Building a New Company

Building A New Company ® Our vision is to be the best truck and engine company. [Navistar 1999 Annual Report] The Navistar Business Model VISION OPERATIONAL EXCELLENCE M M STRATEGIES M M M DEMAND CREATION HIGH-PERFORMANCE CULTURE OUR VISION is to be the best truck and engine company. OUR STRATEGIES provide us with the road map for building on our success in a focused way. DEMAND CREATION means understanding our own strengths and our customers’ needs. OUR HIGH-PERFORMANCE CULTURE mobilizes our people to achieve our vision. OPERATIONAL EXCELLENCE delivers products and services with a focus on quality. ABOUT OUR ANNUAL REPORT The theme of the 1999 CONTENTS annual report is “Building A New Company.” There’s no better way to describe our year in 1999 than to talk Letter to Shareowners 2 with some of the people who made it happen. We visited Review of Operations 4 with an International® dealer, an owner/operator and an Index of Financial Information 17 employee, along with several of the company’s senior Management’s Discussion and Analysis 18 executives. We hope you enjoy their candid responses Information for Our Investors 46 to our questions. What they describe is a year in which our team achieved great things, attained record results Company Profile and Locations 47 and built toward an even brighter future. We also introduced Directors and Officers 48 an exciting new logo for International that clearly captures the heritage and forward momentum of our brand. The new ON THE COVER logo appears on the back cover. All of us have rededicated ourselves to achieve what our brand promises: “International 1 Trina Fischer prepares to install a cylinder-head gasket on a 7.3-litre mid-range diesel engine at the Indianapolis engine plant. listens, understands and delivers the best ways to move our 2 Valere Casier puts the finishing touches on a windshield of an customers ahead. On the road and in their business.” International 9000i at the Chatham, Ontario assembly plant. 3 Contruction is proceeding at the new NGV facility. 4 Ray Turner lubricates an injector hose on a 7.3-litre mid-range diesel engine at the Indianapolis location. 5 A new International 9000i fully assembled and ready for delivery. 1 [Financial Summary] Millions of Dollars, Except Per Share Data and Percentages For the Years Ended October 31 1999 1998 Sales and revenues $8,647 $7,885 Income before income taxes $ 591 $ 410 Net income $ 544 $ 299 Net income, excluding tax valuation allowance adjustments $ 366 $ 254 Diluted earnings per share $ 8.20 $ 4.11 Diluted earnings per share, excluding tax valuation allowance adjustments $ 5.52 $ 3.47 Manufacturing gross margin 18.0% 15.3% Return on equity 42.2% 38.9% ACHIEVEMENTS OF 1999 Launched first new products series since 1995— with an International T444E diesel engine, the International 9000i and 5000i series trucks a continuous regenerative trap and ultra-low and the enhanced in-line 6-cylinder premium sulfur diesel fuel diesel family of engines, the International 530E Broke ground for a Navistar and Siemens and DT466E Automotive joint venture in Richland County, Awarded new contract with Ford to produce S.C., which will develop and manufacture diesel engines for use in vehicles under low-pressure, common-rail digital valve fuel 8,500 lbs. GVW injectors for use in diesel fuel systems Committed to building a new $250 million Ratified a new three-year labor agreement high technology engine plant in Huntsville, with the Canadian Auto Workers at the Ala., to produce next generation diesel engines Chatham assembly plant, nearly five months Approved a new $243 million share repurchase ahead of schedule program, based on anticipated strong operating Recognized in The Wall Street Journal ’s “ T h i r d performance in fiscal 2000 Annual Guide to America’s Best and Worst Established Maxion International Motores Companies” as The Ninth Best Performer S.A., a joint venture with Brazil’s largest diesel Ranked 29th among Business Week’s Top 50 engine producer, to manufacture diesel engines companies of the Standard & Poor’s 500, in South America and then moved up to 11th on the magazine’s Introduced Green Diesel TechnologySM to “six month report card” the Environmental Protection Agency, using Celebrated Navistar Financial Corporation’s an International rear engine school bus fitted (NFC) 50th anniversary by delivering over 15 percent ROE for the sixth year in a row 42.2% $544 $8,647 38.9% $7,885 $6,371 $299 $5,754 14.7% $150 7.1% $65 96 97 98 99 96 97 98 99 96 97 98 99 RETURN ON EQUITY NET INCOME SALES AND REVENUES ($ in millions) ($ in millions) [To Our Shareowners] Winners focus on what is important, now and over the long term. In 1999, we made fundamental improvements in the way we do business as a company. We proved that we know how to set targets, how to meet them and how to keep doing that over time. Our people set big goals, and held themselves accountable for achieving them. Here’s what we accomplished relative to 1998: I Sales of $8.6 billion, up 10 percent I Net income of $366 million, up 44 percent I Earnings per share of $5.52, up 59 percent All these improvements exclude the benefits of our deferred tax NEW PARTNERSHIPS We expanded to South America asset valuation allowance adjustments. with a major customer, Ford, in place, and served it through For the third year in a row, we raised our target for return on our partnership with Maxion Motores. We also established shareholder equity. For the third year in a row, we hit that new a progressive new labor contract with the Canadian Auto target. And we achieved this substantially improved performance Workers that ensures our Chatham facility will continue even though we continued to invest heavily in programs to be competitive well into the future. designed to support future growth. Year over year, we spent NEW FACILITIES We began the construction of new brick- an additional $125 million on new product development and and-mortar facilities, including our new cab stamping plant start-ups. We also spent $498 million on capital investments. in Springfield, our new engine plant at Huntsville and our Just look at the building blocks we put in place this year: new Chicago suburban office facility at Cantera. We complet- NEW PRODUCTS We had the smoothest new product introduced plant expansions in Escobedo and Garland. We made mas- tions in our history, including new heavy and severe service sive changes in Springfield to support the next generation vehi- products, the International 9000i and 5000i, and a new line cle, so that all of the required infrastructure will be in place of more robust, in-line six-cylinder engines, the International well in advance of this new product’s introduction in mid- 530E and DT466E. We also made great progress on our next 2001. We announced a new facility in South Carolina generation vehicle and next generation diesel engine, which for our fuel-injection joint venture with Siemens Automotive, will power us in the new millennium. And we forged ahead and in December 1999, a new plant in Tulsa, Okla., to produce with a 2000 capital investment program of $600 million that our integrated conventional school buses, which will revolu- includes major investments in these next generation vehicle tionize the industry. and diesel programs. NEW MANAGEMENT TEAM We strengthened our senior man- NEW BRAND IDENTITY We developed a new International logo agement team when Steve Keate was promoted to president that builds on the best of our tradition and brings it into the of the truck group. We also named Dan Ustian president of 21st century. We rededicated ourselves to achieve what our the engine group and John Bongiorno president of financial brand promises: “International understands and delivers the services, in confirmation of their major contributions as leaders best ways to move our customers ahead. On the road and of these groups. All these senior managers have consistently in their business.” delivered strong results, a sense of vision for the future, and a focus on the things that really count. 2 3 EXECUTIVE COUNCIL A newly organized executive council is leading Navistar into the next century. Pictured are (left to right) Robert A. Boardman, senior vice president and general counsel; Pamela J. Hamilton, senior vice president, human resources and administration; Daniel C. Ustian, president, engine and foundry group; John R. Horne, chairman, president and chief executive officer; J. Steven Keate, president, truck group; Robert C. Lannert, executive vice president and chief financial officer; and John J. Bongiorno, president, financial services. NEW ATTITUDE Of all our accomplishments this year, I’m A special note. In August 1999, we were deeply saddened proudest of this one. Looking around the company, there’s by the death of board member Jack Laskowski, United Auto a new culture of accountability. Our people deliver on their Workers vice president. Jack will be remembered as a visionary commitments. They don’t look for excuses, they look for and pragmatic leader. He was also a builder, committed to solutions. forging a true sense of partnership between management In January, our plants in Indianapolis, Springfield, Fort Wayne, and represented employees. We will miss Jack. Chatham, Waukesha and Melrose Park were all hit by major blizzards. No one came to me, as some might have in the past, and used the bad weather as an excuse for poor performance. Instead, people fought back. They rounded up four-wheel- drive vehicles and brought in enough people to get the lines going.

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