................................................................................
Finance revenues ..........................................................................................................................

2011

2010

136

183

288

—

290

200

273

6
(39)
36

309

219

As a result of the adoption of new accounting guidance, substantially all of our securitization activity in 2011 results in the
receivables being carried on our Consolidated Balance Sheet. Cash flows from off-balance sheet securitization transactions are
as follows:

(in millions)
Proceeds from sales of finance receivables ................................................................................................
Servicing fees..............................................................................................................................................
Cash from net excess spread.......................................................................................................................
Investment Income......................................................................................................................................
Net cash from securitization transactions............................................................................................

3,509

4,178

—

3,547

4,218

2010

2009

5. Allowance for doubtful accounts

The activity related to our allowance for doubtful accounts for our retail portfolio, wholesale portfolio, and trade and other
receivables is summarized as follows:

October 31, 2011

Retail
Portfolio

Wholesale
Portfolio

Trade and
Other
Receivables

Total

(in millions)
Allowance for doubtful accounts, at beginning of period ...................
Provision for doubtful accounts, net of recoveries..............................
Charge-off of accounts(A).....................................................................
Allowance for doubtful accounts, at end of period.........................

58
(5)
(22)
31

—

36
(1)
(18)
17

96
(6)
(40)
50

As of October 31, 2010

Retail
Portfolio

Wholesale
Portfolio

Trade and
Other
Receivables

Total

26
(26)
58

—

2
(11)
36

104

29
(37)
96

As of October 31, 2009

Retail
Portfolio

Wholesale
Portfolio

Trade and
Other
Receivables

Total

39
(28)
58

1
(2)
1

10
(29)
45

113

50
(59)
104

________________
(A) We repossess sold and leased vehicles on defaulted finance receivables and leases, and place them into Inventories. Losses recognized at the time of repossession and charged

against the allowance for doubtful accounts were $20 million, $22 million, and $44 million in 2011, 2010, and 2009, respectively.

The accrual of interest income is discontinued on certain impaired finance receivables. Impaired finance receivables include
accounts with specific loss reserves and certain accounts that are on non-accrual status. In certain cases, we continue to collect
payments on our impaired finance receivables.

Information regarding impaired finance receivables is as follows:

As of October 31, 2011

As of October 31, 2010

Retail
Portfolio

Wholesale
Portfolio

Total

Retail
Portfolio

Wholesale
Portfolio

Total

(in millions)
Impaired finance receivables with specific loss reserves .

Impaired finance receivables without specific loss
reserves .............................................................................

Specific loss reserves on impaired finance receivables....

Finance receivables on non-accrual status........................
Average balance of impaired finance receivables for the
period ended October 31, 2011.........................................

—

10
14

—

—
—

—

10
14

23
50

—

—
1

23
51

The Company uses the aging of our receivables as well as other inputs when assessing credit quality. The aging analysis for
finance receivables is summarized as follows:

(in millions)
Current ..............................................................................................................................
30-90 days past due...........................................................................................................
Over 90 days past due .......................................................................................................
Total finance receivables............................................................................................

1,515
85
13
1,613

1,328
5
1
1,334

2,843
90
14
2,947

As of October 31, 2011
Wholesale
Portfolio

Retail
Portfolio

Total

6. Inventories

As of October 31, the components of inventories are as follows:

(in millions)
Finished products .........................................................................................................................
Work in process............................................................................................................................
Raw materials ...............................................................................................................................
Total inventories....................................................................................................................

2011

2010

873
174
667
1,714

893
202
473
1,568

7. Property and equipment, net

As of October 31, property and equipment, net included the following:

2011

2010

(in millions)
Land ........................................................................................................................................
Buildings.................................................................................................................................
Leasehold improvements ........................................................................................................
Machinery and equipment ......................................................................................................
Furniture, fixtures, and equipment..........................................................................................
Equipment leased to others.....................................................................................................
Construction in progress(A) .....................................................................................................
Total property and equipment, at cost...........................................................................
Less: Accumulated depreciation and amortization.................................................................
Property and equipment, net .........................................................................................

387

2,280

236

291

309

3,626
(2,056)
1,570

366

2,242

202

361

3,370
(1,928)
1,442

_______________
(A) We are consolidating our executive management, certain business operations, and product development into a 1.2 million square foot, world headquarters site in Lisle, Illinois,
which we will complete in the first quarter of fiscal 2012, and we are consolidating our testing and validation center in our Melrose Park facility, which we expect to complete
in 2013. For 2011, Construction in progress includes amounts related to this activity.

Certain of our property and equipment serve as collateral for borrowings. See Note 10, Debt, for description of borrowings.

As of October 31, equipment leased to others and assets under financing arrangements and capital lease obligations are as
follows:

(in millions)
Equipment leased to others ...................................................................................................
Less: Accumulated depreciation ...........................................................................................
Equipment leased to others, net...................................................................................

Buildings, machinery, and equipment under financing arrangements and capital lease
obligations .............................................................................................................................
Less: Accumulated depreciation and amortization ...............................................................
Assets under financing arrangements and capital lease obligations, net.....................

2011

2010

291
(103)
188

100
(71)
29

361
(146)
215

123
(64)
59

For the years ended October 31, 2011, 2010, and 2009, depreciation expense, amortization expense related to assets under
financing arrangements and capital lease obligations, and interest capitalized on construction projects are as follows:

(in millions)
Depreciation expense ...............................................................................
Depreciation of equipment leased to others .............................................
Amortization expense...............................................................................
Interest capitalized....................................................................................

260

236

255

2011

2010

2009

Certain depreciation expense on buildings used for administrative purposes is recorded in Selling, general and administrative
expenses.

Capital Expenditures

At October 31, 2011 and 2010, respectively, commitments for capital expenditures were $44 million and $24 million. At
October 31, 2011, 2010, and 2009, liabilities related to capital expenditures that are included in accounts payable were $22

million, $14 million, and $12 million, respectively.

Leases

We lease certain land, buildings, and equipment under non-cancelable operating leases and capital leases expiring at various
dates through 2024. Operating leases generally have 1 to 20 year terms, with one or more renewal options, with terms to be
negotiated at the time of renewal. Various leases include provisions for rent escalation to recognize increased operating costs or
require us to pay certain maintenance and utility costs. Our rent expense for the years ended October 31, 2011, 2010, and 2009
was $54 million, $57 million, and $54 million, respectively. Rental income from subleases was $4 million, $4 million, and $5
million for the years ended October 31, 2011, 2010, and 2009, respectively.

Future minimum lease payments at October 31, 2011, for those leases having an initial or remaining non-cancelable lease term
in excess of one year and certain leases that are treated as finance lease obligations, are as follows:

Financing
Arrangements
and Capital
Lease Obligations

Operating
Leases(A)

Total

(in millions)
2012........................................................................................................
2013........................................................................................................
2014........................................................................................................
2015........................................................................................................
2016........................................................................................................
Thereafter ...............................................................................................

Less: Interest portion..............................................................................
Total........................................................................................................

64
21

128
(10)
118

50
43

100

317

114
64

102

445

_______________
(A)

In October 2011, we signed a lease agreement and a machinery and equipment purchase agreement related to a facility in Cherokee, Alabama. We will take possession of these
assets January 1, 2012. The amounts presented above include amounts related to this lease.

Asset Retirement Obligations

We have a number of asset retirement obligations in connection with certain owned and leased locations, leasehold
improvements, and sale and leaseback arrangements. Certain of our production facilities contain asbestos that would have to be
removed if such facilities were to be demolished or undergo a major renovation. The fair value of the conditional asset
retirement obligations as of the balance sheet date has been determined to be immaterial. Asset retirement obligations relating
to the cost of removing improvements to leased facilities or returning leased equipment at the end of the associated agreements
are not material.

8. Goodwill and other intangible assets, net

For reporting units with goodwill, we perform an annual goodwill impairment test. In 2011, the Company changed the date of
our annual goodwill impairment test from October 31st to August 1st. As part of our impairment analysis for these reporting
units, we determined the fair value of each of the reporting units based on estimates of their respective future cash flows. The
first step of our annual impairment test, which compared the fair value of each of our reporting units to their respective carrying
values, indicated no impairment of goodwill. Changes in the carrying amount of goodwill for each operating segment are as
follows:

Truck

Engine

Parts

Total

(in millions)
As of October 31, 2008 ...............................................................
Impairments .......................................................................
Currency translation...........................................................
Adjustments(A)....................................................................
Dispositions .......................................................................
As of October 31, 2009 ...............................................................
Currency translation...........................................................
Adjustments(A) ....................................................................
Acquisitions .......................................................................
As of October 31, 2010 ...............................................................
Impairments .......................................................................
Currency translation...........................................................
Adjustments(A) ....................................................................
Acquisitions .......................................................................
As of October 31, 2011...............................................................

84
(2)
—
(7)
(1)
74

—

—
81

175

—

36
(5)
—

206

5
(6)
—

205

—

2
(7)
—
200

—

—
38

297
(2)
36
(12)
(1)
318

5
(6)
7

324

—

2
(7)
—
319

_________________
(A) Adjustments to goodwill primarily result from the tax benefit attributable to the amortization of tax deductible goodwill in excess of goodwill recorded for financial statement

purposes as measured in the MWM International (“MWM”) balance sheet immediately after its acquisition in 2005. Goodwill was also reduced in 2008 due to the favorable tax
settlement of a Brazilian court case. Goodwill in the Truck segment was reduced in 2009 as a result of an adjustment to our purchase price for WCC as a result of receipt of
escrow payments for settlement of a dispute.

Information regarding our intangible assets that are not subject to amortization as of October 31 is as follows:

(in millions)
Dealer franchise rights ..........................................................................................................
Trademarks............................................................................................................................
Intangible assets not subject to amortization ........................................................................

2011

2010

We have an agreement with a third-party engine manufacturer to acquire the rights to certain intellectual property utilized in the
production of our MaxxForce 11 and 13L engines for €30 million. The agreement requires us to pay a royalty fee for each
engine produced by us utilizing this technology until the €30 million is paid in full, but no later than December 31, 2011. As of
October 31, 2011, we owed a remaining balance of approximately €9 million (the equivalent of US$13 million at October 31,
2011).

Information regarding our intangible assets that are subject to amortization at October 31, 2011 and 2010 is as follows:

As of October 31, 2011

Customer
Base and
Relationships

Trademarks

Supply
Agreements

Other

Total

(in millions)
Gross carrying value .........................................
Accumulated amortization ................................
Net of amortization ...........................................

135

(52)

17
(1)
16

27
(27)
—

87
(19)
68

266
(99)
167

As of October 31, 2010

Customer
Base and
Relationships

Trademarks

Supply
Agreements

Other

Total

(in millions)
Gross carrying value .........................................
Accumulated amortization ................................
Net of amortization ...........................................

194

(69)

125

59
(15)
44

27
(27)
—

37
(13)
24

317
(124)
193

We recorded amortization expense for our finite-lived intangible assets of $29 million, $27 million, and $27 million for the
years ended October 31, 2011, 2010, and 2009, respectively. Total estimated amortization expense for our finite-lived
intangible assets for the next five years is as follows:

Estimated
Amortization

(in millions)
2012..........................................................................................................................................................................
2013..........................................................................................................................................................................
2014..........................................................................................................................................................................
2015..........................................................................................................................................................................
2016..........................................................................................................................................................................

9. Investments in and advances to non-consolidated affiliates

Investments in non-consolidated affiliates is comprised of our interests in partially-owned affiliates of which our ownership
percentages range from 10% to 50%. We do not control these affiliates, but have the ability to exercise significant influence
over their operating and financial policies. Our investment in these affiliates is an integral part of our operations, and we
account for them using the equity method of accounting.

We contributed $65 million and $97 million new and incremental investments to these non-consolidated affiliates during 2011
and 2010, respectively.

The following table summarizes 100% of the combined assets, liabilities, and equity of our equity method affiliates as of
October 31:

(in millions)
Assets:
Current assets..................................................................................................................................
Noncurrent assets............................................................................................................................
Total assets......................................................................................................................................
Liabilities and equity:
Current liabilities ............................................................................................................................
Noncurrent liabilities ......................................................................................................................
Total liabilities ................................................................................................................................
Partners' capital and stockholders' equity:
NIC .................................................................................................................................................
Third parties....................................................................................................................................
Total partners' capital and stockholders' equity..............................................................................
Total liabilities and equity ..............................................................................................................

2011

2010

(Unaudited)

214

238

452

118

117

235

144

217
452

341

257

598

192

159

351

108

139

247
598

The following table summarizes 100% of the combined results of operations of our equity method affiliates for the years ended
October 31:

(in millions)
Net sales ................................................................................................................
Costs, expenses, and income tax expense .............................................................
Net income (loss) ..................................................................................................

2011(A)

2010

2009(B)

(Unaudited)

938

1,069
(131)

659

755
(96)

727

643

___________________
(A)
(B)

Includes amounts for NC2 through September 29, 2011.
Includes amounts for BDP and BDT through May 31, 2009.

We recorded sales to certain of these affiliates totaling $107 million, $121 million, and $320 million in 2011, 2010, and 2009,
respectively. We also purchased $426 million, $394 million, and $410 million of products and services from certain of these
affiliates in 2011, 2010, and 2009, respectively. In 2011 and 2010, the majority of these sales relate to NC2. In 2009, the
majority of these sales and a substantial amount of these purchases related to our Blue Diamond affiliates, prior to our
consolidation of these entities.

Amounts due to and due from our affiliates arising from the sale and purchase of products and services as of October 31 are as
follows:

(in millions)
Receivables due from affiliates.......................................................................................................
Payables due to affiliates ................................................................................................................

2011

2010

As of October 31, 2011, our share of net undistributed losses in non-consolidated affiliates totaled $32 million.

Prior to the termination of our NC2 joint venture agreement with Caterpillar, our 50% interest in NC2 was included in
Investments in and advances to non-consolidated affiliates. The carrying value of our investment in NC2 was $40 million at
October 31, 2010. In September 2011, the Company acquired all of Caterpillar's ownership interest in NC2, thereby increasing
the Company's equity interest in NC2 from 50% to 100%. We have consolidated the operating results of NC2 within our Truck
segment since September 30, 2011. In 2011, our equity in loss of NC2 was $39 million. See Note 3, Acquisition and disposal of
businesses, for further discussion.

Presented below is summarized information for NC2, which was considered a significant non-consolidated affiliate in 2011 and
2010, prior to increasing the equity interest in September 2011. Balance sheet information for NC2 was insignificant to our
Consolidated Balance Sheets as of October 31, 2010.

Eleven Months Ended

September 29, 2011

2010

(in millions)
Net revenue.............................................................................................................................

(Unaudited)

235

Net expenses ...........................................................................................................................

Loss before tax expense..........................................................................................................

Net loss ...................................................................................................................................

318
(83)
(83)

135
(72)
(72)

Prior to the Ford Settlement, our 49% interest in BDP and our 51% interest in BDT were included in Investments in and
advances to non-consolidated affiliates. Pursuant to the Ford Settlement, the equity interest in each of BDP and BDT was
increased to 75%. Effective as of June 1, 2009, BDP and BDT are accounted for as consolidated subsidiaries. In 2009, equity in
income of both BDP and BDT was $69 million and dividends from both BDP and BDT were $78 million, including $26
million of non-cash dividends from BDT, through the date of our increased equity interest. See Note 2, Restructurings and
impairments, and Note 3, Acquisition and disposal of businesses, for further discussion.

Presented below is summarized information for BDP, which was considered a significant non-consolidated affiliate in 2009,
prior to increasing the equity interest in June 2009.

(in millions)
Net revenue ....................................................................................................................................................
Net expenses...................................................................................................................................................
Income before tax expense .............................................................................................................................
Net income .....................................................................................................................................................

Seven Months Ended
May 31, 2009

(Unaudited)

118

102

10. Debt

(in millions)
Manufacturing operations

8.25% Senior Notes, due 2021, net of unamortized discount of $33 and $35 at the
respective dates........................................................................................................................
3.0% Senior Subordinated Convertible Notes, due 2014, net of unamortized discount of
$73 and $94 at the respective dates .........................................................................................

Debt of majority-owned dealerships .......................................................................................

Financing arrangements and capital lease obligations ............................................................

Loan Agreement related to 6.5% Tax Exempt Bonds, due 2040.............................................

Promissory Note ......................................................................................................................

Other ........................................................................................................................................

Total manufacturing operations debt................................................................................

Less: Current portion...............................................................................................................
Net long-term manufacturing operations debt .................................................................

Financial services operations

Asset-backed debt issued by consolidated SPEs, at variable rates, due serially through
2018 .........................................................................................................................................

Bank revolvers, at fixed and variable rates, due dates from 2012 through 2018 ....................

Commercial paper, at variable rates, due serially through 2012 .............................................

Borrowings secured by operating and finance leases, at various rates, due serially through
2017 .........................................................................................................................................

Total financial services operations debt ...........................................................................

Less: Current portion...............................................................................................................

2011

2010

967

497

118

225

1,980

99
1,881

1,072

2,876

1,280

965

476

221

225

—

1,986

145
1,841

974

112

2,884

487

2,397

1,664

1,731

Net long-term financial services operations debt .............................................................

1,596

Manufacturing Operations

In October 2011, Navistar, Inc. and various other U.S. subsidiaries signed a definitive loan agreement relating to a five-year
inventory secured, asset-based revolving senior line of credit, facility in an aggregate principal amount of $355 million (the
"Asset-Based Credit Facility"), replacing the $200 million asset-based revolving senior credit facility, which was originally
signed in June 2007 and was to mature in June 2012. The Asset-Based Credit Facility matures on November 1, 2016 and is
secured by inventory at certain of our domestic manufacturing plants, our domestic service parts inventory as well as our
domestic used truck inventory. All borrowings under the Asset-Based Credit Facility will accrue interest at a rate equal to a
Base Rate or an adjusted London Interbank Offered Rate (“LIBOR”) plus a spread. The spread, which will be based on an
availability-based measure, ranges from 50 basis points to 100 basis points for Base Rate borrowings and from 150 basis points
to 200 basis points for LIBOR borrowings. The initial LIBOR spread is 175 basis points. Borrowings under the Asset-Based
Credit Facility are available for general corporate purposes. The LIBOR spread as of October 31, 2011 was 175 basis points. As
of October 31, 2011, we had no borrowings under the Asset-Based Credit Facility. There were no defaults or Events of Default
incurred under the loan agreement as we were, and continue to be, in compliance with all the covenants contained in the
definitive loan agreement. On November 4, 2011, we borrowed $100 million under the Asset-Based Credit Facility to redeem a
portion of our 8.25% Senior Notes, due in 2021.

In September 2011, Navistar, Inc. entered into a $40 million floating rate promissory note with Caterpillar (the "Promissory
Note"), under which the principal amount will be repaid over a 4 year term in 16 quarterly installments. The floating interest
rate for the Promissory Note will be computed based on LIBOR plus 2.75% over the term of the note. For more information
please refer to Note 3, Acquisitions and disposals of businesses.

In October 2010, we benefited from certain tax-exempt bond financings in which (i) the Illinois Finance Authority issued and
sold $135 million aggregate principal amount of Recovery Zone Facility Revenue Bonds due October 15, 2040 and (ii) The

County of Cook, Illinois issued and sold $90 million aggregate principal amount of Recovery Zone Facility Revenue Bonds
also due October 15, 2040 (collectively the “Tax Exempt Bonds”). The Tax Exempt Bonds were issued pursuant to separate,
but substantially identical, indentures of trust dated as of October 1, 2010. The proceeds of the Tax Exempt Bonds were loaned
by each issuer to the Company pursuant to separate, but substantially identical, loan agreements dated as of October 1, 2010.
The proceeds from the issuance of the Tax Exempt Bonds are restricted, and must be used substantially for capital expenditures
related to financing the relocation of the Company's headquarters, the expansion of an existing warehouse facility, and the
development of certain industrial and testing facilities, together with related improvements and equipment (the “Projects”). The
payment of principal and interest on the Tax Exempt Bonds are guaranteed under separate, but substantially identical, bond
guarantees issued by Navistar, Inc. The Tax Exempt Bonds are special, limited obligations of each issuer, payable out of the
revenues and income derived under the related loan agreements and related guarantees. The Tax Exempt Bonds bear interest at
the fixed rate of 6.5% per annum, payable each April 15 and October 15, commencing April 15, 2011. Beginning on
October 15, 2020, the Tax Exempt Bonds are subject to optional redemption at the direction of the Company, in whole or in
part, at the redemption price equal to 100% of the principal amount thereof, plus accrued interest, if any, to the redemption date.
The funds received from the issuance of the Tax Exempt Bonds were deposited directly into trust accounts by the bonding
authority at the time of issuance, and will be remitted to the Company on a reimbursement basis as we make qualified capital
expenditures related to the Projects. As the Company does not have the ability to use these funds for general operating
purposes, they are classified as Other noncurrent assets in our Consolidated Balance Sheets. In addition, as the Company did
not receive cash proceeds upon the closing of the Tax Exempt Bonds, there was no impact on the Consolidated Statement of
Cash Flows for the year ended October 31, 2010. As the Company makes qualifying capital expenditures and is reimbursed by
the Trust, the Company reports the corresponding amounts as capital expenditures and proceeds from issuance of debt within
the Consolidated Statement of Cash Flows. In November 2010, we finalized the purchase of the property and buildings that we
are developing into our new world headquarters site. As of October 31, 2011, reimbursement was received for $91 million of
the $225 million under the Tax Exempt Bonds.

In October 2009, we completed the sale of $1.0 billion aggregate principal amount of our 8.25% Senior Notes due 2021 (the
“Senior Notes”). Interest is payable on May 1 and November 1 of each year until the maturity date of November 1, 2021. The
Company received net proceeds of approximately $947 million, net of offering discount of $37 million and underwriter fees of
$16 million. The discount and debt issue costs are being amortized to Interest expense over the life of the Senior Notes for an
effective rate of 8.96%, and the debt issue costs are recorded in Other noncurrent assets. The proceeds, in conjunction with the
proceeds of the concurrent 3.0% Senior Subordinated Convertible Notes due 2014 (the “Convertible Notes”) discussed below,
were used to repay all amounts outstanding under the prior $1.5 billion 5-year term loan facility and synthetic revolving
facility, as well as certain fees incurred in connection therewith. The Senior Notes are senior unsecured obligations of the
Company.

The Senior Notes contain an optional redemption feature allowing the Company at any time prior to November 1, 2012 to
redeem up to 35% of the aggregate principal amount of the notes using proceeds of certain public equity offerings at a
redemption price of 108.25% of the principal amount of the notes, plus accrued and unpaid interest, if any. On or after
November 1, 2014, the Company can redeem all or part of the Senior Notes during the twelve-month period beginning on
November 1, 2014, 2015, 2016, 2017, and thereafter at a redemption price equal to 104.125%, 102.750%, 101.375%, and
100%, respectively, of the principal amount of the notes redeemed. In addition, not more than once during each twelve-month
period ending on November 1, 2010, 2011, 2012, 2013, and 2014, the Company may redeem up to $50 million in principal
amount of the notes in each such twelve-month period, at a redemption price equal to 103% of the principal amount of the
notes redeemed, plus accrued and unpaid interest, if any. The Company exercised this early redemption feature for $100 million
in total principal by redeeming $50 million on November 1, 2011 and $50 million on November 2, 2011.

The Company may also redeem the Senior Notes at its election in whole or part at any time prior to November 1, 2014 at a
redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, plus accrued and unpaid interest,
to the redemption date. The Applicable Premium is defined as the greater of: 1% of the principal amount and the excess, if any,
of (i) the present value as of such date of redemption of (A) the redemption price of such note on November 1, 2014, plus
(B) all required interest payments due on such note through November 1, 2014, computed using a discount rate equal to the
Treasury Rate (as defined in the debt agreement), plus 50 basis points over (ii) the then-outstanding principal of such note.

In October 2009, we also completed the sale of $570 million aggregate principal amount of our Convertible Notes, including
over-allotment options. Interest is payable on April 15 and October 15 of each year until the maturity date of October 15, 2014.
The Company received net proceeds of approximately $553 million, net of $17 million of underwriter fees. The debt issue costs
are recorded in Other noncurrent assets and are being amortized to Interest expense over the life of the Convertible Notes. The
Convertible Notes are senior subordinated unsecured obligations of the Company.

Holders may convert the Convertible Notes into common stock of the Company at any time on or after April 15, 2014. Holders
may also convert the Convertible Notes at their option prior to April 15, 2014, under the following circumstances: (i) during
any fiscal quarter commencing after January 31, 2010, if the last reported sale price of the common stock for at least 20 trading
days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the
preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each such trading day; (ii) during
the five business day period after any five consecutive trading day period (the “Measurement Period”) in which the trading
price per $1,000 principal amount of notes for each trading day of that Measurement Period was less than 98% of the product
of the last reported sale price of the common stock and the applicable conversion rate on each such trading day; or (iii) upon the
occurrence of specified corporate events, as more fully described in the Convertible Notes Indenture. The conversion rate will
initially be 19.8910 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial
conversion price of approximately $50.27 per share of common stock). The conversion rate may be adjusted for anti-dilution
provisions and the conversion price may be decreased by the Board of Directors to the extent permitted by law and listing
requirements.

The Convertible Notes can be settled in common stock, cash, or a combination of common stock and cash. Upon conversion,
the Company will satisfy its conversion obligations by delivering, at its election, shares of common stock (plus cash in lieu of
fractional shares), cash, or any combination of cash and shares of common stock. If the Company elects to settle in cash or a
combination of cash and shares, the amounts due upon conversion will be based on a daily conversion value calculated on a
proportionate basis for each trading day in a 40 trading-day observation period. If a holder converts its Convertible Notes on or
after April 15, 2014, and the Company elects physical settlement as described above, the holder will not receive the shares of
common stock into which the Convertible Notes are convertible until after the expiration of the observation period described
above, even though the number of shares the holder will receive upon settlement will not change. It is our policy to settle the
principal and accrued interest on the Convertible Notes with cash. Subject to certain exceptions, holders may require the
Company to repurchase, for cash, all or part of the Convertible Notes at a price equal to 100% of the principal amount of the
Convertible Notes being repurchased plus any accrued and unpaid interest.

When the above described circumstances occur and the Convertible Notes are eligible for conversion prior to April 15, 2014 at
the option of the Holders, we reclassify (i) the portion of the Convertible Notes attributable to the conversion feature, which
have not yet been accreted to its face value, from Additional paid in capital to Convertible debt and (ii) the carrying value of
the Convertible Notes from Long-term debt to Notes payable and current maturities of long-term debt on our Consolidated
Balance Sheet as of that period end. In addition, in cases where holders decide to convert prior to the maturity date, the
Company immediately writes off the proportionate amount of remaining debt issue costs. If in subsequent periods these
circumstances do not occur and the Convertible Notes are not eligible for early conversion, the portion of the Convertible Notes
attributable to the conversion feature are reclassified to Long-term debt and Additional paid in capital, respectively, on our
Consolidated Balance Sheet. As the determination of whether the Holders may convert the Convertible Notes early is
performed on a quarterly basis, the Convertible Notes may or may not meet the contingent conversion thresholds and therefore
may be reclassified in future periods. Based upon the closing price of our common stock for the prescribed measurement period
during the three months ended April 30, 2011, the contingent conversion threshold on the Convertible Notes was exceeded. As
a result, the Convertible Notes were convertible at the option of any holder that provided a valid conversion notice prior to
July 31, 2011. We received conversion notices from holders of an immaterial amount of the Convertible Notes during the
conversion period. Based upon the closing price of our common stock for the prescribed measurement periods during
subsequent periods, the contingent conversion thresholds on the Convertible Notes were not exceeded.

In connection with the sale of the Convertible Notes, the Company purchased call options for $125 million. The call options
cover 11,337,870 shares of common stock, subject to adjustments, at an exercise price of $50.27. The call options are intended
to minimize share dilution associated with the Convertible Notes. In addition, in connection with the sale of the Convertible
Notes, the Company also entered into separate warrant transactions whereby, the Company sold warrants for $87 million to
purchase in the aggregate 11,337,870 shares of common stock, subject to adjustments, at an exercise price of $60.14 per share
of common stock. As the call options and warrants are indexed to our common stock, we recognized them in permanent equity
in Additional paid in capital, and will not recognize subsequent changes in fair value as long as the instruments remain
classified as equity. As a result of the conversion notices received prior to July 31, 2011, an immaterial number of call options
were exercised by the Company to match the number of shares covered by the conversion notices received. The number of
warrants outstanding remains unchanged as none were exercised.

Our majority-owned dealerships incur debt to finance their inventories, property, and equipment. The various dealership debt
instruments have interest rates that range from 4.9% to 6.8% and maturities that extend to 2017.

Included in our financing arrangements and capital lease obligations are financing arrangements of $113 million and $203

million as of October 31, 2011 and 2010, respectively. These arrangements involve the sale and leaseback of manufacturing
equipment considered integral equipment. Accordingly, these arrangements are accounted for as financings. Inception dates of
these arrangements range from April 2000 to June 2002, remaining terms range from 8 months to 3 years, effective interest
rates vary from 3.2% to 4.0%, and buyout option exercise dates ranged from December 2007 to September 2009. In addition,
the amount of financing arrangements and capital lease obligations include $5 million and $18 million of capital leases for real
estate and equipment as of October 31, 2011 and October 31, 2010, respectively. Interest rates used in computing the net
present value of the lease payments under capital leases ranged from 6.7% to 8.6%.

Financial Services Operations

TRAC, our consolidated SPE, utilized a $100 million funding facility arrangement that provided for the funding of eligible
retail accounts receivables. Subsequent to the adoption of new accounting guidance on accounting for transfers of financial
assets, transfers of finance receivables from our Financial Services segment to the TRAC funding facility completed prior to
November 1, 2010 retained their sale accounting treatment while transfers of finance receivables subsequent to November 1,
2010 no longer receive sale accounting treatment. Accordingly, borrowings secured by the transferred receivables are included
in Notes payable and current maturities of long-term debt within our Consolidated Balance Sheet as of October 31, 2011. In
January 2011, the maturity of the funding facility maturity was extended to March 2011, and in March 2011, the funding
facility was refinanced with a maturity date of March 2012. As of October 31, 2011, all borrowings of the SPE are included in
our consolidated financial statements.

Effective July 31, 2010, the terms of the wholesale trust agreement were amended to allow NFC, as transferor, an element of
control over the transferred receivables and control over eligibility of receivables available for transfer. This amendment
disqualifies the Master Trust as a QSPE and therefore disqualifies transfers of receivables to the Master Trust from sale
accounting treatment. As of July 31, 2010, liabilities of the trust of $600 million have been recognized as borrowings secured
by the underlying receivables. For additional information, see Note 4, Finance receivables.

In May 2010, our wholly owned subsidiary Navistar Financial Retail Receivables Corporation (“NFRRC”) issued secured
notes for $919 million. A portion of the proceeds were used to pay off certain existing retail secured borrowings and the
remaining portion was used to pay off the revolving retail warehouse facility within the Truck Retail Installment Paper
Corporation (“TRIP”) of $500 million at maturity on June 15, 2010. In October 2010, NFRRC issued secured notes for $290
million. These proceeds were used primarily to pay-off certain existing secured borrowings and closeout the related interest rate
swap position.

In December 2009, NFC refinanced the revolving credit agreement dated July 2005, as amended, with a $815 million, three-
year facility that was scheduled to mature in December 2012, with an interest rate of LIBOR plus 425 basis points (“Credit
Agreement”). The Credit Agreement contains a term loan of $365 million and a revolving loan of $450 million with a Mexican
sub-revolver of $100 million which was used by NIC's Mexican financial services operations. Under the Credit Agreement,
NFC is subject to customary operational and financial covenants including an initial minimum collateral coverage ratio of
120%, increasing to 135% effective November 2010, and 150% effective November 2011. Concurrent with the refinancing in
December 2009, Navistar Financial Asset Sales Corporation issued borrowings secured by asset backed securities of $225
million and NFC issued a term loan secured by retail notes and leases of $79 million with monthly scheduled principal
payments through March 2013, with weighted average interest rates of 5.7% and 5.9%, respectively.

In December 2011, the Credit Agreement was refinanced with a five-year $840 million facility consisting of a $340 million
term loan and a $500 million revolving line of credit. The new facility is subject to customary operational and financial
covenants. Quarterly principal payments on the term portion will be $4 million for the first eight quarters, $9 million for the
next eleven quarters, with the balance due at maturity.

TRIP, a special purpose, wholly-owned subsidiary of NFC, had a $500 million revolving retail facility that matured and was
paid in June 2010. The facility was subject to optional early redemption in full without penalty or premium upon satisfaction of
certain terms and conditions on any date on or after April 15, 2010. NFC used TRIP to temporarily fund retail notes and retail
leases, other than operating leases, and this facility was used primarily during the periods prior to the securitization of retail
notes and finance leases. NFC retained a repurchase option against the retail notes and leases sold into TRIP; therefore, TRIP's
assets and liabilities were included in our Consolidated Balance Sheets.

The majority of asset-backed debt is issued by consolidated SPEs and is payable out of collections on the finance receivables
sold to the SPEs. This debt is the legal obligation of the SPEs and not NFC. The balance outstanding was $1.7 billion and $1.7
billion as of October 31, 2011 and 2010, respectively. The carrying amount of the retail notes, wholesale notes and finance
leases used as collateral was $1.9 billion as of October 31, 2011 and 2010. In November 2009, we exercised our right to pay off

retail securitization debt of $67 million in advance of final maturity.

NFC enters into secured borrowing agreements involving vehicles subject to operating and finance leases with retail customers.
The balances are classified under financial services operations debt as borrowings secured by leases. In connection with the
securitizations and secured borrowing agreements of certain of its leasing portfolio assets, NFC and its subsidiary, Navistar
Leasing Services Corporation (“NLSC”), have established Navistar Leasing Company (“NLC”), a Delaware business trust.
NLC holds legal title to leased vehicles and is the lessor on substantially all leases originated by NFC. NLSC owns beneficial
interests in the titles held by NLC and has transferred other beneficial interests issued by NLC to purchasers under secured
borrowing agreements and securitizations. Neither the beneficial interests held by purchasers under secured borrowing
agreements or the assets represented thereby, nor legal interest in any assets of NLC, are available to NLSC, NFC, or its
creditors. The balance of the secured borrowings issued by NLC totaled $6 million and $7 million as of October 31, 2011 and
2010, respectively.

International Truck Leasing Corporation (“ITLC”), a special purpose, wholly-owned subsidiary of NFC, provides NFC with
another entity to obtain borrowings secured by leases. The balances are classified under financial services operations debt as
borrowings secured by leases. ITLC's assets are available to satisfy its creditors' claims prior to such assets becoming available
for ITLC's use or to NFC or affiliated companies. The balance of these secured borrowings issued by ITLC totaled $64 million
and $105 million as of October 31, 2011 and 2010, respectively. The carrying amount of the finance and operating leases used
as collateral was $70 million and $107 million as of October 31, 2011 and 2010, respectively. ITLC does not have any
unsecured debt.

We borrow funds denominated in U.S. dollars and Mexican pesos to be used for investment in our Mexican financial services
operations. As of October 31, 2011, borrowings outstanding under these arrangements were $348 million, of which 21% is
denominated in dollars and 79% in pesos. As of October 31, 2010, borrowings outstanding under these arrangements were $295
million, of which 17% is denominated in dollars and 83% in pesos. The interest rates on the dollar-denominated debt are at a
negotiated fixed rate or at a variable rate based on LIBOR, and the interest rates on peso-denominated debt are based on the
Interbank Interest Equilibrium Rate. As of October 31, 2011 and 2010, these borrowings included commercial paper of $70
million and $67 million, respectively. The remaining borrowings are effectively secured by the Mexican finance receivables.

Future Maturities

The aggregate contractual annual maturities for debt as of October 31, 2011, are as follows:

Manufacturing
Operations(A)

Financial
Services
Operations(B)

Total

(in millions)
2012 .........................................................................................................
2013 .........................................................................................................
2014 .........................................................................................................
2015 .........................................................................................................
2016 .........................................................................................................
Thereafter ................................................................................................
Total debt.................................................................................................
Less: Unamortized discount ....................................................................
Net debt ...................................................................................................

1,280

109

615

21
8

1,234

2,086
(106)
1,980

219

454

62
91

770

2,876

—

2,876

1,379

328

1,069

83
99

2,004

4,962
(106)
4,856

______________________
(A) Amounts include the borrowing of $100 million under the Asset-Based Credit Facility in November 2011, reflected as being due in 2017.
(B) Amounts reflect the NFC refinancing of its bank credit facility in December 2011 with a five-year revolving line of credit and term loan, totaling $840 million, which shifted

certain debt maturities to be largely due in 2017.

Debt and Lease Covenants

We have certain public and private debt agreements, including the indenture for our Senior Notes and the Tax Exempt Bonds
and the Asset-Based Credit Facility, which limit our ability to incur additional indebtedness, pay dividends, buy back our stock,
and take other actions. The terms of our Convertible Notes do not contain covenants that could limit the amount of debt we
may issue, or restrict us from paying dividends or repurchasing our other securities. However, the Convertible Notes Indenture
defines circumstances under which the Company would be required to repurchase the Convertible Notes and includes

limitations on consolidation, merger, and sale of the Company's assets. As of October 31, 2011, we were in compliance with
these covenants.

We are also required under certain agreements with public and private lenders of NFC to ensure that NFC and its subsidiaries
maintain their income before interest expense and income taxes at not less than 125% of their total interest expense. Under
these agreements, if NFC's consolidated income, including capital contributions made by NIC or Navistar, Inc., before interest
expense and income taxes is less than 125% of its interest expense (“fixed charge coverage ratio”), NIC or Navistar, Inc. must
make payments to NFC to achieve the required ratio. During the years ended October 31, 2011 and 2010, no such payments
were made. In 2009, $20 million of such payments were required and made from Navistar, Inc. to NFC to ensure compliance
with the covenant.

Our Mexican financial services operations also have debt covenants, which require the maintenance of certain financial ratios.
As of October 31, 2011, we were in compliance with those covenants.

11. Postretirement benefits

Defined Benefit Plans

We provide postretirement benefits to a substantial portion of our employees. Costs associated with postretirement benefits
include pension and postretirement health care expenses for employees, retirees, and surviving spouses and dependents.

Obligations and Funded Status

A summary of the changes in benefit obligations and plan assets is as follows:

(in millions)
Change in benefit obligations
Benefit obligations at beginning of year .....................................................
Amendments and administrative changes ...................................................
Service cost..................................................................................................
Interest on obligations .................................................................................
Actuarial loss (gain) ....................................................................................
Curtailments ................................................................................................
Contractual termination benefits .................................................................
Retrospective payments due to retirees .......................................................
Currency translation ....................................................................................
Plan participants' contributions ...................................................................
Subsidy receipts...........................................................................................
Benefits paid................................................................................................
Benefit obligations at end of year................................................................

Change in plan assets
Fair value of plan assets at beginning of year .............................................
Actual return on plan assets.........................................................................
Currency translation ....................................................................................
Employer contributions ...............................................................................
Benefits paid................................................................................................
Fair value of plan assets at end of year........................................................
Funded status at year end.........................................................................

Amounts recognized in our Consolidated Balance Sheets consist of:
Current liability ...........................................................................................
Noncurrent liability .....................................................................................
Net liability recognized ...............................................................................

Amounts recognized in our accumulated other comprehensive loss
consist of:
Net actuarial loss .........................................................................................
Net prior service cost (benefit) ....................................................................
Net amount recognized................................................................................

Pension Benefits

Health and Life
Insurance Benefits

2011

2010

2011

2010

4,005

3,850

1,162

—

189

242
(11)
38

—

26
—

209

253
(3)
1

—

1
—

302

547

—
34

1,631
(341)
8

81
(89)
2
(2)
—

—
32

—
(335)
4,171

—
(328)
4,005

—
(141)
2,000

15
(175)
1,162

2,479

2,317

509

134
(321)
2,392
(1,779)

(13)
(1,766)
(1,779)

2,170

2,175

369
(4)
115
(318)
2,479
(1,526)

(10)
(1,516)
(1,526)

1,900

1,908

—

2
(70)
463
(1,537)

(93)
(1,444)
(1,537)

654
(21)
633

473

—

2
(44)
509
(653)

(72)
(581)
(653)

92
(352)
(260)

The accumulated benefit obligation for pension benefits, a measure that excludes the effect of prospective salary and wage
increases, was $4.1 billion and $3.9 billion at October 31, 2011 and 2010, respectively.

The cumulative postretirement benefit adjustment included in the Consolidated Statement of Stockholders' Equity at October
31, 2011 is net of $758 million of deferred taxes related to the Company's postretirement benefit plans.

Information for pension plans with accumulated benefit obligations in excess of plan assets were as follows:

(in millions)
Projected benefit obligations ..........................................................................................................
Accumulated benefit obligations ....................................................................................................
Fair value of plan assets..................................................................................................................

4,171

4,113

2,392

4,005

3,942

2,479

2011

2010

Generally, the pension plans are non-contributory. Our policy is to fund the pension plans in accordance with applicable
U.S. and Canadian government regulations and to make additional contributions from time to time. As of October 31, 2011, we
have met all regulatory funding requirements. In 2011, we contributed $134 million to our pension plans to meet regulatory
funding requirements. We expect to contribute $187 million to our pension plans during 2012.

We primarily fund other post-employment benefit (“OPEB”) obligations, such as retiree medical, in accordance with a 1993
Settlement Agreement, which requires us to fund a portion of the plans' annual service cost. In 2011, we contributed $2 million
to our OPEB plans to meet legal funding requirements. We expect to contribute $2 million to our OPEB plans during 2012.

We have certain unfunded pension plans, under which we make payments directly to employees. Benefit payments of $14
million in 2011 and $10 million in 2010 are included within the amount of “Benefits paid” in the “Change in benefit
obligation” section above, but are not included in the “Change in plan assets” section, because the payments are made directly
by us and not by separate trusts that are used in the funding of our other pension plans.

We also have certain OPEB benefits that are paid from Company assets (instead of trust assets). Payments from Company
assets, net of participant contributions and subsidy receipts, result in differences between benefits paid as presented under
“Change in benefit obligation” and “Change in plan assets” of $37 million for 2011 and $84 million for 2010.

Components of Net Periodic Benefit Expense (Income) and Other Amounts Recognized in Other Comprehensive Loss
(Income)

The components of our postretirement benefits (income) expense included in our Consolidated Statements of Operations for the
years ended October 31 consist of the following:

(in millions)
Pension expense ....................................................................................................
Health and life insurance expense.........................................................................
Total postretirement benefits expense...................................................................

139

169

142

179

154

233

2011

2010

2009

Net postretirement benefits expense included in our Consolidated Statements of Operations, and other amounts recognized in
our Consolidated Statements of Stockholders' Equity (Deficit), for the years ended October 31 is comprised of the following:

(in millions)
Service cost for benefits earned during the period .............
Interest on obligation..........................................................
Amortization of cumulative loss (gain)..............................
Amortization of prior service cost (benefit) .......................
Curtailments .......................................................................
Contractual termination benefits ........................................
Retrospective payments to retirees.....................................
Premiums on pension insurance .........................................
Expected return on assets ...................................................
Net postretirement benefits expense ...........................

Other changes in plan assets and benefit obligations
recognized in other comprehensive loss (income)

Actuarial net loss (gain) ..............................................
Amortization of cumulative gain (loss) ......................
Prior service cost (benefit) ..........................................
Amortization of prior service benefit (cost)................
Curtailments ................................................................
Currency translation ....................................................
Total recognized in other comprehensive loss (income)....
Total net postretirement benefits expense (income) and
other comprehensive loss (income)....................................

Pension
Expense (Income)

Health and Life Insurance
Expense (Income)

2011

2010

2009

2011

2010

2009

189

—

6
(211)
139

374
(97)
—
(1)
(13)
4

267

406

209

—

7
(193)
142

77
(98)
4
(1)
(3)
4
(17)

125

234

—

6
(189)
154

713
(72)
4
(1)
—

—

644

798

4
(29)
11

—
(41)
30

566
(4)
302

—

893

923

8
(20)
2
(2)
—

—
(40)
37

(127)
(8)
(341)
20

—

—
(456)

117
(2)
(5)
—

—

—
(40)
79

180

—

187

(419)

266

As discussed in Note 2, Restructurings and impairments, the Company committed to close its Chatham, Ontario plant. During
the third quarter of 2011, the plant closure resulted in a pension curtailment gain of $8 million that was recognized as a
component of AOCL and contractual termination charges of $35 million. The closure also resulted in an OPEB charge of $13
million during the third quarter of 2011 representing a plan curtailment and related contractual termination benefits.

The Company also incurred an OPEB charge of $4 million during the third quarter of 2011 due to an OPEB plan curtailment
and contractual termination charges related to the closure of the Workhorse Union City plant.

In the first quarter of 2011, the Company incurred a charge of $5 million due to a plan curtailment and contractual termination
benefits related to restructuring activities at the Fort Wayne facility, as discussed in Note 2, Restructurings and impairments.

On October 30, 2010, our UAW represented employees ratified a new four-year labor agreement that replaced the prior contract
that expired October 1, 2010. As a result of the contract ratification, the Company recognized $3 million of contractual
termination benefits for pension in the fourth quarter of 2010.

During 2010, the Company made an administrative change to the prescription drug program under the OPEB plan affecting
plan participants who are Medicare eligible. The Company enrolled Medicare eligible plan participants who did not opt out into
a Medicare Part D Plan. The OPEB plan supplemented the coverage provided by the Medicare Part D Plan. As a result of this
change, for substantially all of the Medicare eligible participants, the Company is no longer eligible to receive the Medicare
Part D subsidy that is available to sponsors of retiree healthcare plans that provide prescription drug benefits that are at least
actuarially equivalent to Medicare Part D. As discussed in Note 15, Commitments and contingencies, the UAW filed a motion
(the “Shy Motion”) contesting our ability to implement this administrative change. The Court ruled on the Shy Motion in the
second quarter of 2011 sustaining the Plaintiffs' argument that the Company did not have the authority to unilaterally substitute
Medicare Part D for the prescription drug benefit that the Plaintiffs had been receiving under the 1993 Settlement Agreement.
In the fourth quarter of 2011, the Court ordered relief for the Plaintiffs in the form of reimbursement of premiums and certain

prescription drug expenses paid by participants since the plan change on July 1, 2010. The Company increased postretirement
benefits expense by $15 million in connection with this order. Additionally, the Court ordered a reinstatement of the prior
benefits that existed before the change on July 1, 2010 that resulted in a plan re-measurement at September 30, 2011. The
impact of reinstating the prior benefits included the reversal of the remaining prior service credit of $302 million associated
with the July 2010 plan change which had been previously recorded in AOCL and an additional increase in accumulated
postretirement benefit obligation ("APBO") of $200 million that was accounted for as an actuarial loss in AOCL. The effect of
the re-measurement increased postretirement benefits expense by $9 million in the fourth quarter.

Also during 2010, the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education
Reconciliation Act of 2010 (“HCERA”), which amends certain aspects of the PPACA, were enacted. The impact of the PPACA
and the HCERA was estimated and included in the measurement of the OPEB obligation. As regulations regarding
implementation of the health care reform legislation are promulgated and additional guidance becomes available, our estimates
may change.

The Early Retiree Reinsurance Program (“ERRP”) was created under PPACA to provide temporary financial assistance to
health plan sponsors who provide retirement health coverage to pre-Medicare retirees. Under the terms of ERRP, $10 million
was collected and deposited into the retiree benefit trust during 2011 and was accounted for as part of the actual return on
assets.

In addition, in March 2010 the Company recognized a charge of $2 million which was primarily curtailment charges related to
the retiree medical plan due to the planned terminations of certain salaried employees in conjunction with NFC's U.S. financing
alliance with GE.

The Company had previously committed to close its IEP and ICC locations resulting in a charge of $16 million during the first
quarter of 2009 representing a plan curtailment and related contractual termination benefits. In July 2010, we reached an
agreement with ICC employees represented by the UAW and are now continuing operations at ICC. As a result, in the third
quarter of 2010, we reversed $4 million of charges for pension and OPEB contractual termination benefits that were associated
with the previously planned action.

In addition to the plan curtailment and related contractual termination benefits resulting from the Ford Settlement, the
Company recognized an additional $2 million of contractual termination benefits related to the terminations of certain salaried
employees in December 2008.

The estimated amounts for the defined benefit pension plans and the other postretirement benefit plans that will be amortized
from AOCL into net periodic benefit expense over the next fiscal year are as follows:

Pension
Benefits

Health
and Life
Insurance
Benefits

(in millions)
Amortization of prior service cost (benefit)..................................................................................
Amortization of cumulative losses................................................................................................

109

(5)
37

Cumulative unrecognized actuarial gains and losses for postretirement benefit plans, where substantially all of the plan
participants are inactive, are amortized over the average remaining life expectancy of the inactive plan participants. Otherwise,
cumulative gains and losses are amortized over the average remaining service period of active employees.

Plan amendments unrelated to negotiated labor contracts are amortized over the average remaining service period of active
employees or the remaining life expectancy of the inactive participants based upon the nature of the amendment and the
participants impacted. Plan amendments arising from negotiated labor contracts are amortized over the length of the contract.

Assumptions

The weighted average rate assumptions used in determining benefit obligations for the years ended October 31, 2011 and 2010
were:

Pension Benefits

Health and Life
Insurance Benefits

2011

2010

2011

2010

Discount rate used to determine present value of benefit obligation at end
of year..........................................................................................................
Expected rate of increase in future compensation levels.............................

4.2%

3.5%

4.8%

3.5%

4.2%

—

4.6%

—

The weighted average rate assumptions used in determining net postretirement benefits expense for 2011, 2010, and 2009 were:

Pension
Benefits

Health and Life
Insurance Benefits

2011

2010

2009

2011

2010

2009

Discount rate(A) ........................................................................
Expected long-term rate of return on plan assets ....................
Expected rate of increase in future compensation levels.........

4.8%

8.5%

3.5%

5.4%

8.5%

3.5%

7.6%

9.0%

3.5%

4.6%

8.5%

—

5.6%

8.5%

—

8.4%

9.0%

—

______________________
(A)

In 2009 for pension benefits, the weighted average discount rate used to compute the expense for the period of November 1, 2008 through January 31, 2009 was 8.3%. Due to a
plan remeasurement at January 31, 2009 at a rate of 6.5%, the weighted average discount rate for the full fiscal year 2009 was 7.6%. In 2010 for health and life insurance
benefits, the weighted average discount rate used to compute the expense for the period of November 1, 2009 through March 31, 2010 was 5.5%. Due to a plan remeasurement
at March 31, 2010 at a rate of 5.6%, the weighted average discount rate for the full fiscal year 2010 was 5.6%.

The actuarial assumptions used to compute the net postretirement benefits expense (income) are based upon information
available as of the beginning of the year, specifically market interest rates, past experience, and our best estimate of future
economic conditions. Changes in these assumptions may impact the measurement of future benefit costs and obligations. In
computing future costs and obligations, we must make assumptions about such things as employee mortality and turnover,
expected salary and wage increases, discount rates, expected returns on plan assets, and expected future cost increases. Three of
these items have a significant impact on the level of expense recognized: (i) discount rates, (ii) expected rates of return on plan
assets, and (iii) healthcare cost trend rates.

We determine the discount rate for our U.S. pension and OPEB obligations by matching anticipated future benefit payments for
the plans to the Citigroup yield curve to establish a weighted average discount rate for each plan.

We determine our assumption as to expected return on plan assets by evaluating both historical returns as well as estimates of
future returns. Specifically, we analyze the average historical broad market returns for various periods of time over the past
100 years for equities and over a 30-year period for fixed income securities, and adjust the computed amount for any expected
changes in the long-term outlook for both the equity and fixed income markets. We consider the current asset mix as well as our
targeted asset mix when establishing the expected return on plan assets.

Health care cost trend rates have been established through a review of actual recent cost trends and projected future trends. Our
retiree medical and drug cost trend assumptions are our best estimate of expected inflationary increases to healthcare costs. Due
to the number of former employees and their beneficiaries included in our retiree population (approximately 40,000), the trend
assumptions are based upon both our specific trends and nationally expected trends.

The weighted average rate of increase in the per capita cost of postretirement health care benefits provided through U.S. plans
representing 91% of our other postretirement benefit obligation, is projected to be 10.5% in 2012 and was estimated as 7.5%
for 2011. Our projections assume that the rate will decrease to 5% by the year 2016 and remain at that level each year
thereafter.

100

The effect of changing the health care cost trend rate by one-percentage point for each future year is as follows:

One-
Percentage
Point Increase

One-
Percentage
Point Decrease

(in millions)
Effect on total of service and interest cost components................................................................
Effect on postretirement benefit obligation...................................................................................

192

(8)
(201)

Plan Assets

The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs
used in valuation techniques (Level 1, 2 and 3). See Note 13, Fair value measurements, for a discussion of the fair value
hierarchy.

The following describes the methods and significant assumptions used to estimate fair value of the investments:

Cash and short-term investments—Valued at cost plus earnings from investments for the period, which approximates fair
market value due to the short-term duration. Cash equivalents are valued at net asset value as provided by the administrator of
the fund.

U.S. Government and agency securities—Valued at the closing price reported on the active market on which the security is
traded or valued by the trustee at year-end using various pricing services of financial institutions, including Interactive Data
Corporation, Standard & Poor's and Telekurs.

Corporate debt securities—Valued by the trustee at year-end using various pricing services of financial institutions, including
Interactive Data Corporation, Standard & Poor's and Telekurs.

Common and preferred stock—Valued at the closing price reported on the active market on which the security is traded.

Collective trusts, Partnerships/joint venture interests and Hedge funds—Valued at the net asset value provided by the
administrator of the fund. The net asset value is based on the value of the underlying assets owned by the fund, minus its
liabilities, divided by the number of units outstanding.

101

The fair value of the pension and other post retirement benefit plan assets by category is summarized below:

Pension Assets

(in millions)
Asset Category

2011

2010

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Cash and Cash Equivalents .............

$ —

190

$ —

190

Equity

U.S. Large Cap................................
U.S. SMid Cap ................................
Canadian..........................................
International ....................................
Emerging Markets...........................
Navistar Common Stock .................

Fixed Income

Corporate Bonds .............................
Government Bonds .........................
Asset Backed Securities ..................
Mortgage Backed Securities ...........

Collective Trusts and Other

Common and Preferred Stock .........
Commodities ...................................
Hedge Funds ...................................
Private Equity..................................
Mutual Funds ..................................
Real Estate.......................................
Unallocated Insurance Contract ......
Other................................................
Total(A)......................................

492

242

103

179

105

—

466

225

231

—

492

242

103

179

105

—

466

225

231

—

482

193

113

202

112

—

189

309

284

—

102

—

120

—

482

193

113

202

112

189

309

284

102

120

$ 1,237

$ 1,025

175

$ 2,437

$ 1,377

885

280

$ 2,542

______________________
(A) For October 31, 2011 and 2010, the total excludes $8 million and $6 million of receivables, respectively, included in the change in plan asset table. In addition, the table above
includes the fair value of Canadian pension assets translated at the October 31, 2011 and October 31, 2010 exchange rates while the change in plan asset table includes the fair
value of Canadian pension assets translated at historical foreign currency rates.

102

The table below presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy for
pension assets for the year ended October 31, 2011 and 2010:

Hedge
Funds

Private
Equity

Real Estate

Insurance
Contract

(in millions)
Balance at November 1, 2009 ....................................................................
Unrealized gains..................................................................................
Realized gains (losses) ........................................................................
Purchases, issuances, and settlements.................................................
Balance at October 31, 2010........................................................
Balance at November 1, 2010 ....................................................................
Unrealized gains (losses) ....................................................................
Realized gains (losses) ........................................................................
Purchases, issuances, and settlements.................................................
Balance at October 31, 2011........................................................

140

1
(49)
102

102
(21)
19
(1)
99

—

3
75

—

—
1

110

—

120

—

1
(121)
—

Other Postretirement Benefits

(in millions)
Asset Category

2011

2010

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Cash and Cash Equivalents......................

$ —

Equity

U.S. Large Cap.........................................
U.S. SMid Cap .........................................
Emerging Markets....................................
International .............................................
Navistar Common Stock ..........................

Fixed Income

Corporate Bonds ......................................
Government Bonds ..................................
Asset Backed Securities...........................
Mortgage Backed Securities ....................

Collective Trusts and Other

Commodities ............................................
Hedge Funds ............................................
Private Equity...........................................
Total(A) ....................................................................

100

—

—
—

—

4
1

—

$ 277

$ 141

—

—
—

—

100

—

4
1

—

—
—

—

6
4

—

$ 462

$ 307

$ 162

—

—
—

—

6
4

508

___________________
(A) For both October 31, 2011 and 2010, the total excludes $1 million of receivables included in the change in plan asset table.

103

The table below presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy for
other postretirement benefit assets for the years ended October 31, 2011 and 2010:

Hedge Funds

Private Equity

(in millions)
Balance at November 1, 2009 .......................................................................................................
Unrealized gains.....................................................................................................................
Purchases, issuances, and settlements....................................................................................
Balance at October 31, 2010...........................................................................................
Balance at November 1, 2010 .......................................................................................................
Unrealized gains (losses) .......................................................................................................
Purchases, issuances, and settlements....................................................................................
Balance at October 31, 2011...........................................................................................

2
(10)
25

25
(4)
4
25

1
19

The Plans' investment strategy is based on sound investment practices that emphasize long-term investment fundamentals. The
objective of the strategy is to maximize long-term returns consistent with prudent levels of risk. In establishing the investment
strategy of the Plans, the following factors were taken into account: (i) the time horizon available for investment, (ii) the nature
of the Plan's cash flows and liabilities, and (iii) other factors that affect the Plan's risk tolerance.

The strategy is to manage the Plans to achieve fully funded status within the time horizon mandated under Pension Protection
Act of 2006 (“PPA”) after giving effect to the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act
of 2010 with a prudent amount of risk. As part of that strategy, the Plans are invested in a diversified portfolio across a wide
variety of asset classes. This includes areas such as large and small capitalization equities, international and emerging market
equities, high quality fixed income, convertible bonds and alternative assets such as commodities, hedge fund of funds, and
private equity funds. As a result of our diversification strategies, we believe we have minimized concentrations of risk within
the investment portfolios.

In line with the Plans' return objectives and risk parameters, target asset allocations, which were established following a 2009
asset liability study, are approximately 55% equity investments, 30% fixed income investments, 10% alternative investments
(commodities, hedge funds and private equity), and 5% cash.

All assets are actively managed by external investment managers. Each investment manager is expected to prudently manage
the assets in a manner consistent with the investment objectives, guidelines, and constraints outlined in the Investment Policy
Statement. Managers are not permitted to invest outside of the asset class mandate (e.g., equity, fixed income, alternatives) or
strategy for which they are appointed.

Expected Future Benefit Payments

The expected future benefit payments for the years ending October 31, 2012 through 2016 and the five years ending
October 31, 2021 are estimated as follows:

Pension Benefit
Payments

Other
Postretirement
Benefit
Payments(A)

(in millions)
2012...............................................................................................................................................
2013...............................................................................................................................................
2014...............................................................................................................................................
2015...............................................................................................................................................
2016...............................................................................................................................................
2017 through 2021 ........................................................................................................................

325

320

313

307

299

1,388

171

152

147

144

140

628

________________________
(A) Payments are net of expected participant contributions and expected federal subsidy receipts.

104

Defined Contribution Plans and Other Contractual Arrangements

Our defined contribution plans cover a substantial portion of domestic salaried employees and certain domestic represented
employees. The defined contribution plans contain a 401(k) feature and provide most participants with a matching contribution
from the Company. Many participants covered by the plan receive annual Company contributions to their retirement accounts
based on an age-weighted percentage of the participant's eligible compensation for the calendar year.

Defined contribution expense pursuant to these plans was $33 million, $31 million, and $27 million in 2011, 2010, and 2009,
respectively.

In accordance with the 1993 restructured health care and life insurance plans, an independent Retiree Supplemental Benefit
Trust (the “Trust”) was established. The Trust, and the benefits it provides to certain retirees, is not part of the Company's
consolidated financial statements. The assets of the Trust arise from three sources: (i) the Company's 1993 contribution to the
Trust of 25.5 million shares of our Class B common stock, which was subsequently sold by the Trust prior to 2000,
(ii) contingent profit-sharing contributions made by the Company, and (iii) net investment gains on the Trust's assets, if any.

The Company's contingent profit sharing obligations will continue until certain funding targets defined by the 1993 Settlement
Agreement are met (“Profit Sharing Cessation”). Upon Profit Sharing Cessation, the Company would assume responsibility for
(i) establishing the investment policy for the Trust, (ii) approving or disapproving of certain additional supplemental benefits to
the extent such benefits would result in higher expenditures than those contemplated upon the Profit Sharing Cessation,
and (iii) making additional contributions to the Trust as necessary to make up for investment and /or actuarial losses.

We have recorded no profit sharing accruals based on the operating performance of the entities that are included in the
determination of qualifying profits.

12. Income taxes

The domestic and foreign components of Income before income tax benefit (expense) and extraordinary gain consist of the
following for the years ended October 31:

(in millions)
Domestic ...........................................................................................................................
Foreign..............................................................................................................................
Income before income tax benefit (expense) and extraordinary gain...............................

247

320

166

124

290

441
(82)
359

2011

2010

2009

The components of Income tax benefit (expense) consist of the following for the years ended October 31:

2011

2010

2009

(in millions)
Current:

Federal .......................................................................................................................
State and local............................................................................................................
Foreign.......................................................................................................................
Total current expense........................................................................................................
Deferred:

Federal .......................................................................................................................
State and local............................................................................................................
Foreign.......................................................................................................................
Total deferred benefit (expense).......................................................................................
Total income tax benefit (expense)...................................................................................

105

(3)
1
(47)
(49)

1,423

106
(22)
1,507

1,458

30
(4)
(33)
(7)

—

—
(16)
(16)
(23)

(3)
(6)
(14)
(23)

—

—
(14)
(14)
(37)

A reconciliation of statutory federal income tax expense to recorded income tax benefit (expense) is as follows for the years
ended October 31:

2011

2010

2009

(in millions)
Statutory federal income tax expense ...............................................................................
State income taxes, net of federal benefit.........................................................................
Alternative minimum taxes...............................................................................................
Credits and incentives.......................................................................................................
Adjustments to valuation allowances ...............................................................................
Medicare subsidies............................................................................................................
Foreign operations ............................................................................................................
Adjustments to uncertain tax positions.............................................................................
Subpart F income..............................................................................................................
Non-controlling interest adjustment .................................................................................
Other .................................................................................................................................
Recorded income tax benefit (expense) ....................................................................

(112)
(6)
—

1,499

—
(19)
42
(1)
19

1,458

(101)
(3)
29

6
(11)
5
(17)
16
(5)
(23)

(126)
(4)
(10)
8

105

11
(13)
(1)
(1)
9
(15)
(37)

In 2011, we realized an income tax benefit of $1.537 billion from the release of valuation allowances attributable to our U.S.
operations, an income tax benefit of $42 million from the resolution of tax audits in various jurisdictions and higher credits due
to the reinstatement of research and development credits retroactive to January 1, 2010. Our foreign tax expense is
disproportionately high, since no tax benefit can be realized on foreign losses subject to valuation allowances.

Undistributed earnings of foreign subsidiaries were $527 million at October 31, 2011. Domestic income taxes have not been
provided on these undistributed earnings because they are considered to be permanently invested in foreign subsidiaries. It is
not practicable to estimate the amount of unrecognized deferred tax liabilities, if any, for these undistributed foreign earnings.

The components of the deferred tax asset (liability) at October 31 are as follows:

2011

2010

(in millions)
Deferred tax assets attributable to:

Employee benefits liabilities..............................................................................................
Net operating loss (“NOL”) carry forwards.......................................................................
Product liability and warranty accruals..............................................................................
Research and development ................................................................................................
Tax credit carry forwards...................................................................................................

Other ..................................................................................................................................
Gross deferred tax assets.................................................................................................
Less: Valuation allowances................................................................................................
Net deferred tax assets.....................................................................................................

Deferred tax liabilities attributable to:

Goodwill and intangibles assets.........................................................................................
Other ..................................................................................................................................
Total deferred tax liabilities............................................................................................

1,369

273

262

208

294

2,480
(344)
2,136

(107)
(39)
(146)

840

306

232

115

335

1,926
(1,777)
149

(104)
(59)
(163)

At October 31, 2011, deferred tax assets attributable to NOL carry forwards include $126 million attributable to U.S. federal
NOL carry forwards, $79 million attributable to state NOL carry forwards, and $102 million attributable to foreign NOL carry
forwards. If not used to reduce future taxable income, U.S. federal NOLs are scheduled to expire beginning in 2025. State
NOLs can be carried forward for initial periods of 5 to 20 years, and are scheduled to expire in 2012 to 2031. Approximately
one half of our foreign net operating losses will expire beginning in 2029, while the balance has no expiration date.

106

There are $34 million of NOL carry forwards relating to stock option tax benefits which are deferred until utilization of our net
operating losses. These tax benefits will be allocated to Additional paid-in capital when recognized. The majority of our tax
credits can be carried forward for initial periods of 20 years, and are scheduled to expire in 2012 to 2032. Alternative minimum
tax credits can be carried forward indefinitely.

A valuation allowance is required to be established or maintained when, based on currently available information and other
factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for
income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there
has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in
order to utilize the deferred tax asset.

We have evaluated the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is
more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate
consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. In
2011, this evaluation resulted in the determination that a significant portion of our valuation allowance on U.S. deferred tax
assets could be released. The qualitative and quantitative analysis of current and expected domestic earnings, industry volumes,
tax planning strategies, and general business risks resulted in a more likely than not conclusion of being able to realize a
significant portion of our U.S. deferred tax assets. We have been able to sustain positive cumulative earnings despite record
low industry volumes during the current and previous three years. Industry volumes have increased during the year and the
increase in volume is expected to continue in the foreseeable future. In addition, we have successfully diversified our business
offerings and customer base to be less dependent on the traditionally cyclical truck industry.

We continue to maintain a valuation allowance on certain federal, state, and foreign (principally Canada) deferred tax assets
that we believe, on a more likely than not basis, will not be realized. We believe that it is more likely than not that the
remaining deferred tax assets will be realized. Total deferred tax asset valuation allowances decreased by $1.5 billion in 2011
from $1.8 billion to $344 million. In the event we released all of our remaining valuation allowances, $4 million of tax benefits
would be directly allocated to Additional paid in capital, the remainder would impact tax expense.

As of October 31, 2011 and 2010, the net amount of liability for uncertain tax positions was $19 million and $91 million,
respectively. If these unrecognized tax benefits are recognized, all but $4 million would impact our effective tax rate. Changes
in the liability for uncertain tax positions during the year ended October 31, 2011 are summarized as follows:

(in millions)
Liability for uncertain tax positions at October 31, 2010.......................................................................................
Increase as a result of positions taken in prior periods...........................................................................................
Decrease as a result of positions taken in prior periods..........................................................................................
Increase as a result of positions taken in the current period ...................................................................................
Settlements..............................................................................................................................................................
Liability for uncertain tax positions at October 31, 2011.......................................................................................

79
(150)
1
(2)
19

We recognize interest and penalties as part of Income tax benefit (expense). Total interest and penalties related to our uncertain
tax positions are immaterial.

We have open tax years from 2005 to 2011 with various significant taxing jurisdictions including the U.S., Canada, Mexico,
and Brazil. In connection with examinations of tax returns, contingencies may arise that generally result from differing
interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenues or expenses
in taxable income, or the sustainability of tax credits to reduce income taxes payable. We believe we have sufficient accruals for
our contingent tax liabilities. Annual tax provisions include amounts considered sufficient to pay assessments that may result
from examinations of prior year tax returns, although actual results may differ. While it is probable that the liability for
unrecognized tax benefits may increase or decrease during the next twelve months, we do not expect any such change would
have a material effect on our financial condition, results of operations, or cash flows.

13. Fair value measurements

For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements
based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are independent market data,
while unobservable inputs reflect our assumptions about valuation. Depending on the inputs, we classify each fair value

107

measurement as follows:

• Level 1—based upon quoted prices for identical instruments in active markets,
• Level 2—based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that

are not active, or model-derived valuations, all of whose significant inputs are observable, and

• Level 3—based upon one or more significant unobservable inputs.

The following section describes key inputs and assumptions in our valuation methodologies:

Cash Equivalents and Restricted Cash Equivalents—We classify highly liquid investments, with a maturity of 90 days or less
at the date of purchase, including U.S. Treasury bills, federal agency securities, and commercial paper, as cash equivalents. We
use quoted prices to determine fair value.

Marketable Securities—Our marketable securities portfolios are classified as available-for-sale and primarily include
investments in U.S. government and commercial paper with a maturity of greater than 90 days at the date of purchase. We use
quoted prices from active markets to determine fair value.

Derivative Assets and Liabilities—We measure the fair value of derivatives assuming that the unit of account is an individual
derivative transaction and that each derivative could be sold or transferred on a stand-alone basis. We classify within Level 2
our derivatives that are traded over-the-counter and valued using internal models based on observable market inputs. In certain
cases, market data is not available and we estimate inputs such as in situations where trading in a particular commodity is not
active. Measurements based upon these unobservable assumptions are classified within Level 3. For more information
regarding derivatives, see Note 14, Financial instruments and commodity contracts.

Retained Interests—We retain certain interests in receivables sold in off-balance sheet securitization transactions prior to
November 1, 2010. We estimate the fair value of retained interests using internal valuation models that incorporate market
inputs and our own assumptions about future cash flows. The fair value of retained interests is estimated based on the present
value of monthly collections on the sold finance receivables in excess of amounts accruing to investors and other obligations
arising in securitization transactions. In addition to the amount of debt and collateral held by the securitization vehicle, the three
key inputs that affect the valuation of the retained interests include credit losses, payment speed, and the discount rate. We
classify these assets within Level 3. For more information regarding retained interests, see Note 4, Finance receivables.

Guarantees—We provide certain guarantees of payments and residual values to specific counterparties. Fair value of these
guarantees is based upon internally developed models that utilize current market-based assumptions and historical data. We
classify these liabilities within Level 3. For more information regarding guarantees, see Note 15, Commitments and
contingencies.

108

The following table presents the financial instruments measured at fair value on a recurring basis as of October 31, 2011:

Level 1

Level 2

Level 3

Total

(in millions)
Assets
Marketable securities

U.S. Treasury bills ..............................................................................
Other U.S and non-U.S. government bonds .......................................
Other ...................................................................................................

Derivative financial instruments

Foreign currency contracts .................................................................
Commodity contracts..........................................................................
Total assets...................................................................................

Liabilities
Derivative financial instruments

Foreign currency contracts .................................................................
Commodity contracts..........................................................................
Guarantees..................................................................................................
Total liabilities.............................................................................

283
415
20

—
—
718

—
—
—
—

—
—
—

—
3
3

4
3
—
7

—
—
—

1
—
1

—
3
6
9

283
415
20

1
3
722

4
6
6
16

The following table presents the financial instruments measured at fair value on a recurring basis as of October 31, 2010:

Level 1

Level 2

Level 3

Total

(in millions)
Assets

Marketable securities

Derivative financial instruments

Commodity contracts..........................................................................
Foreign currency contracts .................................................................
Retained interests .......................................................................................
Total assets...................................................................................

Liabilities

Derivative financial instruments

Commodity contracts..........................................................................
Total liabilities.............................................................................

159

407

—

586

—

159

407

649

109

The table below presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy:

2011

2010

Guarantees

Retained
interests

Commodity
contracts

Interest rate
swap assets
and
liabilities

Retained
interests

Commodity
contracts

(in millions)
Year Ended October 31
Balance at November 1 ....................................

Total gains (losses) (realized/unrealized)
included in earnings (A) .....................................
Purchases, issuances, and settlements ..............

Balance at October 31 ...............................

—

291

—

—
(53)
—

2
(6)
(2)

(1)
—

—

4
(242)
53

—

_____________
(A) For interest rate swap assets and liabilities, gains (losses) are included in Interest expense. For commodity contracts, gains (losses) are included in Cost of

products sold. For retained interests, gains recognized are included in Finance revenues.

The following table presents the financial instruments measured at fair value on a nonrecurring basis as of October 31:

Level 2

2011

2010

(in millions)
Finance receivables(A)..........................................................................................................................

_____________
(A) Certain impaired finance receivables are measured at fair value on a nonrecurring basis. An impairment charge is recorded for the amount by which the

carrying value of the receivables exceeds the fair value of the underlying collateral, net of remarketing costs. As of October 31, 2011, impaired
receivables with a carrying amount of $15 million had specific loss reserves of $10 million and a fair value of $5 million. As of October 31, 2010,
impaired receivables with a carrying amount of $50 million had specific loss reserves of $23 million and a fair value of $27 million. Fair values of the
underlying collateral are determined by reference to dealer vehicle value publications adjusted for certain market factors.

For the purpose of impairment evaluation, the Company measured the fair values of certain long-lived assets, including
intangible assets, utilizing the fair value measurement guidance. The following table presents the non-financial instruments
measured at fair value on a nonrecurring basis:

Level 3

2011

(in millions)
Assets

Property and equipment (A) ..................................................................................................................................
Intangible assets (B) ..............................................................................................................................................
Total assets...........................................................................................................................................................

54
30
84

_____________
(A) Certain impaired property and equipment with a carrying amount of $64 million were written down to their fair value of $54 million, resulting in an

impairment charge of $10 million, which was included in Impairment of property and equipment and intangible assets during the three months ended July
31, 2011. We utilized the market and cost approach to determine the fair value of these assets.

(B) Intangible assets with a carrying amount of $84 million were written down to their fair value of $30 million, resulting in an impairment charge of $54

million, which was included in Impairment of property and equipment and intangible assets during the three months ended July 31, 2011. We utilized the
income and market approach to determine the fair value of these assets.

In addition to the methods and assumptions we use for the financial instruments recorded at fair value as discussed above, we
use the following methods and assumptions to estimate the fair value for our other financial instruments that are not marked to
market on a recurring basis. The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, and
accounts payable approximate fair values because of the short-term maturity and highly liquid nature of these instruments. The
carrying amounts of customer receivables and retail and wholesale accounts approximate fair values as a result of the short-
term nature of the receivables. Due to the nature of the aforementioned financial instruments, they have been excluded from the
fair value amounts presented in the table below. The fair values of our finance receivables are estimated by discounting
expected cash flows at estimated current market rates. We also use quoted market prices, when available, or the present value of
estimated future cash flows to determine fair values of debt instruments.

110

The carrying values and estimated fair values of financial instruments as of October 31, 2011 and 2010 are summarized in the
table below:

(in millions)
Assets
Finance receivables .................................................................................

Notes receivable ......................................................................................
Liabilities
Debt:

Manufacturing operations

8.25% Senior Notes, due 2021.........................................................
3.0% Senior Subordinated Convertible Notes, due 2014(A).............
Debt of majority-owned dealerships................................................

Financing arrangements ...................................................................

Loan Agreement related to 6.5% Tax Exempt Bonds, due 2040.....
Promissory Note...............................................................................

Other ................................................................................................

Financial services operations

Asset-backed debt issued by consolidated SPEs, at various rates,
due serially through 2018.................................................................

Bank revolvers, at fixed and variable rates, due dates from 2012
through 2018 ....................................................................................

Commercial paper, at variable rates, due serially through 2012......

Borrowings secured by operating and finance leases, at various
rates, due serially through 2017 .......................................................

October 31, 2011

October 31, 2010

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

2,141

2,085

2,465

2,349

967

497

114

225
40

1,131

633

112

234
39

965

476

203

225
—

1,141

684

197

234
—

1,664

1,695

1,731

1,773

1,072

1,091

974

112

984

113

___________________
(A)

The carrying value represents the financial statement amount of the debt after allocation of the conversion feature to equity, while the fair value is
based on quoted market prices for the convertible note which includes the equity feature.

14. Financial instruments and commodity contracts

Derivative Financial Instruments

We use derivative financial instruments as part of our overall interest rate, foreign currency, and commodity risk management
strategies to reduce our interest rate exposure, reduce exchange rate risk for transactional exposures denominated in currencies
other than the functional currency, and minimize the effect of commodity price volatility. From time to time, we use foreign
currency forward and option contracts to manage the risk of exchange rate movements that would reduce the value of our
foreign currency cash flows. Foreign currency exchange rate movements create a degree of risk by affecting the value of sales
made and costs incurred in currencies other than the functional currency. From time to time, we also use commodity forward
contracts to manage our exposure to variability in certain commodity prices. In connection with the sale of the Convertible
Notes, the Company purchased call options for $125 million. The call options are intended to minimize share dilution
associated with the Convertible Notes. As the call options and warrants are indexed to our common stock, we recognized them
in permanent equity in Additional paid in capital, and will not recognize subsequent changes in fair value as long as the
instruments remain classified as equity. For additional information on the purchased call options, see Note 10, Debt.
We generally do not enter into derivative financial instruments for speculative or trading purposes and did not during the years
ended October 31, 2011, 2010 and 2009. None of our derivatives qualified for hedge accounting treatment in 2011, 2010 and
2009.

Certain of our derivative contracts contain provisions that require us to provide collateral if certain thresholds are exceeded. No
collateral was provided at October 31, 2011 or October 31, 2010. Collateral is not required to be provided by our counter-
parties for derivative contracts. We manage exposure to counter-party credit risk by entering into derivative financial
instruments with various major financial institutions that can be expected to fully perform under the terms of such instruments.

111

We do not anticipate nonperformance by any of the counter-parties. Our exposure to credit risk in the event of nonperformance
by the counter-parties is limited to those gains that have been recorded, but have not yet been received in cash. At October 31,
2011 and October 31, 2010, our exposure to the credit risk of others was $4 million and $10 million, respectively.

Our financial services operations manage exposure to fluctuations in interest rates by limiting the amount of fixed rate assets
funded with variable rate debt. This is accomplished by funding fixed rate receivables utilizing a combination of fixed rate and
variable rate debt and derivative financial instruments to convert variable rate debt to fixed. These derivative financial
instruments may include interest rate swaps, interest rate caps, and forward contracts. The fair value of these instruments is
estimated by discounting expected future monthly settlements and is subject to market risk, as the instruments may become less
valuable due to changes in market conditions, interest rates, or credit spreads of counter-parties. There were no such derivative
financial instruments outstanding as of October 31, 2011. Notional amounts of derivative financial instruments do not represent
exposure to credit risk.

The fair values of all derivatives are recorded as assets or liabilities on a gross basis in our Consolidated Balance Sheets. At
October 31, 2011 and 2010, the fair values of our derivatives and their respective balance sheet locations are presented in the
following table:

(in millions)

As of October 31, 2011

Asset Derivatives

Liability Derivatives

Location in
Consolidated Balance Sheets

Fair Value

Location in
Consolidated Balance Sheets

Fair Value

Foreign currency contracts...........................

Other current assets

Cross currency swaps...................................
Commodity contracts ...................................
Total fair value......................................

Other current assets

Other current liabilities

—

Other current liabilities

—

As of October 31, 2010

Asset Derivatives

Liability Derivatives

(in millions)
Foreign currency contracts...........................
Commodity contracts ...................................
Total fair value......................................

Location in
Consolidated Balance Sheets
Other current assets

Fair Value
8
$

Other current assets

Location in
Consolidated Balance Sheets
Other current liabilities

Other current liabilities

Fair Value
—
$

The location and amount of gain (loss) recognized in income on derivatives are as follows for the years ended October 31:

Location in
Consolidated Statements of
Operations

Amount of Gain
(Loss) Recognized

2011

2010

2009

(in millions)
Interest rate swaps ............................................................................
Interest rate caps purchased..............................................................
Interest rate caps sold .......................................................................
Cross currency swaps .......................................................................
Foreign currency contracts ...............................................................
Commodity forward contracts..........................................................
Total gain (loss).........................................................................

Interest expense

Other income, net

Costs of products sold

—

—
(8)
4

(5)
(3)
3

—

(44)
2
(1)
—

5
(6)
(44)

Foreign Currency Contracts

During 2011 and 2010, we entered into foreign exchange forward and option contracts as economic hedges of anticipated cash
flows denominated in Canadian dollars, Indian rupees, Brazilian reais, and Euros. As of October 31, 2011, we had forward
exchange contracts with notional amounts of C$6 million Canadian dollars with a maturity date of January 2012 and €54
million Euros with maturity dates ranging from November 2011 through August 2012. As of October 31, 2010, we had

112

outstanding forward exchange contracts with notional amounts of €49 million Euros and C$24 million Canadian dollars. All of
these contracts were entered into to protect against the risk that the eventual cash flows resulting from certain transactions will
be affected by changes in exchange rates between the U.S. dollar and the respective foreign currency.

Commodity Forward Contracts

During 2011 and 2010, we entered into commodity forward contracts as economic hedges of our exposure to variability in
commodity prices for diesel fuel, lead, steel, and natural rubber. As of October 31, 2011, we had outstanding diesel fuel
contracts with aggregate notional values of $19 million, outstanding lead contracts with aggregate notional values of $1
million, outstanding steel contracts with aggregate notional values of $41 million, and outstanding natural rubber contracts with
aggregate notional values of $14 million. The commodity forward contracts have maturity dates ranging from December 2011
to December 2012. As of October 31, 2010, we had outstanding diesel fuel contracts with aggregate notional values of $21
million, outstanding lead contracts with aggregate notional values of $1 million, and outstanding steel contracts with aggregate
notional values of $80 million. All of these contracts were entered into to protect against the risk that the eventual cash flows
related to purchases of the commodities will be affected by changes in prices.

Interest-Rate Contracts

We may enter into various interest-rate contracts, including interest-rate swaps and cross currency interest-rate swaps. Interest-
rate swaps involve the exchange of fixed for floating rate or floating for fixed rate interest payments based on the contractual
notional amounts in a single currency. Cross currency interest-rate swaps involve the exchange of notional amounts and interest
payments in different currencies. We are exposed to interest rate and exchange rate risk caused by market volatility as a result
of our borrowing activities. The objective of these contracts is to mitigate the fluctuations on earnings, cash flows, and fair
value of borrowings. As of October 31, 2011, the notional amount of our outstanding interest-rate contracts was $50 million.

15. Commitments and contingencies

Guarantees

We occasionally provide guarantees that could obligate us to make future payments if the primary entity fails to perform under
its contractual obligations. We have recognized liabilities for some of these guarantees in our Consolidated Balance Sheets as
they meet the recognition and measurement provisions of the guidance on guarantor’s accounting and disclosure requirements
for guarantees including indirect guarantees of the indebtedness of others. In addition to the liabilities that have been
recognized, we are contingently liable for other potential losses under various guarantees. We do not believe that claims that
may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash
flows.

In March 2010, we entered into a three-year operating agreement (with one-year automatic extensions and subject to early
termination provisions) with GE Capital Corporation and GE Capital Commercial, Inc. (collectively “GE”). Under the terms of
the agreement, GE became our preferred source of retail customer financing for equipment offered by us and our dealers in the
U.S. We provide GE a loss sharing arrangement for certain credit losses. The primary features of the loss sharing arrangement
include us reimbursing GE for credit losses in excess of the first 10% of the original value of a financed contract. The
Company’s exposure to loss is mitigated since receivables financed under the operating agreement are secured by the financed
equipment. We do not carry the receivables financed under the operating agreement on our Consolidated Balance Sheets. There
were $723 million and $144 million of outstanding finance receivables as of October 31, 2011 and October 31, 2010,
respectively, financed through the operating agreement and subject to the loss sharing arrangement. The related originations of
these outstanding finance receivables were $818 million and $159 million as of October 31, 2011 and October 31, 2010,
respectively.

Based on our historic experience of losses on similar finance receivables and GE’s first loss position, we do not believe our
share of losses related to balances currently outstanding will be material. Historically our losses, representing the entire loss
amount, on similar finance receivables, measured as a percentage of the average balance of the related finance receivable,
ranged from 0.3% to 2.1%. While under limited circumstances NFC retains the rights to originate retail customer financing, we
expect retail finance receivables and retail finance revenues will decline as our retail portfolio pays down.

In addition, for certain independent dealers’ wholesale inventory financed by third-party banks or finance companies, we
provide limited repurchase agreements to the respective financing institution. The amount of losses related to these
arrangements has not been material to our Consolidated Statements of Operations and the value of the guarantees and accruals
recorded are not material to our Consolidated Balance Sheets.

113

We also have issued limited residual value guarantees in connection with various leases financed by our financial services
operations. The amounts of the guarantees are estimated and recorded as liabilities as of October 31, 2011. Our guarantees are
contingent upon the fair value of the leased assets at the end of the lease term. The amount of losses related to these
arrangements has not been material to our Consolidated Statements of Operations and the value of the guarantees and accruals
recorded are not material to our Consolidated Balance Sheets.

We obtain certain stand-by letters of credit and surety bonds from third-party financial institutions in the ordinary course of
business when required under contracts or to satisfy insurance-related requirements. The amount of available stand-by letters of
credit and surety bonds was $61 million at October 31, 2011.

We extend credit commitments to certain truck fleet customers, which allow them to purchase parts and services from
participating dealers. The participating dealers receive accelerated payments from us with the result that we carry the
receivables and absorb the credit risk related to these customers. At October 31, 2011, we have $30 million of unused credit
commitments outstanding under this program.

In addition, as of October 31, 2011, we have entered into various purchase commitments of $117 million and contracts that
have cancellation fees of $32 million with various expiration dates through 2017.

In the ordinary course of business, we also provide routine indemnifications and other guarantees, the terms of which range in
duration and often are not explicitly defined. We do not believe these will result in claims that would have a material impact on
our financial condition, results of operations, or cash flows.

The terms of the settlement agreement reached with Ford in 2009 require us to indemnify Ford with respect to intellectual
property infringement claims, if any, that are brought against Ford or others that use the 6.0 liter or 6.4 liter engines on behalf
of Ford. The maximum amount of future payments that we could potentially be required to pay under the indemnification
would depend on the magnitude of potential infringement claims and the associated damages and cannot currently be
determined.

Environmental Liabilities

We have 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 that allegedly received wastes from current or former
Company locations. Based on information available to us which, in most cases, consists of data related to quantities and
characteristics of material generated at current or former Company locations, material allegedly shipped by us to these disposal
sites, 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 our share, if any, of the probable costs and accruals are recorded in our consolidated financial
statements. These accruals are generally recognized no later than completion of the remedial feasibility study and are not
discounted to their present value. We review all accruals on a regular basis and believe that, based on these calculations, our
share of the potential additional costs for the cleanup of each site will not have a material effect on our financial condition,
results of operations, or cash flows.

We have accrued $21 million for these and other environmental matters, which are included within Other current liabilities and
Other noncurrent liabilities, as of October 31, 2011. The majority of these accrued liabilities are expected to be paid subsequent
to 2012.

Along with other vehicle manufacturers, we have been subject to an increase in the number of asbestos-related claims in recent
years. In general, these claims relate to illnesses alleged to have resulted from asbestos exposure from component parts found
in older vehicles, although some cases relate to the alleged presence of asbestos in our facilities. In these claims, we are not the
sole defendant, and the claims name as defendants numerous manufacturers and suppliers of a wide variety of products
allegedly containing asbestos. We have strongly disputed these claims, and it has been our policy to defend against them
vigorously. Historically, the actual damages paid out to claimants have not been material in any year to our financial condition,
results of operations, or cash flows. It is possible that the number of these claims will continue to grow, and that the costs for

114

resolving asbestos related claims could become significant in the future.

Legal Proceedings

Overview

We are subject to various claims arising in the ordinary course of business, and are party to various legal proceedings that
constitute ordinary, routine litigation incidental to our business. The majority of these claims and proceedings relate to
commercial, product liability, and warranty matters. In addition, from time to time we are subject to various claims and legal
proceedings related to employee compensation, benefits, and benefits administration including, but not limited to, compliance
with the Employee Retirement Income Security Act of 1974, as amended, and Department of Labor requirements. In our
opinion, apart from the actions set forth below, the disposition of these proceedings and claims, after taking into account
recorded accruals and the availability and limits of our insurance coverage, will not have a material adverse effect on our
business or our financial condition, results of operations, or cash flows.

Litigation Relating to Accounting Controls and Financial Restatement

In December 2007, a complaint was filed against us by Norfolk County Retirement System and Brockton Contributory
Retirement System (collectively “Norfolk”), which was subsequently amended in May 2008. In March 2008, an additional
complaint was filed by Richard Garza (“Garza”), which was subsequently amended in October 2009. Both of these matters
were filed in the United States District Court, Northern District of Illinois.

The plaintiffs in the Norfolk case alleged they are shareholders suing on behalf of themselves and a class of other shareholders
who purchased shares of our common stock between February 14, 2003 and July 17, 2006. The amended complaint alleged that
the defendants, which include the Company, one of its executive officers, two of its former executive officers, and the
Company’s former independent accountants, Deloitte & Touche LLP (“Deloitte”), violated federal securities laws by making
false and misleading statements about the Company’s financial condition during that period. As reported to the Court on
November 4, 2010, the parties entered into a tentative settlement to resolve the matter. Pursuant to the proposed settlement, the
Company agreed to cause $13 million to be paid to a settlement fund and, in return, plaintiffs would dismiss the lawsuit with
prejudice and provide a release of all claims that relate in any manner to the allegations, facts or any other matter whatsoever
set forth in or otherwise related, directly or indirectly to the allegations in the complaint. The proposed settlement agreement
also contained, among other provisions, a statement that each of the defendants has denied and continues to deny having
committed or intended to commit any violations of law or any wrongdoing whatsoever, that each of the defendants does not
make any admission of liability, and that defendants are entering into the settlement solely because it would eliminate the
burden, risk and expense of further litigation and would fully and finally resolve all of the claims released by plaintiffs. The
Company reached an agreement with the insurer under its directors’ and officers’ insurance policy that includes a provision for
the insurer to reimburse the Company for settlement costs attributable to the defendant directors and officers. On May 27, 2011,
the Court entered an order finally approving the settlement and dismissed the case with prejudice.

The plaintiff in the Garza case brought a derivative claim on behalf of the Company against one of the Company’s executive
officers, two of its former executive officers, and certain of its directors, alleging that all of the defendants violated their
fiduciary obligations under Delaware law by willfully ignoring certain accounting and financial reporting problems at the
Company, thereby knowingly disseminating false and misleading financial information about the Company and certain of the
defendants were unjustly enriched in connection with their sale of Company stock during the December 2002 to January 2006
period. On August 20, 2010, the Court entered an order granting defendants’ motion to dismiss the complaint based on
plaintiff’s failure to make a demand on the Board of Directors. On August 26, 2010, the Company received from the plaintiff a
letter demanding that the Board of Directors investigate the matters alleged in the plaintiff's amended complaint. After plaintiff
advised the Court that he did not intend to seek leave to file a second amended complaint, the Court entered final judgment of
dismissal on September 15, 2010. In February 2011, a settlement agreement was reached with plaintiff whereby plaintiff agreed
to withdraw his demand in consideration for an immaterial amount.

Retiree Health Care Litigation

In April 2010, the UAW and others (“Plaintiffs”) filed a “Motion of Plaintiffs Art Shy, UAW, et al for an Injunction to Compel
Compliance with the 1993 Settlement Agreement” (the “Shy Motion”) in the U.S. District Court for the Southern District of
Ohio (the “Court”). The Shy Motion sought to enjoin the Company from implementing an administrative change relating to
prescription drug benefits under a healthcare plan for Medicare-eligible retirees (the “Part D Change”). Specifically, Plaintiffs
claimed that the Part D Change violated the terms of a June 1993 settlement agreement previously approved by the Court (the
“1993 Settlement Agreement”). That 1993 Settlement Agreement resolved a class action originally filed in 1992 regarding the

115

restructuring of the Company's then applicable retiree health care and life insurance benefits. In May 2010, the Company filed
its Opposition to the Shy Motion.

The Part D Change was effective July 1, 2010, and made the Company's prescription drug coverage for post-65 retirees (“Plan
2 Retirees” ) supplemental to the coverage provided by Medicare. Plan 2 retirees paid the premiums for Medicare Part D drug
coverage under the Part D Change.

FATMA Notice

International Indústria de Motores da América do Sul Ltda. (“IIAA”), formerly known as Maxion International Motores S/A
(“Maxion”), now a wholly owned subsidiary of the Company, received a notice in July 2010 from the State of Santa Catarina
Environmental Protection Agency (“FATMA”) in Brazil. The notice alleged that Maxion had sent wastes to a facility owned
and operated by a company known as Natureza and that soil and groundwater contamination had occurred at the Natureza
facility. The notice asserted liability against Maxion and assessed an initial penalty in the amount of R$2 million (the equivalent
of approximately US$1.2 million at October 31, 2011), which is not due and final until all administrative appeals are
exhausted. Maxion was one of numerous companies that received similar notices. IIAA filed an administrative defense in
August 2010 and has not yet received a decision following that appearance. IIAA disputes the allegations in the notice and
intends to vigorously defend itself.

6.0 Liter Diesel Engine Litigation

In November 2010, Brandon Burns filed a putative class action lawsuit against Navistar, Inc. and Ford in federal court for the
Southern District of California (the “Burns Action”). The Burns Action sought to certify a class of California owners and
lessees of model year 2003-07 Ford vehicles powered by the 6.0L Power Stroke® engine that the Company previously supplied
to Ford. Burns alleged that the engines in question have design and manufacturing defects. Burns asserted claims against the
Company for negligent performance of contractual duty (related to the Company's former contract with Ford), unfair
competition, and unjust enrichment. For relief, the Burns Action sought dollar damages sufficient to remedy the alleged defects,
compensate the alleged damages incurred by the proposed class, and compensate plaintiffs' counsel. The Burns Action also
asked the Court to award punitive damages and restitution/disgorgement.

After the Burns Action was filed, nineteen additional putative class action lawsuits making materially identical allegations
against the Company were filed in federal courts in various parts of the country (the “Additional Actions”). The Additional
Actions sought to certify in several different states classes similar to the proposed California class in the Burns Action. The
theories of liability and relief sought in the Additional Actions were substantially similar to the Burns Action.

In April and May 2011, the Judicial Panel on Multidistrict Litigation transferred Burns and all but one (the "Saxby Case") of
the Additional Actions to the Northern District of Illinois, where the Custom Underground case (another similar case pending in
Chicago, where the Company is not a defendant) is pending, for consolidated pre-trial proceedings (“MDL”).

In May 2011, all plaintiffs in the consolidated matter filed a voluntary Notice of Dismissal dismissing the Company without
prejudice. In June 2011, the Saxby case was transferred to the MDL court. On September 8, 2011, the parties entered into and
filed with the Court a Stipulation of Dismissal, which confirms the dismissal of the Company without prejudice from those
cases in which the Company had filed a responsive pleading, as well as the Saxby Case.

116

On May 20, 2011, 9046-9478 Quebec Inc. ("Quebec") filed a motion to authorize the bringing of a class action against the
Company and Navistar Canada, Inc. (collectively, "Navistar Defendants"), as well as Ford and Ford Motor Company of
Canada, Limited (collectively, "Ford Defendants") in Superior Court in Quebec, Canada (the "Quebec Action"). The Quebec
Action seeks authorization to bring a claim on behalf of a class of Canadian owners and lessees of model year 2003-07 Ford
vehicles powered by the 6.0L Power Stroke® engine that the Company previously supplied to Ford. Quebec alleged that the
engines in question have design and manufacturing defects, and that Navistar Defendants and Ford Defendants are solidarily
liable for those defects. For relief, the Quebec Action seeks dollar damages sufficient to remedy the alleged defects,
compensate the alleged damages incurred by the proposed class, and compensate plaintiffs' counsel. The Quebec Action also
asks the Court to order the Navistar Defendants and the Ford Defendants to recall, repair, or replace the Ford vehicles at issue
free of charge. The motion to authorize the bringing of the class action was presented in August 2011, and the hearing was
continued to an as yet undetermined date. A new case management conference is expected at the beginning of 2012.

We also have been made aware of the Kruse Technology Partnership vs. Ford lawsuit filed against Ford regarding potential
patent infringement of three patents in the U.S. District Court for the Central District of California. An amended complaint
against Ford was filed by Kruse in August 2010. The amended complaint alleges that Ford has infringed the patents by sale or
use of engines, such as the Power Stroke diesel engines. The general subject matter of the patents is pilot injection of fuel in the
combustion cycle. Navistar formerly supplied Power Stroke diesel engines to Ford, although today Ford manufactures its own
Power Stroke engines. In the Ford/Navistar Settlement Agreement of January 9, 2009, Navistar agreed to indemnify Ford for
claims of infringement based upon Ford's manufacture, sale or use of the 6.0 and 6.4 liter Power Stroke engines sold by
Navistar to Ford. Ford has not requested Navistar to defend Ford at this time. The judge assigned to the Kruse Technology
Partnership vs. Ford case has stayed the case pending resolution of a similar suit against Daimler Chrysler, Detroit Diesel,
Freightliner, Western Star, Volkswagen, Cummins, and Chrysler Group. On November 14, 2011, Kruse disclaimed all the
claims in one of the patents (US 6,405,704), which effectively terminates the patent rights for this patent. The remaining two
Kruse patents continue to be re-examined by the U.S. Patent Office.

Lis Franco de Toledo, et. al. vs. Syntex do Brasil and IIAA

In 1973 Syntex do Brasil Industria e Comercio Ltda. (“Syntex”), a predecessor of our Brazilian engine manufacturing
subsidiary formerly known as MWM International Industria de Motores da America do Sul Ltda (“MWM”), filed a lawsuit in
Brazilian court against Dr. Lis Franco de Toledo and others (collectively, “Lis Franco”). Syntex claimed Lis Franco had
improperly terminated a contract which provided for the transfer from Lis Franco to Syntex of a patent for the production of a
certain vaccine. Lis Franco filed a counterclaim, alleging that he was entitled to royalties under the contract. In 1975, the
Brazilian court ruled in favor of Lis Franco, a decision which was affirmed on appeal in 1976. In 1984, while the case was still
pending, Syntex’ owner, Syntex Comercio e Participacoes Ltds (“Syntex Parent”) sold the stock of Syntex to MWM, and in
connection with that sale Syntex Parent agreed to indemnify and hold harmless MWM for any and all liabilities of Syntex,
including its prior pharmaceutical operations (which had been previously spun-off to another subsidiary wholly-owned by the
Syntex Parent) and any payments that might be payable under the Lis Franco lawsuit. In the mid to late 1990s, Syntex
Parent was merged with an entity known as Wyeth Industria Farmaceutica LTDA (“Wyeth”).

In his pleadings, Lis Franco alleged that the royalties payable to him were approximately R$42 million. MWM believed the
appropriate amount payable was approximately R$16 million. In December 2009, the court appointed expert responsible for the
preparation of the royalty calculation filed a report with the court indicating royalty damages of approximately R$70
million. MWM challenged the expert’s calculation. In August 2010, the court asked the parties to consider the appointment of a
new expert. MWM agreed with this request but Lis Franco objected and, in December 2010, the court accepted and ratified the
expert’s calculation as of May 2010 in the amount of R$74 million (the equivalent of approximately US$43.8 million at
October 31, 2011) and entered judgment against MWM. In May 2010, MWM filed a lawsuit against Wyeth seeking recognition
that Wyeth is liable for any and all liabilities, costs, expenses, and payments related to the Lis Franco lawsuit.

In September 2010, MWM filed a motion for clarification of the decision which would suspend the enforcement of the
decision. The Brazilian court denied this motion and MWM appealed the matter to the Rio de Janeiro State Court of Appeals
(the “Court of Appeals”). In January 2011, the Court of Appeals granted the appeal and issued an injunction suspending the
lower Court’s decision and judgment in favor of Lis Franco. In January 2011, MWM merged into IIAA and is now known as
IIAA. An expert appointed by the Court of Appeals submitted his calculation report on October 24, 2011, and determined the
amount to be R$10.85 million (the equivalent of US$6.4 million at October 31, 2011). The Court of Appeals is now reviewing

117

the expert’s calculation criteria report and the parties' comments to that report.

Deloitte & Touche LLP

In April 2011, the Company filed a complaint against Deloitte in the Circuit Court of Cook County, Illinois County
Department, Law Division for fraud, fraudulent concealment, negligent misrepresentation, violation of the Illinois Consumer
Fraud and Deceptive Business Practices Act, professional malpractice, negligence, breach of contract and breach of fiduciary
duty. The matters giving rise to the allegations contained in the complaint arise from Deloitte's service as the Company's
independent auditor prior to April 2006 and the Company is seeking monetary damages against Deloitte. In May 2011, Deloitte
filed a Notice of Removal to remove the case to the United States District Court for the Northern District of Illinois. In June
2011, the Company filed in the federal court a motion to remand the case to Illinois Circuit Court. On July 8, 2011, Deloitte
filed a motion to dismiss the Company's complaint and in August 2011, the Company responded to Deloitte's motion to
dismiss. On October 28, 2011, the court remanded the case back to the Circuit Court of Cook County, Illinois and denied the
motion to dismiss as moot. The parties are awaiting transfer to Illinois State Court and assignment of a judge.

Westbrook vs. Navistar. et. al.

In April 2011, a False Claims Act qui tam complaint against Navistar, Inc., Navistar Defense, LLC, a wholly owned subsidiary
of the Company, and unrelated third parties was unsealed by the United States District Court for the Northern District of Texas.
The complaint was initially filed in August 2010 by a qui tam relator on behalf of the federal government. The complaint
alleged violations of the False Claims Act based on allegations that parts of vehicles delivered by Navistar Defense were not
painted according to the contract specification, and improper activities in dealing with one of the vendors who painted certain
of the vehicle parts. The complaint seeks monetary damages and civil penalties on behalf of the federal government, as well as
costs and expenses. The U.S. government notified the court that it has declined to intervene at this time. The Company was
served with the complaint in July 2011, and a scheduling order has been issued in the case. Following the service and unsealing
of the complaint, the Company and the other named defendants filed motions to dismiss. The parties are currently briefing the
issues in the motions to dismiss as well as other matters in the case.

Based on our assessment of the facts underlying the claims in the above action and the degree to which we intend to defend the
Company in this matter, we are unable to provide meaningful quantification of how the final resolution of these claims may
impact our future consolidated financial condition, results of operations, or cash flows.

16. Segment reporting

The following is a description of our four reporting segments:

• Our Truck segment manufactures and distributes a full line of Class 4 through 8 trucks, buses and military vehicles

under the International and IC Bus (“IC”) brands. Our Truck segment also produces chassis for motor homes and
commercial step-van vehicles under the Workhorse brand and recreational vehicles under the Monaco family of
brands. In an effort to strengthen and maintain our dealer network, this segment occasionally acquires and operates
dealer locations for the purpose of transitioning ownership.

• Our Engine segment designs and manufactures diesel engines for use globally, in Class 3 through 8 vehicles, as well
as off-road applications. In North America, these engines primarily go into our Class 6 and 7 medium trucks and
buses and Class 8 heavy trucks, and are sold to original equipment manufacturers (“OEMs”). In addition, our Engine
segment produces diesel engines in Brazil primarily for distribution in South America under the MWM brand for sale
to OEMs. In all other areas of the world, including North America, engines are sold under the MaxxForce brand name.
To control cost and technology, our Engine segment has expanded its operations to include PPT, a components
company focused on air, fuel, and aftertreatment systems to meet more stringent Euro and EPA emission
standards. Also included in the Engine segment are the operating results of BDP, which manages the sourcing,
merchandising, and distribution of certain service parts for vehicles we and Ford sell in North America.

• Our Parts segment provides customers with proprietary products needed to support the International commercial and

military truck, IC bus, WCC chassis, and MaxxForce engine lines. Our Parts segment also provides a wide selection of
other standard truck, trailer, and engine aftermarket parts. At October 31, 2011, this segment operated eleven regional
parts distribution centers that provide 24-hour availability and shipment.

• Our Financial Services segment provides retail, wholesale, and lease financing of products sold by the Truck and Parts
segments and their dealers within the U.S. and Mexico, as well as financing for wholesale accounts and selected retail
accounts receivable.

Corporate contains those items that are not included in our four segments.

118

Segment Profit (Loss)

We define segment profit (loss) as net income (loss) attributable to Navistar International Corporation excluding income tax
benefit (expense). Selected financial information is as follows:

•

The UAW master contract and non-represented employee profit sharing, annual incentive compensation, and the costs of
contingent contributions to the Supplemental Trust are included in corporate expenses, if applicable.

Interest expense and interest income for the manufacturing operations are reported in corporate expenses.

Certain sales to our dealers include interest-free periods that vary in length. The Financial Services segment finances
these sales and our Truck segment subsidizes and reimburses the Financial Services segment for those finance charges.

Intersegment purchases and sales between the Truck and Engine segments are recorded at our best estimates of arms-
length pricings. During 2010 and 2009, MaxxForce Big-Bore engine program was treated as a joint program with the
Truck and Engine segments sharing in certain costs of the program.

Beginning in 2011, certain purchases from the Engine segment by the Parts segment, primarily related to PPT, are
recorded at market-based pricing. All other intersegment purchases from the Truck and Engine segments by the Parts
segment are recorded at standard production cost.

We allocate “access fees” to the Parts segment from the Truck and Engine segments for certain engineering and product
development costs, depreciation expense, and selling, general and administrative expenses incurred by the Truck and
Engine segments based on the relative percentage of certain sales, as adjusted for cyclicality.

The Financial Services segment provides the manufacturing operations, primarily our Truck and Parts segments,
financing services that account for a significant share of its financing revenue. Certain sales financed by the Financial
Services segment, primarily NFC, require the manufacturing operations, primarily the Truck segment, to share a portion
of customer losses.

Beginning in 2009, as a result of higher costs of borrowings our Financial Services segment began charging the
manufacturing operations higher fees and interest rates for its funding services. Effective with the third quarter of 2011,
with improvements in its cost of borrowings, the Financial Services segment reduced some of these incremental fees and
interest rates through an amendment to the Company's master intercompany agreement. Effective with the fourth quarter
of 2011, the Company's master intercompany agreement was again amended to provide for the Financial Services
segment to reimburse the manufacturing operations for fees and financing revenue when the Financial Services segment
exceeds a minimum interest coverage ratio. As a result of the amendment, in the fourth quarter of 2011 the Financial
Services segment reimbursed the manufacturing operations $11 million of financing fees and revenues.

Beginning in 2011, we allocate gains and losses on commodities derivatives to the segment to which the underlying
commodities relate. Previously, the impacts of commodities derivatives were not material and were recorded in
Corporate.

Other than the items discussed above, the selected financial information presented below is recognized in accordance
with our policies described in Note 1, Summary of significant accounting policies.

119

(in millions)
October 31, 2011
External sales and revenues, net ..................................
Intersegment sales and revenues..................................
Total sales and revenues, net........................................
Net income attributable to NIC....................................
Income tax benefit........................................................
Segment profit (loss)....................................................
Depreciation and amortization.....................................
Interest expense............................................................
Equity in income (loss) of non-consolidated affiliates
Segment assets .............................................................
Capital expenditures(D).................................................

(in millions)
October 31, 2010
External sales and revenues, net ..................................
Intersegment sales and revenues..................................
Total sales and revenues, net........................................
Net income (loss) attributable to NIC..........................
Income tax expense......................................................
Segment profit (loss)....................................................
Depreciation and amortization.....................................
Interest expense............................................................
Equity in income (loss) of non-consolidated affiliates
Segment assets .............................................................
Capital expenditures.....................................................

Truck(A)

Engine(A)(B)

Parts

Financial
Services(C)

Corporate
and
Eliminations

Total

$ 9,690

$ 9,738

336

—

336

151

—
(73)
2,771

2,101

$ 1,967

1,690

188

3,791

$ 2,155

—

120

—
(4)
1,849

172

287

—

287

—

700

200

291

129

—

129

109

—

3,580

—
(2,017)
(2,017)
887

1,458
(571)
20

138

—

3,391

153

$ 13,958

—

$ 13,958

$ 1,723

1,458

265

328

247
(71)
12,291

429

Truck(A)

Engine(A)

Parts

Financial
Services(C)

Corporate
and
Eliminations

Total

$ 8,205

$ 8,207

424

—

424

160

—
(51)
2,457

2,031

$ 1,690

955

195

2,986

$ 1,885

—

106

—
(2)
1,715

116

266

—

266

—

811

219

309

—

113

—

3,497

—
(1,242)
(1,242)
(613)
(23)
(590)
15

140

—

1,250

$ 12,145

—

$ 12,145

223
(23)
246

316

253
(50)
9,730

234

120

Truck

Engine

Parts

Financial
Services(C)

Corporate
and
Eliminations

Total

(in millions)
October 31, 2009
External sales and revenues, net ..................................
Intersegment sales and revenues..................................
Total sales and revenues, net........................................
Net income (loss) attributable to NIC..........................
Income tax expense......................................................
Segment profit (loss)....................................................
Depreciation and amortization.....................................
Interest expense............................................................
Equity in income (loss) of non-consolidated affiliates
Segment assets .............................................................
Capital expenditures(D).................................................

7,294

$ 2,031

$ 1,975

659

198

7,297

$ 2,690

$ 2,173

147

—

147

178

—
(5)
2,660

253

—

253

118

—

1,517

436

—

436

—

664

269

348

—

161

—

4,136

—
(939)
(939)
(556)
(37)
(519)
16

—

$ 11,569

—

$ 11,569

320
(37)
357

344

251

1,051

10,028

151

_______________
(A) See Note 2, Restructurings and impairments, for further discussion.
(B)

In 2011, the Engine segment recognized a $10 million gain on the extinguishment of a liability related to an equipment financing transaction. Previously, such gains were not
material and were recorded in Corporate.

(C) Total sales and revenues in the Financial Services segment include interest revenues of $285 million, $270 million, and $304 million for 2011, 2010, and 2009, respectively.
(D) Exclusive of purchases of equipment leased to others.

Sales of vehicles and service parts to the U.S. government were 13%, 15%, 25% of consolidated sales and revenues for 2011,
2010, and 2009, respectively. Sales of vehicles and service parts to the U.S. government are reported in our Truck and Parts
segments.

Information concerning principal geographic areas for the years ended October 31, 2011, 2010, and 2009 is as follows:

2011

2010

2009

(in millions)

Sales and revenues:

United States ..............................................................................................................
Canada........................................................................................................................
Mexico .......................................................................................................................
Brazil..........................................................................................................................
Other ..........................................................................................................................

9,098

8,728

9,762

1,071

1,550

1,190

1,049

1,006

609

961

841

748

467

638

454

(in millions)
Long-lived assets:(A)
United States ...........................................................................................................................................
Canada.....................................................................................................................................................
Mexico ....................................................................................................................................................
Brazil .......................................................................................................................................................
Other........................................................................................................................................................

1,340

1,277

152

519

126

148

476

2011

2010

__________________________
(A) Long-lived assets consist of Property and equipment, net, Goodwill, and Intangible assets, net.

17. Stockholders' equity (deficit)

Preferred and Preference Stocks

NIC has authorized 30 million shares of preferred stock, none of which have been issued, with a par value of $1.00 per share.
121

In July 2007, the Company filed a Certificate of Designation to its Restated Certificate of Incorporation creating a series of
110,000 shares of Preferred Stock designated as Junior Participating Preferred Stock, Series A, par value $1.00 per share. The
Junior Participating Preferred Stock, Series A are entitled to dividends and shall have the voting and such other rights as
provided for in the Certificate of Designation.

NIC has authorized 10 million shares of preference stock with a par value of $1.00 per share.

The UAW holds the Series B Nonconvertible Junior Preference Stock (“Series B”) and is currently entitled to elect one member
of our Board of Directors. As of October 31, 2011 and 2010, there was one share of Series B Preference stock authorized and
outstanding.

As of October 31, 2011 and 2010, there were 136,801 and 140,162 shares, respectively, of Series D Convertible Junior
Preference Stock (“Series D”) issued and outstanding. These shares were issued with a par value of $1.00 per share, an optional
redemption price, and a liquidation preference of $25 per share plus accrued dividends. The Series D stock may be converted
into NIC common stock at the holder's option (subject to adjustment in certain circumstances); upon conversion each share of
Series D stock is converted to 0.3125 shares of common stock. The Series D stock 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.

Common Stock

On February 15, 2011, upon recommendation of the Board of Directors, the stockholders voted on and approved an amendment
to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock from 110
million shares to 220 million shares, with a par value of $0.10 per share. There were 70.5 million shares and 71.8 million shares
of common stock outstanding, net of common stock held in treasury, at October 31, 2011 and 2010, respectively.

Additional Paid in Capital

In connection with the sale of the Convertible Notes, the Company purchased call options for $125 million and entered into
separate warrant transactions whereby the Company sold warrants for $87 million to purchase shares of common stock. As the
call options and warrants are indexed to our common stock, we recognized them in permanent equity in Additional paid in
capital, and will not recognize subsequent changes in fair value as long as the instruments remain classified as equity. See Note
10, Debt, for further discussion.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following as of October 31:

(in millions)
Postretirement and other postemployment benefits ............................................
Foreign currency translation adjustments............................................................
Accumulated other comprehensive loss ..............................................................

2011

2010

2009

(2,045)
101
(1,944)

(1,316)
120
(1,196)

(1,788)
98
(1,690)

Dividend Restrictions

Under the General Corporation Law of the State of Delaware, dividends may only be paid out of surplus or out of net profits
for the year in which the dividend is declared or the preceding 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 our net assets.

As set forth in the Senior Notes Indenture, the terms of our Senior Notes include various financial covenants and restrictions
including, among others, certain limitations on dividends. The Loan Agreement with regard to the Tax Exempt Bonds contains
substantially identical financial covenants and restrictions, including among others, certain limitations on dividends. We have
not paid dividends on our common stock since 1980.

Share Repurchase Programs

In July 2008, our Board of Directors authorized a $36 million share repurchase program, which expired in July 2009. Under
this program, we repurchased 1 million shares of our common stock at an average price of $28.89.

122

In December 2010, our Board of Directors authorized a share repurchase program utilizing cash proceeds received from the
exercise of stock options, up to a limit of $25 million, which was completed in September 2011. Under this program, we
repurchased 532,016 shares of our common stock.

In September 2011, a special committee of our Board of Directors authorized a share repurchase program under which the
Company may acquire, from time to time on or before March 15, 2012, up to $175 million worth of the Company's common
stock in the open market or in any private transaction. This share repurchase program is in addition to the Company's share
repurchase program of $25 million completed in September 2011.

In October 2011, the Company entered into a variable term accelerated share repurchase (“ASR”) agreement with a third-party
financial institution to purchase shares of common stock for an aggregate purchase price of $100 million. Under the agreement,
the Company paid the financial institution $100 million and received an initial delivery of 2,380,952 shares. The value of the
delivered shares on the date of purchase was $80 million at $33.60 per share, and was included in Common stock held in
treasury in our Consolidated Balance Sheet as of October 31, 2011. The remaining $20 million was included in Additional paid
in capital in our Consolidated Balance Sheet as of October 31, 2011.

In November 2011, the ASR program concluded and the Company received 161,657 of additional shares for a total of
2,542,609 shares. The final settlement was based upon the volume weighted average price of the Company's common stock
(subject to a discount agreed upon with the financial institution) over an averaging period. With the conclusion of the
agreement, the remaining $20 million included in Additional paid in capital was reclassified to Common stock held in treasury.

The ASR was accounted for as an initial stock purchase transaction and a forward stock purchase contract. The initial delivery
of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares
outstanding for basic and diluted net earnings per share from the effective date of the ASR. The forward stock purchase contract
is classified as an equity instrument at October 31, 2011.

In October 2011, the Company entered into an open market share repurchase agreement with a third-party financial institution
to purchase the remaining $75 million worth of the Company's common stock authorized by a special committee of our Board
of Directors in September 2011. The related repurchase activity was commenced in November 2011, following the completion
of the ASR program.

123

18. Earnings per share attributable to Navistar International Corporation

The following table shows the information used in the calculation of our basic and diluted earnings per share attributable to
Navistar International Corporation as of October 31:

(in millions, except per share data)
Numerator:
Income attributable to Navistar International Corporation before extraordinary gain ...
Extraordinary gain, net of tax .........................................................................................
Net income attributable to Navistar International Corporation available to common
stockholders ....................................................................................................................
Denominator:
Weighted average shares outstanding:

Basic ........................................................................................................................
Effect of dilutive securities......................................................................................
Diluted .....................................................................................................................

Basic earnings per share:
Income attributable to Navistar International Corporation before extraordinary gain ...
Extraordinary gain, net of tax .........................................................................................
Net income attributable to Navistar International Corporation ......................................

Diluted earnings per share
Income attributable to Navistar International Corporation before extraordinary gain ...
Extraordinary gain, net of tax .........................................................................................
Net income attributable to Navistar International Corporation ......................................

2011

2010

2009

1,723
—

223
—

1,723

223

72.8
3.3
76.1

23.66
—
23.66

22.64
—
22.64

71.7
1.5
73.2

3.11
—
3.11

3.05
—
3.05

297
23

320

71.0
0.8
71.8

4.18
0.33
4.51

4.14
0.32
4.46

The conversion rate on our Convertible Notes is 19.891 shares of common stock per $1,000 principal amount of Convertible
Notes, equivalent to an initial conversion price of $50.27 per share of common stock. In connection with the sale of the
Convertible Notes, we sold warrants to various counterparties to purchase shares of our common stock from us at an exercise
price of $60.14 per share. The Convertible Notes and warrants are anti-dilutive when calculating diluted earnings per share
when our average stock price is less than $50.27 and $60.14, respectively.

We also purchased call options in connection with the sale of the Convertible Notes, covering 11.3 million shares at an exercise
price of $50.27 per share, which are intended to minimize share dilution associated with the Convertible Notes; however under
accounting guidance, these call options cannot be utilized to offset the dilution of the Convertible Notes for determining diluted
earnings per share as they are anti-dilutive.

The computation of diluted earnings per share also excludes outstanding options and other common stock equivalents in
periods where inclusion of such potential common stock instruments would be anti-dilutive in the periods presented.

The aggregate shares not included in the computation of earnings per share, as they would be anti-dilutive, were 0.9 million,
11.5 million and 22.9 million for the years ended October 31, 2011, 2010 and 2009, respectively. In addition, the computation
of earnings per share for the year ended October 31, 2011 did not include any impact of the forward contract related to the ASR
program as it would have been anti-dilutive. The 11.5 million shares not included in the 2010 computation include 11.3 million
shares related to warrants which were anti-dilutive as our average stock price was less than the exercise price on the warrants
for the year ended October 31, 2010. The 22.9 million shares not included in the 2009 computation include 11.3 million shares
related to our Convertible Notes and 11.3 million shares related to warrants which were both anti-dilutive as our average stock
price was less than both the conversion price of the Convertible Notes and the exercise price of the warrants for the year ended
October 31, 2009.

19. Stock-based compensation plans

In February 2004, our shareholders approved the 2004 Performance Incentive Plan (“2004 Plan”), which provides for the

124

granting of stock options, restricted stock, restricted stock units, cash-settled restricted stock units and cash-settled performance
shares to employees and non-employee directors and consultants. The awards granted under the 2004 Plan are established by
our Board of Directors or committee thereof at the time of issuance. Options are awarded with an exercise price equal to the
fair market value of our common stock on the date of grant and generally vest over a three year period. The stock options
granted prior to December 2009 generally have a 10-year contractual life. Starting with the December 2009 option grants, the
Company granted awards with a 7-year contractual life. Restricted stock is common stock that is subject to forfeiture or other
restrictions that will lapse upon satisfaction of specified conditions. Restricted stock units represent the right to receive shares
of common stock in the future, with the right to future delivery of the shares subject to forfeiture or other restrictions that will
lapse upon satisfaction of specified conditions. Awards of performance shares, which are based on cash-settled stock units, will
be earned by comparing the Company's total shareholder return for a pre-determined period to the Company's percentile
ranking when compared to its peer group. Awards of cash-settled restricted stock units and performance shares are classified as
liabilities and are remeasured at each reporting date.

The 2004 Plan replaced on a prospective basis, our 1994 Performance Incentive Plan, 1998 Supplemental Stock Plan, and 1998
Non-Employee Director Stock Option Plan (the "Prior Plans") such that all future grants will be granted under the 2004 Plan
and any shares that are cancelled, expired, forfeited, settled in cash or otherwise terminated without a delivery of shares to the
participant will become available for grant under the 2004 Plan.

A total of 3,250,000 shares of common stock were originally reserved for awards under the 2004 Plan. In February 2010, an
additional 2,500,000 shares were approved by the shareholders, which increased the total shares of common stock reserved for
awards under the 2004 Plan to 5,750,000 shares. Shares subject to awards under the 2004 Plan and shares subject to awards
under any Prior Plans that are cancelled, expired, forfeited, settled in cash, tendered to satisfy the purchase price of an award,
withheld to satisfy tax obligations, or otherwise terminated without a delivery of shares to the participant become available for
future awards under the 2004 Plan. As of October 31, 2011, 2,710,359 shares remain available for issuance under the 2004
Plan.

The following plans were approved by our Board of Directors but were not approved and were not required to be approved by
our stockholders: the Executive Stock Ownership Program (the “Ownership Program”) and the Non-Employee Directors
Deferred Fee Plan (the “Deferred Fee Plan”).

Ownership Program. In June 1997, our Board of Directors approved the terms of the Ownership Program, and has since
amended it from time to time. In general, the Ownership Program requires all officers and senior managers to acquire, by direct
purchase or through salary or annual bonus reduction, an ownership interest in the Company by acquiring a designated amount
of our common stock at specified timelines. Participants are required to hold such stock for the entire period in which they are
employed by the Company. Participants may defer their cash bonus into deferred share units (“DSUs”), which vest
immediately. There were 27,671 DSUs outstanding as of October 31, 2011. Premium share units (“PSUs”) may also be
awarded to participants who complete their ownership requirement on an accelerated basis. PSUs vest annually, pro rata over
three years. There were 89,112 PSUs outstanding as of October 31, 2011. Each vested DSU and PSU will be settled by delivery
of one share of common stock within 10 days after a participant's termination of employment or at such later date as required
by Internal Revenue Code Section Rule 409A. Beginning in February 2004, PSU's and DSU's awarded under this program are
issued under the 2004 Plan.

Deferred Fee Plan. Under the Deferred Fee Plan, non-employee directors may elect to defer payment of all or a portion of their
retainer fees and meeting fees in cash (with interest) or in stock units. Deferrals in the deferred stock account are valued as if
each deferral was vested in NIC common stock as of the deferral date. As of October 31, 2011, 42,267 deferred shares were
outstanding under the Deferred Fee Plan.

125

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

2011

2010

2009

Weighted
Average
Exercise
Price

Options outstanding, at beginning of year....
Granted .........................................................
Exercised.......................................................
Forfeited/expired...........................................
Options outstanding, at end of year ..............
Options exercisable, at end of year...............

(in thousands)
4,911

1,069

(1,440)

(40)

4,500

3,064

33.81

60.32

34.87

47.06

39.65

36.07

(in thousands)
5,917

599
(1,147)
(458)
4,911

3,767

33.09

38.71

30.94

38.14

33.81

34.67

(in thousands)
5,589

951
(456)
(167)
5,917

5,023

34.60

22.66

30.29

31.81

33.09

34.95

The following table summarizes information about stock options outstanding at October 31, 2011:

Options Outstanding

Range of Exercise Prices

$ 21.22 - $ 31.81 ........................................................................
$ 32.18 - $ 40.92 ........................................................................
$ 42.48 - $ 69.91 ........................................................................

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

Aggregate
Intrinsic Value

(in years)

(in millions)

4.2

3.9

24.98

38.80

53.00

—

Number
Outstanding

(in thousands)
1,615

1,043

1,842

The following table summarizes information about stock options exercisable at October 31, 2011:

Options Exercisable

Range of Exercise Prices

Weighted
Average
Remaining
Contractual
Life

Weighted
Average
Exercise
Price

Aggregate
Intrinsic Value

(in years)

(in millions)

3.6

3.3
2.0

25.45

40.02
47.70

2
—

Number
Outstanding

(in thousands)
1,347

738
979

The weighted average grant date fair value of options granted during the years ended October 31, 2011, 2010, and 2009 was
$26.40, $18.00, and $10.35, respectively. The total intrinsic value of stock options exercised during the years ended
October 31, 2011, 2010, and 2009 was $38 million, $20 million, and $14 million, respectively. The fair value of each option
grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average
assumptions:

Risk-free interest rate ..........................................................................................................
Dividend yield.....................................................................................................................
Expected volatility ..............................................................................................................
Expected life in years ..........................................................................................................

2011
2.27%

—%

2010

2009

2.72%

—%

1.34%

—%

46.80%

52.60%

47.30%

5.4

5.5

5.9

The use of the Black-Scholes option-pricing model requires us to make certain estimates and assumptions. The risk-free interest

126

rate utilized is the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term
assumption on the grant date, rounded to the nearest half year. A dividend yield assumption of 0% is used for all grants based
on the Company's history of not paying a dividend to any class of stock. Expected volatility is based on our historical stock
prices and implied volatilities from traded options in our stock. The weighted average expected life in years for all grants as a
group is then calculated for each year. We monitor share option exercise and employee termination patterns to estimate
forfeiture rates.

Restricted stock unit and cash-settled restricted stock unit activity for the year ended October 31, 2011 was as follows:

Share-Settled Restricted Stock Units

Cash-Settled Restricted Stock Units

(in thousands)

Weighted Average
Grant Date Fair
Value

(in thousands)

Weighted Average
Grant Date Fair
Value

Nonvested at October 31, 2010..........................
Granted...............................................................
Vested.................................................................
Forfeited.............................................................
Nonvested at October 31, 2011..........................

459

43
(333)
(7)
162

45.21

53.72

50.98

46.75

35.54

275

225
(90)
(17)
393

35.81

59.25

35.81

46.53

48.80

The aggregate fair value of restricted stock units vested during the years ended October 31, 2011, 2010, and 2009 was $20
million, $9 million, and $9 million, respectively.

During the year ended October 31, 2011, we awarded 149,620 cash-settled performance shares with a weighted average grant
date fair value per share of $84.75. We estimated the fair value of each performance share granted on the date of grant using a
Monte Carlo simulation that uses expected volatility and risk-free rate assumptions. An expected volatility of 47.3% was used
and was based on the implied volatility of traded call options in our stock and the historical volatility of our daily stock price.
A risk free rate of 2.03% was used and was based on the rate on zero-coupon government bonds with a term commensurate
with the remaining performance period at grant date.

There were no cash-settled performance shares granted during 2010 and 2009. No cash-settled performance shares vested
during the year ended October 31, 2011.

Total share-based compensation expense for the years ended October 31, 2011, 2010, and 2009 was $36 million, $24 million
and $16 million respectively. As of October 31, 2011, there was $29 million of total unrecognized compensation expense
related to non-vested share-based awards. The compensation expense is expected to be recognized over a weighted average
period of 2 years.

The Company received cash of $40 million, $30 million, and $13 million during the years ended October 31, 2011, 2010, and
2009, respectively, related to stock awards exercised. The Company used cash of $5 million during 2011 to settle cash-settled
restricted stock units. The Company did not realize any tax benefit from stock awards exercised for 2011, 2010, or 2009.

Redeemable Equity Securities. Our options contained provisions allowing for a cash settlement in the event of a change in
control and when certain other conditions existed. Accordingly, the intrinsic value of these options was reflected as mezzanine
equity. In the first quarter of 2009, we modified the terms of certain outstanding stock options classified as mezzanine equity.
The modification, which required the consent of plan participants, eliminated the feature that allowed for cash settlement in the
event of a change in control when certain other conditions existed. As a result, the value of the modified award is no longer
required to be presented as mezzanine equity under the guidance on the classification and measurement of redeemable
securities. The modification resulted in a reduction of $130 million of Redeemable equity securities and a corresponding
increase to Additional paid in capital in 2009. As additional plan participants consent to the modification, exercise their stock
options, or they expire, additional amounts will be reclassified from Redeemable equity securities to Additional paid in capital.

127

20. Supplemental cash flow information

The following table provides additional information about the Company's Consolidated Statements of Cash Flows for the years
ended October 31, 2011, 2010, and 2009:

(in millions)
Equity in income of affiliated companies, net of dividends

Equity in (income) loss of non-consolidated affiliates.............................................
Dividends from non-consolidated affiliates .............................................................
Equity in loss of non-consolidated affiliates, net of dividends ................................

Other non-cash operating activities

Loss on sales of affiliates .........................................................................................
Extraordinary gain on acquisition of subsidiary ......................................................
Gain on increased equity interest in subsidiary........................................................
Loss on sale of property and equipment...................................................................
Loss (gain) on sale and impairment of repossessed collateral .................................
Loss on sale of finance receivables ..........................................................................
Write-off of debt issuance cost.................................................................................
Gain on sale of leaseback settlement........................................................................
Other non-cash operating activities..........................................................................

Changes in other assets and liabilities

Other current assets ..................................................................................................
Other noncurrent assets ............................................................................................
Other current liabilities.............................................................................................
Postretirement benefits liabilities .............................................................................
Other noncurrent liabilities.......................................................................................
Other, net ..................................................................................................................
Changes in other assets and liabilities......................................................................

Cash paid during the year

Interest, net of amounts capitalized..........................................................................
Income taxes, net of refunds ....................................................................................

Non-cash investing and financing activities

Property and equipment acquired under capital leases ............................................
Transfers from inventories to property and equipment for leases to others.............

For the Years Ended
October 31,

2011

2010

2009

4
75

—

—
(6)
2
(1)
—

—
(10)
(15)

(28)
(32)
130

94
(9)
164

208
9

—

5
55

—

(39)
7
(73)
(40)
(16)
1
(160)

170
27

(46)
59
13

1
(23)
(23)
8

—

(34)
(10)
(85)
97
(102)
(8)
(142)

211
(5)

21. Condensed consolidating guarantor and non-guarantor financial information

The following tables set forth condensed consolidating balance sheets as of October 31, 2011 and 2010, and condensed
consolidating statements of operations and condensed consolidating statements of cash flows for the years ended October 31,
2011, 2010, and 2009. The information is presented as a result of Navistar, Inc.’s guarantee, exclusive of its subsidiaries, of
NIC’s indebtedness under its 8.25% Senior Notes due 2021 and obligations under our Loan Agreement related to the 6.5% Tax
Exempt Bonds due 2040. Navistar, Inc. is a direct wholly-owned subsidiary of NIC. None of NIC’s other subsidiaries guarantee
any of these notes. The guarantees are "full and unconditional", as those terms are used in Regulation S-X Rule 3-10, except
that an individual subsidiary's guarantee will be automatically released in certain customary circumstances, such as when the
subsidiary is sold or all of the assets of the subsidiary are sold, the capital stock is sold, when the subsidiary is designated as an
“unrestricted subsidiary” for purposes of the indenture, upon liquidation or dissolution of the subsidiary or upon legal or

128

covenant defeasance or satisfaction and discharge of the notes. Separate financial statements and other disclosures concerning
Navistar, Inc. have not been presented because management believes that such information is not material to investors. Within
this disclosure only, “NIC” includes the consolidated financial results of the parent company only, with all of its wholly-owned
subsidiaries accounted for under the equity method. Likewise, “Navistar, Inc.,” for purposes of this disclosure only, includes the
consolidated financial results of its wholly-owned subsidiaries accounted for under the equity method and its operating units
accounted for on a consolidated basis. “Non-Guarantor Subsidiaries” includes the combined financial results of all other non-
guarantor subsidiaries. “Eliminations and Other” includes all eliminations and reclassifications to reconcile to the consolidated
financial statements. NIC files a consolidated U.S. federal income tax return that includes Navistar, Inc. and its
U.S. subsidiaries. Navistar, Inc. has a tax allocation agreement (“Tax Agreement”) with NIC which requires Navistar, Inc. to
compute its separate federal income tax liability and remit any resulting tax liability to NIC. Tax benefits that may arise from
net operating losses of Navistar, Inc. are not refunded to Navistar, Inc. but may be used to offset future required tax payments
under the Tax Agreement. The effect of the Tax Agreement is to allow NIC, the parent company, rather than Navistar, Inc., to
utilize current U.S. taxable losses of Navistar, Inc. and all other direct or indirect subsidiaries of NIC.

We have revised our previously reported condensed consolidating balance sheet as of October 31, 2009 to reflect the correction
of errors in those statements and the effect of the adoption of new accounting guidance related to the accounting for convertible
debt instruments that may be settled in cash upon conversion (including partial cash settlement) and the accounting for non-
controlling interests. The 2009 and 2008 impact of these errors, totaling $10 million, was recognized in our 2010 condensed
consolidating statements of operations as they were not material to our financial results for 2009 and 2008. The revisions did
not impact the condensed consolidating statement of cash flows for the years ended October 31, 2009 and 2008. See Note 1,
Summary of significant accounting policies, for further discussion.

(in millions)
Condensed Consolidating Statement of Operations
for the year Ended October 31, 2011
Sales and revenues, net ....................................................
Costs of products sold ........................................................
Restructuring charges .........................................................
Impairment of property and equipment and intangible
assets...................................................................................
All other operating expenses ..............................................
Total costs and expenses...................................................
Equity in income (loss) of affiliates ...................................
Income (loss) before income tax ........................................
Income tax benefit (expense) .............................................
Net income (loss) ...............................................................
Less: Net income attributable to non-controlling interests
Net income (loss) attributable to Navistar
International Corporation...............................................

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

—

1,759

1,680

1,723

—

8,319

13,202

7,775

10,974

—

1,263

9,071

462
(290)
1,937

1,647

—

902

11,999
(37)
1,166
(511)
655

(7,563)
(7,487)
—

—
(95)
(7,582)
(2,255)
(2,236)
(11)
(2,247)
—

13,958

11,262

2,149

13,567
(71)
320

1,458

1,778

1,723

1,647

600

(2,247)

1,723

129

(in millions)
Condensed Consolidating Balance Sheet as of
October 31, 2011
Assets
Cash and cash equivalents...........................................
Marketable securities ..................................................
Restricted cash and cash equivalents ..........................
Finance and other receivables, net ..............................
Inventories...................................................................
Investments in non-consolidated affiliates..................
Property and equipment, net .......................................
Goodwill......................................................................
Deferred taxes, net ......................................................
Other............................................................................
Total Assets
Liabilities and Stockholders’ Equity (Deficit)
Debt .............................................................................
Postretirement benefits liabilities................................
Amounts due to (from) affiliates.................................
Other liabilities............................................................
Total Liabilities..........................................................
Redeemable equity securities ...................................
Stockholders’ equity attributable to non-
controlling interests...................................................
Stockholders’ equity (deficit) attributable to
Navistar International Corporation ........................
Total Liabilities and Stockholders’ Equity
(Deficit).......................................................................

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

226

429

—
(2,094)
—

—

168
(1,217)

1,689

—
(5,574)
2,690
(1,195)
5

—

154

650

5,818

600

—

1,912

152
9,309

156

2,981

9,055
(194)
11,998

—

300

288

298

4,070

1,113

972

319

114

416
7,944

3,242

335
(3,595)
1,717
1,699

—

27
(49)
(3,718)
(2)
—

—
(3)
(3,745)

(231)
—

114
(122)
(239)
—

(2)

539

718

327

4,254

1,714

1,570

319

2,057

733
12,291

4,856

3,316

—

4,091
12,263

(27)

(2,689)

6,193

(3,504)

(27)

(1,217)

9,309

7,944

(3,745)

12,291

130

(in millions)
Condensed Consolidating Statement of Cash Flows
for the Year Ended October 31, 2011
Net cash provided by (used in) operations ...................
Cash flow from investment activities
Net change in restricted cash and cash equivalents ..........
Net sales (purchases) of marketable securities .................
Capital expenditures .........................................................
Other investing activities ..................................................
Net cash provided by (used in) investment activities...
Cash flow from financing activities
Net borrowings (repayments) of debt ...............................
Other financing activities..................................................
Net cash provided by (used in) financing activities .....
Effect of exchange rate changes on cash and cash
equivalents .......................................................................
Increase (decrease) in cash and cash equivalents .............
Cash and cash equivalents at beginning of the year .........
Cash and cash equivalents at end of the year...............

(in millions)
Condensed Consolidating Statement of Operations for
the Year Ended October 31, 2010
Sales and revenues, net......................................................
Costs of products sold .........................................................
Restructuring charges ..........................................................
All other operating expenses (income)................................
Total costs and expenses....................................................
Equity in income (loss) of affiliates ....................................
Income (loss) before income tax .........................................
Income tax benefit (expense)...............................................
Net income (loss).................................................................
Less: Net income attributable to non-controlling interest ...
Net income (loss) attributable to Navistar
International Corporation ................................................

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

(44)

(66)

556

434

880

—
(55)
—

—
(55)

91
(5)
86

—
(13)
239
226

—

—
(264)
(12)
(276)

333

—

333

—
(9)
22
13

(147)
(77)
(236)
(32)
(492)

48
(133)
(85)

(3)
(24)
324
300

—

(434)
—
(434)

—

—
—

(147)
(132)
(500)
(44)
(823)

38
(138)
(100)

(3)
(46)
585
539

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

—
(1)
—

283

223

—

223

—

6,751

11,278

6,303
(13)
1,349

7,639

895

—

9,245
(2)
763

10,006
(17)
1,255
(78)
1,177

(5,884)
(5,806)
—
(94)
(5,900)
(1,211)
(1,195)
—
(1,195)
—

12,145

9,741
(15)
2,079

11,805
(50)
290
(23)
267

223

1,133

(1,195)

131

(in millions)
Condensed Consolidating Balance Sheet as of
October 31, 2010
Assets
Cash and cash equivalents.............................................
Marketable securities ....................................................
Restricted cash and cash equivalents ............................
Finance and other receivables, net ................................
Inventories.....................................................................
Goodwill........................................................................
Property and equipment, net .........................................
Investments in non-consolidated affiliates....................
Deferred taxes, net ........................................................
Other..............................................................................
Total Assets
Liabilities and Stockholders’ Equity (Deficit)
Debt ...............................................................................
Postretirement benefits liabilities..................................
Amounts due to (from) affiliates...................................
Other liabilities..............................................................
Total Liabilities............................................................
Redeemable equity securities .....................................
Stockholders’ equity attributable to non-
controlling interest ......................................................
Stockholders’ equity (deficit) attributable to
Navistar International Corporation ..........................
Total Liabilities and Stockholders’ Equity (Deficit).

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

239

375

—

—
(3,006)
1

266
(2,096)

1,666

—
(5,058)
2,269
(1,123)
8

—

222

644

—

443

5,290

118

6,749

213

1,907

8,111

112

10,343

—

324

211

151

3,730

974

324

1,003

146

467

7,390

3,220

272
(3,140)
1,369

1,721

—

—
(15)
(50)
—
(4)
(2,241)
(2)
(1)
(2,313)

(229)
—

87
(145)
(287)
—

—

585

586

180

3,946

1,568

324

1,442

103

146

850

9,730

4,870

2,179

—

3,605

10,654

(981)
(2,096)

(3,594)
6,749

5,620

7,390

(2,026)
(2,313)

(981)
9,730

132

(in millions)
Condensed Consolidating Statement of Cash Flows
for the Year Ended October 31, 2010
Net cash provided by (used in) operations ...................
Cash flow from investment activities
Net change in restricted cash and cash equivalents..........
Net purchases in marketable securities ............................
Capital expenditures.........................................................
Other investing activities..................................................
Net cash provided by (used in) investment activities ..
Cash flow from financing activities
Net borrowings (repayments) of debt...............................
Other financing activities .................................................
Net cash provided by (used in) financing activities.....
Effect of exchange rate changes on cash and cash
equivalents.......................................................................
Decrease in cash and cash equivalents .............................
Cash and cash equivalents at beginning of the year.........
Cash and cash equivalents at end of the year ..............

(in millions)
Condensed Consolidating Statement of Operations
for the Year Ended October 31, 2009
Sales and revenues, net ..................................................
Costs of products sold ......................................................
Impairment of property and equipment............................
Restructuring charges .......................................................
All other operating expenses (income).............................
Total costs and expenses.................................................
Equity in income (loss) of affiliates .................................
Income (loss) before income tax and extraordinary gain .
Income tax benefit (expense) ...........................................
Income (loss) before extraordinary gain ..........................
Extraordinary gain, net of tax...........................................
Net income (loss) .............................................................
Less: Net income attributable to non-controlling
interests.............................................................................
Net income (loss) attributable to Navistar
International Corporation.............................................

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

(174)

(421)

1,041

661

1,107

—
(374)
—
(20)
(394)

(20)
35

—
(553)
792

—

—
(107)
(84)
(191)

598

—

598

—
(14)
36

515
(212)
(172)
(13)
118

(1,195)
(24)
(1,219)

—
(60)
384

239

324

—

(661)
(33)
(694)

—

515
(586)
(279)
(84)
(434)

(1,278)
(22)
(1,300)

—
(627)
1,212

585

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

—

—
(7)
(1)
320

321
(1)
320

—

320

—

6,210

11,013

9,139

—

778

9,949

1,115
(84)
1,031

1,054

5,859
(1)
59

1,139

7,056

983

137

185

—

185

—

(5,654)
(5,638)
—

—
(110)
(5,748)
(1,308)
(1,214)
—
(1,214)
—
(1,214)

11,569

9,366

1,800

11,256

359
(37)
322

345

—

320

185

1,029

(1,214)

320

133

NIC

Navistar,
Inc.

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

165

(55)

894

234

1,238

(19)
1

—

—
(18)

166
(53)
113

—

260

—

532

792

(4)
—
(46)
(71)
(121)

185

—

185

—

1
(151)
(78)
(134)

(807)
40
(767)

302

384

—

(234)
(61)
(295)

—

2
(197)
(88)
(212)

(690)
(74)
(764)

271

861

1,212

(in millions)
Condensed Consolidating Statement of Cash Flows
for the Year Ended October 31, 2009
Net cash provided by (used in) operations ...................
Cash flow from investment activities
Net change in restricted cash and cash equivalents..........
Net sales of marketable securities ....................................
Capital expenditures.........................................................
Other investing activities..................................................
Net cash provided by (used in) investment activities ..
Cash flow from financing activities
Net borrowings (repayments) of debt...............................
Other financing activities .................................................
Net cash provided by (used in) financing activities.....
Effect of exchange rate changes on cash and cash
equivalents.......................................................................

Increase in cash and cash equivalents ..............................
Increase in cash and cash equivalents upon
consolidation of BDP and BDT........................................
Cash and cash equivalents at beginning of the year.........
Cash and cash equivalents at end of the year ..............

134

22. Selected quarterly financial data (Unaudited)

Quarterly Condensed Consolidated Statements of Operations and Financial Data

(in millions, except for per share data and percentages)
Sales and revenues, net ......................................................................................
Manufacturing gross margin(B)(C) .......................................................................
Net income .........................................................................................................
Less: Net income attributable to non-controlling interests ................................
Net income attributable to Navistar International Corporation(C)......................
Basic earnings per share attributable to Navistar International Corporation.....
Diluted earnings per share attributable to Navistar International Corporation..
Market price range-common stock:

1st Quarter Ended
January 31,

2nd Quarter Ended
April 30,

2011

2010(A)

2011

2010(A)

2,743

2,809

3,355

2,743

494

12
(6)
(0.08)
(0.08)

496

0.27

0.26

597

1.01

0.93

501

0.61

0.60

High...............................................................................................................
Low ...............................................................................................................

66.39

48.32

41.52

31.53

71.49

58.49

52.43

36.79

3rd Quarter Ended
July 31,

4th Quarter Ended
October 31,

2011(D)

2010(A)

2011(A)(D)

2010(A)(E)

(in millions, except for per share data and percentages)
Sales and revenues, net.....................................................................................
Manufacturing gross margin(B)(C) .....................................................................
Impairment of property and equipment............................................................
Net income .......................................................................................................
Less: Net income attributable to non-controlling interests ..............................
Net income attributable to Navistar International Corporation(C) ....................
Basic earnings per share attributable to Navistar International Corporation ...
Diluted earnings per share attributable to Navistar International Corporation

Market price range-common stock:

High .............................................................................................................
Low..............................................................................................................

3,537

3,221

4,323

3,372

560

1,409

1,400

19.10

18.24

70.40

50.05

637

—

129

117

1.61

1.56

845

—

275

255

3.52

3.48

551

—

0.62

0.61

58.00

44.00

52.36

30.01

53.83

40.58

__________

(A) Starting with the first quarter of 2011, the Company changed its method of accruing for certain incentive compensation, specifically relating to cash bonuses, for interim

reporting purposes from a ratable method to a performance-based method. The Company believes that the performance-based method is preferable because it links the accrual
of incentive compensation with the achievement of performance. This change did not have an impact on our annual financial results. We have revised our previously reported
Quarterly Condensed Consolidated Statements of Operations and Financial Data on a retrospective basis to reflect this change in principle based on information that would
have been available as of our previous filing.

The following table sets forth the effects of the revision on our Quarterly Condensed Consolidated Statements of Operations and Financial Data for the fourth quarter ended
October 31, 2010:

As Previously
Reported

Revisions for
Change in
Accounting
Principle

As Revised

(in millions, except per share data)

Net income ........................................................................................................................

Net income attributable to Navistar International Corporation.........................................

Basic earnings per share attributable to Navistar International Corporation ....................

Diluted earnings per share attributable to Navistar International Corporation .................

0.55

0.54

0.07

0.62

0.61

135

The following table sets forth the effects of the change on our Quarterly Condensed Consolidated Statements of Operations and Financial Data for the fourth quarter ended
October 31, 2011:

As Computed
Under the
Ratable Method

As Reported
Under the
Performance-
Based Method

Effect of Change

(in millions, except per share data)

Net income ........................................................................................................................

Net income attributable to Navistar International Corporation.........................................

Basic earnings per share attributable to Navistar International Corporation ....................

Diluted earnings per share attributable to Navistar International Corporation .................

297

277

3.82

3.78

275

255

3.52

3.48

0.30

(B) Manufacturing gross margin is calculated by subtracting Costs of products sold from Sales of manufactured products, net.
(C) We record adjustments to our product warranty accrual to reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur

when claims experience deviates from historic and expected trends.
In the fourth quarter of 2011, certain out-of-period adjustments were recorded related to the partial release of the Company's income tax valuation allowance. The adjustments
of approximately $61 million primarily related to the classification of a deferred tax item and resulted in the Company recognizing an additional income tax benefit. The
Company should have recognized the income tax benefit for this amount in the third quarter of 2011 with the release of a portion of the Company's income tax valuation
allowance. Correcting the error was not material to any of the related periods.
In the fourth quarter of 2010, we recorded out-of-period adjustments of $10 million. See Note 1, Summary of significant accounting policies.

(D)

(E)

136

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to
ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is
accumulated and communicated to management, including our Chief Executive Officer and the Chief Financial Officer, to
allow timely decisions regarding required disclosures.

In connection with the preparation of this report, our management, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of October 31, 2011. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the year ended October 31, 2011, our disclosure controls and procedures were
effective.

(b) Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting identified in connection with the evaluation
required by Rules 13a-15 and 15d-15 under the Exchange Act that occurred during the quarter ended October 31, 2011 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, and
under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by management and our Board
of Directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those
policies and procedures that:

•

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets of the Company.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. GAAP and that receipts and expenditures of the Company are being made in accordance with
authorization of our management and our Board of Directors.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also,
projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the internal control over financial reporting as of October 31, 2011 using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-
Integrated Framework. As a result of that evaluation, management concluded that our internal control over financial reporting
was effective as of October 31, 2011.

During the fiscal year ended October 31, 2011, the Company acquired the remaining outstanding interest in NC2 as of
September 30, 2011. In accordance with SEC regulations, management has elected to exclude certain operations of NC2 from
its 2011 assessment of and report on internal control over financial reporting. The excluded operations constitute
approximately 1% of total assets and less than 1% of nets sales of the consolidated financial statement amounts as of and for
the year ended October 31, 2011.

Our independent registered public accounting firm, KPMG LLP, has audited the Company's consolidated financial statements
137

and the effectiveness of the Company's internal control over financial reporting as of October 31, 2011. Their report appears in
this Annual Report on Form 10-K.

Item 9B.

Other Information

None.

138

PART III

Item 10.

Directors, Executive Officers, and Corporate Governance

A list of our executive officers and biographical information appears in Part I, Item 1 of this report. Information about our
directors, and additional information about our executive officers, may be found under the caption “Proposal 2-Election of
Directors” in our proxy statement for the 2012 annual meeting of stockholders to be held February 21, 2012 (the “Proxy
Statement”). Information about our Audit Committee may be found under the caption “Board Committees and Meetings” and
“Audit Committee Report” in the Proxy Statement. That information is incorporated herein by reference.

The information in the Proxy Statement set forth under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance” and “Code of Conduct” is incorporated herein by reference.

Item 11.

Executive Compensation

The information in the Proxy Statement set forth under the caption “Compensation” is incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information in the Proxy Statement set forth under the captions “Persons Owning More Than Five Percent of Navistar
Common Stock,” “Navistar Common Stock Owned by Executive Officers and Directors,” and “Equity Compensation Plan
Information” is incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information set forth in the Proxy Statement under the captions “Related Party Transactions and Approval Policy” and
“Director Independence Determinations” is incorporated herein by reference.

Item 14.

Principal Accounting Fees and Services

Information concerning principal accountant fees and services appears in the Proxy Statement under the heading “Independent
Registered Public Accounting Firm Fee Information” and is incorporated herein by reference.

139

PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements

See Item 8—Financial Statements and Supplementary Data

Financial statement schedules are omitted because of the absence of the conditions under which they are
required or because information called for is shown in the consolidated financial statements and notes thereto.

Exhibit:

(3)*
(4)*
(10)*
(11)

(12)*
(18)*

(21)*
(23.1)*
(24)*
(31.1)*
(31.2)*
(32.1)*
(32.2)*
(99.1)
(99.2)*
(101.ING)**
(101.SCH)**
(101.CAL)**
(101.LAB)**
(101.PRE)**
(101.DEF)**
__________________

Articles of Incorporation and By-Laws...............................................................................................
Instruments Defining the Rights of Security Holders, Including Indentures ......................................
Material Contracts ...............................................................................................................................
Computation of Earnings per Share (incorporated by reference from Note 18, Earnings per share
attributable to Navistar International Corporation, to the accompanying consolidated financial
statements)...........................................................................................................................................
Computation of Ratio of Earnings to Fixed Charges ..........................................................................
Preferability Letter from Independent Registered Public Accounting Firm Regarding Change in
Accounting Principle ...........................................................................................................................
Subsidiaries of the Registrant..............................................................................................................
Consent of Independent Registered Public Accounting Firm .............................................................
Power of Attorney................................................................................................................................
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ................................
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.................................
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ................................
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.................................
Additional Financial Information (Unaudited)....................................................................................
Additional Financial Information (Unaudited)....................................................................................
XBRL Instance Document...................................................................................................................
XBRL Taxonomy Extension Schema Document................................................................................
XBRL Taxonomy Extension Calculation Linkbase Document...........................................................
XBRL Taxonomy Extension Label Linkbase Document....................................................................
XBRL Taxonomy Extension Presentation Linkbase Document..........................................................
XBRL Taxonomy Extension Definition Linkbase Document.............................................................

Page

E-1
E-3
E-4

124
E-10

E-11
E-12
E-13
E-14
E-15
E-16
E-17
E-18
E-19
E-27
N/A
N/A
N/A
N/A
N/A
N/A

Indicates exhibits not included within this 2011 Annual Report to Shareholders. These exhibits were included within our Annual Report on Form
10-K for the year ended October 31, 2011, which was filed on December 20, 2011.

** Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the
Exchange Act and otherwise are not subject to liability under those sections.

All exhibits other than those indicated above are omitted because of the absence of the conditions under which they are
required or because the information called for is shown in the consolidated financial statements and notes thereto in the Annual
Report on Form 10-K for the period ended October 31, 2011.

140

NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
______________________________

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

NAVISTAR INTERNATIONAL CORPORATION
(Registrant)

/s/ RICHARD C. TARAPCHAK

Richard C. Tarapchak
Vice President and Controller
(Principal Accounting Officer)

December 20, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature

/s/ DANIEL C. USTIAN

Daniel C. Ustian

/s/ ANDREW J. CEDEROTH

Andrew J. Cederoth

/s/ RICHARD C. TARAPCHAK

Richard Tarapchak

/s/ EUGENIO CLARIOND

Eugenio Clariond

/s/ JOHN D. CORRENTI

John D. Correnti

/s/ DIANE H. GULYAS

Diane H. Gulyas

/s/ MICHAEL N. HAMMES

Michael N. Hammes

/s/ DAVID D. HARRISON

David D. Harrison

/s/ JAMES H. KEYES

James H. Keyes

/s/ STEVEN J. KLINGER

Steven J. Klinger

/s/ STANLEY A. MCCHRYSTAL

Stanley A. McChrystal

/s/ DENNIS D. WILLIAMS

Dennis D. Williams

Title

Date

Chairman, President and
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President and
Chief Financial Officer (Principal
Financial Officer)

Vice President and Controller
(Principal Accounting Officer)

Director

141

December 20, 2011

[THIS PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT 99.1

Additional Financial Information (Unaudited)

The following additional financial information is provided based upon the continuing interest of certain stockholders and
creditors to assist them in understanding our core manufacturing business with our financial services operations on an after-tax
equity basis. Our manufacturing operations, for this purpose, include our Truck segment, Engine segment, Parts segment, and
Corporate items. The manufacturing operations financial information represents non-GAAP financial measures. The
reconciling differences between these non-GAAP financial measures and our GAAP condensed consolidated financial
statements in Item 1, Financial Statements, are our financial services operations, which are included on an after-tax equity
basis. Certain of our subsidiaries in our manufacturing operations have debt outstanding with our financial services operations
(“intercompany debt”). In the condensed statements of assets, liabilities, redeemable equity securities, and stockholders' deficit,
the intercompany debt is reflected as accounts payable. The change in the intercompany debt is reflected in the net cash
provided by operating activities in the condensed statements of cash activities.

Condensed Statements of Revenues and Expenses
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

For the Year Ended Ended October 31, 2011

Manufacturing
Operations

Financial
Services
Operations

Adjustments

Consolidated
Statement of
Operations

(in millions)
Sales of manufactured products .................................................
Finance revenues ........................................................................
Sales and revenues, net........................................................
Costs of products sold ................................................................
Restructuring charges .................................................................
Impairment of property and equipment and intangible assets....
Selling, general and administrative expenses.............................
Engineering and product development costs..............................
Interest expense ..........................................................................
Other expenses (income), net .....................................................
Total costs and expenses......................................................
Equity in loss of non-consolidated affiliates ..............................
Income before income taxes and equity income from financial
services operations .....................................................................
Equity income from financial services operations .....................
Income before income taxes.......................................................
Income tax benefit (expense) .....................................................
Net income .................................................................................
Less: Income attributable to non-controlling interests...............

13,758

—

13,758

11,262

1,360

532

148

13,495
(71)

192

272
1,506

1,778

290

—

109
(26)
162

—

128

—

128
(48)
80

—

—
(90)
(90)
—

—

—
(4)
—
(10)
(76)
(90)
—

—
(80)
(80)
—
(80)
—

13,758

200

13,958

11,262

1,434

532

247
(64)
13,567
(71)

320

—

320
1,458

1,778

Net income attributable to Navistar International
Corporation..........................................................................

1,723

(80)

1,723

E-19

Condensed Statement of Revenues and Expenses
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

For the Year Ended October 31, 2010 (Revised)(A)

(in millions)
Sales of manufactured products.................................................
Finance revenues .......................................................................
Sales and revenues, net ....................................................
Costs of products sold ...............................................................
Restructuring charges (benefit) .................................................
Impairment of property and equipment and intangible assets...
Selling, general and administrative expenses............................
Engineering and product development costs.............................
Interest expense .........................................................................
Other expenses (income), net ....................................................
Total costs and expenses.....................................................
Equity in loss of non-consolidated affiliates .............................
Income before income taxes and equity income from financial
services operations.....................................................................
Equity income from financial services operations ....................
Income before income taxes......................................................
Income tax benefit (expense).....................................................
Net income.................................................................................
Less: Income attributable to non-controlling interests ..............
Net income (loss) attributable to Navistar International
Corporation .........................................................................

Manufacturing
Operations

Financial
Services
Operations

Adjustments

11,926

—

11,926

9,741
(19)
—

1,293

464

154

11,681
(50)

195

259

267

309

—

119

—

113
(22)
214
—

—

95
(31)
64

—

—
(90)
(90)
—

—

—
(6)
—
(14)
(70)
(90)
—

—
(64)
(64)
—
(64)
—

223

(64)

Consolidated
Statement of
Operations

11,926

219

12,145

9,741
(15)
—

1,406

464

253
(44)
11,805
(50)

290

—

290
(23)
267

223

_________________
(A) Effective with the fourth quarter of 2011, the Company presents manufacturing operations with financial services operations on an after-tax equity basis. Previously, financial

services was presented on a pre-tax equity basis. Prior year amounts have been reclassified to conform to the 2011 presentation.

E-20

Condensed Statement of Revenues and Expenses
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

For the Year Ended October 31, 2009 (Revised)(A)

Manufacturing
Operations

Financial
Services
Operations

Adjustments

(in millions)
Sales of manufactured products..........................................
Finance revenues ................................................................
Sales and revenues, net ................................................
Costs of products sold.........................................................
Restructuring charges .........................................................
Impairment of property and equipment ..............................
Selling, general and administrative expenses .....................
Engineering and product development costs ......................
Interest expense ..................................................................
Other expenses (income), net .............................................
Total costs and expenses..............................................
Equity in income of non-consolidated affiliates.................
Income before income taxes, extraordinary gain and
equity income from financial services operations ..............

Equity income from financial services operations..............
Income before income taxes and extraordinary gain..........
Income tax benefit (expense)..............................................
Income before extraordinary gain.......................................
Extraordinary gain, net of tax .............................................
Net income..........................................................................
Less: Income attributable to non-controlling interests .......

11,300

—

11,300

9,366

1,218

433

99
(179)
11,027
46

319

344
(22)
322

345

348

—

130

—

162

308
—

—

40
(15)
25

—

—
(79)
(79)
—

—

—
(4)
—
(10)
(65)
(79)
—

—

(25)
(25)
—
(25)
—
(25)
—

Consolidated
Statement of
Operations

11,300

269

11,569

9,366

1,344

433

251
(228)
11,256
46

359

—

359
(37)
322

345

320

Net income (loss) attributable to Navistar
International Corporation...........................................

320

(25)

_________________
(A) Effective with the fourth quarter of 2011, the Company presents manufacturing operations with financial services operations on an after-tax equity basis. Previously, financial

services was presented on a pre-tax equity basis. Prior year amounts have been reclassified to conform to the 2011 presentation.

E-21

Condensed Statements of Assets, Liabilities, and Stockholders' Deficit
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

As of October 31, 2011

Manufacturing
Operations

Financial
Services
Operations

Adjustments

Consolidated
Balance Sheet

(in millions)
Assets
Cash and cash equivalents .........................................................
Marketable securities .................................................................
Restricted cash and cash equivalents .........................................
Finance and other receivables, net .............................................
Inventories..................................................................................
Goodwill ....................................................................................
Property and equipment, net ......................................................
Investments in and advances to financial services operations ...
Investments in non-consolidated affiliates.................................
Deferred taxes, net .....................................................................
Other assets ................................................................................
Total Assets...........................................................................

Liabilities and Stockholders' Equity (Deficit)
Accounts payable .......................................................................
Debt............................................................................................
Postretirement benefits liabilities...............................................
Other liabilities...........................................................................
Total Liabilities.........................................................................
Redeemable equity securities ..................................................
Stockholders' equity attributable to non-controlling
interest.......................................................................................
Stockholders' equity (deficit) attributable to controlling
interest.......................................................................................
Total Liabilities and Stockholders' Equity (Deficit).........

488

698

1,341

1,704

319

1,433

564

2,031

705

9,372

2,194

1,980

3,262

1,908

9,344

298

3,007

—

137

—

3,577

2,876

3,013

—

—
(94)
—

—

—
(564)
—

—

—
(658)

(94)
—

—

—
(94)
—

—

539

718

327

4,254

1,714

319

1,570

—

2,057

733

12,291

2,122

4,856

3,316

1,969

12,263

(27)
9,372

564
3,577

(564)
(658)

(27)
12,291

E-22

Condensed Statements of Assets, Liabilities, and Stockholders' Deficit
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

As of October 31, 2010 (Revised)(A)

Manufacturing
Operations

Financial
Services
Operations

Adjustments

Consolidated
Balance Sheet

534

566

1,030

1,556

324

1,329

502

103

109

821

6,903

1,974

1,985

2,145

1,723

7,827

(981)
6,903

—

585

586

180

3,946

1,568

324

1,442

—

103

146

850

9,730

1,827

4,870

2,179

1,778

10,654

—
(168)
—

—

—
(502)
—

—

—
(670)

(168)
—

—

—
(168)
—

—

(502)
(670)

(981)
9,730

151

3,084

—

113

—

3,497

2,885

2,995

—

502

3,497

_________________
(A) Effective with the fourth quarter of 2011, the Company presents manufacturing operations with financial services operations on an after-tax equity basis. Previously, financial

services was presented on a pre-tax equity basis. Prior year amounts have been reclassified to conform to the 2011 presentation.

E-23

Condensed Statement of Cash Activity
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

For the Year Ended October 31, 2011

Manufacturing
Operations

Financial
Services
Operations

Adjustments

Condensed
Consolidated
Statement of
Cash Flows

1,778

(80)

1,778

286

28
(1,524)

71
(80)
4
(73)
101

680

(1,562)
1,430

—
(427)
(4)
(26)
12
(40)
(617)
(106)

(3)
(46)
534
488

—

—
—

—

73
(8)
200

—

—
(147)
(2)
(67)
—

—

10
(206)
6

—
—
51
51

—

—
80

—

—
—
—
—

290

44
(1,513)

71
—

—

880

(1,562)
1,430
(147)
(429)
(71)
(26)
12
(30)
(823)
(100)

(3)
(46)
585
539

(in millions)
Cash flows from operating activities
Net income .................................................................................
Adjustments to reconcile net income to cash provided by
operating activities:

Depreciation and amortization ..............................................
Depreciation of equipment leased to others ..........................
Amortization of debt issuance costs and discount ................
Deferred income taxes ..........................................................
Impairment of property and equipment and intangible
assets .....................................................................................
Equity in loss of non-consolidated affiliates.........................
Equity in income of financial services affiliates ...................
Dividends from non-consolidated affiliates ..........................
Change in intercompany receivables and payables...............
Other, net...............................................................................
Net cash provided by (used in) operating activities .........

Cash flows from investing activities
Purchases of marketable securities ............................................
Sales or maturities of marketable securities...............................
Net change in restricted cash and cash equivalents ...................
Capital expenditures...................................................................
Purchase of equipment leased to others .....................................
Acquisition of intangibles ..........................................................
Business acquisitions .................................................................
Other investing activities ...........................................................
Net cash used in investing activities...................................
Net cash provided by (used in) financing activities..........

Effect of exchange rate changes on cash and cash
equivalents ................................................................................
Increase (decrease) in cash and cash equivalents..................
Cash and cash equivalents at beginning of the year .............
Cash and cash equivalents at end of the year........................

E-24

Condensed Statement of Cash Activity
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

Depreciation and amortization ..............................................
Depreciation of equipment leased to others ..........................
Amortization of debt issuance costs and discount ................
Deferred income taxes ..........................................................
Equity in loss of non-consolidated affiliates.........................
Equity in income of financial services affiliates ...................
Dividends from non-consolidated affiliates ..........................
Change in intercompany receivables and payables...............
Other, net...............................................................................
Net cash provided by operating activities .........................

Cash flows from investing activities
Purchases of marketable securities ............................................
Sales or maturities of marketable securities...............................
Net change in restricted cash and cash equivalents ...................
Capital expenditures...................................................................
Purchase of equipment leased to others .....................................
Acquisition of intangibles ..........................................................
Business acquisitions .................................................................
Other investing activities ...........................................................
Net cash provided by (used in) investing activities ..........
Net cash used in financing activities ..................................

Effect of exchange rate changes on cash and cash
equivalents ................................................................................
Decrease in cash and cash equivalents ...................................
Cash and cash equivalents at beginning of the year .............
Cash and cash equivalents at end of the year........................

For the Year Ended October 31, 2010 (Revised)(A)

Manufacturing
Operations

Financial
Services
Operations

Adjustments

Condensed
Consolidated
Statement of
Cash Flows

267

(64)

267

261

26
(3)
50
(64)
5

11
(171)
409

(1,856)
1,290

1
(232)
(16)
(15)
(2)
(86)
(916)
(110)

(1)
(618)
1,152

534

—

—
(11)
585

698

(20)
—

514
(2)
(29)
—

—

472
(1,180)

1
(9)
60

10
(10)

—

265

—

414

1,107

(1,876)
1,290

515
(234)
(45)
(15)
(2)
(67)
(434)
(1,300)

—
(627)
1,212

585

_________________
(A) Effective with the fourth quarter of 2011, the Company presents manufacturing operations with financial services operations on an after-tax equity basis. Previously, financial

services was presented on a pre-tax equity basis. Prior year amounts have been reclassified to conform to the 2011 presentation.

E-25

Condensed Statement of Cash Activity
Navistar International Corporation (Manufacturing operations with financial services operations on an after-tax equity
basis)

Depreciation and amortization ..............................................
Depreciation of equipment leased to others ..........................
Amortization of debt issuance costs and discount ................
Deferred income taxes ..........................................................
Impairment of property and equipment, goodwill and
intangibles .............................................................................
Extraordinary gain on acquisition of subsidiary ...................
Gain on increased equity interest in subsidiary ....................
Equity in income of non-consolidated affiliates ...................
Equity in income of financial services affiliates ...................
Dividends from non-consolidated affiliates ..........................
Change in intercompany receivables and payables...............
Other, net...............................................................................
Net cash provided by operating activities .........................

Cash flows from investing activities
Purchases of marketable securities ............................................
Sales or maturities of marketable securities...............................
Net change in restricted cash and cash equivalents ...................
Capital expenditures...................................................................
Purchase of equipment leased to others .....................................
Business acquisitions, net of escrow receipt..............................
Other investing activities ...........................................................
Net cash provided by (used in) investing activities ..........
Net cash provided by (used in) financing activities..........

Effect of exchange rate changes on cash and cash
equivalents ................................................................................
Increase (decrease) in cash and cash equivalents..................
Increase in cash and cash equivalents upon consolidation
of BDP and BDT.......................................................................
Cash and cash equivalents at beginning of the year .............
Cash and cash equivalents at end of the year........................

For the Year Ended October 31, 2009 (Revised)(A)

Manufacturing
Operations

Financial
Services
Operations

Adjustments

Condensed
Consolidated
Statement of
Cash Flows

345

(25)

345

284

6
(14)

41
(23)
(23)
(46)
(25)
59
(82)
(23)
534

(382)
384
(23)
(148)
(2)
(60)
(51)
(282)
36

297

775

1,152

10
(4)

—

—
—

—

566

704

—

94
(3)
(44)
—

50
(780)

—
(26)

—

—
—

—

20
(20)

—

288

16
(18)

41
(23)
(23)
(46)
—

—

543

1,238

(382)
384

71
(151)
(46)
(60)
(28)
(212)
(764)

271

861

1,212

_________________
(A) Effective with the fourth quarter of 2011, the Company presents manufacturing operations with financial services operations on an after-tax equity basis. Previously, financial

services was presented on a pre-tax equity basis. Prior year amounts have been reclassified to conform to the 2011 presentation.

E-26

[THIS PAGE INTENTIONALLY LEFT BLANK]

Expanding Our Business by Sustaining Customers through the Entire Life Cycle

Trucks

Common Platform

Engines

Parts and Service

Global Powertrain

Global Distribution Centers

DuraStar

ProStar+

Vesta

MN25

4.8L

7.2L

WorkStar

LoneStar

Continental Mixer

9900

9.3L

DT & 10

School Bus

TranStar

eStar

ATX-6

Brakeshoes

Blower Motor

MaxxPro

MXT

9200/9400

TerraStar

11 & 13

Fan Belt

Back-up Warning Alarm

Air Dryer Cartridge

7000 Series

TerraStar

PayStar

CityStar

Brake Drum

Fuel Filter

Pin Slide New Caliper

7000-MV

AC Bus

DuraStar Hybrid

40’ Concept Coach

Emission Controls

Fuel Systems

Metal Castings

Clutch

Mud Flap

S HAR E H O L D E R I N F O R MATI O N

Annual Meeting
The annual meeting of shareholders
will be held at 11:00 a.m. Central time
Tuesday, February 21, 2012, at:

Hyatt Lisle
1400 Corporetum Drive
Lisle, IL 60532
USA

SEC Filings
Filings with the U.S. Securities and
Exchange Commission, including
the latest 10-K and proxy statement,
are available on our Website at
http://ir.navistar.com/

Transfer Agent
For inquiries regarding name changes,
changes of address or missing
certiﬁcates, please contact our
shareholder service provider:
BNY Mellon Shareowner Services
P.O. Box 3315
South Hackensack, NJ 07606-1915
480 Washington Blvd.
Jersey City, NJ 07310
Telephone: (888) 884-9359

Stock Trading Information
Navistar International Corporation is
listed on the New York Stock Exchange.
Ticker Symbol: NAV

Independent Auditor
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601

Corporate Headquarters
Navistar International Corporation
2701 Navistar Dr.
Lisle, IL 60532
Telephone: (331) 332-5000

REG G NON-GAAP RECONCILIATION

(In millions except per share data)
Net Income Attributable to Navistar International Corporation

Impairment of property, plant, and equipment(5)
Write-off debt issuance cost(6)
Less: Income tax valuation allowance release(7)
Adjusted income attributable to Navistar International Corporation

Income taxes beneﬁt (expense)

Financial services segment proﬁt (loss)

Corporate and eliminations
Manufacturing segment proﬁt

Plus:
Restructuring of North American manufacturing operations(1)
Engineering integration costs(2)
Ford settlement, restructuring and related charges (beneﬁts)(4)

Impairment of property, plant and equipment(5)
Adjusted manufacturing segment proﬁt

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

$ 320

$ 223

$1,723

-
-
-

(160)

31
11

$ 202
$ 4.46
1.60
$ 2.86
71.8
$ 320

(37)

(519)
$ 836

-
-

(160)

-
-
-

-
-

$ 223
$ 3.05
-
$ 3.05
73.2
$ 223

(23)

(590)
$ 741

-
-

127

1,527

$ 402
$ 22.64
17.36
$ 5.28
76.1
$ 1,723

1,458

129

(571)
$ 707

124

$ (333)

$ (44)

$ 139

$ 301

$ (120)

$ 134

(17)

(310)
$ (93)

(9)

132

(178)
$ 11

(6)

136

(412)
$ 421

(94)

147

(590)
$ 838

(47)

127

(662)
$ 462

(57)

(24)

(478)
$ 693

-
-

358

$ (93)

$ 11

$ 421

$ 838

$ 462

$ 1,088

$ 707

$ 741

$ 882

1 Restructuring of North American manufacturing operations are charges primarily related to our plans to close our Chatham, Ontario heavy truck plant and Workhorse chassis plant in Union City, Indiana, and to signiﬁcantly scale back operations at our
Monaco recreational vehicle headquarters and motor coach manufacturing plant in Coburg, Oregon, which totaled $58 million of restructuring charges for the year ended October 31, 2011. We also incurred an additional $5 million of other related
costs for the year ended October 31, 2011. In addition, the Company recognized $64 million of impairment charges related to certain intangible assets and property plant and equipment primarily related to these facilities. The Truck segment recognized
$124 million of restructuring of North American manufacturing operation charges for the year ended October 31, 2011.

4 Ford settlement, restructuring and related charges (beneﬁts) include the impact of our settlement with Ford in 2009 as well as charges and beneﬁts recognized related to restructuring activity at our Indianapolis Casting Corporation and Indianapolis

Engine Plant. The charges and beneﬁts were recognized in our Engine segment with the exception of $3 million of income tax expense and $1 million of income tax beneﬁt related to the settlement in 2009 and 2008, respectively.

groups at our Chatham and Conway facilities.

6 The write-off of debt issuance costs during 2009 represent charges related to the Company’s reﬁnancing.

7 In the third quarter of 2011, we recognized an income tax beneﬁt of $1.476 billion from the release of a portion of our income tax valuation allowance. In the fourth quarter of 2011, we recognized an additional income tax beneﬁt of $61 million related

to the release of a portion of our income tax valuation allowance. As domestic earnings are now taxable with the release of the income tax valuation allowance we recognized $10 million of domestic income tax expense for 2011 that would not have been
recognized had we not released a portion of the allowance. The $10 million of domestic income taxes was netted against the total beneﬁt of $1.537 billion from the release of a portion of the income tax valuation allowance. In addition, the other 2011
adjustments included in the table above have not been adjusted to reﬂect their income tax effect as the adjustments are intended to represent the impact on the Company’s Consolidated Statement of Operations without the incremental income tax effect
that would result from the release of the income tax valuation allowance. The charges related to our Canadian operations would not be impacted as a full income tax valuation allowance remains for Canada.

NON-GAAP RECONCILIATIONS

The ﬁnancial measures presented above are unaudited and not in accordance with, or an alternative for, ﬁnancial measures presented in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP ﬁnancial information
presented herein should be considered supplemental to, and not as a substitute for, or superior to, ﬁnancial measures calculated in accordance with GAAP. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the
reconciliation above, provides meaningful information and therefore, we use it to supplement our GAAP reporting by identifying items that may not be related to the core manufacturing business. Management often uses this information to assess and
measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results
of operating giving effect to the non-GAAP adjustments shown in the above reconciliation, and to provide an additional measure of performance.

FORWARD-LOOKING STATEMENTS

Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934,
as amended, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and the Company assumes no obligation to update the information included in this report. Such forward-looking
statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,”
or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see Item 1A, Risk Factors, of our Form 10-K for the ﬁscal year ended
October 31, 2011, which was ﬁled on December 20, 2011. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual ﬁnancial results or results of operations and
could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualiﬁed in their entirety by the cautionary statements
contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to
reﬂect events or circumstances in the future or to reﬂect the occurrence of unanticipated events.

RRD1465cv.indd 2

1/4/12 7:03 PM

AN N UAL R E P O RT 2011

D E L I V E R I N G

R E S U LTS TO DAY …

Navistar International Corporation
2701 Navistar Drive
Lisle, IL 60532
www.navistar.com

Printed on recycled paper

B U I L D I N G

T H E F O U N D AT I O N

F O R O U R F U T U R E

T H R O U G H I N T E G R AT I O N

Our

three-pillar

strategy

Great

Products

Competitive

Cost

Structure

Proﬁtable

Growth

Net Sales and Revenues

In millions of dollars

Adjusted Net Income Attributable to

Adjusted Diluted Earnings

Navistar International Corporation

(Unaudited & Non-GAAP)

In millions of dollars

Navistar Per Share

(Unaudited & Non-GAAP)

Adjusted Manufacturing

Navistar Segment Proﬁt

(Unaudited & Non-GAAP)

In millions of dollars

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$250

$200

$150

$100

$50

$400

$350

$300

$250

$200

$150

$100

$50

$5.00

$4.00

$3.00

$2.00

$1.00

$800

$700

$600

$500

$400

$300

$200

$100

Financial Summary

In millions of dollars (except per share data)

Net Sales and Revenues

Net Income Attributable to Navistar International Corporation

Adjusted Net Income Attributable to Navistar International Corporation (Unaudited & Non-GAAP)1

Diluted Earnings Per Share Attributable to Navistar International Corporation

Adjusted Diluted Earnings Per Share (Unaudited & Non-GAAP)1

Manufacturing Segment Proﬁt (Unaudited & Non-GAAP)1, 2

Adjusted Manufacturing Segment Proﬁt (Unaudited & Non-GAAP)1, 2

1See the REG G Non-GAAP Reconciliation, found on the inside back cover, for additional information.

2 The Manufacturing segment collectively represents the Company’s Truck, Engine and Parts segments.

2009

$11,569

$320

$202

$4.46

$2.86

$836

$707

2010

$12,145

$223

$3.05

$741

2011

$13,958

$1,723

$402

$22.64

$5.28

$707

$882

Stock Performance | Comparison of 5 Year Cumulative Total Return | Assumes Initial Investment of $100 | October 2011

2007

2008

2009

2010

2011

Navistar

227.19

108.62

119.51

173.74

151.71

NASDAQ Composite-Total Returns

114.56

73.21

80.38

93.66

101.24

S&P Construction & Farm

147.07

70.94

98.14

155.45

170.64

– Navistar – NASDAQ Composite-Total Returns – S&P 500 Construction, Farm Machinery & Heavy Truck Index

NOTES: Data complete through last ﬁscal year; The comparison assumes $100 was invested on October 31, 2006, in Navistar Common Stock and in each of the indices shown and assumes reinvestment

of dividends; Corporate Performance Graph with peer group uses peer group only performance (excludes only company); Peer group indices use beginning of period market capitalization weighting;

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