February 12, 1998

Navistar Reports First Quarter 1998 Earnings of $38 Million, 42 Cents Per Share

CHICAGO, Feb. 12 -- Navistar International Corporation (NYSE: NAV - news) today reported net income of $38 million, or $0.42 per common share (diluted) for the first quarter ended January 31, 1998. This compares to net income of $15 million, or $0.10 per common share in the same period last year.

Consolidated sales and revenues from the company's manufacturing and financial services operations for the first quarter totaled $1.7 billion, compared to $1.3 billion in the first quarter of 1997.

During the first quarter, Navistar's worldwide shipments of 29,400 medium trucks and school buses (Class 5-7 GVW) and heavy trucks (Class 8 GVW) increased 44 percent over last year's total of 20,400. Shipments of mid-range diesel engines to other original equipment manufacturers during the quarter totaled 42,600 units, a 4 percent increase over last year, while sales of service parts were $185 million, consistent with the first quarter of 1997.

Commenting on the first quarter, John R. Horne, chairman, president and chief executive officer, said, "Our strong financial performance is due in part to high volumes driven by continued strong truck and engine demand, but is also the result of aggressive implementation of our truck and engine strategies. In addition, we continue to drive operational excellence to achieve cost savings and quality improvements.

"Significant challenges remain in the year ahead as we continue to focus our manufacturing operations, ramp up production at our new plant in Mexico, and gear up for the next generation vehicle program. At the same time, we are continuing to work to reduce our cost structure and improve margins," Horne said.

In addition to industry volume increases in truck, Navistar's U.S. and Canadian market share was up in all three categories over the same period a year ago. Market share for medium trucks increased to 39.5 percent, up nearly three points from last year's first quarter share of 36.8 percent. School bus market share jumped more than four points, from 54.4 percent to 58.8 percent and Navistar's market share for heavy trucks is at 19.7 percent, up three points from last year's 16.7 percent.

Recent Developments

In January, Navistar announced major changes to its capital structure that will result in increased financial flexibility, improved cash flow, lower net income, but higher income available to common shareowners. These changes included issuing new debt, in the form of $100 million of five-year, 7 percent senior notes, proceeds of which will be used to replace higher cost debt; and the issuance of $250 million of 10-year, 8 percent senior subordinated notes, proceeds of which will be used to redeem the company's Series G Cumulative Convertible Preferred stock in early March.

During the quarter, Navistar repurchased 3 million shares of its Class B Common stock from its retiree supplemental benefit trust. The company paid cash for the shares. The trust was established in 1993 to supplement Navistar retirees' health care and life insurance benefits and was initially funded by the contribution of approximately 25 million shares of Navistar's Class B Common stock.

Navistar's improved operating performance and financial condition recently resulted in upgrades in the company's credit ratings by Moody's, Standard & Poors and Duff & Phelps. The company's senior debt rating is now Ba1, BB+ and BB+ respectively.

In response to an increase in truck orders and growth in market share, in January Navistar boosted production of its Class 8 trucks at its Chatham, Ontario plant from 100 to 114 per day.

Also during the quarter, Navistar prepared to increase production at its Indianapolis Engine Plant in order to meet growing demand from Ford Motor Co. [NYSE F- news] for engines used in Ford's F-250 and 350 super-duty pickups and Econoline vans. In February, production at Indianapolis is scheduled to go to 1,002 engines per day, up from 933.

During the first quarter, Navistar reorganized its truck group into six distinct businesses. The new organization consists of four vehicle centers (heavy truck, severe service truck, medium truck and school bus) and two business centers (parts and international).

The reorganization makes each of the six truck businesses separately accountable for achieving financial goals, and is designed to speed decision making and improve responsiveness to customer and market needs unique to each business. There was no charge associated with the reorganization.

In addition, Navistar continued to drive its five-point truck strategy: focusing its truck assembly plants, simplifying current product lines, investing in new product development, expanding internationally and achieving competitive wages, benefits and productivity.

Following a highly successful pilot, Navistar began rollout of its popular Diamond SPEC program for its medium-duty truck line. Diamond SPEC is a faster, simplified truck ordering process that packages individual components into pre-engineered modules. It reduces manufacturing complexity and guarantees customers improved quality and enhanced overall vehicle performance.

Last year, Diamond SPEC met with great success in the heavy truck business, accounting for 80 percent of premium conventional Class 8 stock trucks ordered by dealers. The medium program is generating similar enthusiasm among customers, with the pilot exceeding original projections for orders by 120 percent.

In the first quarter, Navistar hired more than 100 new engineers to support the next generation vehicle program. And the company continued preparations at its new truck assembly plant in Escobedo, Nuevo Leon, Mexico, with production of its first pilot to begin on schedule in February. The plant will add to Navistar's capabilities in the Mexican market, where the company has already captured 11.5 percent truck market share and opened 38 dealer locations.

Outlook for 1998 Demand

Navistar forecasts industry demand for heavy trucks in the United States and Canada at 220,000 units in fiscal 1998, compared with 196,800 heavy trucks sold by the industry in 1997. Industry demand for medium trucks in the United States and Canada is expected to reach 123,000 units in 1998, compared with the 117,400 trucks sold in 1997, and demand for school buses in fiscal 1998 is expected to be 33,000, which is level with last year's total of 33,200.

Navistar International Corporation, with world headquarters in Chicago and 1997 annual sales of $6.4 billion, is the leading North American producer of heavy and medium trucks and school buses. Navistar maintained its position as the sales leader in the combined United States and Canadian retail markets for medium and heavy trucks and school buses in the first quarter, achieving a 28.6 percent share, which is 2.2 percentage points higher than a year ago. The company also is a worldwide leader in the manufacture of mid-range diesel engines which are produced in a range of 160 to 300 horsepower.

(Millions of dollars, except per share data)

                                           THREE MONTHS ENDED
                                               JANUARY 31
                                          1998            1997
    Sales and Revenues
    Sales of manufactured products      $1,672          $1,240
    Finance and insurance revenue           45              45
    Other income                            10              11

    Total sales and revenues             1,727           1,296

    Costs and expenses
    Cost of products and services sold   1,454           1,076
    Postretirement benefits                 45              51
    Engineering and research expense        35              30
    Marketing and administrative expense    98              83
    Interest expense                        17              17
    Financing charges on sold receivables    8               7
    Insurance claims and
      underwriting expense                   9               8

    Total costs and expenses             1,666           1,272

      Income before income taxes            61              24
      Income tax expense                    23               9

    Net income                              38              15

    Less dividends on Series G
      preferred stock                        7               7

    Net income applicable
      to common stock                   $   31          $    8

    Net income per common share
      Basic                             $  .43          $  .10
      Diluted                           $  .42          $  .10

    Average shares outstanding (millions)
      Basic                               71.6            73.6
      Diluted                             72.5            73.7

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

(Millions of dollars)

                                          AS OF JANUARY 31
                                           1998      1997

    Cash and cash equivalents            $ 188           $ 197
    Marketable securities                  361             448
                                           549             645
    Receivables, net                     1,543           1,311
    Inventories                            506             452
    Property and equipment, net            896             773
    Investments and other assets           312             238
    Intangible pension assets              212             314
    Deferred tax asset, net                911           1,024

    Total assets                        $4,929          $4,757

    Accounts payable, principally trade $1,033           $ 714
      Manufacturing operations             125             113
      Financial services operations      1,020             947
    Postretirement benefits liability      893           1,278
    Other liabilities                      885             783
    Total liabilities                   $3,956          $3,835

    Commitments and contingencies

    Shareowners' equity
    Series G convertible preferred stock
      (liquidation preference $240)     $  240          $  240
    Series D convertible junior
      preference stock
      (liquidation preference $4)            4               4
    Common stock (55.4 and 51.0
      million shares issued)             1,748           1,642
    Class B Common stock (19.9 and
      24.3 million shares issued)          388             491
    Retained earnings (deficit)         (1,271)         (1,425)
    Common stock held in treasury,
      at cost                             (136)            (30)
      Total shareowners' equity            973             922

    Total liabilities
      and shareowners' equity           $4,929          $4,757

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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