May 14, 1999

Navistar Reports Second Quarter Earnings Highest in 25 Years

CHICAGO, May 13 -- Navistar International Corporation (NYSE: NAV), producer of International® brand trucks, buses and engines, today reported that earnings for the second quarter of its fiscal year were the highest for the period in more than 25 years, with diluted per share earnings up nearly 60 percent over the same period a year ago. It marked the 10th consecutive quarter that per share earnings exceeded the consensus estimate of financial analysts. The company said that net income for the quarter ended April 30, 1999 rose to $96 million, or $1.42 per diluted common share, from $67 million, or $0.89 per diluted common share in the same period a year ago.

Consolidated sales and revenues from manufacturing and financial services operations for the second quarter totaled $2.3 billion, up 12 percent from the $2.0 billion reported in the second quarter of 1998. Manufacturing gross margins for the quarter increased 3.5 percentage points to 17.9 percent from the 1998 second quarter gross margin of 14.4 percent.

For the first six months of fiscal 1999, Navistar reported net income of $157 million, or $2.33 per diluted common share, up from $105 million, or $1.30 per diluted common share in the opening half of 1998. Consolidated sales and revenues rose 12 percent to $4.2 billion from $3.8 billion last year.

John R. Horne, chairman, president and chief executive officer of Navistar, said second quarter results benefited somewhat from higher volume but the main contributions came from ongoing productivity improvement and the continued successful implementation of the company's focused truck and engine strategies. Navistar's truck facilities at Chatham, Ontario and Springfield, Ohio and its engine facility at Indianapolis ran at capacity levels during the quarter, Horne noted.

"We continue to beat our quarterly results year to year, while also making major investments in order to reach our long-term goal of a 17.5 percent return on investment over the business cycle," Horne said. "This accomplishment underscores the winning attitude of our employees, who continue to show their ability to set ambitious goals and then deliver on them."

Horne said that the 43 percent gain in second quarter earnings was achieved even though Navistar continued to invest heavily in programs designed to support future growth. He noted that the company has budgeted $450 million for capital expenditures this year and will increase spending for product development, new plant startup expenses and costs associated with marketing the company's International brand by $145 million to $165 million over the prior year spending.

"Demand is continuing at record levels and as a result, we recently increased our 1999 industry forecast to 415,000 heavy and medium trucks and school buses from the 380,000 forecast last fall," Horne said.

Shipments of International brand heavy and medium trucks and school buses during the second quarter totaled 36,100 units, a gain of 8 percent over the 33,600 units shipped in the second quarter of 1998.

"Truck and bus volume was consistent with our strategy," Horne said. "We are not interested in simply chasing market share; however, our market share at all times has to be large enough to develop and maintain scale in all aspects of our business."

International operations continue to grow, Horne said. In Mexico, there are now 54 dealer locations covering more than 90 percent of the country. Also, the Brazilian market began to see signs of recovery and Navistar received one of the largest single orders in the region in recent years -- 200 trucks to a municipal government in Brazil. There currently are 11 International dealers in Brazil.

Shipments of mid-range diesel engines to other original equipment manufacturers during the quarter totaled 72,200, a gain of 29 percent over the same 1998 period. Sales of service parts rose 3 percent to $223 million.

According to Horne, the company is addressing heavy truck capacity constraints primarily through expansion of the company's assembly plant in Escobedo, Nuevo Leon, Mexico. By October, the Escobedo facility will have the ability to produce in excess of 50 premium heavy trucks per day.

Second Quarter Developments

In addition to continued strong demand for diesel engines, Dan Ustian, group vice president and general manager of the engine division, said three significant developments occurred during the quarter that will boost diesel growth in the years ahead, including the finalization of two joint ventures and the announcement of a new assembly facility.

In March, Navistar finalized a deal to acquire a 50 percent interest in Maxion Motores Ltda., headquartered in Brazil and the diesel engine market share leader in the Mercosul market. The company was renamed Maxion International Motores S.A. to reflect the addition of International brand diesels to its product offering. The joint venture will continue to produce the current Maxion products while adding the 7.3L V-8 turbo diesel engine from Navistar to the venture's product line.

In another joint venture, plans were finalized with Siemens Automotive Corporation to develop and manufacture next-generation diesel fuel injectors incorporating proprietary digital valve technology under license from Sturman Engine Systems, L.L.C. The fuel injectors will help Navistar and its customers meet reduced diesel emission standards in advance of the 2004 compliance deadline set by the Environmental Protection Agency.

Finally, on April 23, Navistar announced that new high technology diesel engines will be produced in Huntsville, Ala. An investment of $250 million will be made, contingent on ratification of incentives offered by and through the State of Alabama.

"The Huntsville facility, scheduled to begin production in 2001, will facilitate the transition from the current product to the next-generation diesel engine and will strengthen our diesel technology leadership position for the International brand and our OEM customers," Ustian said.

In other activity during the quarter, Navistar introduced restyled International 9000i series of premium conventional trucks that feature improved aerodynamics and fuel economy largely achieved with a wraparound windshield that opens up the cab's interior, adding to overall visibility. A new line of vehicles, the International 5000i series, designed for construction, a municipal, forestry and refuse customer was also introduced during the quarter.

Navistar International Corporation, with world headquarters in Chicago, and 1998 annual sales and revenues of $7.9 billion, is a leading North American producer of heavy and medium trucks and school buses. The company is a worldwide leader in the manufacture of mid-range diesel engines, which are produced in a range of 160 to 300 horsepower for the International brand, and a private-label designer and manufacturer of diesel engines for full-size pickup truck and van markets and selected industrial and off-highway markets.

NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
(Millions of dollars, except per share data)

 
                                THREE MONTHS ENDED         SIX MONTHS ENDED
                                     APRIL 30                  APRIL 30

                                 1999         1998         1999        1998
    Sales and Revenues
    Sales of manufactured
      products                 $2,215       $1,981       $4,052      $3,653
    Finance and
      insurance revenue            59           47          121          92
    Other income                   13           14           38          24

    Total sales
      and revenues              2,287        2,042        4,211       3,769

    Costs and expenses
    Cost of products
      and services sold         1,824        1,703        3,368       3,157
    Postretirement
      benefits                     65           43          114          88
    Engineering and
      research expense             66           46          124          81
    Marketing and
      administrative
      expense                     123           97          249         195
    Interest expense               35           29           67          46
    Other expense                  20           16           36          33

    Total costs
      and expenses              2,133        1,934        3,958       3,600

    Income before
      income taxes                154          108          253         169
    Income tax
      expense                      58           41           96          64

    Net income                     96           67          157         105

    Less dividends on
      Series G Preferred
      stock                        --            4           --          11

    Net income applicable
      to common stock             $96          $63         $157         $94

    Earnings per share
      Basic                     $1.44         $.90        $2.37       $1.32
      Diluted                   $1.42         $.89        $2.33       $1.30

    Average shares
      Outstanding
      (millions)
       Basic                     66.2         69.2         66.3        70.6
       Diluted                   67.5         70.5         67.3        71.7

The Statement of Income includes the consolidated financial results of the company's manufacturing operations with its wholly owned financial services operations.

NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
(Millions of dollars)

                                                          AS OF APRIL 30
                                                        1999          1998

    ASSETS
    Cash and cash equivalents                           $181          $453
    Marketable securities                                406           491
                                                         587           944
    Receivables, net                                   2,611         2,044
    Inventories                                          646           576
    Property and equipment, net                        1,186           968
    Investments and other assets                         338           334
    Intangible pension assets                            199           212
    Deferred tax asset, net                              834           871

    Total assets                                      $6,401        $5,949

    LIABILITIES AND SHAREOWNERS' EQUITY
    Liabilities
    Accounts payable, principally trade               $1,307        $1,214
    Debt: Manufacturing operations                       477           464
          Financial services operations                1,702         1,592
    Postretirement benefits liability                    967           910
    Other liabilities                                  1,063           977
    Total liabilities                                  5,516         5,157

    Commitments and contingencies

    Shareowners' equity
    Series D convertible junior preference stock           4             4
    Common stock
      (75.3 and 55.4 million shares issued)            2,140         1,750
    Class B Common stock
      (19.9 million shares issued
      at April 30, 1998)                                  --           388
    Common stock held in treasury, at cost              (236)         (138)
    Retained earnings (deficit)                         (683)       (1,019)
    Accumulated other comprehensive loss                (340)         (193)
    Total shareowners' equity                            885           792

    Total liabilities and shareowners' equity         $6,401        $5,949

The Statement of Financial Condition includes the consolidated financial results of the company's manufacturing operations with its wholly owned financial services operations.


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