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

                                   FORM 10-K

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

                  For the fiscal year ended October 31, 2004


                                      OR

        (  ) 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 1-4146-1
                                  ----------

                        NAVISTAR FINANCIAL CORPORATION
            (Exact name of Registrant as specified in its charter)

             Delaware                                36-2472404
 (State or other jurisdiction of      (I.R.S. Employer Identification No.)
  incorporation or organization)

2850 West Golf Road Rolling Meadows, Illinois          60008
 (Address of principal executive offices)            (Zip Code)

 Registrant's telephone number,  including area code 847-734-4000
 Securities    registered    pursuant   to Section 12(b) of the Act:  None
 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 and (2) has been  subject to such filing
requirements for the past 90 days.  Yes X       No__

Indicate by check mark if  disclosure  of  delinquent  filers  pursuant to Item
405 of Regulation S-K 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 an  accelerated  filer (as
defined in Rule 12b-2 of the Act).  Yes      No X

As of January 31, 2005, the number of shares  outstanding  of the  registrant's
common stock was 1,600,000.

                      Documents Incorporated by Reference
 Portions of the Proxy Statement to be delivered to shareowners in connection
            with the 2004 Annual Meeting of Shareowners (Part III)


THE REGISTRANT IS A WHOLLY-OWNED  SUBSIDIARY OF INTERNATIONAL  TRUCK AND ENGINE
CORPORATION,  WHICH IS A  WHOLLY-OWNED  SUBSIDIARY  OF  NAVISTAR  INTERNATIONAL
CORPORATION,  AND MEETS THE  CONDITIONS SET FORTH IN GENERAL  INSTRUCTION  I(1)
(a) AND (b) OF FORM 10-K AND IS  THEREFORE  FILING  THIS FORM WITH THE  REDUCED
DISCLOSURE FORMAT.


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                        NAVISTAR FINANCIAL CORPORATION
                               AND SUBSIDIARIES

                                     INDEX
                                                                       Page
PART I

Item 1     Business (A)...........................................       2
Item 2     Properties (A).........................................       2
Item 3     Legal Proceedings......................................       2
Item 4.    Submission of Matters to a Vote of Security Holders (A)       3

PART II

Item 5     Market for the Registrant's Common Equity and
           Related Stockholder Matters............................       3
Item 6     Selected Financial Data (A)............................       3
Item 7     Management's Discussion and Analysis of Financial
           Condition and Results of Operations (A)................       3
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   11
Item 8     Financial Statements and Supplementary Data............      12
Item 9     Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure....................      44
Item 9A.   Controls and Procedures................................      44
Item 9B.   Other Information......................................      44

PART III

Item 10    Directors and Executive Officers of the Registrant (A).      45
Item 11    Executive Compensation (A).............................      45
Item 12    Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters (A).....      45
Item 13    Certain Relationships and Related Transactions (A).....      45
Item 14    Principal Accountant Fees and Services.................      45

PART IV

Item 15    Exhibits, Financial Statement Schedules and
           Reports on Form 8-K....................................      46

SIGNATURES........................................................      47


(A)Omitted or amended  as the  registrant  is  a  wholly-owned  subsidiary  of
International Truck and Engine  Corporation,  which is a wholly-owned subsidiary
of Navistar International  Corporation,  and meets the  conditions  set forth in
General  Instructions  I (1) (a) and (b) of Form 10-K and is, therefore, filing
this Form with the reduced disclosure format.


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13

                                    PART I
Item 1.    Business

The registrant,  Navistar Financial  Corporation  ("NFC"),  was incorporated in
Delaware in 1949 and is a wholly-owned  subsidiary of  International  Truck and
Engine  Corporation  ("International"),  which is a wholly-owned  subsidiary of
Navistar   International   Corporation   ("Navistar").   As  used  herein,  the
"Corporation"  refers to Navistar  Financial  Corporation and its  wholly-owned
subsidiaries unless the context otherwise requires.

The  Corporation  is  a  commercial   financing   organization   that  provides
wholesale,  retail and lease  financing  in the United  States for sales of new
and  used  trucks  sold  by  International  and  International's  dealers.  The
Corporation  also  finances  wholesale  accounts and selected  retail  accounts
receivable  of  International.  Sales of new products  (including  trailers) of
other  manufacturers are also financed  regardless of whether they are designed
or customarily sold for use with International's truck products.

On November 30, 2001,  the  Corporation  completed the sale of all of the stock
of  Harco  National  Insurance  Company  ("Harco"),  a  wholly-owned  insurance
subsidiary,   to  IAT  Reinsurance   Syndicate  Ltd.,  a  Bermuda   reinsurance
company.  The Harco  insurance  segment  was  accounted  for as a  discontinued
operation,  and accordingly,  amounts in the consolidated  financial statements
and notes  thereto,  for all periods  affected,  have been  restated to reflect
discontinued operations accounting.

Periodic Reports Access

Navistar  maintains a website  with the address  www.internationaldelivers.com.
The  Corporation  is not  including  the  information  contained on  Navistar's
website  as a part of, or  incorporating  it by  reference  into,  this  Annual
Report  on  Form  10-K.  The  Corporation  makes  available,  free  of  charge,
through  Navistar's  website its Annual Report on Form 10-K,  quarterly reports
on Form  10-Q  and  current  reports  on Form  8-K,  and  amendments  to  these
reports,   as  soon   as   reasonably   practicable   after   the   Corporation
electronically  files such material  with,  or furnishes  such material to, the
Securities and Exchange Commission.

The  Corporation  complies  with  the  Code  of  Ethics  posted  on  Navistar's
website.  This  Code  of  Ethics  applies  to  all  employees,   directors  and
officers,  including the chief executive  officer and chief financial  officer.
The  Corporation  intends to disclose any  amendments  to, or waivers from, its
Code of Ethics  that are  required  to be  publicly  disclosed  pursuant to the
rules of the Securities and Exchange Commission.

The Board of  Directors  of Navistar  documented  its  governance  practices in
adopting   the  Board   Corporate   Governance   Guidelines.   The   governance
guidelines,  as  well as the  charters  for the  key  committees  of the  board
(Finance  Committee,  Audit  Committee,  and the  Compensation  and  Governance
Committee)  may  also  be  viewed  on  Navistar's   website.   Copies  of  such
documents will be sent to  shareholders  free of charge upon written request of
the  corporate  secretary  at the address  shown on the cover page of this Form
10-K.

Item 2.    Properties

The  Corporation's  properties  principally  consist  of office  equipment  and
leased  office  space  in  Schaumburg,  Illinois;  Rolling  Meadows,  Illinois;
Duluth,  Georgia and Frisco,  Texas.  The office  equipment owned and in use by
the  Corporation  is not  significant  in relation  to the total  assets of the
Corporation.

Item 3.    Legal Proceedings

The  Corporation is subject to various  claims  arising in the ordinary  course
of  business,  and is party to  various  legal  proceedings,  which  constitute
ordinary routine litigation  incidental to the business of the Corporation.  In
the  opinion of the  Corporation's  management,  none of these  proceedings  or
claims  are  material  to  the  business  or  the  financial  condition  of the
Corporation.

On February 9, 2005,  the  Corporation  received a notice from the staff of the
United  States  Securities  and  Exchange   Commission   stating  that  it  was
conducting  an  informal   inquiry  into  the   Corporation's   restatement  of
financial  results  for the  fiscal  years  2002 and 2003 and the  first  three
quarters of fiscal 2004  ("restatement  period").  The staff has requested that
the Corporation  voluntarily  produce documents and information  related to the
restatement  period.  The Corporation is fully  cooperating  with this request.
Given the  preliminary  nature of the matter,  the  Corporation  is not able to
predict what impact, if any, this inquiry will have on the Corporation.

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

Intentionally omitted.  See the index page of this report for an explanation.



                                    PART II

Item 5.    Market for the Registrant's Common Equity and Related
           Stockholder Matters

As of October  31,  2004,  International  owned all shares of NFC's  issued and
outstanding   capital   stock.   No  shares  are   reserved  for  officers  and
employees,  or for options,  warrants,  conversions  and other rights.  NFC did
not pay any  dividends  in  fiscal  2004 or 2002.  NFC paid  $50.0  million  in
dividends to International during fiscal 2003.

Item 6.    Selected Financial Data

Intentionally omitted.  See the index page of this Report for explanation.

Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations

Forward-looking statements

This  Form 10-K  contains  forward-looking  statements  within  the  meaning of
Section 27A  of the  Securities  Act,  Section 21E of the Exchange Act, and the
Private  Securities  Litigation  Reform  Act of 1995 that are  subject to risks
and  uncertainties.  You should not place undue  reliance  on those  statements
because  they are subject to  numerous  uncertainties  and factors  relating to
our  operations  and  business  environment,  all of  which  are  difficult  to
predict  and many of which are beyond  our  control,  and such  forward-looking
statements  only  speak  as of the  date  of  this  Form 10-K.  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  based  on  assumptions  that we  have  made  in  light  of our
experience in the industry as well as our  perceptions  of  historical  trends,
current  conditions,  expected future developments and other factors we believe
are  appropriate  under  the  circumstances.  As you  read  and  consider  this
Form 10-K,  you should  understand that these  statements are not guarantees of
performance or results.  They involve  risks,  uncertainties  and  assumptions.
Although  we  believe  that  these  forward-looking  statements  are  based  on
reasonable  assumptions,  you should be aware that many  factors  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.

Restatement

The  accompanying  management's  discussion  and  analysis  gives effect to the
restatement  of the  consolidated  financial  statements  for the  years  ended
October 31, 2003 and 2002,  as  discussed in Note 2 to  Consolidated  Financial
Statements.

Off-Balance Sheet Arrangements

The  Corporation   enters  into  guarantees  and  sales  of  receivables   that
appropriately  are not reflected on our balance sheet,  which have or will have
an  effect  on our  financial  condition,  revenues  or  expenses,  results  of
operations, liquidity, capital expenditures or capital resources.

Guarantees

The Corporation  periodically  guarantees the  outstanding  debt of affiliates.
The  guarantees   allow  for   diversification   of  funding  sources  for  the
affiliates.  As of October 31, 2004, the  Corporation  has numerous  guarantees
related  to  Navistar's   three   Mexican   finance   subsidiaries,   Servicios
Financieros   Navistar,   S.A.  de  C.V.  ("SOFOL"),   Arrendadora   Financiera
Navistar,  S.A. de C.V.  ("Arrendadora")  and Navistar  Comercial  S.A. de C.V.
("Commercial").  The  Corporation  has no  recourse  as  guarantor  in  case of
default.  As of October 31, 2004,  the  Corporation's  maximum  exposure  under
these guarantees is the total amount outstanding at that date, $134.4 million.

On  July 30, 2004, the Corporation, through NFRRC, sold retail note receivables
to a conduit.  In order  to  match  fund  the fixed rate  receivables  with the
variable rate  debt  of the  conduit, the conduit entered into an interest rate
swap agreement  on  the  anticipated  cash  flows  from  the receivables.  NFC,
as servicer, has indemnified the conduit  for the  impact any variance in those
cash  flows  has  on  the  swap   settlement.  As  of  October  31,  2004,  the
Corporation has not recorded any liability related to this indemnification.

Sales of Receivables

The Corporation  securitizes and sells receivables  through Navistar  Financial
Retail  Receivable   Corporation   ("NFRRC"),   Navistar  Financial  Securities
Corporation  ("NFSC"),  Truck Retail  Accounts  Corporation  ("TRAC") and Truck
Engine   Receivables   Financing   Co.   ("TERFCO"),   all   special   purpose,
wholly-owned  subsidiaries  ("SPC's") of the Corporation,  to fund its business
operations.   The  securitization   market  provides  the  Corporation  with  a
cost-effective  source of  funding.  In a typical  securitization  transaction,
the Corporation  sells a pool of finance  receivables to a SPC that establishes
a  qualifying   special   purpose   entities   ("QSPE")   consistent  with  the
requirements of Statements of Financial  Accounting  Standards ("SFAS") No. 140
"Accounting   for   Transfers   and   Servicing   of   Financial   Assets   and
Extinguishments  of  Liabilities".  The SPC then  transfers the  receivables to
the QSPE,  generally a trust,  in exchange for proceeds  from  interest-bearing
securities,    commonly   called   asset-backed   securities   ("ABS").   These
securities  are  issued by the QSPE and are  secured by future  collections  on
the  sold  receivables.   The  sales  of  receivables  in  each  securitization
constitute sales under accounting  principles  generally accepted in the United
States of America,  with the result that the sold  receivables are removed from
the  Corporation's  balance sheet and the  investor's  interests in the related
trust or conduit are not reflected as liabilities.

The Corporation  often retains  interests in the securitized  receivables.  The
retained  interests may include senior and subordinated  securities,  undivided
interests in  wholesale  receivables,  restricted  cash held for the benefit of
the QSPE's,  and interest-only  strips.  The Corporation's  retained  interests
will be the first to absorb any credit losses on the sold  receivables  because
the  Corporation   retains  the  most  subordinated   interests  in  the  QSPE,
including  subordinated   securities,   the  right  to  receive  excess  spread
(interest-only  strip) and any  residual  or  remaining  interests  of the QSPE
after  all  asset-backed  securities  are  repaid  in full.  The  Corporation's
exposure to credit  losses on the sold  receivables  is limited to its retained
interests.  The SPC's  assets are  available to satisfy the  creditors'  claims
prior  to such  assets  becoming  available  for the  SPC's  own uses or to the
Corporation  or affiliated  companies.  The  Corporation is under no obligation
to  repurchase  any sold  receivable  that  becomes  delinquent  in  payment or
otherwise is in default.  The holders of the  asset-backed  securities  have no
recourse  to the  Corporation  or its other  assets for  credit  losses on sold
receivables  and have no ability  to  require  the  Corporation  to  repurchase
their  securities.  The  Corporation  does not guarantee any securities  issued
by  OSPE's.  The  Corporation,  as  seller  and  the  servicer  of the  finance
receivables  is obligated to provide  certain  representations  and  warranties
regarding  the   receivables.   Should  any  receivables  fail  to  meet  these
representations and warranties,  the Corporation,  as servicer,  is required to
repurchase the receivables.

Risks to Future Sales of Receivables

The Corporation  relies heavily on  securitization  for cost effective  funding
of its  operations.  The  Corporation's  ability to sell its receivables may be
dependent  on  the  following  factors:   the  volume  and  credit  quality  of
receivables   available  for  sale,   the   performance   of  previously   sold
receivables,  general  demand  for the  type  of  receivables  the  Corporation
offers, market capacity for the Corporation sponsored  investments,  accounting
and regulatory  changes,  the Corporation's  debt ratings and the Corporation's
ability to maintain  back-up  liquidity  facilities for certain  securitization
programs.  If as a  result  of any of  these  or  other  factors,  the  cost of
securitized  funding  significantly  increased or  securitized  funding were no
longer available to the Corporation,  the Corporation's  operations,  financial
condition and liquidity could be adversely impacted.

Contractual Obligations

The following table  provides  aggregate  information  about  the Corporation's
outstanding   contractual   obligations  and other  long-term liabilities as of
October 31, 2004:

Due in Fiscal                  2005   2006-2007  2008-2009  After 2010    Total
Senior and Subordinated Debt $570.5    $739.1     $15.1        $0.5    $1,325.2
Operating Leases.............   2.0       2.9       1.9         4.8        11.6
      Total.................  572.5     742.0      17.0         5.3     1,336.8


The table above does not include interest  obligations  because the Corporation
does  not  have  any  fixed  interest  payments.   The  Corporation's  interest
obligations are based on current interest rates and outstanding amounts.


Results from Continuing Operations

Results from continuing operations for the last three years were as follows:

                                                              As Restated
Millions of Dollars                               2004      2003       2002
Gains on sales of receivables                    $25.9     $46.3      $16.4
Income related to sales of finance receivables    53.5      66.9       35.4
Cost of borrowing                                 48.7      57.5       66.1
Income before taxes                              102.3      98.8       67.7
Income from continuing operations                 61.1      57.9       39.1

Other Financial Data:
Return on average equity                          15.8%     16.4%      11.4%
Retail notes and finance lease
     receivables sold,
     net of unearned finance income           $1,120.0  $1,705.0   $1,000.0

The gains on sales of  receivables  in 2004 were lower  than in 2003  primarily
because of lower  receivable  sales volume and higher rates on the asset-backed
securities.  In 2004,  the  Corporation  sold  $1,120.0 million of retail notes
and finance lease receivables compared to $1,705.0 million in 2003.  The  gains
on sales of receivables on the sales in 2003 were higher than in 2002 primarily
because of higher sales volume and lower rates on the asset-backed securities.

Borrowing  costs  decreased 15.3% in 2004 to $48.7 million and 13.0% in 2003 to
$57.5 million primarily due to lower average  receivable  funding  requirements
and  lower  average   interest  rates.  The   Corporation's   weighted  average
interest rate on senior and  subordinated  debt was 3.1% in 2004,  3.6% in 2003
and  4.0%  in  2002.  The  decrease  in  the  Corporation's   weighted  average
interest  rate is  primarily  a result  of lower  LIBOR.  The  ratio of debt to
equity was 3.1:1 and 4.1:1 as of October 31, 2004 and 2003, respectively.

Provision for losses on  receivables  totaled $8.2 million in 2004, a reduction
of $7.6  million from the $15.8  million  recognized  in 2003.  The decrease in
provision  was primarily due to overall  improvement  in portfolio  performance
and improved recoveries in the used truck markets.

Financing Condition

Financing Volume and Finance Market Share

In  fiscal  2004,  the   Corporation's   net  retail  note  and  finance  lease
originations  were $1,385.6  million,  compared with $1,112.7 million in fiscal
2003, an increase of 24.5% from 2003.  The  Corporation's  finance market share
of new  International  trucks sold in the U.S.  decreased  slightly to 15.5% at
October 31, 2004 compared to 15.7% at October 31, 2003;  however,  net serviced
retail notes and finance  leases  balances were  $2,757.7  million and $2,506.5
million  as  of  October   31,  2004  and  2003,   respectively.   Originations
increased  despite  relatively  constant  finance  market share  primarily as a
result of higher sales volume by International's dealers.

In  fiscal  2003,  the   Corporation's   net  retail  note  and  finance  lease
originations   were  $1,112.7   million,   an  increase  of  11.0%  from  2002.
Originations   increased  despite  relatively  constant  finance  market  share
primarily as a result of higher sales volume.

The Corporation  provided 95% of the wholesale  financing of new trucks sold to
International's  dealers  in  fiscal  2004  and  96% in  2003.  Wholesale  note
originations  were  $4,312.4  million in fiscal 2004,  compared  with  $3,168.7
million fiscal 2003, an increase of 36.1%.  Serviced  wholesale  notes balances
were  $1,305.2  million and $860.7  million  as of October  31,  2004 and 2003,
respectively.  These  increases  reflect  International's  higher  sales to its
dealers in the United States.


Funds Management

The Corporation has  traditionally  obtained the funds to provide  financing to
International's   dealers   and   retail   customers   from  sales  of  finance
receivables,  short and  long-term  bank  borrowings,  and medium and long-term
debt.  The  Corporation's  current  debt  ratings  have made  sales of  finance
receivables the most economical source of funding.


Credit Ratings

The Corporation's debt ratings as of October 31, 2004 are as follows:

                                                      Standard
                                 Fitch      Moody's   and Poor's
Senior unsecured debt             BB          Ba3        BB-
Subordinated debt                 B+          B2          B
Outlook                         Stable      Stable     Stable


Funding Facilities

Receivable  sales are a significant  source of funding.  The Corporation  sells
receivables  to SPC's.  Through  the  asset-backed  public  market and  private
placement  sales,  the Corporation has been able to fund its operating needs at
rates,  which are more  economical  than those  available to the Corporation in
the  public  unsecured  bond  market.   These  SPC's  are  separate   corporate
entities and their assets will be  available,  first and  foremost,  to satisfy
the claims of their creditors.

The  Corporation  sells  retail  notes  and  finance  leases  through  Navistar
Financial  Retail  Receivables   Corporation   ("NFRRC"),  a  special  purpose,
wholly-owned  subsidiary of the  Corporation.  During fiscal 2004 and 2003, the
Corporation  sold  $1,120.0  million and  $1,705.0  million,  respectively,  of
retail  notes and  finance  leases to an owner  trust  which,  in turn,  issued
asset-backed  securities  that were sold to investors.  As of October 31, 2004,
the remaining  shelf  registration  available to NFRRC for the public  issuance
of asset-backed securities was $4,000.0 million.

Navistar  Financial  Securities   Corporation   ("NFSC"),  a  special  purpose,
wholly-owned  subsidiary of the  Corporation,  has in place,  as of October 31,
2004, a revolving  wholesale  note trust that provides for the funding of up to
$1,186.3  million of eligible  wholesale  notes.  The trust is  comprised  of a
$200.0  million  tranche  of  investor  certificates  maturing  in 2008,  three
$212.0 million  tranches of investor  certificates  maturing in 2005, 2006, and
2007,  variable funding  certificates with a maximum capacity of $200.0 million
maturing in February 2005 and a seller  certificate  of $150.3  million.  As of
October  31,  2004,  the  Corporation  had  utilized  $1,132.3  million  of the
revolving wholesale note trust.

During  the  second  quarter  of  2004,   Truck  Retail  Accounts   Corporation
("TRAC"),  a  special  purpose,  wholly-owned  subsidiary  of the  Corporation,
obtained  financing for its retail accounts with a bank conduit  that  provides
for the funding  of  up  to $100.0  million  of  eligible retail accounts.  The
revolving  retail account  facility  expires in April 2005. The sales of retail
accounts under  TRAC  constitute   sales  under  generally  accepted accounting
principles in the United States of America, with the result being sold accounts
are removed  from the Corporation's balance sheet and the investor's  interests
are not  reflected  as liabilities.  As of October  31, 2004, this facility was
fully utilized.

Truck  Engine  Receivables   Financing  Co.  ("TERFCO"),   a  special  purpose,
wholly-owned  subsidiary  of  the  Corporation,  has  in  place  a  trust  that
provides  for the  funding of $100.0  million of  unsecured  trade  receivables
generated  by the  sale  of  diesel  engines  and  engine  service  parts  from
International  to Ford Motor  Company.  This  facility,  which  will  expire in
2005, was fully utilized as of October 31, 2004.

Truck Retail Instalment Paper Corp. ("TRIP"),  a special purpose,  wholly-owned
subsidiary  of  the   Corporation,   issued   $500.0   million  of  senior  and
subordinated  floating rate  asset-backed  notes on October 16, 2000, which was
fully  utilized  as of  October  31,  2004.  The notes  will  expire in October
2005.  The  proceeds  were  used to  establish  a  revolving  retail  warehouse
facility to fund the Corporation's  retail notes and retail leases,  other than
fair market value leases.  The Corporation  retains a repurchase option against
the  retail  notes  and  leases  sold  into  TRIP.  Due  to the  nature  of the
repurchase option, TRIP's assets and liabilities are consolidated.

In June 2004,  International  Truck  Leasing  Corporation  ("ITLC"),  a special
purpose,  wholly-owned  subsidiary  of  the  Corporation,  was  established  to
provide  for the  funding of certain  leases.  As of October  31,  2004,  $20.0
million had been funded  through this  subsidiary.  ITLC's assets are available
to satisfy its creditors'  claims prior to such assets  becoming  available for
ITLC's uses or to the Corporation or affiliated companies.

The  Corporation  also  has an  $820.0  million  contractually  committed  bank
revolving  credit  facility  that will mature in December  2005.  As of October
31, 2004, the  Corporation  utilized  $697.0  million of this  facility,  $25.0
million of which was utilized by Navistar's Mexican finance subsidiaries.

Navistar  assumed the $220.0 million of 4.75 percent  convertible  subordinated
debt due in 2009 from the  Corporation  in June 2004. As  compensation  for the
assumption  of this debt,  the  Corporation  paid  Navistar  $170.0  million in
cash.  Navistar's  assumption  of the  Corporation's  debt resulted in an $11.9
million increase in paid-in capital.

The  failure  of  the   Corporation   and  its  affiliates  to  complete  their
respective  Annual  Reports on Form 10-K and deliver  those reports and related
required  information  to their  respective  lenders by January 29,  2005,  has
resulted  in  one  or  more  defaults  under  the  revolving  credit  and  TRAC
agreements.  On January  31,  2005,  the  Corporation  received a waiver of the
existing  defaults under both  agreements.  The waiver permits the  Corporation
to incur  additional  borrowings  under the  agreements  through  February  28,
2005.

In the event that the  Corporation  has not cured any  defaults by February 28,
2005, it will again no longer be able to incur  additional  indebtedness  under
the  agreements  unless  it shall  have  obtained  subsequent  waivers.  In the
event  that  the  Corporation  does  not cure  any  defaults  by March 1,  2005
(unless it shall  have  obtained  an  additional  waiver),  an event of default
shall  have   occurred   under  the  credit   and  TRAC   agreements   and  the
administrative  agent or the  lenders  will have the ability to  terminate  the
facilities and demand immediate  payment of all amounts  outstanding  under the
agreements.   Such  a  demand  for  payment  would  result  in  defaults  under
numerous other credit  facilities and other  agreements of the  Corporation and
its  affiliates.  The  Corporation  believes  that the  defaults  will be cured
prior to the  expiration  of the  waivers  through  the  delivery of the Annual
Reports on Form 10-K and the related information.


Critical Accounting Policies

The  consolidated   financial   statements  are  prepared  in  conformity  with
accounting  principles  generally  accepted  in the United  States of  America.
The  preparation of these financial  statements  requires the use of estimates,
judgments,  and  assumptions  that  affect the  reported  amounts of assets and
liabilities at the date of the financial  statements  and the reported  amounts
of revenues  and expenses  during the periods  presented.  In  preparing  these
financial  statements,  management has made its best estimates and judgments of
certain   amounts   included   in  the   financial   statements,   giving   due
consideration  to materiality.  The  significant  accounting  principles  which
management  believes are the most important to aid in fully  understanding  the
Corporation's   financial   results  are  included  below.  See  the  Notes  to
Consolidated  Financial  Statements  for a more detailed  description  of other
accounting policies.

o     Allowance for Losses

      The  allowance  for  losses  is  established  through  a  charge  to  the
      provision  for  losses.  The  allowance  is an  estimate  of  the  amount
      required  to  absorb   losses  on  the  existing   portfolio  of  finance
      receivables  and  operating  leases  that  may become uncollectible.  The
      allowance  is  maintained  at  an amount management considers appropriate
      in relation to the outstanding portfolio based on factors such as overall
      portfolio  credit risk quality,  historical loss experience,  and current
      economic  conditions.  Finance  receivables  and  operating  leases   are
      charged  off to the  allowance  for  losses  when  amounts  due  from the
      customers are determined to be uncollectible.

      Under  various  agreements,  International  and its dealers may be liable
      for a portion of customer  losses or may be required  to  repurchase  the
      repossessed  collateral at the receivable  principal value. The amount of
      losses the  Corporation  records in its bad debt provision are net of the
      amounts received under these agreements.

o     Sales of Receivables

      The Corporation  securitizes finance receivables through sales to QSPE's,
      which  then  issue  securities  to  public  and  private  investors.  The
      Corporation  sells  receivables  to the  QSPE's  with  limited  recourse.
      Gains or  losses on sales of  receivables  are  credited  or  charged  to
      revenue in the  periods  in which the sales  occur.  Retained  interests,
      which  include  interest-only  receivables,  cash reserve  accounts,  and
      subordinated  certificates,  are recorded at fair value in the periods in
      which the sales  occur.  The  accretion  of the  discount  related to the
      retained interests is recognized on an effective yield basis.

      Management  estimates the prepayment speed for the receivables  sold, the
      discount rate used to determine  the present  value of the  interest-only
      receivable and the  anticipated net losses on the receivables in order to
      calculate the gain or loss. The method for  calculating  the gain or loss
      aggregates the receivables in a homogenous  pool.  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.  In  addition,  the  Corporation
      estimates  the  fair  value  of the  retained  interests  on a  quarterly
      basis.  The  fair  value  of the  interest-only  receivable  is  based on
      present  value  estimates of expected cash flows using  management's  key
      assumptions of prepayment speeds, discount rates and net losses.

o     Net Investments in Equipment on Operating Leases

      Included in the net  investments  in equipment  on  operating  leases are
      trucks,  tractors  and  trailers  leased  to  customers  under  operating
      leases.  Included in this value are  estimates of the residual  values of
      the equipment.  The residual values represent  estimates of the values of
      the  assets  at  the  end  of  the  lease  contracts  and  are  initially
      determined  based on estimates of future market  values.  Realization  of
      the residual values is dependent on the  Corporation's  future ability to
      market  the  vehicles  under  then  prevailing   conditions.   Management
      reviews  residual values  periodically to determine that recorded amounts
      are  appropriate  and the operating  lease assets have not been impaired.
      Each of these assets is  depreciated  on a  straight-line  basis over the
      term of the lease in an amount  necessary to reduce the leased vehicle to
      its estimated residual value at the end of the lease term.

o     Repossessions

      Losses arising from the  repossession  of collateral  supporting  finance
      receivables  and  operating  leases  are  recognized  upon  repossession.
      Repossessed   assets  are  reclassified   from  finance   receivables  or
      investment  in  equipment  on  operating  leases  to  repossessions   and
      reported in Other  Assets on the  Statements  of  Consolidated  Financial
      Condition.  They are  recorded  at the lower of  historical  cost or fair
      value, with the related adjustments  recorded in the allowance for credit
      losses.

o     Pension and Other Postretirement Benefits

      The Corporation  provides defined benefit,  postretirement  benefits to a
      portion of its employees.  Costs associated with postretirement  benefits
      include  pension and  postretirement  health care expenses for employees,
      retirees  and  surviving   spouses  and  dependents.   The  Corporation's
      employee pension and postretirement  heath care expenses are dependent on
      management's  assumptions  used by actuaries in calculating such amounts.
      These assumptions  include discount rates,  health care cost trend rates,
      inflation,  long-term return on plan assets,  retirement rates, mortality
      rates and other factors.

      See  Note  11  to  the   Consolidated   Financial   Statements  for  more
      information regarding costs and assumptions for postretirement benefits.


New Accounting Pronouncements

In March  2004,  the  Emerging  Issues  Task  Force  ("EITF")  reached  a final
consensus on EITF 03-1,  "The Meaning of  Other-Than-Temporary  Impairment  and
Its  Application to Certain  Investments".  In September  2004, the FASB issued
FSP  EITF-03-1-1,  "Effective  Date of  Paragraphs  10-20 of EITF 03-1",  which
deferred  the  effective  date of  paragraphs  10-20 of EITF  03-1.  EITF  03-1
paragraph 21 requires specific  disclosure for all investments in an unrealized
loss  position  for  which  other  than  temporary  impairments  have  not been
recognized.  The  Corporation  has  included  this  disclosure  in  Footnote 15
Sales of Receivables.

In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation  No. 46,  "Consolidation  of Variable Interest  Entities".  This
interpretation  addresses  consolidation   requirements  of  variable  interest
entities  ("VIE's").  In December  2003,  the FASB revised this  Interpretation
to  clarify  the   application   of  Accounting   Research   Bulletin  No.  51,
"Consolidated  Financial  Statements",  to  certain  entities  in which  equity
investors do not have the  characteristics of a controlling  financial interest
for  the  entity  to  finance  its  activities  without  additional   financial
support.  This  Interpretation,  as revised,  is effective  for periods  ending
after December 15, 2003. The  Corporation  determined  that it does not have an
interest in a VIE, as defined within this Interpretation. Transferors to QSPE's
subject to the reporting  requirements of  SFAS 140, "Accounting for  Transfers
and Servicing  of Financial Assets and Extinguishments  of  Liabilities",   are
excluded  from the  scope of this  interpretation.  The  Corporation  currently
sells  receivables to entities meeting the  requirements of QSPE's.  Therefore,
this  Interpretation has no impact on the Corporation's  results of operations,
financial condition, and cash flows.

In  December  2003,  the  FASB  issued  a  revision  to SFAS  132,  "Employers'
Disclosure about Pensions and Other  Postretirement  Benefits".  This Statement
retains the  disclosures  previously  required by SFAS 132 but adds  additional
disclosure  requirements  about the assets,  obligations,  cash flows,  and net
periodic  benefit  cost of  defined  benefit  pension  plans and other  defined
benefit  postretirement  plans.  It also calls for the required  information to
be provided separately for pension plans and for other  postretirement  benefit
plans.

On December 8, 2003,  the  President  signed the  Medicare  Prescription  Drug,
Improvement  and  Modernization  Act of 2003  ("the  Act")  into  law.  The Act
introduces a voluntary  prescription  drug benefit under  Medicare as well as a
federal  subsidy  to  sponsors  of  retiree  health  care  plans  that  provide
prescription  drug  benefits  that  are  at  least  actuarially  equivalent  to
Medicare  Part D. In May 2004,  the FASB  issued  FSP  106-2,  "Accounting  and
Disclosure   Requirements   Related   to  the   Medicare   Prescription   Drug,
Improvement and  Modernization  Act of 2003",  which requires the  commencement
of  accounting  recognition  for the  effects  of the  Act no  later  than  the
Corporation's  quarter  ending October 31, 2004.  The  Corporation  implemented
the  accounting  guidance  related to the effects of the Act during the quarter
ended July 31, 2004.  The cumulative  effect of accounting for the subsidy,  as
of the date of the Act  through  the  date of  implementation,  resulted  in an
immaterial reduction to the Corporation's  postretirement  benefit expenses and
liabilities.

Business Outlook

Certain   statements,   which  involve  risks  and  uncertainties,   constitute
"forward-looking   statements"   under   the   Securities   Reform   Act.   The
Corporation's   actual  results  may  differ  significantly  from  the  results
discussed  in such  forward-looking  statements.  Navistar  currently  projects
2005 U.S.  and  Canadian  Class 8 heavy truck  demand to be 262,000  units,  up
19.1% from 2004.  Class 6 and 7 medium truck  demand,  excluding  school buses,
is forecast at 100,000 units, unchanged from 2004.

Demand for school  buses is  expected  to be 27,500  units,  up 5.0% from 2004.
Mid-range  diesel engine  shipments by Navistar to OEMs in 2005 are expected to
be 365,400 units, 2.1% higher than 2004.

Management  believes that  collections on the outstanding  finance  receivables
portfolio plus  facilities  available from the  Corporation's  various  funding
sources  will permit the  Corporation  to meet the  financing  requirements  of
International's dealers and retail customers through 2005 and beyond.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The  Corporation  is exposed to market risk  primarily due to  fluctuations  in
interest  rates.  Interest  rate risk  arises  from the funding of a portion of
the  Corporation's   fixed  rate  receivables  with  floating  rate  debt.  The
Corporation has managed  exposure to interest rate changes by funding  floating
rate  receivables  with  floating  rate debt and fixed  rate  receivables  with
fixed  rate  debt,  floating  rate  debt and  equity  capital.  Management  has
reduced  the net  exposure,  which  results  from the  funding  of  fixed  rate
receivables   with  floating   rate  debt  by  generally   selling  fixed  rate
receivables  on a  fixed  rate  basis  and by  utilizing  derivative  financial
instruments,  primarily swaps, when  appropriate.  The Corporation does not use
derivative financial instruments for trading purposes.

The  Corporation  measures its interest rate risk by estimating  the net amount
by  which  the  fair  value  of  all  interest   rate   sensitive   assets  and
liabilities,  including derivative financial instruments,  would be impacted by
selected   hypothetical  changes  in  market  interest  rates.  Fair  value  is
estimated  using a  discounted  cash flow  analysis.  Assuming  a  hypothetical
instantaneous  10%  adverse  change in interest  rates as of October 31,  2004,
the  estimated  fair value of the net assets  would  decrease by  approximately
$6.3 million.  The Corporation's  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.




Item 8.  Financial Statements and Supplementary Data
                                                                      Page

  Index

   Consolidated Financial Statements:
      Statements of Consolidated Income and Retained Earnings
       Fiscal years ended October 31, 2004, 2003 (as restated)
       and 2002 (as restated)......................................     14
      Statements of Consolidated Comprehensive Income for the
       Fiscal years ended October 31, 2004, 2003 (as restated)
       and 2002 (as restated).........................................  14
      Statements of Consolidated Financial Condition
       October 31, 2004 and 2003 (as restated) .......................  15
      Statements of Consolidated Cash Flow
       Fiscal years ended October 31, 2004, 2003 (as restated)
       and 2002 (as restated).........................................  16
      Notes to Consolidated Financial Statements......................  17
   Report of Independent Registered Public Accounting Firm............  42
   Supplementary Financial Data (unaudited)...........................  48


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

           Navistar Financial Corporation and Subsidiaries

       Statements of Consolidated Income and Retained Earnings
                         Millions of Dollars
                                                                  As Restated
                                                                 (See Note 2)
For the years ended October 31                       2004       2003      2002
Revenues
   Retail Notes and Finance Leases                 $ 47.6      $51.6     $59.0
   Income Related to Sales of Finance Receivables    53.5       66.9      35.4
   Operating Leases                                  51.2       64.5      76.2
   Wholesale Notes                                   33.5       31.0      27.6
   Accounts                                          22.4       17.7      18.9
   Servicing Income                                  27.4       25.4      26.8
   Other Revenue                                      3.5        5.4       8.2
         Total                                      239.1      262.5     252.1

Expenses
   Cost of Borrowing
      Interest Expense                               40.9       49.8      58.0
      Other                                           7.8        7.7       8.1
   Credit, Collection and Administrative             39.8       41.2      39.5
   Provision for Credit Losses                        8.2       15.8      20.5
   Depreciation on Operating Leases                  38.1       45.0      55.4
   Other Expense                                      2.0        4.2       2.9
         Total                                      136.8      163.7     184.4

Income Before Taxes                                 102.3       98.8      67.7
Income Tax Expense                                   41.2       40.9      28.6
Income from Continuing Operations                    61.1       57.9      39.1

Loss on Disposal of Discontinued Operations,
   (net tax of $0.0, $1.5 and $0.7)                    -        (2.4)     (1.2)

Net Income                                           61.1       55.5      37.9

Retained Earnings
   Beginning of Year                                184.9      179.4     141.5
   Dividends Paid                                      -       (50.0)       -
   End of Year                                     $246.0     $184.9    $179.4



           Statements of Consolidated Comprehensive Income
                              Millions of Dollars
                                                              As Restated
                                                             (See Note 2)
For the years ended October 31                       2004    2003   2002
Net Income                                         $ 61.1  $ 55.5  $ 37.9
Other Comprehensive Loss:
   Net Unrealized Gains (Losses) on Investments
   (net of tax of $0.8, $0.8 and ($2.9))             (1.3)   (1.2)    4.7
   Minimum Pension Liability Adjustment
   (net of tax of $0.3, $4.3 and $0.3)               (0.5)   (6.9)   (0.5)
      Total                                          (1.8)   (8.1)    4.2
Comprehensive Income                               $ 59.3  $ 47.4  $ 42.1

                See Notes to Consolidated Financial Statements.


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


           Navistar Financial Corporation and Subsidiaries

           Statements of Consolidated Financial Condition
                         Millions of Dollars
                                                                As Restated
                                                               (See Note 2)
As of October 31                                      2004         2003

ASSETS

Cash and Cash Equivalents                            $ 10.4     $      -
Finance Receivables
   Finance Receivables                                814.8        519.9
   Other Finance Receivables                          461.0        347.3
   Allowance for Losses                                (6.7)       (12.9)
      Finance Receivables, net                      1,269.1        854.3

Amounts Due from Sales of Receivables                 383.4        349.0
Net Investment in Equipment on Operating Leases       148.9        191.1
Restricted Marketable Securities                       63.0        505.6
Other Assets                                           33.5         52.3
   Total Assets                                      $1,908.3   $1,952.3

LIABILITIES AND SHAREOWNER'S EQUITY

Net Accounts Payable to Affiliates                   $ 43.5       $  3.2
Senior and Subordinated Debt                        1,325.2      1,461.9
Other Liabilities                                     116.0        134.8
   Total Liabilities                                1,484.7      1,599.9

Commitments and Contingencies                            -             -

Shareowner's Equity
Capital Stock (par value $1.00, 1,600,000 shares
   issued and outstanding) and Paid-In Capital        182.9        171.0
Retained Earnings                                     246.0        184.9
Accumulated Other Comprehensive Loss                   (5.3)        (3.5)
   Total Shareowner's Equity                          423.6        352.4

Total Liabilities and Shareowner's Equity          $1,908.3     $1,952.3




                See Notes to Consolidated Financial Statements.


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

           Navistar Financial Corporation and Subsidiaries

                Statements of Consolidated Cash Flow
                         Millions of Dollars
                                                              As Restated
                                                              (See Note 2)
For the years ended October 31                    2004      2003      2002
Cash Flow From Operations
   Net Income                                   $ 61.1     $55.5    $ 37.9
   Adjustments to reconcile net income to
    cash provided from operations:
      Loss on disposal of discontinued
             operations, net of tax                 -        2.4       1.2
      Gains on sales of receivables              (25.9)    (46.3)    (16.4)
      Depreciation, amortization and accretion    18.7      27.9      39.9
      Provision for credit losses                  8.2      15.8      20.5
      Net change in accounts payable to
          affiliates                              40.3     (48.0)     37.0
      Net change in accounts payable to others   (19.2)      4.2       8.4
      Net change in accrued income taxes          (3.3)     13.6       9.0
      Net change in accrued interest              (1.4)     (1.7)     (4.2)
      Other                                       16.4      14.8      (0.8)
        Total                                     94.9      38.2     132.5

Cash Flow From Investing Activities
   Originations of finance receivables        (1,385.6) (1,112.7) (1,001.0)
   Proceeds from sales of finance receivables  1,118.6   1,701.1     999.0
   Proceeds from sales of retail accounts        100.0         -         -
   Net change in restricted marketable
        securities                               442.6    (401.0)    109.0
   Collections of retail notes and finance
      leases receivables,net of change in
      unearned finance income                    130.4     105.7      78.7
   Repurchase of sold retail receivables        (158.5)   (208.5)   (214.3)
   Net change in wholesale notes and
       accounts receivables                     (213.6)    (53.0)    (58.8)
   Net change in amounts due from sales
       of receivables                              5.5      56.1      27.5
   Purchase of equipment on operating leases     (29.5)    (40.0)    (59.9)
   Sale of equipment on operating leases          33.6      52.1      33.5
   Receipts from derivative contracts              0.9       4.1       3.7
   Payments on derivative contracts               (0.5)    (17.9)     (4.4)
   Proceeds from sale of discontinued operations     -         -      63.3
        Total                                     43.9      86.0     (23.7)

Cash Flow From Financing Activities
   Net change in bank revolving credit
      facility usage                             101.0     (11.0)   (110.0)
   Debt issuance costs on convertible debt           -         -      (6.3)
   Proceeds from issuance of convertible debt        -         -     169.5
   Proceeds from long-term debt                   42.9      28.4      70.4
   Principal payments on long-term debt         (102.3)   (123.6)   (222.7)
   Assumption of debt by Navistar               (170.0)        -         -
   Dividends paid to International                   -     (50.0)        -
        Total                                   (128.4)   (156.2)    (99.1)

Change in Cash and Cash Equivalents               10.4     (32.0)      9.7
Cash and Cash Equivalents, Beginning of Period       -      32.0      22.3
Cash and Cash Equivalents, End of Period        $ 10.4     $   -     $32.0

Supplementary disclosure of cash flow information:
   Interest paid                                $ 42.3    $ 51.6    $ 62.1
   Income taxes paid, net of refunds            $ 38.9    $ 20.4    $ 22.0


                 See Notes to Consolidated Financial Statements.


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


                NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              MILLIONS OF DOLLARS

1. SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

The  consolidated   financial  statements  include  the  accounts  of  Navistar
Financial  Corporation  and  its  wholly-owned  subsidiaries   ("Corporation").
International  Truck  and  Engine  Corporation   ("International"),   which  is
wholly-owned  by  Navistar  International  Corporation  ("Navistar"),   is  the
parent company of the Corporation.  All significant  intercompany  balances and
transactions have been eliminated.

Nature of Operations

The Corporation is a commercial  financing  organization  that provides retail,
wholesale  and  lease  financing  of  products  sold by  International  and its
dealers  within the United  States.  The  Corporation  also finances  wholesale
accounts and selected retail  accounts  receivable of  International.  Sales of
new products  (including  trailers) of other  manufacturers  are also  financed
regardless  of  whether  they are  designed  or  customarily  sold for use with
International's truck products.

Estimates

The   preparation  of  financial   statements  in  conformity  with  accounting
principles  generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions  that affect the reported  amounts
of assets and liabilities  and disclosure of contingent  assets and liabilities
at the date of the financial  statements  and the reported  amounts of revenues
and expenses  during the  reporting  period.  Actual  results could differ from
those estimates.

Revenue on Receivables

Revenue from  finance  receivables  is  recognized  using the interest  method.
Revenue on operating  leases is  recognized on a  straight-line  basis over the
life  of the  lease.  Recognition  of  revenue  is  suspended  when  management
determines   the   collection  of  future   income  is  not  probable.   Income
recognition is resumed if collection doubts are removed.

Sales of Receivables

The Corporation  securitizes  finance  receivables  through QSPE's,  which then
issue  securities  to public  and  private  investors.  The  Corporation  sells
receivables  to the QSPE's with limited  recourse.  Gains or losses on sales of
receivables  are  credited  or charged  to revenue in the  periods in which the
sales occur.  Retained  interests,  which  include  interest-only  receivables,
cash reserve  accounts,  and  subordinated  certificates,  are recorded at fair
value  in the  periods  in  which  the  sales  occur.  The  discount  accretion
related to the retained interests is recognized on an effective yield basis.

Management  estimates  the  prepayment  speed  for the  receivables  sold,  the
discount  rate  used  to  determine  the  present  value  of the  interest-only
receivable  and the  anticipated  net  losses  on the  receivables  in order to
calculate  the  gain or  loss.  The  method  for  calculating  the gain or loss
aggregates  the  receivables  in a  homogenous  pool.  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.  In addition,  the Corporation  estimates the fair
value of the  retained  interests  on a  quarterly  basis.  The  fair  value of
interest-only  receivables  is based on present  value  estimates  of  expected
cash flows using  management's key assumptions of prepayment  speeds,  discount
rates and net losses.

Income Taxes

Navistar and its  subsidiaries  file a consolidated  federal income tax return,
which  includes  International  and the  Corporation.  Federal income taxes for
the  Corporation  are  computed on a separate  return  basis and are payable to
International.

Cash and Cash Equivalents

Cash  and  cash   equivalents   are  defined  as   short-term,   highly  liquid
investments with original maturities of 90 days or less.

Finance Receivables

Finance  receivables  that  management  has the intent and  ability to hold are
reported at their outstanding principal.

The  accrual  of  interest  on  impaired   loans  is   discontinued   when,  in
management's  opinion,  the  borrower  may be unable to meet  payments  as they
become  due.  When  interest  accrual  is  discontinued,   all  unpaid  accrued
interest is reversed.  Interest income is  subsequently  recognized only to the
extent cash payments are received.

Allowance for Losses

The allowance for losses is  established  through a charge to the provision for
losses.  The  allowance is an estimate of the amount  required to absorb losses
on the existing  portfolio of finance  receivables  and  operating  leases that
may  become   uncollectible.   The   allowance  is   maintained  at  an  amount
management  considers  appropriate  in  relation to the  outstanding  portfolio
based on factors  such as overall  portfolio  credit risk  quality,  historical
loss  experience,  and current  economic  conditions.  Finance  receivables and
lease  investments  are charged off to the  allowance  for losses when  amounts
due from the customers are determined to be uncollectible.

Under  various  agreements,  International  and its dealers may be liable for a
portion of customer  losses or may be required to  repurchase  the  repossessed
collateral  at the  receivable  principal  value.  The  amount  of  losses  the
Corporation  records  as  part of bad  debt  provision  are net of the  amounts
received under these agreements.

Restricted Marketable Securities

On October 16, 2000, Truck Retail  Instalment Paper Corp.  ("TRIP"),  a special
purpose  wholly-owned  subsidiary of the  Corporation,  issued $500.0 of senior
and subordinated  floating rate  asset-backed  notes. The proceeds were used to
establish  a revolving  retail  warehouse  facility  to fund the  Corporation's
retail notes and finance  leases.  The  Corporation is required to maintain the
revolving  retail  warehouse  facility with collateral in the amount of $500.0.
In the event that  retail  note and lease  balances  pledged  to the  revolving
retail warehouse  facility fall below $500.0,  the excess proceeds are invested
in marketable  securities,  which are restricted  and have  maturities of three
months or less. Due to the short-term  nature of these  marketable  securities,
their fair value approximates carrying value.


Net Investments in Equipment on Operating Leases

The  Corporation  has  investments  in trucks,  tractors and trailers  that are
leased to customers under operating  lease  agreements.  The residual values of
the  equipment  represent  estimates  of the values 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  the
Corporation's  future  ability to market  the  vehicles  under then  prevailing
conditions.  Management  reviews  residual  values  periodically  to  determine
that recorded  amounts are  appropriate  and the  equipment on operating  lease
assets  have not  been  impaired.  Each of these  assets  is  depreciated  on a
straight-line  basis  over the  term of the  lease in an  amount  necessary  to
reduce the leased  vehicle to its  estimated  residual  value at the end of the
lease term.

Repossessions

Losses  arising  from  the  repossession  of  collateral   supporting   finance
receivables   and   operating   leases  are   recognized   upon   repossession.
Repossessed  assets are recorded at the lower of historical  cost or fair value
and are  reclassified  from  finance  receivables  or  equipment  on  operating
leases to  repossessions,  which is reported on the Statements of  Consolidated
Financial  Condition  as part of Other  Assets,  with the  related  adjustments
recorded in allowance for losses.

Derivative Financial Instruments

The  Corporation  recognizes  all  derivatives  as assets or liabilities in the
Statements  of  Consolidated  Financial  Condition  and  measures  them at fair
value in accordance with Statement of Financial  Accounting  Standards No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities",  as amended.
This  statement  standardizes  the  accounting  for  derivative  instruments by
requiring  that an entity  recognize all  derivatives  as assets or liabilities
and measure them at fair value.  When  certain  criteria are met, the timing of
gain or loss  recognition  on the  derivative  instrument  is matched  with the
recognition  of (a) the  changes  in the fair value or cash flows of the hedged
asset or liability  attributable  to the hedged risk or (b) the earnings effect
of the hedged forecasted transaction.

All  derivative  financial  instruments,  such as forward  contracts,  interest
rate swaps and interest  rate caps,  are held for purposes  other than trading.
The   Corporation's   policy   prohibits  the  use  of   derivative   financial
instruments  for   speculative   purposes.   The  Corporation   generally  uses
derivative  financial  instruments  to reduce its  exposure  to  interest  rate
volatility.

The  Corporation  may use forward  contracts  to limit its  interest  rate risk
exposure  on  the  notes  and  certificates  related  to an  expected  sale  of
receivables.  The  Corporation  may use  interest  rate swaps or caps to reduce
exposure to interest  rate  changes when it sells fixed rate  receivables  on a
variable rate basis.

All  derivative  instruments  are  recorded  at their  fair  value.  For  those
instruments,  which do not qualify for hedge accounting,  changes in fair value
are recognized in income.

New Accounting Standards

In March  2004,  the  Emerging  Issues  Task  Force  ("EITF")  reached  a final
consensus on EITF 03-1,  "The Meaning of  Other-Than-Temporary  Impairment  and
Its  Application to Certain  Investments".  In September  2004, the FASB issued
FSP  EITF  03-1-1,  "Effective  Date of  Paragraphs  10-20 of EITF  03-1  which
deferred  the  effective  date of  paragraphs  10-20 of EITF  03-1.  EITF  03-1
paragraph  21  requires   specific   disclosure  for  all   investments  in  an
unrealized  loss position for which other than temporary  impairments  have not
been  recognized.  The  Corporation has included this disclosure in Footnote 15
Sales of Receivables.

In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation  No. 46,  "Consolidation  of Variable Interest  Entities".  This
interpretation  addresses  consolidation   requirements  of  variable  interest
entities  ("VIE's").  In December  2003,  the FASB revised this  Interpretation
to  clarify  the   application   of  Accounting   Research   Bulletin  No.  51,
"Consolidated  Financial  Statements",  to  certain  entities  in which  equity
investors do not have the  characteristics of a controlling  financial interest
for  the  entity  to  finance  its  activities  without  additional   financial
support.  This  Interpretation,  as revised,  is effective  for periods  ending
after December 15, 2003. The  Corporation  determined  that it does not have an
interest  in a VIE,  as defined  within  this  Interpretation.  Transferors  to
QSPE's  subject  to the  reporting  requirements  of  Statements  of  Financial
Accounting  Standards ("SFAS") 140,  "Accounting for Transfers and Servicing of
Financial Assets and  Extinguishments  of  Liabilities",  are excluded from the
scope of this  interpretation.  The Corporation  currently sells receivables to
entities meeting the  requirements of QSPE's.  Therefore,  this  Interpretation
has  no  impact  on  the   Corporation's   results  of  operations,   financial
condition, and cash flows.

In  December  2003,  the  FASB  issued  a  revision  to SFAS  132,  "Employers'
Disclosure about Pensions and Other  Postretirement  Benefits".  This Statement
retains the  disclosures  previously  required by SFAS 132 but adds  additional
disclosure  requirements  about the assets,  obligations,  cash flows,  and net
periodic  benefit  cost of  defined  benefit  pension  plans and other  defined
benefit  postretirement  plans.  It also calls for the required  information to
be provided separately for pension plans and for other  postretirement  benefit
plans. The Corporation  assessed the assets,  obligations,  cash flows, and net
periodic  benefit cost for pension plans and for other  postretirement  benefit
plans  and  determined  the  amounts  to  be  immaterial;   therefore,  related
disclosures have been omitted.

On December 8, 2003,  the  President  signed the  Medicare  Prescription  Drug,
Improvement  and  Modernization  Act of 2003  ("the  Act")  into  law.  The Act
introduces a voluntary  prescription  drug benefit under  Medicare as well as a
federal  subsidy  to  sponsors  of  retiree  health  care  plans  that  provide
prescription  drug  benefits  that  are  at  least  actuarially  equivalent  to
Medicare  Part D. In May 2004,  the FASB  issued  FSP  106-2,  "Accounting  and
Disclosure   Requirements   Related   to  the   Medicare   Prescription   Drug,
Improvement and  Modernization  Act of 2003",  which requires the  commencement
of  accounting  recognition  for the  effects  of the  Act no  later  than  the
Corporation's  quarter  ending October 31, 2004.  The  Corporation  implemented
the  accounting  guidance  related to the effects of the Act during the quarter
ended July 31, 2004.  The  cumulative  effect of accounting  for the subsidy as
of the  date of the Act  through  the  date of  implementation  resulted  in an
immaterial reduction to the Corporation's  postretirement  benefit expenses and
liabilities.

2. RESTATEMENT

In December  2004,  the  Corporation  determined  to restate  its  consolidated
financial  statements  for the years ended October 31, 2003 and 2002  primarily
to correct the Corporation's  previous  accounting for: (i) the  securitization
of its  retail  notes  and  finance  lease  receivables;  (ii)  deferred  taxes
related  to retail  note and  finance  lease  securitization  transactions  and
secured  borrowings  to  fund  operating  and  finance  leases;  and  (iii)  an
agreement to repurchase equipment.


The  restatement  recognizes  income from the  interest-only  receivables on an
effective  yield  basis and  incorporates  anticipated  credit  losses into the
Corporation's  interest-only  receivables.  The retained interests are recorded
at fair  value  where the  estimates  of future  cash  flows  take into  effect
current business and market conditions.

Also  as a  part  of  the  correction  of the  securitization  accounting,  the
Corporation  reviewed its tax  treatment  and  deferred  tax assets  related to
these  securitizations  as  well  as for  its  secured  borrowings  related  to
operating and finance leases.  As a result, a decrease to deferred tax liability
of  $16.2  was  recorded  in 2003.  Tax  liabilities  are   included  in  Other
Liabilities.

The  Corporation  made an additional  adjustment to recognize a residual  value
guarantee  of $11.9 in  Other  Assets  and a  corresponding  increase  in Other
Liabilities for the repurchase of equipment.

As part of the  restatement,  the  Corporation  recorded  a ($21.9)  cumulative
adjustment   to  beginning   Retained   Earnings  and  a  $7.9   adjustment  to
Accumulated  Other  Comprehensive  Loss as of November 1, 2001  reflecting  the
impact  of the error  for  retail  note  securitizations  originating  in prior
periods.  The  effects  of  the  restatements  on  the  consolidated  financial
statements for the years ended October 31, 2003 and 2002 are summarized below:

      Income Statement                      2002                       2002
                                   Previously Reported  Adjustment  Restated
   Retail Notes and Finance Leases        $ 55.6           $3.4       $59.0
   Income Related to Sales of Finance
        Receivables                         37.3           (1.9)       35.4
   Servicing Income                         23.0            3.8        26.8
   Credit, Collection and Administrative    41.0           (1.5)       39.5
   Income Before Taxes                      60.8            6.9        67.7
   Income Tax Expense                       25.9            2.7        28.6
   Income from Continuing Operations        34.9            4.2        39.1
   Net Income                               33.7            4.2        37.9
   Comprehensive Income                     33.5            8.6        42.1

      Balance Sheet                         2003                      2003
                                   Previously Reported  Adjustment  Restated
   Amounts Due from Sales of Receivables   $368.9        $(19.9)    $349.0
   Other Assets                              39.9          12.4       52.3
   Total Assets                           1,959.8          (7.5)   1,952.3
   Net Accounts Payable to Affiliates         4.2          (1.0)       3.2
   Other Liabilities                        129.5           5.3      134.8
   Retained Earnings                        204.6         (19.7)     184.9
   Accumulated Other Comprehensive Loss     (11.4)          7.9       (3.5)
   Total Shareowner's Equity                364.2         (11.8)     352.4

      Income Statement                      2003                      2003
                                   Previously Reported  Adjustment  Restated
   Retail Notes and Finance Leases        $ 46.5           $5.1      $51.6
   Income Related to Sales of
        Finance Receivables                 76.4           (9.5)      66.9
   Servicing Income                         25.2            0.2       25.4
   Credit, Collection and Administrative    42.7           (1.5)      41.2
   Income Before Taxes                     101.5           (2.7)      98.8
   Income Tax Expense                       41.6           (0.7)      40.9
   Income from Continuing Operations        59.9           (2.0)      57.9
   Net Income                               57.5           (2.0)      55.5
   Comprehensive Income                     49.4           (2.0)      47.4



3. TRANSACTIONS WITH AFFILIATED COMPANIES

Wholesale Notes, Wholesale Accounts and Retail Accounts

In accordance with the agreements  between the  Corporation  and  International
relating  to  financing  of  wholesale  notes,  wholesale  accounts  and retail
accounts,  the  Corporation  receives  interest  income from  International  at
agreed upon  interest  rates applied to the average  outstanding  balances less
interest  amounts paid by dealers on wholesale  notes and  wholesale  accounts.
Substantially  all revenues  earned on wholesale  accounts and retail  accounts
are received from  International.  Aggregate  interest  revenue  collected from
International  was  $40.1 in  2004,  $36.9  in 2003  and  $32.2  in  2002.  The
interest  revenues  are reported in  Wholesale  Notes and Accounts  revenues on
the Statement of Consolidated Income.

Retail Notes and Lease Financing

In  accordance  with  agreements  between the  Corporation  and  International,
International  may be liable  for  certain  losses on finance  receivables  and
investments   in  equipment  on  operating   leases  and  may  be  required  to
repurchase  the  repossessed  collateral  at the  receivable  principal  value.
Losses  recorded by  International  on its financial  statements  were $10.4 in
2004, $24.1 in 2003 and $38.2 in 2002.

Support Agreements

Under  provisions  of  certain  public  and  private  financing   arrangements,
agreements  with  International  and Navistar  provide  that the  Corporation's
consolidated   income  before  interest   expense  and  income  taxes  will  be
maintained  at not less  than 125% of its  consolidated  interest  expense.  No
income  maintenance  payments were required during the three-year  period ended
October 31, 2004.

Administrative Expenses

The  Corporation  pays a fee to  International  for data  processing  and other
administrative  services  based on the actual cost of services  performed.  The
amount  of the fee was  $1.9 in 2004,  $1.9 in 2003  and $2.2 in 2002.  The fee
is reported in Credit,  Collection and Administrative expenses on the Statement
of Consolidated Income.

Accounts Payable

Accounts  payable to  affiliates,  which the  Corporation is obligated to repay
upon  request,   were  $43.5  and  $3.2  as  of  October  31,  2004  and  2003,
respectively.

Assumption of Debt

Navistar assumed the $220.0 of 4.75 percent  convertible  subordinated debt due
in  2009  from  the  Corporation  in  June  2004.  As   compensation   for  the
assumption of this debt, the  Corporation  paid Navistar  approximately  $170.0
in  cash.  Navistar's  assumption  of the  Corporation's  debt  resulted  in an
$11.9 increase in paid-in capital for the Corporation.


4.  DISCONTINUED OPERATIONS

On November 30, 2001,  the  Corporation  completed the sale of all of the stock
of  Harco  National  Insurance  Company  ("Harco"),  a  wholly-owned  insurance
subsidiary,  to IAT Reinsurance  Syndicate Ltd. ("IAT"), a Bermuda  reinsurance
company.  Cash proceeds of $63.3 were  received.  The Harco  insurance  segment
was accounted for as a  discontinued  operation,  and  accordingly,  amounts in
the  consolidated  financial  statements  and notes  thereto,  for all  periods
affected, have been restated to reflect discontinued operations accounting.

As part of its  sales  agreement  with  IAT,  the  Corporation  has  agreed  to
guarantee  the  adequacy  of  Harco's  loss  reserves.   The   Corporation  has
provided disclosures about this guarantee in Note 12.

The  components  of gain  (loss) on  disposal  recorded  in the  Statements  of
Consolidated Income and Retained Earnings are as follows:


                                  2004   2003    2002    2001      2000   Total
Gains (loss) on sale              $  -   $  -    $  -   $13.1    $(11.9)  $1.2
Severance and other exit costs       -   (3.9)   (1.9)    0.3      (3.8)  (9.3)
Curtailment loss                     -      -       -       -      (1.2)  (1.2)
Pretax gain (loss) on disposal       -   (3.9)   (1.9)   13.4     (16.9)  (9.3)
Deferred tax (expense) benefit       -    1.5     0.7    (5.1)      6.4    3.5
Total gain (loss) on disposal of
    discontinued operations       $  -  $(2.4)  $(1.2)   $8.3    $(10.5) $(5.8)


5. FINANCE RECEIVABLES

The Corporation's  primary business is to provide  wholesale,  retail and lease
financing  for new and used trucks sold by  International  and  International's
dealers,  and as a  result,  the  Corporation's  receivables  and  leases  have
significant  concentration  in the trucking  industry.  On a geographic  basis,
there is not a  disproportionate  concentration  of credit  risk in any area of
the  United  States.  The  Corporation   retains  as  collateral  an  ownership
interest in the  equipment  associated  with leases and a security  interest in
the equipment associated with wholesale notes and retail notes.

Finance receivable  balances,  net of unearned finance income, as of October 31
are summarized as follows:

                                                          2004      2003
   Retail notes, net of unearned income               $  712.3   $ 404.5
   Finance leases, net of unearned income                102.5     115.4
   Wholesale notes                                       172.9      46.0
   Accounts:
       Retail                                            209.3     217.9
       Wholesale                                          78.8      83.4
         Total accounts                                  288.1     301.3

            Total finance receivables                  1,275.8     867.2
            Less:  Allowance for losses                    6.7      12.9

            Total finance receivables, net            $1,269.1   $ 854.3


Contractual  maturities  of finance  receivables,  including  unearned  finance
income, as of October 31, 2004, are summarized as follows:


                         Retail notes  Finance leases  Wholesale notes Accounts
   Due in fiscal year:
      2005...............    $212.9        $12.2            $91.1      $288.1
      2006...............     177.4         22.7             81.8           -
      2007...............     144.6         28.1                -           -
      2008...............     125.6         22.8                -           -
      2009...............      92.4         26.6                -           -
    Thereafter...........      36.5          3.5                -           -
         Gross finance
              receivables     789.4        115.9            172.9        288.1
   Unearned finance income    (77.1)       (13.4                -            -
         Finance receivables,
           net of unearned
               income        $712.3       $102.5           $172.9      $ 288.1


The  actual  cash  collections  from  finance  receivables  may  vary  from the
contractual   cash   flows   because   of   sales,   prepayments,   extensions,
delinquencies,   credit  losses,  and  renewals.  The  contractual  maturities,
therefore, should not be regarded as a forecast of future collections.


6. ALLOWANCE FOR LOSSES

The  allowance  for losses is  summarized as follows for the fiscal years ended
October 31:

                                                    2004      2003      2002
Allowance for losses, beginning of period         $ 12.9    $ 16.0    $ 13.3
Provision for credit losses                          8.2      15.8      20.5
Net losses charged to allowance                     (6.6)     (4.2)     (5.3)
Transfers to finance receivables sold               (7.8)    (14.7)    (12.5)

    Allowance for losses, end of period            $ 6.7    $ 12.9     $16.0


The  average  outstanding  balance  of  impaired  finance  receivables  was not
material  for the fiscal year ended  October  31,  2004.  Interest  income that
would have been recognized on impaired  finance  receivables  during the fiscal
years 2004, 2003, and 2002 were not material.

Balances  with  payments  past due over 90 days on  owned  finance  receivables
totaled $5.5 as of October 31, 2004.


7. REPOSSESSIONS

The Corporation has  repossessions  related to defaulted owned  receivables and
leases  that  are  reported  on  the  Statements  of   Consolidated   Financial
Condition  as part of  Other  Assets.  It  liquidates  those  repossessions  to
recover the credit losses on its portfolio.  In addition,  the Corporation,  as
servicer  of  receivables  sold  into   securitization   vehicles,   liquidates
repossessions  related to defaulted  sold  receivables  and leases on behalf of
the owner trusts.  The  Corporation  advances the value of these  repossessions
to the trusts and reports  them on the  Statements  of  Consolidated  Financial
Condition as part of Amounts Due from Sales of Receivables.

The  Corporation's  repossessions are summarized as follows for the fiscal year
ended October 31:


                                             2004        2003
                Acquisitions
                    Owned .......          $ 20.9       $43.0
                    Sold  .......            20.8        39.4
                Total............          $ 41.7       $82.4

                Repossessions, end of period
                    Owned.......           $  8.2        $9.8
                    Sold........              6.1        11.3
                Total...........           $ 14.3       $21.1


8. INVESTMENT IN EQUIPMENT ON OPERATING LEASES

Investments in equipment on operating leases at year-end were as follows:

                                              2004     2003
Vehicles and other equipment, at cost.....  $268.3    $311.8
Less: Accumulated depreciation............  (119.4)   (120.7)
     Net investment in equipment
         on operating leases..............  $148.9    $191.1


Future minimum rentals on operating leases are as follows:  2005, $41.1;  2006,
$28.1; 2007, $15.9; 2008, $10.0; 2009, $6.1 and $3.2 thereafter.


9. INCOME TAXES

Taxes on income from  continuing  operations for the years ended October 31 are
summarized as follows:

                                          2004     2003     2002
Current:
      Federal ........................  $ 27.8   $ 20.0   $ 27.2
      State and local.................     6.2      3.6      4.1
            Total current.............    33.4     23.6     31.3

Deferred (primarily federal)..........     7.8     15.8     (3.4)
Less: Amount from discontinued operations    -     (1.5)    (0.7)

   Total income tax expense from
       continuing operations..........  $ 41.2   $ 40.9   $ 28.6


A  reconciliation  of the  statutory  federal  income tax rate from  continuing
operations is as follows:

                                           2004      2003     2002
Statutory federal income tax rate         35.0%      35.0%    35.0%
State income taxes net of federal
     income taxes                       $  3.9     $  3.3   $  3.8
Original issue discount                    1.2        2.1      1.6
Sale of subsidiaries                         -        -        1.7
Other                                      0.1        1.0      0.1

      Effective income tax rate           40.2%      41.4%    42.2%

NFC and its  domestic  subsidiaries  are  included in  Navistar's  consolidated
federal  income tax returns.  State income tax returns are  generally  filed on
a separate  basis. In accordance with its  intercompany  tax sharing  agreement
with
Navistar,  all federal  income tax  liabilities or credits are allocated to NFC
and its  domestic  subsidiaries  as if it filed a  separate  return.  Total tax
payments  made  during  2004,  2003 and 2002  were  $39.6,  $20.8,  and  $21.7,
respectively.

Recent tax law changes were enacted  under the  American  Jobs  Creation Act of
2004 which create a temporary  incentive  for U.S.  corporations  to repatriate
accumulated   income  earned  abroad  by  providing  an  85  percent  dividends
received    deduction   for   certain   dividends   from   controlled   foreign
corporations.  The deduction is subject to a number of  limitations  as well as
uncertainty  as to how to  interpret  numerous  provisions  in the Act. NFC has
negligible  overseas  investments  and therefore does not intend to implement a
one-time repatriation of foreign earnings.

The net  deferred  tax  liability  from  continuing  operations  is included in
Other  Liabilities  on the  Statements of Financial  Condition.  The components
of  deferred  tax assets  and  liabilities  from  continuing  operations  as of
October 31 are as follows:
                                                   2004       2003
Deferred tax assets:
Pension and other postretirement benefits        $  8.3         $ 7.7
Bad debts                                           2.5           6.4
Other                                               4.4           6.2
Total deferred tax assets                        $ 15.2         $20.3

Deferred tax liabilities:
Lease transactions                               $(12.8)       $(12.3)
Securitization of receivables                     (26.9)        (25.0)
Market valuation adjustments                       (2.8)         (3.1)
Other                                              (0.8)         (1.3)
Total deferred tax liabilities                   $(43.3)       $(41.7)

Net deferred tax liabilities                     $(28.1)       $(21.4)



10. SENIOR AND SUBORDINATED DEBT

Senior and  subordinated  debt  outstanding  as of October 31 is  summarized as
follows:

                                                          2004        2003
   Bank revolving credit facility, at variable rates,
   due December 2005..............................    $  672.0    $  571.0

   Revolving retail warehouse facility, at variable
   rates, due October 2005........................       500.0       500.0

   Borrowings secured by operating and finance
   leases, 3.37% to 6.65%, due serially through
   April 2010.....................................      153.2        212.5

   Convertible debt, 4.75%, due April 2009                 -         178.4
   Total senior and subordinated debt.............   $1,325.2     $1,461.9


The Corporation  has an $820.0  contractually  committed bank revolving  credit
facility  that will  mature  in  December  2005.  Under  the  revolving  credit
agreement,  Navistar's  three Mexican  finance  subsidiaries,  which are wholly
owned  subsidiaries  of Navistar,  are  permitted to borrow up to $100.0 in the
aggregate.  Under  the  terms  of  the  bank  revolving  credit  facility,  the
Corporation  is required  to maintain a debt to tangible  net worth ratio of no
greater  than 7.0 to 1.0, an income  before  income  taxes to interest  expense
and  dividend  on  redeemable  preferred  stock  ratio of not less than 1.25 to
1.0, and a twelve  month  rolling  combined  retail/lease  loss to  liquidation
ratio of no  greater  than .045 to 1.0.  The bank  revolving  credit  agreement
permits security  interests in substantially  all of the  Corporation's  assets
to the  participants in the credit  agreement.  Compensating  cash balances are
not  required  under the bank  revolving  credit  facility.  Facility  fees are
paid quarterly regardless of usage.

The  failure  of  the   Corporation   and  its  affiliates  to  complete  their
respective  Annual  Reports on Form 10-K and deliver  those reports and related
required  information  to their  respective  lenders by January 29,  2005,  has
resulted in one or more  defaults  under the  revolving  credit  agreement.  On
January 31, 2005, the  Corporation  received a waiver of the existing  defaults
under the  credit  agreement.  The  waiver  permits  the  Corporation  to incur
additional borrowings under the agreement through February 28, 2005.

In the event that the  Corporation  has not cured any  defaults by February 28,
2005, it will again no longer be able to incur  additional  indebtedness  under
the credit  agreement  unless it shall have  obtained a subsequent  waiver.  In
the event  that the  Corporation  does not cure any  defaults  by March 1, 2005
(unless it shall  have  obtained  an  additional  waiver),  an event of default
shall have occurred  under the credit  agreement and the  administrative  agent
or the  lenders  will have the ability to  terminate  the credit  facility  and
demand  immediate   payment  of  all  amounts   outstanding  under  the  credit
agreement.  Such a demand for payment would result in defaults  under  numerous
other  credit  facilities  and  other  agreements  of the  Corporation  and its
affiliates.  The  Corporation  believes  that the defaults  will be cured prior
to the  expiration of the waiver  through the delivery of the Annual Reports on
Form 10-K and the related information.

Truck Retail Instalment Paper Corp. ("TRIP"),  a special purpose,  wholly-owned
subsidiary  of the  Corporation,  issued  $500.0  of  senior  and  subordinated
floating rate  asset-backed  notes on October 16, 2000.  The proceeds were used
to establish a revolving  retail warehouse  facility to fund the  Corporation's
retail  notes and retail  leases,  other than fair market  value  leases.  This
facility  is used  primarily  during the period  prior to a  securitization  of
retail notes and finance leases.

The Corporation  enters into secured borrowing  agreements  involving  vehicles
subject to operating  and finance  leases with retail  customers.  The balances
are  classified  under senior and  subordinated  debt as borrowings  secured by
leases.   In  connection  with  the   securitizations   and  secured  borrowing
agreements of certain of its leasing  portfolio  assets,  the  Corporation  and
its  subsidiary,   Harco  Leasing  Company,   Inc.  ("HLC"),  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 the  Corporation.  The assets of NLC have been and will continue
to be  allocated  into  various  beneficial  interests  issued by NLC. HLC owns
one such beneficial  interest in NLC and HLC 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 HLC,  the  Corporation  or its
creditors.

International   Truck  Leasing   Corporation   ("ITLC"),   a  special  purpose,
wholly-owned  subsidiary of the  Corporation,  was  established in June 2004 to
provide the Corporation  with another vehicle to obtain  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 the  Corporation  or
affiliated companies.

Navistar assumed the $220.0 of 4.75 percent  convertible  subordinated debt due
in  2009  from  the  Corporation  in  June  2004.  As   compensation   for  the
assumption of this debt, the  Corporation  paid Navistar  approximately  $170.0
in  cash.  Navistar's  assumption  of the  Corporation's  debt  resulted  in an
$11.9 increase in paid-in capital for the Corporation.

The weighted  average  interest rate on total debt,  including  short-term debt
and the effect of discounts and related  amortization,  was 3.1% in 2004,  3.6%
in 2003 and 4.0% in 2002.

The aggregate  annual  contractual  maturities and required  payments of senior
and subordinated debt are as follows:

             Fiscal year ended October 31
             2005....................$  570.5
             2006....................   715.9
             2007....................    23.2
             2008....................    10.6
             2009....................     4.5
             Thereafter..............     0.5
                  Total..............$1,325.2


11. POSTRETIREMENT BENEFITS

The  Corporation  provides  postretirement  benefits  to its  employees.  Costs
associated with  postretirement  benefits  include  pension and  postretirement
health  care  expenses  for  employees,  retirees  and  surviving  spouses  and
dependents.  The  Corporation  utilizes an October 31 measurement  date for all
of its defined benefit plans.

Generally,  the pension plans are  non-contributory.  The Corporation's  policy
is to fund its  pension  plans in  accordance  with  applicable  United  States
government   regulations.   As  of  October  31,   2004,   all  legal   funding
requirements   had  been  met.  The   Corporation   does  not  expect  to  make
contributions to its pension plans in 2005.

Postretirement Expense

Net periodic  benefit cost included in the  Statements of  Consolidated  Income
is composed of the following:

                                      Pension Benefits       Other Benefits

                                  2004    2003    2002    2004   2003    2002

Service costs for benefits
     earned during the period    $0.5     $0.5   $0.7    $0.3    $0.3    $0.5
Interest cost on obligation       3.8      3.9    3.9     1.4     1.6     1.5
Amortization of cumulative losses 1.1      0.6    0.2     0.3     0.7     0.3
Amortization of prior
    service costs                 0.1      0.1    0.1       -       -       -
Other                               -     (0.5)   0.6       -    (0.1)      -
Less expected return on assets   (4.8)    (4.4)  (5.2)   (0.6)   (0.5)   (0.7)
Net postretirement
      (income) expense           $0.7    $ 0.2  $ 0.3    $1.4   $ 2.0    $1.6

Cumulative  gains  and  losses  and  Plan  amendments  are  amortized  over the
expected remaining service life of employees.

Defined  contribution  plans cover a substantial  portion of the  Corporation's
employees.   Under  the  defined  contribution  plans,  Navistar  makes  annual
contributions   to  each   participant's   retirement   account   based  on  an
age-weighted  percentage of the  participant's  eligible  compensation  for the
calendar  year.  The plans also  contain a 401(k)  feature  and  provide  for a
company  match;  currently 50% of the first 6% of pretax  salary  contributions
are made on behalf of the participant.

Defined  contribution  expense  pursuant to these plans was $0.5, $0.4 and $0.4
in 2004,  2003, and 2002,  respectively,  which  approximates the amount funded
by Navistar.

The funded  status of the  Corporation's  plans as of October 31, 2004 and 2003
and  reconciliation  with amounts  recognized in the Statements of Consolidated
Financial Condition are as follows:


                                       Pension Benefits        Other Benefits

                                        2004      2003        2004      2003
Change in benefit obligation
Benefit obligation at beginning
     of year                          $ 67.5    $ 56.3       $24.7    $24.0
Service Cost                             0.5       0.5         0.3      0.3
Interest on obligation                   3.8       3.9         1.4      1.6
Actuarial net loss (gain)                1.5      10.5        (0.4)     0.3
Plan participants' contributions         -          -          0.2      0.2
Benefits paid                           (3.8)     (3.7)       (1.6)    (1.7)
Benefit obligation at end of year     $ 69.5    $ 67.5       $24.6    $24.7



                                       Pension Benefits        Other Benefits

                                        2004      2003        2004      2003
Change in plan assets
Fair value of plan assets at
     beginning of year                $ 54.5     $ 49.9      $  6.4    $  6.1
Actual return on plan assets             4.2        7.9         0.2       0.7
Employer contribution                      -         -          0.3       0.1
Benefits paid                           (3.4)      (3.3)       (0.5)     (0.5)
Fair value of plan assets at
     end of year                      $ 55.3     $ 54.5      $  6.4    $  6.4

Funded status................         $(14.2)    $(13.0)     $(18.2)   $(18.3)
Unrecognized actuarial net
       (gain) loss...........           17.9       17.0         8.8       9.2
Unrecognized prior service cost          0.2        0.2          -         -
Net amount recognized........         $  3.9     $  4.2      $ (9.4)   $ (9.1)


                                       Pension Benefits        Other Benefits

                                        2004      2003        2004      2003
Amounts recognized in the
    Statements of Consolidated
    Financial Condition
    consists of:

Accrued benefit liability.......       $(11.5)  $ (10.4)    $  (9.4)   $  (9.1)
Intangible asset                          0.2       0.2          -          -
Accumulated reduction in
   shareowner's equity..........         15.2      14.4          -          -
      Net amount recognized.....       $  3.9   $   4.2     $  (9.4)   $  (9.1)



The accumulated reduction in shareowner's equity is recorded in the Statements
of Consolidated Financial Condition.

The projected  benefit  obligation,  accumulated  benefit  obligation  and fair
value  of  plan  assets  for  the  pension   plan  with   accumulated   benefit
obligations   in  excess  of  plan  assets  were  $69.5,   $66.8,   and  $55.3,
respectively,   as  of  October  31,  2004,  and  $67.5,   $64.9,   and  $54.5,
respectively, as of October 31, 2003.

The weighted average rate assumptions used in determining  benefit  obligations
were:

                                       Pension Benefits        Other Benefits
                                       2004         2003       2004       2003
Discount rate used to determine
   present value of benefit
     obligation at year-end..........  5.6%        5.8%        6.0%       6.6%
Expected rate of increase in
   future compensation levels........  3.5%        3.5%        N/A         N/A


The weighted  average rate  assumptions  used in  determining  net benefit cost
were:

                                   Pension Benefits       Other Benefits

                               2004    2003    2002   2004    2003    2002

Discount rate...............   5.8%    7.2%    7.4%    6.5 %    7.1%   7.4%
Expected long-term rate of
   return on plan assets at
   beginning of year.......    9.0%    9.0%    9.8%    9.0%     9.0%  11.0%
Expected rate of increase
  in future compensation
    levels................     3.5%    3.5%    3.5%    N/A      N/A    N/A


The  Corporation  determines  its expected  return on plan asset  assumption by
evaluating  both  historical  returns as well as estimates  of future  returns.
The  Corporation  considers its current asset mix as well as its targeted asset
mix when establishing its expected return on plan assets.

The following table sets forth the weighted  average  percentage of plan assets
by category as of October 31:

                                  Pension Benefits         Other Benefits
Asset Category            Target Range 2004   2003   Target Range 2004  2003
Equity securities
   Navistar common stock...              -       -                 9%    10%
   Other equity securities.             48%    47%                67%    67%
   Hedge Funds.............              -       -                 9%     8%
   Total equity securities 45-55%       48%    47%   75-85%       85%    85%
Debt securities...........              52%    51%                14%    13%
Other, including cash.....               -      2%                 1%     2%
Total debt securities.....
         and other........ 45-55%       52%    53%   15-25%       15%    15%


The  Corporation's  investment  strategy  is  consistent  with  its  policy  to
maximize  returns  while  considering  overall  investment  risk and the funded
status of the plans  relative to its  benefit  obligations.  The  Corporation's
investment  strategy  takes into  account the  long-term  nature of the benefit
obligations,  the liquidity  needs of the plans,  and the expected  risk/return
tradeoffs  of the  asset  classes  in which the  plans  may  choose to  invest.
Asset  allocations  are  established  through an  investment  policy,  which is
updated  periodically  and reviewed by a fiduciary  committee  and the board of
directors.  The  Corporation  believes  that  returns on common  stock over the
long term will be higher  than  returns  from  fixed-income  securities  as the
historical   broad  market   indices  have  shown.   Equity  and   fixed-income
investments  are made  across a broad  range of  industries  and  companies  to
provide  protection  against the impact of volatility in any single industry or
company.  Under our  policy,  hedge  funds are  limited  to no more than 15% of
total  assets.   The  long-term   performance   of  our  funds   generally  has
outperformed our long-term return assumptions.

For 2005,  the  weighted  average  rate of  increase  in the per capita cost of
covered  health care  benefits is projected  to be 9.8%.  The rate is projected
to  decrease  to 5.0% by the year  2009 and  remain  at that  level  each  year
thereafter.  The  effect of  changing  the  health  care cost  trend rate is as
follows:

                                          1-Percentage-     1-Percentage-
                                          Point Increase    Point Decrease

Effect on total of service and
    interest cost Components...............   $ 0.2          $ (0.2)
Effect on postretirement benefit
    obligation.............................     2.8            (2.4)


On December 8, 2003,  the  President  signed the  Medicare  Prescription  Drug,
Improvement  and  Modernization  Act of  2003  (the  Act)  into  law.  The  Act
introduces a voluntary  prescription  drug benefit under  Medicare as well as a
federal  subsidy  to  sponsors  of  retiree   healthcare   plans  that  provide
prescription  drug  benefits  that  are  at  least  actuarially  equivalent  to
Medicare  Part D.  This  subsidy  covers a  defined  portion  of an  individual
beneficiary's  annual  covered  prescription  drug  costs,  and is exempt  from
federal taxation.

In May  2004,  the FASB  issued  FSP  106-2,  which  provides  guidance  on the
accounting   for  the  effects  of  the  Act.  The   corporation   adopted  the
provisions of FSP 106-2 in the third quarter of 2004,  retroactive  to December
8, 2003.  The  retroactive  application  of the  Medicare  subsidy  reduced the
corporation's  2004  postretirement  benefits  expense  by  $0.4  million.  The
Corporation reduced accumulated  postretirement  benefit obligation ("APBO") by
$3.7  million at October 31, 2004 and $2.9  million at December 8, 2003 for the
subsidy related to benefits  attributed to past service.  The Corporation  used
a 6.5% discount  rate to value the related APBO at December 8, 2003,  which was
0.1  percentage  point lower than the  discount  rate used at October 31, 2003,
and caused a $0.2 million increase in the APBO as of that date.

The  following  estimated  benefit  payments  are  payable  from  the  plans to
participants:

                                          Estimated Benefit Payments
                                        Pension        Postretirement
                 Millions of Dollars   Benefits           Benefits

                 Year
                 2005...................  $ 4.5            $1.7
                 2006...................    4.6             1.6
                 2007...................    4.7             1.6
                 2008...................    4.8             1.7
                 2009...................    4.9             1.7
                 2010 through 2014......   24.5             9.1


12. COMMITMENTS AND CONTINGENCIES

Leases

The  Corporation is obligated  under  non-cancelable  operating  leases for the
majority of its office  facilities.  These leases are  generally  renewable and
provide  that  property  taxes  and  maintenance  costs  are to be  paid by the
lessee.  As of  October  31,  2004,  future  minimum  lease  commitments  under
non-cancelable  operating  leases  with  remaining  terms in excess of one year
are as follows:

           Year Ended October 31,
           2005                                      $2.0
           2006                                      1.8
           2007                                      1.1
           2008                                      1.0
           2009                                      0.9
           Thereafter                                4.8
               Total                                 $11.6


The total  operating  lease  expense for the fiscal  year ended  October 31 was
$1.9 in 2004, $2.3 in 2003 and $2.2 in 2002.


Guarantees of Debt

The Corporation  periodically  guarantees the  outstanding  debt of affiliates.
The  guarantees   allow  for   diversification   of  funding  sources  for  the
affiliates.  As of October 31, 2004, the  Corporation  has numerous  guarantees
related  to  Navistar's   three   Mexican   finance   subsidiaries,   Servicios
Financieros   Navistar,   S.A.  de  C.V.  ("SOFOL"),   Arrendadora   Financiera
Navistar,  S.A. de C.V.  ("Arrendadora")  and Navistar  Comercial  S.A. de C.V.
The  Corporation  has no  recourse  as  guarantor  in  case of  default.  As of
October 31, 2004, the  Corporation's  maximum  exposure under these  guarantees
is $134.4, the total amount outstanding at that date.

The following table summarizes the borrowings as of October 31, 2004:

Type of Funding                 Maturity             Amount of      Outstanding
                                                     Guaranty         Balance

Revolving credit facility(2)       December 2005       $100.0         $ 25.0
Medium term note(1)                November 2004         43.3           43.3
Revolving credit facility(1)       October 2007          17.3           17.3
Revolving credit facility(1),(3)   Indefinite            20.8           19.7
Revolving credit facility(1),(3)   Indefinite            17.3           11.9
Revolving credit facility(1)       June 2005              6.5            6.5
Revolving credit facility(1),(4)   June 2005              4.3            2.0
Revolving credit facility(1)       March 2005             8.7            8.7
                                          Total        $218.2         $134.4

    (1)Peso-denominated
    (2)Revolving credit facility guaranteed jointly with Navistar
    (3)The bank reviews the terms of this  facility monthly.  This facility may
       be used for as long as all the conditions and terms are met.
    (4)Contract review date June 2005



Guarantees of Derivatives

As of October 31, 2004, the  Corporation  had guaranteed  derivative  contracts
for foreign  currency  forwards,  interest rate swaps and cross  currency swaps
related  to SOFOL and  Arrendadora.  The  Corporation  is liable up to the fair
market value of these  derivative  contracts  only in cases of default by SOFOL
and Arrendadora.

The  following  table  summarizes  the  guaranteed  derivative  contracts as of
October 31, 2004:

                                                        Outstanding   Fair
Instrument                                Maturity        Notional    Value

Interest rate swaps and
       cross currency swaps*              May 2007       $  54.4      $  -

    * Peso-denominated

The  Corporation  used  the  foreign  currency  conversion  rate of 11.5 : 1 to
convert peso-denominated guarantees to United States dollars.


On  July  30,  2004,  the  Corporation,   through  Navistar   Financial  Retail
Receivables   Corporation   ("NFRRC"),   sold  retail  note  receivables  to  a
conduit.  In order to match fund the fixed rate  receivables  with the variable
rate  debt of the  conduit, the conduit entered  into  an  interest  rate  swap
agreement  on  the  anticipated  cash  flows  from  the  receivables.  NFC,  as
servicer, has indemnified the conduit for the impact any variance in those cash
flows  has on the swap  settlement.  The  Corporation  is  accounting  for this
guarantee  as a  derivative  instrument  and as of October  31,  2004,  has not
recorded any liability related to this indemnification.

Other

On November 30, 2001,  the  Corporation  completed the sale of all of the stock
of  Harco  National  Insurance  Company  ("Harco"),  a  wholly-owned  insurance
subsidiary,  to IAT Reinsurance  Syndicate Ltd. ("IAT"), a Bermuda  reinsurance
company.  As part of its sales  agreement with IAT, the  Corporation has agreed
to guarantee  the adequacy of Harco's loss  reserves.  There is no limit to the
potential  amount of future  payments  required by the  Corporation  related to
this reserve.  The sales  agreement is scheduled to expire  November  2008. The
carrying  amount  of  the  Corporation's  liability  under  this  guarantee  is
estimated  at $0.6 as of October 31, 2004 and is included in Other  Liabilities
in the  Consolidated  Statements of Financial  Condition.  Management  believes
this reserve is adequate to cover any future potential payments to IAT.

13. SHAREOWNER'S EQUITY

The number of  authorized  shares of capital  stock as of October  31, 2004 and
2003 was  2,000,000,  of which  1,600,000  shares were issued and  outstanding.
International  owns all issued and  outstanding  capital  stock.  No shares are
reserved for  officers and  employees,  or for options,  warrants,  conversions
and other rights.

The  components  of  accumulated  other  comprehensive  income  (loss),  net of
taxes, are as follows:

                                Net Unrealized  Minimum      Accumulated Other
                                Losses on       Pension      Comprehensive
                                Investments     Liability    Loss

Balance as of October 31, 2001    $ 1.9          $ (1.5)      $  0.4
  Change in 2002                    4.7            (0.5)         4.2
                                  -----          ------       ------
Balance as of October 31, 2002      6.6            (2.0)         4.6
  Change in 2003                   (1.2)           (6.9)        (8.1)
                                  -----          ------       ------
Balance as of October 31, 2003      5.4            (8.9)        (3.5)
  Change in 2004                   (1.3)           (0.5)        (1.8)
                                  -----          ------       ------
Balance as of October 31, 2004    $ 4.1          $ (9.4)      $ (5.3)
                                  =====          ======       ======


14. DERIVATIVE FINANCIAL INSTRUMENTS

The  Corporation  manages its  exposure to  fluctuations  in interest  rates by
limiting  the amount of fixed  rate  assets  funded  with  variable  rate debt.
This is  accomplished  by selling fixed rate  receivables on a fixed rate basis
and  by  utilizing   derivative   financial   instruments.   These   derivative
financial  instruments may include forward contracts,  interest rate swaps, and
interest  rate caps.  The fair value of these  instruments  is estimated  based
on quoted  market prices and is subject to market risk as the  instruments  may
become less  valuable due to changes in market  conditions  or interest  rates.
The Corporation  manages exposure to counterparty  credit risk by entering into
derivative  financial  instruments with major financial  institutions  that can
be  expected  to  fully  perform  under  the  terms  of  such  agreements.  The
Corporation   does  not  require   collateral  or  other  security  to  support
derivative   financial   instruments   with  credit  risk.  The   Corporation's
counterparty  credit  exposure  is  limited  to  the  positive  fair  value  of
contracts at the  reporting  date.  As of October 31, 2004,  the  Corporation's
derivative  financial  instruments  had a  negative  net fair  value.  Notional
amounts of  derivative  financial  instruments  do not  represent  exposure  to
credit loss.

As  of  October  31,  2004,  the  notional  amounts  and  fair  values  of  the
Corporation's derivative financial instruments are summarized as follows:

    Inception       Maturity        Instrument           Notional    Fair Value
    October 2000    November 2012   Interest rate cap    $  500.0    $  (0.8)
    October 2000    November 2012   Interest rate cap       500.0        0.8
    July 2001       April 2006      Interest rate swap       20.5       (0.5)
    November 2002   March 2007      Interest rate swap*      19.7         -
    October 2003    April 2008      Interest rate swap*        -         0.2
    July 2004       September 2008  Interest rate swap*        -          -
    August 2004     July 2006       Forward starting swaps* 100.0       (0.5)
    September 2004  July 2006       Forward starting swaps*  50.0         -
    September 2004  July 2006       Forward starting swaps*  50.0         -
    October 2004    July 2006       Forward starting swaps* 200.0         -

* Accounted for as non-hedging instruments.


The fair values of all  derivatives  are recorded in Other  Liabilities  on the
Statements of Consolidated Financial Condition.

In  October  2000,  the  Corporation  entered  into a $500.0  retail  revolving
facility  (TRIP) as a method to fund retail  notes and finance  leases prior to
the  sale  of  receivables.   Under  the  agreements  of  this  facility,   the
Corporation  sells  fixed rate  retail  notes or finance  leases to the conduit
and pays  investors  a floating  rate of  interest.  As  required by the rating
agencies,  the Corporation  purchased an interest rate cap to protect investors
against  rising  interest  rates.  To offset the economic cost of this cap, the
Corporation  sold an  identical  interest  rate  cap.  These  transactions  are
accounted for as hedging derivative instruments.

In July 2001, the  Corporation  entered into an interest rate swap agreement to
fix a  portion  of its  floating  rate  revolving  debt.  This  transaction  is
accounted for as a cash flow hedge,  and  consequently,  to the extent that the
hedge is effective,  gains and losses on the  derivative  are recorded in other
comprehensive  income.  There  has  been  no  ineffectiveness  related  to this
derivative since inception.

In  November  2002,  the  Corporation   entered  into  an  interest  rate  swap
agreement  in  connection  with a sale  of  retail  notes  and  finance  leases
receivables.  The  purpose  of  the  swap  was to  convert  the  floating  rate
portion of the  asset-backed  securities  issued  into fixed rate  interest  to
match the interest basis of the receivables  pool sold to the owner trust,  and
to  protect  the  Corporation  from  interest  rate  volatility.  The  notional
amount of this swap is  calculated  as the  difference  between the actual pool
balances and the projected  pool  balances.  The outcome of the swap results in
the  Corporation  paying a fixed rate of interest on the  projected  balance of
the pool.  To the extent that actual pool  balances  differ from the  projected
balances,   the  Corporation  has  retained  interest  rate  exposure  on  this
difference.  This  transaction  is  accounted  for  as  non-hedging  derivative
instrument.

In October 2003, the  Corporation  entered into an interest rate swap agreement
in  connection  with a sale of retail  notes and  finance  leases  receivables.
The  purpose  and  structure  of this swap  agreement  is  similar  to the swap
agreement  entered into in November  2002.  This  transaction  is accounted for
as non-hedging derivative instrument.

In  August  through   October  2004,  the   Corporation,   in  connection  with
anticipated  sale of retail notes  receivables,  entered into forward  starting
swap  agreements  with a total notional  value of $400.0.  The purpose of these
derivative  instruments  is to swap  floating  rate  debt  to a  fixed  rate to
protect  against  sharp  moves in interest  rates  between the date of the swap
and the  anticipated  receivable  sale date.  These  derivatives  are accounted
for  as  a  non-hedging  derivative  instrument  with  changes  in  fair  value
recognized in income.  These derivatives were closed on November 3, 2004.

On  July  30,  2004,  the  Corporation,   through  Navistar   Financial  Retail
Receivables   Corporation   ("NFRRC"),   sold  retail  note  receivables  to  a
conduit.  In order to match fund the fixed rate  receivables  with the variable
rate  debt of the  conduit,  the  QSPE  entered  into  an  interest  rate  swap
agreement  on  the  anticipated  cash  flows  from  the  receivables.  NFC,  as
servicer,  has  indemnified  the QSPE for the impact any variance in those cash
flows  has on the swap  settlement.  The  Corporation  is  accounting  for this
guarantee  as a  derivative  instrument  and as of  October  31,  2004  has not
recorded any liability related to this indemnification.

In fiscal 2004,  forward starting swap losses were $3.8,  compared with $8.7 in
2003 and $9.1 in 2002.  The losses are  recorded in Income  Related to Sales of
Finance Receivables.


15. SALES OF RECEIVABLES

The  Corporation  securitizes  and sells  receivables  through NFRRC,  Navistar
Financial Securities  Corporation  ("NFSC"),  Truck Retail Accounts Corporation
("TRAC") and Truck Engine  Receivables  Financing Co.  ("TERFCO"),  all special
purpose,  wholly-owned  subsidiaries  ("SPC's") of the  Corporation.  The sales
of  receivables  in  each  securitization  constitute  sales  under  accounting
principles  generally  accepted  in the  United  States  of  America,  with the
result that the sold  receivables  are removed from the  Corporation's  balance
sheet and the  investor's  interests  in the  related  trust or conduit are not
reflected as liabilities.

In fiscal 2004, the Corporation sold $195.0 of finance  receivables  during the
quarter  ended January  2004,  $600.0 during the quarter ended April 2004,  and
$325.0  during the quarter  ended July 2004 to trusts and  conduits  which,  in
turn,  issued  asset-backed  securities  that  were  sold  to  investors.   The
Corporation  sold the  retail  notes and  finance  leases  receivables,  net of
unearned   finance  income,   through  NFRRC.   Pre-tax  gains  of  $25.9  were
recognized  on the sales.  In fiscal 2003,  the  Corporation  sold  $1,705.0 of
finance   receivables   to  trusts   which,   in  turn,   issued   asset-backed
securities.  Aggregate  gains  of  $46.3  were  recognized  on  the  sales.  In
fiscal 2002,  the  Corporation  sold $1,000.0 of finance  receivables to trusts
which,  in  turn,  issued  asset-backed  securities.  Aggregate  gains of $16.4
were recognized on the sales.

As of October  31,  2004,  NFSC has in place a revolving  wholesale  note trust
that  provides for the funding of up to $1,186.3 of eligible  wholesale  notes.
The trust is comprised of a $200.0  tranche of investor  certificates  maturing
in 2008,  three  $212.0  tranches  of investor  certificates  maturing in 2005,
2006,  and 2007,  variable  funding  certificates  with a maximum  capacity  of
$200.0  maturing in February  2005 and a seller  certificate  of $150.3.  As of
October 31,  2004,  the  Corporation  had  utilized  $1,132.3 of the  revolving
wholesale note trust.

During  the second  quarter of 2004,  TRAC  obtained  financing  for its retail
accounts  with a bank  conduit  that  provides  for the funding of up to $100.0
million of eligible  retail  accounts.  The revolving  retail account  facility
expires in April  2005.  The sales of retail  accounts  under  TRAC  constitute
sales under generally  accepted  accounting  principles in the United States of
America,  with  the  result  that  the  sold  accounts  are  removed  from  the
Corporation's  balance sheet and the investor's  interests are not reflected as
liabilities.  TRAC is a  separate  corporate  entity,  and its  assets  will be
available  first and  foremost to satisfy the claims of the  creditors of TRAC.
As of October 31, 2004, this facility was fully utilized.

As of October 31,  2004,  TERFCO has in place a revolving  trust that  provides
for the  funding  of up to $100.0  of  eligible  Ford  Motor  Company  accounts
receivables.  This  facility,  which will expire in 2005, was fully utilized as
of October 31,  2004.  TERFCO is a separate  corporate  entity,  and its assets
will be  available  first and  foremost to satisfy the claims of the  creditors
of TERFCO.

The SPC's have  limited  recourse  on the sold  receivables.  The SPC's  assets
are available to satisfy the  creditors'  claims prior to such assets  becoming
available  for  the  SPC's  own  uses  or  to  the  Corporation  or  affiliated
companies.  The terms of receivable  sales  generally  require the  Corporation
to provide credit  enhancements  in the form of  overcollateralizations  and/or
cash reserves  with the trusts and  conduits.  The use of such cash reserves by
the  Corporation  is  restricted  under  the  terms  of the  securitized  sales
agreements.   The  maximum   exposure  under  all   receivable   sale  recourse
provisions as of October 31, 2004 was $383.4.

The SPC's  retained  interests  in the  related  trusts  or assets  held by the
trusts are reflected on the Corporation's  Statement of Consolidated  Financial
Condition  in  Amounts  Due  From  Sales of  Receivables.  The  following  is a
summary of Amounts Due from Sales of Receivables:

                                                            2004        2003
   Cash held and invested by trusts                      $ 127.8     $ 134.6
   Subordinated retained interests in wholesale notes      155.5       147.6
   Interest-only receivables                                89.1        68.5
   Other amounts due                                        11.0        (1.7)
       Total amounts due from sales of receivables       $ 383.4     $ 349.0

Subordinated  retained  interests in wholesale  notes  consist  principally  of
wholesale  notes or  marketable  securities.  Due to the  short-term  nature of
these assets, their fair value approximates carrying value.

EITF 03-1 paragraph 21 requires  specific  disclosure for all investments in an
unrealized  loss position for which other than temporary  impairments  have not
been  recognized.  The  Corporation's  only  temporary  impairment  relates  to
interest-only   receivables.   The  interest-only  receivable  fair  value  and
unrealized loss is disclosed below:

                                           Less than 12 Months
                                     Fair Value          Unrealized Losses
   Interest-only receivables          $ 16.1                $ 1.7

The  corporation  has the intent and  ability to hold these  investments  until
maturity or market price recovery.

Management  estimates the prepayment speed for the receivables  sold,  expected
net credit  losses and the discount  rate used to determine  the present  value
of the  interest-only  receivables  in  order  to  calculate  the gain or loss.
Estimates of prepayment  speeds,  expected  credit  losses,  and discount rates
are based on historical  experience,  anticipated future portfolio  performance
and  other   factors   and  are  made   separately   for  each   securitization
transaction.  In  addition,  the  Corporation  estimates  the fair value of the
retained  interests on a quarterly basis utilizing  updated  estimates of these
factors.

The impact of a  hypothetical  10% adverse  change in these  assumptions  would
have no  material  effect on the fair  value of the  retained  interests  as of
October 31,  2004.  These  sensitivities  are  hypothetical  and should be used
with  caution.  The effect of a variation  of a  particular  assumption  on the
fair value of the retained  interests is calculated  without changing any other
assumption.  In  reality,  changes  in one  factor  may  result in  changes  in
another.

Key economic  assumptions used in measuring the retained  interests at the date
of the sale for sales of retail notes and finance leases  completed  during the
fiscal year ended October 31 were:

                                                2004        2003         2002
   Prepayment speed (average monthly ABS)   1.2 - 1.4    1.2 - 1.4   1.2 - 1.4
   Weighted average life                    43 months    43 months   41 months
   Expected net credit losses                0.55%        0.76%       0.68%
   Interest-only receivable discount rate  15.2%-15.3%  15.5%-18.1% 16.9%-18.2%
   Reserve account discount rate            3.2%-4.1%    3.1%-4.4%   5.1%-5.6%


Static pool losses are  calculated by summing the actual and  projected  future
net credit  losses and dividing  them by the original  balance of the notes and
leases  in each  pool of  assets.  The  amount  shown  below  for each  year is
calculated based on all securitizations occurring in that year.

                                                  2004     2003     2002
   Actual and Projected Net Credit Losses (%) as of:
      October 31, 2004                                 0.55%    0.43%    0.21%
      October 31, 2003                                          0.76     0.68
      October 31, 2002                                                   0.68


The  financial  data  for  gross  serviced   portfolio  as  of  October  31  is
summarized below.

                         Retail &
   2004                  Finance Lease      Wholesale      Accounts       Total

   Serviced portfolio     $2,757.7           $1,305.2       $ 488.1    $4,551.0
   Less sold receivables   1,942.9            1,132.3         200.0     3,275.2
   Owned portfolio        $  814.8            $ 172.9       $ 288.1    $1,275.8

                         Retail &
   2003                  Finance Lease      Wholesale      Accounts       Total

   Serviced portfolio     $2,506.5           $ 860.7        $ 401.3    $3,768.5
   Less sold receivables   1,986.6             814.7          100.0     2,901.3
   Owned portfolio        $  519.9           $  46.0        $ 301.3    $  867.2


Additional  financial data for gross serviced  portfolio as of October 31, 2004
is summarized below.

                                Retail      Finance and     Wholesale
                                Notes    Operating Leases     Notes    Accounts
Gross serviced receivables     $2,867.8      $ 428.3        $1,305.6     $488.9
Balances with payments
       past due over 60 days (1)    8.8          1.2             1.1        6.7
Credit losses (net of recoveries)  10.1          0.4             0.8        1.1

   (1) Includes rent past due over 60 days for Operating Leases


Certain  cash  flows  received  from (paid to)  securitization  trusts/conduits
were as follows for fiscal years:

                                                  2004         2003        2002
Proceeds from sales of finance receivables     $1,118.6     $1,701.1    $ 999.0
Proceeds from sales of finance receivables into
       revolving facilities                     6,371.8      4,938.1    4,883.0
Servicing fees received                            30.3         27.5       26.9
Repurchase of receivables in breach of terms (1)  (28.0)       (69.0)    (128.9)


                                                  2004         2003        2002
Cash used in exercise of call options            (86.9)      (139.5)      (85.4)
Servicing advances, net of reimbursements,
        related to repossessions                   5.2          6.8        27.7
Cash received upon release from reserve accounts  90.9         83.4       125.1
All other cash received from trusts               89.5        103.9        94.1

(1) The  Corporation,  as servicer,  covenants that it will not amend the terms
of the  receivables.  Refinances  and  extensions,  which  change  the  finance
yield,   require  the  Corporation  to  repurchase  the  receivables  from  the
trust/conduit.


The following table summarizes income related to sales of finance receivables:

                                                 2004        2003       2002
Gains on sales of receivables                   $25.9       $46.3      $16.4
Discount accretion                               28.4        28.1       23.9
Fair value adjustment                            (0.4)       (2.1)      (1.0)
Derivative gains (losses)                        (3.8)       (8.7)      (9.1)
Interest income and other                         3.4         3.3        5.2
Total income related to
        sales of finance receivables            $53.5       $66.9      $35.4


16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of the  Corporation's  financial
instruments as of October 31 were as follows:

                                             2004                  2003
                                       Carrying   Fair       Carrying   Fair
                                         Value    Value       Value     Value

  Financial assets:
    Finance receivables
       Retail notes and finance leases  $814.8    $784.7      $519.9    $538.6
       Wholesale notes                   173.3     173.3        46.0      46.0
    Restricted Marketable securities      63.0      63.0       505.6     505.6


                                             2004                  2003
                                       Carrying   Fair       Carrying   Fair
                                         Value    Value       Value     Value

  Financial liabilities:
    Senior and subordinated debt       1,325.2   1,312.7     1,461.9   1,462.9
    Derivative financial instruments       0.2       0.2        (1.3)     (1.3)

The carrying amount of cash and cash equivalents approximates fair value.

The fair value of retail notes and finance  leases is estimated by  discounting
the future  contractual cash flows using an estimated  discount rate reflecting
interest  rates  currently  being  offered for notes with  similar  terms.  For
wholesale  notes,  which  reprice  monthly,  the carrying  amounts  approximate
fair value as a result of the short-term nature of the receivables.

For fixed  rate  debt,  the fair  value is  estimated  based on  quoted  market
prices where  available and,  where not  available,  on quoted market prices of
debt with  similar  characteristics.  For  variable  rate debt the fair  values
approximate their carrying value.

The  estimated  fair  values for all other  financial  instruments  approximate
their carrying values due to the short-term  nature or variable  interest terms
inherent in the financial instruments.

17. LEGAL PROCEEDINGS

The  Corporation is subject to various  claims  arising in the ordinary  course
of  business,  and is party to  various  legal  proceedings,  which  constitute
ordinary  routine  litigation  incidental  to the business of the  Corporation.
In the opinion of the  Corporation's  management,  none of these proceedings or
claims  are  material  to  the  business  or  the  financial  condition  of the
Corporation.

On February 9, 2005,  the  Corporation  received a notice from the staff of the
United  States  Securities  and  Exchange   Commission   stating  that  it  was
conducting  an  informal   inquiry  into  the   Corporation's   restatement  of
financial  results  for the  fiscal  years  2002 and 2003 and the  first  three
quarters of fiscal 2004  ("restatement  period").  The staff has requested that
the Corporation  voluntarily  produce documents and information  related to the
restatement  period.  The Corporation is fully  cooperating  with this request.
Given the  preliminary  nature of the matter,  the  Corporation  is not able to
predict what impact, if any, this inquiry will have on the Corporation.



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


                Navistar Financial Corporation and Subsidiaries
-------------------------------------------------------------------------------

            Report of Independent Registered Public Accounting Firm
-------------------------------------------------------------------------------


Navistar Financial Corporation,
Its Directors and Shareowners:


We have  audited the  Statement of  Financial  Condition of Navistar  Financial
Corporation and its  subsidiaries  (the  "Corporation")  as of October 31, 2004
and 2003, and the related Statements of Income,  Comprehensive  Income and Cash
Flow for each of the three years in the period ended  October 31,  2004.  These
consolidated  financial  statements are the responsibility of the Corporation's
management.   Our   responsibility   is  to   express   an   opinion  on  these
consolidated financial statements 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  audit to  obtain  reasonable  assurance  about
whether   the   consolidated   financial   statements   are  free  of  material
misstatement.    An audit  includes  consideration  of  internal  control  over
financial  reporting  as a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the purpose of  expressing  an
opinion on the  effectiveness of the Company's  internal control over financial
reporting.  Accordingly,  we express no such  opinion.  An audit also  includes
assessing the  accounting  principles  used and  significant  estimates made by
management,   as  well  as   evaluating   the   overall   financial   statement
presentation.  We believe that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  such consolidated  financial statements present fairly, in all
material respects,  the financial  position of Navistar  Financial  Corporation
and its  subsidiaries  at October 31,  2004 and 2003,  and the results of their
operations  and  their  cash  flow for each of the  three  years in the  period
ended October 31, 2004,  in conformity  with  accounting  principles  generally
accepted in the United States of America.

As  discussed  in  Note  2  to  the  consolidated  financial  statements,   the
accompanying 2003 and 2002 financial statements have been restated.



/s/   DELOITTE & TOUCHE LLP
      Deloitte & Touche LLP
      February 14, 2005
      Chicago, Illinois




-------------------------------------------------------------------------------
                          SUPPLEMENTARY FINANCIAL DATA


                              MILLIONS OF DOLLARS

QUARTERLY FINANCIAL INFORMATION (unaudited)

                                      Previously Reported 2004
                                      1ST        2ND        3RD
                                    Quarter    Quarter    Quarter

Results
   Revenues                          $47.5      $69.5      $56.8
   Interest expense                   11.7       11.4        8.8
   Provision for credit losses         1.1        3.3        2.1
Net income                             7.9       20.1       15.0



                                             Restated 2004
                                        1ST        2ND        3RD
                                    Quarter    Quarter    Quarter

Results
   Revenues                          $51.8      $71.0       $53.3
   Interest expense                   11.7       11.4         8.8
   Provision for credit losses         1.1        3.3         2.1
Net income                             9.1       20.6        12.4



                                            2004
                                     4TH        Fiscal
                                    Quarter      Year

Results
   Revenues                          $63.0      $239.1
   Interest expense                    9.0        40.9
   Provision for credit losses         1.7         8.2
Net income                            19.0        61.1




                                               Previously Reported 2003
                                     1ST      2ND      3RD      4TH      Fiscal
                                   Quarter  Quarter  Quarter   Quarter    Year

Results of continuing operations
   Revenues                         $86.3    $47.8    $75.7    $56.9    $266.7
   Interest expense                  13.5     12.6     12.0     11.7      49.8
   Provision for credit losses        4.2      3.7      4.0      3.9      15.8
Income from continuing
   operations                        26.9     2.1      22.3      8.6      59.9
Gain (loss) on disposal of
   discontinued operations             -       -        -       (2.4)     (2.4)
Net income                           26.9     2.1      22.3      6.2      57.5


                                                   Restated 2003
                                     1ST      2ND      3RD      4TH      Fiscal
                                   Quarter  Quarter  Quarter   Quarter    Year

Results of continuing operations
   Revenues                         $76.9    $52.5    $69.2    $63.9    $262.5
   Interest expense                  13.5     12.6     12.0     11.7      49.8
   Provision for credit losses        4.2      3.7      4.0      3.9      15.8
Income from continuing
   operations                        19.1     6.4      16.5     15.9      57.9
Gain (loss) on disposal of
   discontinued operations             -       -        -       (2.4)     (2.4)
Net income                           19.1     6.4      16.5     13.5      55.5


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

Item 9.  Changes in and Disagreements With Accountants on
      Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The  Corporation's   principal   executive  officer  and  principal   financial
officer,  along with other management of the  Corporation,  reviewed and tested
the  Corporation's  disclosure  controls  and  procedures  (as  defined in rule
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934, as amended
("the Exchange  Act")) as of October 31, 2004.  Based on that  evaluation,  the
principal   executive   officer  and   principal   financial   officer  of  the
Corporation  concluded  that,  as of October  31,  2004,  there  were  material
weaknesses in the Corporation's  disclosure  controls and procedures related to
(1) a  misapplication  of GAAP  related  to  securitization  accounting  and an
associated  lack of  timely  resolution  of  outstanding  reconciling  items in
certain  collection  accounts;  and (2)  the  lack  of  sufficient  specialized
securitization  accounting  personnel.  The  material  weakness  related to the
misapplication  of GAAP and  resolution of outstanding  reconciling  items have
been corrected in these statements.

Management  had  previously  interpreted  and applied  Statement  of  Financial
Accounting  Standards  No. 140,  "Accounting  for  Transfers  and  Servicing of
Financial  Assets and  Extinguishments  of  Liabilities,  a replacement of FASB
Statement   125"  and  Emerging   Issues  Task  Force   ("EITF")   No.   99-20,
"Recognition  of Interest  Income and  Impairment  on  Purchased  and  Retained
Beneficial  Interests in Securitized  Financial  Assets,  " in error related to
the   Corporation's   securitization   of  retail   note  and   finance   lease
receivables.  The  Corporation  also  corrected  its tax treatment and deferred
tax  assets  related  to  these  securitizations  as well  as for  its  secured
borrowings   related  to  operating  and  finance  leases.  As  a  result,  the
Corporation  is restating  its  financial  statements  for the two fiscal years
ended  October  31, 2003 and 2002.  The  Corporation  will  restate its interim
periods for 2004 in its 2005 quarterly reports.

The  principal  executive  officer  and  principal  financial  officer  of  the
Corporation  concluded,  based on the weaknesses noted above, as of October 31,
2004, the disclosure  controls and procedures in place at the Corporation  were
not effective.  Management has  strengthened  its controls and procedures  over
the  application  of  accounting  standards  and is in the  process  of  adding
specialized   securitization   accounting   personnel.   Therefore   management
believes that the  circumstances  resulting in the  misapplication of GAAP will
not reoccur.

Changes in Internal Control over Financial Reporting

In connection with the ongoing review of the  Corporation's  internal  controls
over  financial  reporting (as defined in rule  13a-15(f)  and 15d-15(f)  under
the Exchange Act) and in response to the material  weaknesses  identified,  the
Corporation  has increased  executive  management  education in  securitization
accounting,  made improvements to its securitization  accounting reconciliation
process  and added  additional  levels of  review  in its  financial  reporting
processes.  The  Corporation  intends  to  supplement  its  current  accounting
resources with personnel knowledgeable in securitization accounting.

Item 9B.  Other Information

None.



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


                                   PART III

Items 10, 11, 12 and 13

Intentionally omitted.  See the index page of this Report for explanation.

Item 14.  Principal Accountant Fees and Services

Aggregate  fees billed to the  Corporation  for the fiscal years ended  October
31, 2004 and 2003 by the Corporation's  principal  accounting firm,  Deloitte &
Touche LLP.

Amounts in thousands                    2004        2003
Audit Fees
    Basic Audit Fees (a)             $  918.6     $ 138.6
    Audit Related Fees(b)               192.5       199.0
Total Audit Fees                     $1,111.1     $ 337.6

Tax Fees                             $     -      $    -

All Other Fees                       $     -      $    -

(a)Includes  fees for the restatement of  the Corporation's financial
   statements for fiscal years 2003 and 2002.
(b)Includes   fees   for   (i)   examination   reports   on  the
   Corporation's  minimum servicing  standards for its securitization
   transactions,  (ii)  Sarbanes  Oxley  Section 404  readiness,  and
   (iii) data  verification  and  agreed-upon  procedures  related to
   asset securitizations.



Audit Committee pre-approval policy

Information  required  by Item  14 of  this  Form  and  the  audit  committee's
pre-approval   policies  and   procedures   regarding  the  engagement  of  the
principal  accountant  are  incorporated  herein by reference  from  Navistar's
definitive  Proxy  Statement  for  the  March  23,  2005,   Annual  Meeting  of
Shareowners  under the caption "Audit  Committee  Report - Independent  Auditor
Fees".


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


                                    PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

Exhibits, Including Those Incorporated By Reference,
and Financial Statement Schedules


Exhibits Index:

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

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

       10    Material Contracts..........................E-3

       15    Financial Statement Schedules...............E-12

       21    Subsidiaries of the Registrant..............E-15

       24    Power of Attorney...........................E-16

       31.1  CEO Certification Pursuant to
             Rule 13a-14(a) and 15d-14(a)................E-17

       31.2  CFO Certification Pursuant to
             Rule 13a-14(a) and 15d-14(a)................E-19

       32    CEO and CFO Certifications Pursuant to
             Section 1350 of Chapter 63
             of Title 18 of the Unites States Code.......E-21

Financial Statements

See Index to Financial Statements in Item 8.

Reports on Form 8-K

No reports on Form 8-K were filed for the three months ended October 31, 2004.


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




                               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 FINANCIAL CORPORATION
                                        (Registrant)




By:   /s/PAUL MARTIN                              February 14, 2005
         Paul Martin
         Vice President and Controller
         (Principal Accounting Officer)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended October 31, 2009

[ ] 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 001-04146

NAVISTAR FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

36-2472404

(I.R.S. Employer Identification No.)

425 N. Martingale Road, Schaumburg, IL 60173

(Address of principal executive offices, Zip Code)

(630) 753-4000

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

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 [ ] No [X]

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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 [ ]No [ ]

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. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or 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 [ ] Accelerated filer [ ] Non-accelerated filer [X]Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [_]No [X]

As of November 30, 2009, the number of shares outstanding of the registrant's common stock was 1,600,000.

Documents Incorporated by Reference: None

THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR, INC., WHICH IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL CORPORATION, AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1) (a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

INDEX

NAVISTAR FINANCIAL CORPORATION

AND SUBSIDIARIES

INDEX

		Page Reference

PART I.

Item 1.	Business (A)	3
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	6
Item 2.	Properties (A)	6
Item 3.	Legal Proceedings	6
Item 4.	Submission of Matters to a Vote of Security Holder (A)	6

PART II.

Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	7
Item 6.	Selected Financial Data (A)	7
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	7
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 8.	Financial Statements and Supplementary Data	21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	58
Item 9A.	Controls and Procedures	58
Item 9B.	Other Information	59

PART III.

Item 10.	Directors and Executive Officers of the Registrant (A)	60
Item 11.	Executive Compensation (A)	60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Transactions (A)	60
Item 13.	Certain Relationships and Related Transactions (A)	60
Item 14.	Principal Accountant Fees and Services	60

PART IV.

Item 15.	Exhibits and Financial Statement Schedules	61

Signature		62

(A) -Omitted or amended or reduced as the registrant is a wholly-owned subsidiary of Navistar, Inc., which is a wholly-owned subsidiary of Navistar International Corporation, and meets the conditions set forth in General Instructions I (1) (a) and (b) of Annual Report on Form 10-K and is, therefore, filing this report with the reduced disclosure format.

INDEX

PART I

EXPLANATORY NOTE

Item 1. Business

The registrant, Navistar Financial Corporation, was incorporated in Delaware in 1949 and is a wholly-owned subsidiary of Navistar, Inc., which is a wholly-owned subsidiary of Navistar International Corporation (“NIC”). As used herein, “us,” “we,” “our” or “NFC” refers to Navistar Financial Corporation and its wholly-owned subsidiaries, unless the context otherwise requires.

We are a commercial financing organization that provides wholesale, retail and lease financing in the United States for sales of new and used trucks sold by Navistar, Inc. and Navistar, Inc.’s dealers. We also finance wholesale accounts and selected retail accounts receivable of Navistar, Inc. (“accounts”). Sales of new products (including trailers) of other manufacturers are also financed by NFC regardless of whether they are designed or customarily sold for use with Navistar, Inc.’s truck products.

We typically sell our finance receivables to various special purpose entities while continuing to service the receivables thereafter. Some of these transactions qualify for off-balance sheet accounting whereby an initial gain or loss is recorded and revenues are recorded primarily for servicing fees and excess spread income over the remaining life of the finance receivables. For transactions receiving on-balance sheet treatment, we record the interest revenue earned on the finance receivables, and the interest expense paid on secured borrowings issued in connection with the finance receivables sold. (See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for an explanation of securitized receivables).

Periodic Reports Access

NIC maintains a website with the address www.navistar.com. NFC is not including the information contained on NIC’s website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available, free of charge, through NIC’s website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, if any, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”).

NFC has adopted the Code of Ethics posted on NIC’s website. This Code of Ethics applies to all employees, directors and officers, including the chief executive officer and principal financial officer. NFC intends to disclose any amendments to, or waivers from, the Code of Ethics that are required to be publicly disclosed pursuant to the rules of the SEC.

Item 1A. Risk Factors

Forward-Looking Statements

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act of 1934 (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, and such forward-looking statements only speak as of the date hereof. 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 based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances. As you read and consider the information contained herein, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and could cause these actual results to differ materially from those in the forward-looking statements.

INDEX

This section identifies specific risks that could adversely affect our business, results of operations or financial condition. The following information should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the accompanying consolidated financial statements and related notes included 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 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.

Strategic Decisions of NIC

As an indirect wholly-owned subsidiary of NIC, we are subject to the effects of strategic decisions made from time to time by NIC. The major share of our business consists of financing Navistar, Inc. vehicles and supporting their dealers. Any extended reduction or suspension of Navistar, Inc.’s production or sale of vehicles for reasons discussed below would have an adverse effect on our business. An absence or reduction in special-rate financing programs supported by Navistar, Inc. may reduce our financing volume or market share of financing sales relating to Navistar, Inc. vehicles. In addition, we are dependent on NIC for certain administrative support services as well as capital contributions needed from time to time in order for NFC to maintain compliance with performance related debt covenants. Significant changes in NIC’s overall business strategy, sales volume, work stoppages, ability to provide administrative support services or ability to contribute capital as needed, could have a material adverse effect on our results of operations, financial condition and liquidity.

Economic Condition of the Trucking Industry

The markets in which NIC competes are subject to considerable cyclicality. NIC’s ability to generate business for us depends in part on the varying conditions in the truck, school 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, credit availability, interest rate levels and fuel costs, among other factors.

The North American truck market in which NIC operates is highly competitive. This competition results in price discounting and margin pressures throughout the industry and could adversely affect our business.

The value of our lease and loan portfolio and the underlying collateral and our ability to generate new business at competitive rates depend substantially on the economic condition of the trucking industry. To the extent events such as high fuel prices, fuel shortages or general economic downturn adversely affect the trucking industry, there could be decreased demand for vehicles, an increase in customer defaults, impaired asset values and less competitive interest and lease rates. These events could have a material adverse impact on our results of operations, financial condition and liquidity.

Access to Capital

We traditionally obtain the funds to provide financing from sales of receivables, medium and senior debt, equity capital and from short and long-term bank borrowings. Our ability to sell our receivables may be dependent on the following factors: the volume and credit quality of receivables, the performance of previously securitized receivables, general demand for the type of receivables we offer, market capacity for our sponsored investments, accounting and tax changes, our debt ratings and our ability to maintain back-up liquidity facilities for certain securitization programs. NFC’s inability to access capital could adversely affect our ability to finance our parent company’s products. If as a result of any of these or other factors, the cost of securitized funding significantly increased or securitized funding was no longer available, there could be a material adverse effect on our results of operations, financial condition and liquidity.

Market Conditions

The U.S. and global economies have recently undergone a period of economic uncertainty, and the related financial markets experienced unprecedented volatility. This market volatility produced downward pressure on credit availability for certain issuers without regard to those issuers’ underlying financial strength and resulted in increased borrowings costs. The funding strategy and liquidity position of NFC has been adversely affected by the stress in the credit markets that began in mid-2007 and reached unprecedented levels during the first half of fiscal 2009.

INDEX

The asset backed securitization market used by NFC and its lending conduit banks was adversely affected by substantial credit tightening: access to capital, securitization markets and other forms of financing were constricted. Even though the volatility has stabilized in the second half of fiscal 2009, due in part to the launch of the U.S. Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”), increases in credit spreads and borrowing rates are seen at all credit rating levels. As a result, our future borrowings will be more costly than in the past. Our recent securitizations are priced higher than in the past but consistent with market pricing for similar rated securitizations. The market for wholesale floorplan securitizations has experienced similar increases in pricing. There can be no assurance that the recent stabilization seen in our credit markets will continue. If market volatility and disruption reoccur, these conditions could adversely affect our results of operations, financial condition and liquidity.

In addition, volatility in market interest rates may cause material fluctuations in the fair value of our derivatives associated with secured borrowings and our retained interest in off-balance sheet securitizations. These fair value fluctuations could have an adverse impact on NFC’s results of operations, financial condition and liquidity.

Credit Risk

We actively manage the credit risk of our receivables to balance our level of risk and return. The allowance for credit losses reflected on our consolidated statements of financial condition is our estimate of the probable credit losses inherent in the receivables at the date of our consolidated statements of financial condition. Increases in our delinquencies and vehicle repossessions typically result in higher charge-offs and increases in the Provision for credit losses. If delinquencies and vehicle repossessions continue to increase it could have a material adverse impact on the results of operations, financial condition and liquidity of NFC.

Collection and Servicing Problems

Disruption of our billing and collection processes, such as failure to maintain accurate account records or to maintain access to such records could have a significant negative impact on our ability to collect on our receivables and satisfy our customers. This could have a material adverse impact on our results of operations, financial condition and liquidity.

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 or any future legal proceedings could have a material adverse effect on our business, financial condition, results of operations, and cash flows. For additional information regarding certain lawsuits in which we are involved, see Item 3, Legal Proceedings, and Note 15, Legal Proceedings, to the accompanying consolidated financial statements.

Changes in Laws or Regulations

Aspects of our business as a lender and lessor are subject to state and federal laws and regulations including, but not limited to, (a) establishment of maximum interest rates, (b) collection, foreclosure and repossession procedures, (c) financial transaction structures and (d) the use and reporting of information relating to a borrower’s or lessee’s credit experience. Changes to such laws or regulations could have a material adverse effect on our results of operations, financial condition and liquidity because such changes may impair our ability to originate or securitize receivables or maximize the value of a receivable upon foreclosure or repossession.

Reduction in our Credit Rating

If we experience a reduction in our credit rating, it could have a material adverse effect on us by reducing our revenues if existing or potential customers decide not to retain us, and by increasing our borrowing costs or limiting our ability to obtain new financings on acceptable terms.

INDEX

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

NFC’s properties principally consist of office equipment and leased office space in Schaumburg, Illinois. The office equipment owned and in use by us is not significant in relation to the total assets of NFC.

Item 3. Legal Proceedings

We are subject to various claims arising in the ordinary course of business, and are parties to various legal proceedings, which constitute ordinary, routine litigation incidental to our business. In our opinion, the disposition of these proceedings and claims will not have a material adverse effect on the business or our results of operations, cash flows or financial condition.

In December 2004, we announced that we would restate our financial results for the fiscal years 2002 and 2003 and the first three quarters of fiscal 2004. Our restated Annual Report on Form 10-K was filed in February 2005. The SEC notified us on February 9, 2005, that it was conducting an informal inquiry into our 2004 restatement. On March 17, 2005, we were advised by the SEC that the status of the inquiry had been changed to a formal investigation. On November 8, 2006, we announced that we would restate our financial results for fiscal years 2002 through 2004 and for the first three quarters of fiscal 2005. We were subsequently informed by the SEC that it was expanding the 2004 investigation to include the 2005 restatement. Our 2005 Annual Report on Form 10-K, which included the restated financial statements, was filed in December 2007. We have been providing information to and are fully cooperating with the SEC in its investigation.

NIC is party to an offer of settlement made to the investigative staff of the SEC. The investigative staff has decided to recommend this offer of settlement to the SEC. As a result of the proposed settlement, without admitting or denying wrongdoing, NIC would consent to the entry of an administrative settlement and would not pay a civil penalty. This proposed settlement is subject to mutual agreement on the specific language of the orders and to final approval by the SEC. Our understanding is that the proposed settlement would conclude the SEC’s investigation of NIC and NFC with respect to the 2004 and 2005 restatements. We cannot provide assurance that the proposed settlement will be approved by the SEC and, in the event the proposed settlement is not approved, what the ultimate resolution of this investigation will be.

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

Intentionally omitted. See the index page of this report for an explanation.

INDEX

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

As of October 31, 2009, Navistar, Inc. owned all shares of our issued and outstanding capital stock. No shares are reserved for officers and employees, or for options, warrants, conversions and other rights. We did not pay dividends to Navistar, Inc. in fiscal 2009, however, we paid dividends of $14.8 million and $400.0 million in fiscal 2008 and 2007, respectively. Navistar, Inc. made capital contributions of $20.0 million and $60.0 million to NFC in fiscal 2009 and 2008, respectively, and none in fiscal 2007.

Item 6. Selected Financial Data

Intentionally omitted. See the index page of this report for explanation.

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 Operations (“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 presented in Item 8 of this Annual Report on Form 10-K. The information contained herein is intended to assist the reader in obtaining an understanding of our consolidated financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that accounted for those changes, any known trends or uncertainties that we are aware of that may have a material impact on our future performance, as well as how certain accounting principles affect our consolidated financial statements.

Overview

NFC is a commercial financing organization that provides retail, wholesale and lease financing of products sold by Navistar, Inc. and its dealers within the United States. NFC also finances wholesale accounts and selected retail accounts receivable of Navistar, Inc. Sales of new products (including trailers) of other manufacturers are also financed regardless of whether they are designed or customarily sold for use with Navistar, Inc.’s truck products.

During fiscal year 2009, the traditional truck industry continued to be under pressure from credit tightening and the general economic downturn. Credit spreads, which generally represent the default risk component above the base interest rate that a lender charges its customer, remain at historically high levels but are currently lower than the unprecedented levels seen at the end of 2008 and beginning of 2009. The increase in credit spreads has been partially offset by lower base interest rates. The value of our lease and loan portfolio, the underlying collateral and our ability to generate new business at competitive rates depend substantially on the economic condition of the trucking industry. There was decreased demand for vehicles, impaired asset values and less competitive interest and lease rates. These conditions have negatively impacted unit sales volumes for Navistar, Inc. Both retail and wholesale portfolio balances reflect the decline in the traditional truck industry volume. With the decline in the truck market, the retail portfolio is liquidating faster than new acquisitions are being financed. Navistar, Inc. expects a slight recovery in traditional truck industry retail deliveries in 2010. On the wholesale side, dealers delayed the purchase of new trucks, particularly in the first half of fiscal 2009, until the credit markets stabilized. NFC’s ability to raise rates has not been enough to counterbalance the entire impact of the lower financing volume. In 2010, credit spreads are expected to decrease slightly from year end 2009 levels but remain higher than historical norms. NFC’s borrowing costs on recent securitizations have increased dramatically and a large portion of the increase has been passed on to Navistar, Inc. in the form of higher finance rates. Dealer wholesale finance rates have also been increased. If borrowing costs on future funding facilities continue to increase, NFC will likely raise its finance rates to Navistar, Inc. and other customers.

INDEX

Revenues have been declining reflecting lower financing volume as a direct result of lower Navistar, Inc. vehicle sales. Our Cost of borrowing declined substantially reflecting the impact of a lower base interest rate environment and lower average outstanding debt balances during 2009. However, since lower interest rates reduce the net fair value of our interest rate swaps, we continue to recognize expense relating to these derivatives. NFC uses interest rate swaps as economic hedges on the future cash flows of our secured borrowings. These swaps do not qualify for hedge accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, thus the fair value adjustment is a period cost which can swing dramatically when fluctuations in forward interest rates occur. Securitization income has increased as a result of the market stabilization which has reduced credit spreads from peak levels seen at the beginning of 2009, allowing us to reduce the discount rates used to value our retained interests, and the increase in margin which increases the cash flows used to compute the fair value of our retained interests in sold receivables. Additionally, our Provision for credit losses has decreased as a result of reduced credit losses driven primarily by the decline in portfolio balances. This was partially offset by an increase in specific reserves. We expect credit loss rates to continue to decline into fiscal 2010.

Consolidated Comparison of Business Results

The following table summarizes our consolidated statements of operations and illustrates the key financial indicators used to assess the consolidated financial results. Financial information is presented for the comparative fiscal years ended October 31, 2009 and 2008 (dollars in millions):


	2009		2008			Change			% Change
Revenues
Financing revenue	$	209.8	$	263.3		$	(53.5	)		(20.3	)
Securitization income		40.5		12.2			28.3			232.0
Operating leases and other revenue		28.8		49.1			(20.3	)		(41.3	)
Total revenues		279.1		324.6			(45.5	)		(14.0	)

Expenses
Cost of borrowing		83.0		199.1			(116.1	)		(58.3	)
Credit, collections and administrative		57.4		56.9			0.5			0.9
Provision for credit losses		29.7		32.2			(2.5	)		(7.8	)
Depreciation on operating leases		16.3		17.0			(0.7	)		(4.1	)
Derivative expense		40.6		55.0			(14.4	)		(26.2	)
Other expenses		5.5		9.2			(3.7	)		(40.2	)
Total expenses		232.5		369.4			(136.9	)		(37.1	)

Income (loss) before taxes		46.6		(44.8	)		91.4		N.M.
Income tax expense (benefit)		17.9		(14.1	)		32.0		N.M.
Net income	$	28.7	$	(30.7	)	$	59.4		N.M.

Percentage changes deemed to be not meaningful are designated N.M.

Financing revenue is comprised of interest revenue from the following interest earning assets (dollars in millions):


	2009		2008		Change			% Change

Retail notes and finance leases	$	174.8	$	221.4	$	(46.6	)		(21.0	)
Wholesale notes		13.7		15.9		(2.2	)		(13.8	)
Retail and wholesale accounts		21.3		26.0		(4.7	)		(18.1	)
Total financing revenue	$	209.8	$	263.3	$	(53.5	)		(20.3	)

The year ended October 31, 2009 compared to the year ended October 31, 2008

Financing revenue decreased as a result of a decrease in the average finance receivable portfolio balance from $3.4 billion to $2.9 billion, as originations decreased on declining industry demand for vehicles. The average interest rates of the finance receivable portfolio were 7.3% and 7.7% for 2009 and 2008, respectively.

INDEX

Securitization income represents all revenue and expense components resulting from off-balance sheet sales of receivables including: excess spread income, servicing fees, initial gain or loss at time of sale, investment income and fair value adjustments related to retained interests. Excess spread income increased from $19.6 million to $28.8 million primarily resulting from the effect of new pricing programs and lower lender interest rates. The increase in excess spread was partially offset by the effects of a lower sold portfolio level. Income on sales of receivables net of fair value adjustments improved from a loss of $22.5 million to a gain of $2.1 million as a result of increased pricing to dealers, a reduction in discount rates used to value retained interests and decreased borrowing costs which increased the fair value of the interest only strip, as well as pay downs on the debt in the wholesale trust which reduces the amount of required seller’s interest. Servicing fees declined primarily as a result of the decrease in the average balances of sold facilities and investment income decreased as a result of lower interest rates on restricted cash accounts established as additional collateral for our sold facilities.

Operating leases and other revenue primarily includes rental income on operating leases, interest earned on cash accounts and guarantee fees. These revenues decreased from $49.1 million to $28.8 million primarily as a result of lower interest rates on restricted cash accounts established as additional collateral for our secured borrowings.

Cost of borrowing primarily includes interest expense on Senior and secured borrowings. Cost of borrowing decreased from $199.1 million to $83.0 million as a result of lower average debt balances and lower borrowing rates. Our average interest rates on Senior and secured borrowings were 2.1% and 4.7% for the respective periods in 2009 and 2008 driven by lower LIBOR rates, partially offset by a higher credit spread on the retail securitization completed in 2009. The average outstanding debt balance decreased from $4.0 billion to $3.4 billion, reflecting lower funding needs resulting from lower origination volume.

Credit, collections and administrative expenses include costs relating to the management and servicing of receivables as well as general business expenses and wages. The net increase of $0.5 million resulted from an increase of $2.3 million relating to separation costs, $1.7 million relating to depreciation expense on capitalized costs of the recently implemented enhancements to our information systems, and $0.4 million relating to increases in wages, benefits and other administrative costs. The 2008 period included $3.9 million of costs related to the relocation of NFC’s regional offices to Schaumburg.

Provision for credit losses on receivables decreased from $32.2 million to $29.7 million as a result of the slight decrease in charge-offs driven primarily by the decrease in the average finance receivable portfolio balance. The decrease was partially offset by the effect of an increase in our allowance to finance receivables coverage ratio during the year from 1.0% to 1.4%, attributable to an increase in specific loss reserves and the impact of higher losses in the historical component of the loss allowance calculation.

Depreciation on operating leases decreased from $17.0 million to $16.3 million reflecting a slightly lower investment in equipment under operating leases. The average investment in operating leases decreased from $121.8 million to $119.6 million.

Derivative expense decreased from $55.0 million to $40.6 million as a result of fluctuations in forward interest rate curves and the regular amortization of notional amounts. In addition, the expense decreased by $2.2 million as a result of including non-performance risk in the fair value calculation of our derivatives pursuant to the adoption of new accounting guidance.

Other expenses decreased from $9.2 million to $5.5 million primarily as a result of a decrease in impairment losses and losses on the sale of vehicle inventory of $3.3 million. These losses reflect lower values of certain used truck models which are sensitive to the adverse economic environment.

Income tax expense (benefit) includes federal, state and foreign taxes. Our income tax expense changed from a benefit of $14.1 million to an expense of $17.9 million primarily as a result of moving from a pre-tax loss position to a pre-tax profit position.

INDEX

	2008			2007		Change			% Change
Revenues
Financing revenue	$	263.3		$	325.2	$	(61.9	)		(19.0	)
Securitization income		12.2			73.2		(61.0	)		(83.3	)
Operating leases and other revenue		49.1			55.0		(5.9	)		(10.7	)
Total revenues		324.6			453.4		(128.8	)		(28.4	)

Expenses
Cost of borrowing		199.1			248.2		(49.1	)		(19.8	)
Credit, collections and administrative		56.9			50.6		6.3			12.5
Provision for credit losses		32.2			19.6		12.6			64.3
Depreciation on operating leases		17.0			18.5		(1.5	)		(8.1	)
Derivative expense		55.0			8.9		46.1			518.0
Other expenses		9.2			2.2		7.0			318.2
Total expenses		369.4			348.0		21.4			6.1

Income (loss) before taxes		(44.8	)		105.4		(150.2	)	N.M.
Income tax (benefit) expense		(14.1	)		38.1		(52.2	)	N.M.
Net income(loss)	$	(30.7	)	$	67.3	$	(98.0	)	N.M.

Percentage changes deemed to be not meaningful are designated N.M.

Financing revenue is comprised of interest revenue from the following interest earning assets (dollars in millions):


	2008		2007		Change			% Change

Retail notes and finance leases	$	221.4	$	262.4	$	(41.0	)		(15.6	)
Wholesale notes		15.9		28.1		(12.2	)		(43.4	)
Retail and wholesale accounts		26.0		34.7		(8.7	)		(25.1	)
Total financing revenue	$	263.3	$	325.2	$	(61.9	)		(19.0	)

The year ended October 31, 2008 compared to the year ended October 31, 2007

Financing revenue was lower as a result of the decrease in the average finance receivable portfolio balance from $3.9 billion to $3.4 billion, as originations decreased resulting from declines in industry demand from both the wholesale and retail sides of the business. The average interest rates of the finance receivable portfolio were 7.7% and 8.3% for 2008 and 2007, respectively.

Operating leases and other revenue primarily includes rental income on operating leases and interest earned on cash accounts. Operating leases revenue decreased from $55.0 million to $49.1 million reflecting the decline in originations of operating leases and a lower investment in equipment under operating leases. Additionally, interest earned on restricted cash accounts established as additional collateral for our secured borrowings decreased as rates declined, even though average invested cash levels increased.

Cost of borrowing primarily includes interest expense on Senior and secured borrowings. Cost of borrowing decreased from $248.2 million to $199.1 million as a result of lower average debt balances and lower borrowing rates. Our average interest rates on Senior and secured borrowings were 4.7% and 5.3% for the respective periods in 2008 and 2007 driven by lower LIBOR rates. The average outstanding debt balance decreased from $4.5 billion to $4.0 billion, reflecting lower funding needs resulting from lower origination volume.

INDEX

Credit, collections and administrative expenses include costs relating to the management and servicing of receivables as well as general business expenses and wages. Such costs increased $3.9 million as a result of the relocation of the regional offices to Schaumburg. Additionally, consultant fees relating to accounting and information systems support increased $2.7 million.

Provision for credit losses on receivables increased from $19.6 million to $32.2 million reflecting economic deterioration in the marketplace as delinquencies, impaired receivables, specific reserves for high-risk accounts and charge-offs increased. This was partially offset by the impact of a lower total balance of retail notes and finance leases. As a result of these factors, our allowance to finance receivables coverage ratio increased from 0.7% to 1.0%.

Depreciation on operating leases decreased from $18.5 million to $17.0 million reflecting the continued decline in originations of operating leases and lower investment in equipment under operating leases. The investment in operating leases decreased from $124.2 million in 2007 to $119.5 million in 2008.

Derivative expense increased from $8.9 million to $55.0 million as a result of the decline in fair value of our interest rate swaps as forward interest rate curves decreased, periodic settlement payments increased, and additional swaps related to new securitizations were entered into. The swaps are used as an economic hedge on the future cash flows of our secured borrowings. The decrease in the forward interest rates curves created an increase in both the current and future monthly swap settlements resulting in the increase in derivative expense. Additionally, within the current credit market environment, new retail secured borrowings were closed at higher spreads. These higher spreads coupled with declining interest rates also contributed to the increase. These swaps do not qualify for hedge accounting under ASC Topic 815, thus the fair value adjustment is a period cost.

Other expenses increased from $2.2 million to $9.2 million primarily as a result of repossessed and residual inventory write-downs and losses. The write-downs reflect lower values of certain used truck models which are sensitive to the deteriorating economic environment.

Income tax (benefit) expense includes federal, state and foreign taxes. Our income tax decreased from an expense of $38.1 million to a benefit of $14.1 million primarily as a result of moving from a profitable pre-tax position to a pre-tax loss position.

Financial Condition (in millions):

	As of
	October 31, 2009		October 31, 2008		Change			% Change
Cash and cash equivalents	$	16.1	$	34.4	$	(18.3	)		(53.2	)
Finance receivables, net		2,660.3		3,090.2		(429.9	)		(13.9	)
Amounts due from sales of receivables		291.5		229.6		61.9			27.0
Net accounts due from affiliates		-		17.5		(17.5	)		N.M
Net investment in operating leases		79.5		72.9		6.6			9.1
Vehicle inventory		26.5		42.0		(15.5	)		(36.9	)
Restricted cash and cash equivalents		421.8		515.4		(93.6	)		(18.2	)
Other assets		107.7		123.0		(15.3	)		(12.4	)
Total assets	$	3,603.4	$	4,125.0	$	(521.6	)		(12.6	)

Senior and secured borrowings	$	3,093.6	$	3,679.1		(585.5	)		(15.9	)
Net accounts due to affiliates		31.2		-		31.2			N.M
Other liabilities		166.4		173.3	$	(6.9	)		(4.0	)
Total liabilities		3,291.2		3,852.4		(561.2	)		(14.6	)

Total shareowner’s equity		312.2		272.6		39.6			14.5

Total liabilities and shareowner’s equity	$	3,603.4	$	4,125.0	$	(521.6	)		(12.6	)

INDEX

Balances as of October 31, 2009 compared to balances as of October 31, 2008

Finance receivables, net decreased $429.9 million to a balance of $2.7 billion as of October 31, 2009. Of the $429.9 million decrease, retail notes and finance leases, net of unearned income decreased $514.0 million which was the result of fewer acquisitions combined with customer payments. Accounts increased by $96.4 million primarily relating to Ford business which is expected to terminate during the first fiscal quarter of 2010. Wholesale notes increased $49.9 million as a result of relatively high acquisitions during October 2009. Finance receivables from affiliates decreased $58.0 million as a result of Dealcor’s effort to reduce inventories. Allowance for losses increased $4.2 million primarily as a result of an increase in specific loss reserves and the impact of higher losses in the historical component of the loss allowance calculation which was offset by the decline in the finance receivable portfolio balance.

Amounts due from the sale of receivables increased from $229.6 million to $291.5 million primarily as a result of a $52.3 million increase in retained interests in sold wholesale notes caused by higher over-collateralization requirements in the amended VFC facility. In addition, TRAC retained interest increased by $9.6 million as concentration limits reduced the facility utilization level.

Vehicle inventory decreased from $42.0 million to $26.5 million as a result of impairment losses of $13.1 million of which Navistar Inc. recognized $9.2 million under the loss sharing arrangements with NFC. Additionally, sales of used trucks exceeded repossessions and lease terminations for the period.

Restricted cash and cash equivalents decreased from $515.4 million to $421.8 million as a result of $70.7 million in lower collateral account balances in Navistar Financial Retail Receivables Corporation (“NFRRC”) attributable to the lower outstanding portfolio level. In addition, cash collateral in Truck Retail Instalment Paper Corporation (“TRIP”) was lower by $23.2 million as finance receivable levels increased. The TRIP facility is required to maintain a combined balance of $500.0 million of finance receivables and cash equivalents as collateral.

Other assets decreased from $123.0 million to $107.7 million as a result of the amortization of debt issuance costs, prepaid expenses and other capitalized assets, as well as the effect of monthly settlement payments and changes in fair value on derivative assets.

Senior and secured borrowings decreased from $3.7 billion to $3.1 billion primarily as a result of $1.1 billion of payments on secured borrowings. The payments were partially offset by $348.1 million in new secured borrowings which included the issuance of $298.6 million of asset-backed notes in April 2009.

Other liabilities decreased from $173.3 million to $166.4 million primarily as a result of the monthly settlement payments and changes in fair value on derivative liabilities of $17.7 million, and a decrease in accrued interest of $5.9 million. These decreases were partially offset by increases in postretirement benefit liabilities of $14.7 million and other accrued expenses of $2.0 million.

Shareholder’s equity increased from $272.6 million to $312.2 million as a result of net income of $28.7 million and a capital contribution of $20.0 million from Navistar, Inc. The capital contribution was a direct result of the commitment by Navistar, Inc. to ensure our Fixed Charge Coverage Ratio is at least 125% on a rolling four quarter basis.

INDEX

Asset Quality

The following table summarizes delinquencies and charge-offs:

	As of October 31,
	2009			2008			Change

Delinquencies
Retail notes & finance leases greater than 60 days.		0.7	%		0.7	%		0.0	%
Wholesale notes greater than 60 days		0.1	%		0.4	%		(0.3	%)
Wholesale accounts greater than 60 days		0.9	%		2.0	%		(1.1	%)

Allowance to finance receivable coverage ratio		1.4	%		1.0	%		0.4	%

Millions of dollars	Years Ended October 31,
	2009			2008			2007
Charge-offs
Retail notes & finance leases charge-offs	$	25.5		$	25.4		$	9.9

Wholesale notes charge-offs		1.1			1.8			1.0

Wholesale accounts charge-offs		-			0.5			-

Retail notes & finance leases charge-offs to liquidations		2.3	%		1.9	%		1.0	%

Wholesale notes charge-offs to liquidations		-			0.1	%		-

Retail notes and finance leases delinquencies greater than 60 days have returned to prior year levels after increased levels during most of the year attributed to the general economic downturn. Repossessions decreased from $121.3 million in 2008 to $59.7 million in 2009 reflecting the lower receivable portfolio level and recent improvement in delinquencies.

The overall allowance to finance receivable coverage ratio increased as a result of an increase in specific loss reserves of $5.7 million, the impact of higher losses in the historical component of the loss allowance calculation and the decline in the finance receivable portfolio balance. Impaired receivables increased by $5.2 million during the year to $64.8 million.

The allocation of the Allowance for losses by receivable type is as follows at October 31 (in millions):

	2009		2008
Retail Notes and Finance Leases	$	31.8	$	27.5
Accounts		0.8		0.9
Total	$	32.6	$	28.4

NFC evaluates its Allowance for losses based on a pool method by asset type: retail notes and finance leases broken out by customer type, and wholesale accounts. The finance receivables in these pools are considered to be relatively homogenous.

NFC’s estimate of the required allowance is based upon three factors: a historical component based upon a weighted average of actual loss experience from the most recent three years, a qualitative component based upon current economic and portfolio quality trends, and a specific reserve component.

The actual losses related to the retail notes and finance leases portfolio are also stratified by customer types to reflect the differing loss statistics for each.

INDEX

The qualitative component is the result of analysis of asset quality trend statistics from the most recent four quarters. 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.

In addition, when we identify significant customers at probable risk of default, we segregate those customers’ receivables from the pools and separately evaluate the estimated losses based on the market value of the collateral and specific terms of the receivable contracts. We use the same process in estimating the collateral values as we do in estimating the values of our Vehicle inventory.

Financing Environment

Financing Volume and Finance Market Share

NFC’s net retail note and finance lease originations/purchases were $585.6 million and $868.7 million for the years ended October 31, 2009 and October 31, 2008, respectively. NFC provided 8.6% and 11.0% of retail and lease financing for the Navistar, Inc. new trucks sold in the U.S. during the fiscal years ended October 31, 2009, and 2008, respectively. NFC experienced a decrease in market share as a result of additional sales from Navistar, Inc. to customers that NFC does not traditionally finance, such as large rental companies.

NFC provided 95.8% of the wholesale financing of new trucks sold to Navistar, Inc.’s dealers in fiscal 2009, 96.2% in 2008, and 93.5% in 2007. Wholesale note originations were $3.2 billion in fiscal 2009, $3.5 billion in fiscal 2008 and $4.0 billion in fiscal 2007.

Serviced wholesale notes balances, including the portion from affiliates, were $964.7 million and $990.8 million as of October 31, 2009 and 2008, respectively. The 2009 decrease reflects Navistar, Inc.’s lower sales to its dealers in the United States.

Funds Management

We have traditionally obtained the funds to provide financing to Navistar, Inc.'s dealers and retail customers from the financing of receivables in securitization transactions, short and long-term bank borrowings, and medium and senior debt. Given our debt ratings and the overall quality of our receivables, the financing of receivables in securitizations has been the most economical source of funding.

Credit Ratings

NFC’s credit ratings as of October 31, 2009, were as follows:

	Fitch	Standard and Poor’s
Senior unsecured debt	BB-	BB-

Outlook as of October 20, 2009	Negative	Negative

During August 2009 and May 2008, Standard and Poor’s and Fitch, respectively, removed both NIC and NFC from the credit watch with negative implications while outlook remains Negative.

INDEX

Funding Trends

The uncertainty and market volatility in capital and credit markets has stabilized recently. During the first half of our fiscal year market volatility produced downward pressure on credit availability for most issuers without regard to those issuers’ underlying financial strength and resulted in increased borrowings costs. The funding strategy of NFC has been adversely affected by stress in the credit markets caused by a lack of liquidity and increased capital reserve requirements.

The asset backed securitization market used by NFC and its lending conduit banks continues to be adversely affected by a relatively tight credit environment, however, improvement has been seen in recent months. Substantial increases in credit spreads were seen at all credit rating levels. Even high quality and highly rated issuers saw their previous rates increase significantly. The recent launch of TALF has however added some stability to the securitization market. Pricing has improved, although it remains higher than historical norms. On April 30, 2009, NFC issued $298.6 million of asset-backed notes into a bank-sponsored, multi-seller conduit facility. This was our only retail securitization transaction completed in fiscal 2009. This issuance of asset-backed notes and credit rating thereon, demonstrates our ability to access credit markets in the current environment. The market for wholesale floorplan securitizations has been more volatile than for retail loans. The renewal of the VFC in August 2009 contains increased over-collateralization requirements which reduce total expected future cash flows. Given present market conditions, we expect a near-term increase in our borrowing costs relating to new funding facilities since market credit spreads are higher than those of our existing debt. Our ability to obtain financing at competitive rates depends substantially on the funding opportunities available.

On November 10, 2009, NFC completed the sale of $350.0 million of three-year asset-backed securities within the wholesale note trust funding facility. This sale was eligible for funding under the TALF program.

On December 16, 2009, our bank credit facility was refinanced for $815.0 million due in 2012. The refinancing contains a term loan of $365.0 million and a revolving loan of $450.0 million with a sub-revolver of $100.0 million designated for NIC’s Mexican finance subsidiaries. Under the new agreement, NFC is subject to customary operational and financial covenants including an initial minimum collateral coverage ratio of 120%. Concurrent with the refinancing, NFC issued secured borrowings of $304.2 million secured by retail notes and leases.

In addition, we have engaged in discussions with multiple parties regarding a strategic alliance that would ensure funding and liquidity, reduce the need for capital, lower our funding costs, expand financing options available to Navistar, Inc. customers and reduce overall leverage. If completed, we believe it may not be necessary to refinance our TRIP revolving retail warehouse facility that is currently scheduled to mature in June 2010.

Guarantees

NFC periodically guarantees the outstanding debt of NIC's Mexican finance subsidiary, Navistar Financial, S.A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad No Regulada (“NFM”). The guarantees allow for diversification of funding sources for the affiliate. As of October 31, 2009, we had numerous guarantees related to NFM and our maximum exposure under these guarantees is the total amount of debt outstanding of $199.5 million. We have not recorded any liability related to these guarantees.

Contractual Obligations

The following table provides aggregate information about outstanding contractual obligations and other long-term liabilities as of October 31, 2009, presented reflecting the impact of the subsequent refinancing of our bank facility in December 2009. Secured borrowings are payable solely out of collections on the securitized receivables transferred to those entities. The asset backed debt is the legal obligation of the consolidated subsidiary whereby there is no recourse to NFC (in millions):

Due in Fiscal	2010			2011-2012		2013-2014	After 2014		Total
Senior borrowings (1)	$	651.4	$	7.3	$	884.3	$	224.9	$	1,767.9
Secured borrowings(1)		40.8		228.2		503.2		553.5		1,325.7
Operating leases		1.7		2.8		2.5		1.5		8.5
Interest (2)		78.8		154.7		61.0		38.9		333.4
Total	$	772.7	$	393.0	$	1,451.0	$	818.8	$	3,435.5

(1) Principal only

(2) Amounts represent estimated contractual interest payments on outstanding debt. Rates in effect as of October 31, 2009, are used for variable rate debt.

INDEX

Funding Facilities

We finance receivables through securitizations utilizing the asset-backed public market and private placement sales. NFC, through these securitizations, despite a rising rate market, has been able to fund its operating needs at rates which are more economical than those available to NFC in the public unsecured bond market. 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, NFC transfers a pool of finance receivables to a bankruptcy remote, special purpose entity (“SPE”). The SPE then transfers the receivables to a special purpose entity, generally a trust, in exchange for securities of the trust which are then retained or sold into the public market or privately placed. The securities issued by the trust are secured by future collections on the receivables transferred to the trust. These transactions are structured as sales from a legal standpoint but are subject to the provisions of ASC Topic 860, Transfers and Servicing, as to accounting treatment. When we finance receivables we use various wholly-owned special purpose subsidiaries depending on the assets being financed. Navistar Financial Securities Corporation (“NFSC”) finances wholesale notes, NFRRC finances retail notes and finance leases, International Truck Leasing Corporation (“ITLC”) finances operating leases and some finance leases, and Truck Retail Accounts Corporation (“TRAC”) finances retail accounts. NFC uses Truck Retail Instalment Paper Corporation (“TRIP”) to temporarily fund retail notes and retail finance leases.

We securitized $343.3 million of retail notes through NFRRC and issued secured borrowings of $298.6 million during the year ended October 31, 2009. We securitized $1.2 billion of retail notes through NFRRC and issued secured borrowings of $1.0 billion during the year ended October 31, 2008. On November 16, 2009, NFC exercised its right to pay off retail securitization debt of $66.9 million in advance of final maturity. Generally, NFC enters into interest rate swap agreements in connection with a securitization of retail note receivables. On a consolidated basis, NFC effectively fixes the rate on a portion of its variable rate debt by entering into interest rate swap agreements with contractual amortization schedules.

NFC securitizes wholesale notes through NFSC, which has in place a revolving wholesale note trust that provides for the funding of eligible wholesale notes. The trust owned $763.1 million of wholesale notes and no cash equivalents as of October 31, 2009, and $818.6 million of wholesale notes and $95.3 million of cash equivalents as of October 31, 2008. As discussed in Note 13, Securitization Transactions, a portion of the wholesale trust is funded by a $650.0 million bank conduit facility which was renewed on August 25, 2009. The renewal contains higher over-collateralization requirements which have had an adverse impact on Securitization income.

Components of available wholesale note trust funding certificates as of October 31 were as follows (in millions):

	Maturity	2009		2008
Investor certificate	February 2010	$	212.0	$	212.0
Variable funding certificate	August 2010		650.0		800.0
	Total	$	862.0	$	1,012.0

The utilized portion of the variable funding certificate (“VFC”) was $350.0 million and $550.0 million as of October 31, 2009 and 2008, respectively. The VFC facility was reduced to $500.0 million subsequent to October 31, 2009 in conjunction with the sale of the $350.0 million of three-year asset-backed securities under the TALF program. NFSC held a retained interest in the facility of $191.9 million as of October 31, 2009 and $139.6 million as of October 31, 2008.

TRAC obtains financing for its retail accounts through a bank conduit that provides for the funding of up to $100.0 million of eligible retail accounts. In July 2009, the facility was amended to allow NFC more flexibility with regard to pricing on certain retail accounts and has been extended to October 29, 2010. As a result of the amendment, the spread over lenders’ cost of funds was increased from 200 basis points to 300 basis points. The utilized portion of the TRAC funding facility was $7.7 million and $47.5 million as of October 31, 2009, and 2008, respectively. TRAC held a retained interest in the facility of $99.6 million as of October 31, 2009, and $90.0 million as of October 31, 2008.

TRIP, a special purpose, wholly-owned subsidiary of NFC, has a $500.0 million revolving facility which matures in June 2010 and is 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 uses TRIP to temporarily fund retail notes and retail leases, other than operating leases. This facility is used primarily during the periods prior to a securitization of retail notes and finance leases. NFC retains a repurchase option against the retail notes and leases sold into TRIP; therefore, TRIP’s assets and liabilities are included in our consolidated statements of financial condition. As of October 31, 2009 and 2008, respectively NFC had $301.1 million and $242.5 million, respectively, in retail notes and finance leases in TRIP. In addition, the TRIP facility held $275.5 million and $298.8 million of cash equivalents as of October 31, 2009 and 2008, respectively.

INDEX

ITLC, our wholly-owned subsidiary, was established to provide for the funding of certain leases. During fiscal 2009, ITLC received proceeds of $40.2 million in the form of on-balance sheet collateralized borrowings. During fiscal 2008, ITLC received proceeds of $54.0 million in the form of on-balance sheet collateralized borrowings. As of October 31, 2009, the balance of ITLC’s collateralized borrowings secured by operating and finance leases was $125.0 million as compared to $130.4 million on October 31, 2008.

Our ability to finance our receivables may be dependent on the following factors: receivable eligibility, the volume and credit quality of receivables, the performance of previously securitized receivables, general demand for the type of receivables we offer, market capacity for our sponsored investments, accounting and tax changes, our debt ratings and our ability to maintain back-up liquidity facilities for certain securitization programs. If as a result of any of these or other factors, the cost of securitized funding significantly increased or securitized funding was no longer available, there could be a material adverse effect on our results of operations, financial condition and liquidity.

The bank credit agreement (“Agreement”), as amended in March 2007, has two primary components, a term loan of $620.0 million and a revolving bank loan of $800.0 million. The latter has a Mexican sub-revolver up to $100.0 million which may be used by NIC’s Mexican finance subsidiaries.

As of October 31, the availability under the revolver portion of the Agreement was as follows (in millions):

	2009			2008
Revolver bank loan	$	800.0		$	800.0
NFC revolving loan utilized		(670.5	)		(454.0	)
Mexican sub-revolver loan utilized		(14.0	)		(100.0	)
Total availability	$	115.5		$	246.0

Navistar, Inc. made capital contributions of $20.0 million and $60.0 million to NFC during fiscal 2009 and 2008, respectively, to ensure compliance with the 125% Fixed Charge Coverage Ratio requirement under the Agreement. We expect that Navistar, Inc. will be able to make any capital contributions that may be necessary in fiscal 2010.

On March 28, 2007, NFC entered into a First Amendment to the Agreement increasing the term loan component from $400.0 million to $620.0 million. In December 2009, NFC refinanced the remaining term loan principal outstanding balance of $597.4 million as of October 31, 2009, originally scheduled to be paid in July 2010.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. 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 prepared our consolidated financial statements. Our significant accounting policies are discussed in Note 1, Summary of Accounting Policies, to our accompanying consolidated financial statements. We believe that the following policies are the most critical 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 estimates or assumptions contains levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

· the impact of the estimates and assumptions on financial condition or operating performance is material.

We have reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

INDEX

Allowance for losses

The Allowance for losses for finance receivables is established through a charge to the Provision for credit losses. The allowance is an estimate of the amount required to absorb probable losses on the existing portfolio of finance receivables that may become uncollectible. Finance receivables are charged off to the Allowance for losses when amounts due from the customers are determined to be uncollectible. NFC’s estimate of the required allowance is based upon three factors: a historical component based upon a weighted average of actual loss experience from the most recent three years, a qualitative component based upon current economic and portfolio quality trends, and 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. The actual losses related to the retail notes and finance leases portfolio are also stratified by customer types to reflect the differing loss statistics for each. 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 10 basis points to the historical loss rate component used in calculating the allowance for losses, the required allowance, as of October 31, 2009, would increase from $32.6 million to $34.7 million and decrease to $30.5 million, respectively.

Amounts due from sales of receivables (including fair value calculation)

Some of our securitization transactions qualify as sales under ASC Topic 860. Gains or losses on sales of receivables are credited or charged to securitization income in the periods in which the sales occur. Amounts due from sales of receivables, also known as retained interests, which include interest-only receivables, cash reserve accounts and subordinated certificates, are recorded at fair value. The accretion of the discount related to the retained interests is recognized on an effective yield basis. We estimate i) the payment speed for the receivables sold, ii) the discount rate used to determine the present value of future cash flows, and iii) the anticipated net losses on the receivables to calculate the gain or loss. The method for calculating the gain or loss aggregates the receivables into a homogeneous pool. Cash flow estimates are made for each securitization transaction which are based upon historical and current experience, anticipated future portfolio performance, market-based discount rates and other factors. These assumptions also impact the estimate of the fair value of the retained interests which is calculated monthly with changes in fair value included in the consolidated statements of operations. The primary assumption used to estimate retained interests in sold receivables is the discount rate. An immediate adverse change in the discount rate used to estimate retained interests of 10.0% as of October 31, 2009, would result in a decrease in pre-tax income of $2.4 million for the year ended October 31, 2009. See Note 14, Fair Value Measurements, under Notes to Consolidated Financial Statements for information on unobservable inputs used to determine fair value.

Derivative financial instruments

NFC manages its exposure to fluctuating interest rates on retail securitizations 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 debt and variable rate debt and derivative financial instruments to convert the variable rate debt to fixed. These derivative financial instruments may include forward contracts, interest rate swaps, and interest rate caps. Our fair value calculations require us to apply judgments using expected future settlements together with forward interest rate curves, then recording assets and liabilities using a mark to market fair value approach where unrealized gains and losses are recorded as a period cost. Our estimated fair values impact the timing and amount of Derivative expense. An adverse parallel shift of 25 and 50 basis points in the forward interest rate curve as of October 31, 2009 would result in a cumulative decrease in pre-tax income of $2.5 million and $5.0 million, respectively. See Note 14, Fair Value Measurements, under Notes to Consolidated Financial Statements for information on unobservable inputs used to determine fair value.

INDEX

Vehicle inventory

We review the carrying value of our vehicles periodically to determine that recorded amounts are appropriate and the vehicles have not been impaired. If the carrying value of the vehicles is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the vehicles exceeds its fair value, net of remarketing costs. Our impairment loss calculations require us to apply judgments in estimating future cash flows and asset fair values. Vehicles could become impaired in the future or require additional charges as a result of cost and availability of financing, new vehicle pricing, physical condition of an asset, laws and regulations, or changes in the business environment. Our estimated fair values impact the timing and amount of impairment expense. An adverse change in the aggregate estimated fair value of vehicles of 5.0% as of October 31, 2009 would result in a cumulative decrease in pre-tax income of $1.3 million for the year ended October 31, 2009.

Pension and other postretirement benefits

We provide pension and postretirement benefits to a portion of our employees, former employees, and their beneficiaries. Accounting for these benefits requires the use of our estimates and assumptions as well as third party actuarial data. The primary assumptions include factors such as discount rates, healthcare cost trend rate, inflation, expected return on plan assets, retirement rates, mortality rates and other factors. As of October 31, 2009, an increase in the discount rate of 1.0%, assuming inflation remains unchanged, would result in a decrease of $5.9 million in the pension obligations and would result in a decrease of less than $0.1 million in the net periodic benefit cost. A decrease of 1.0% in the discount rate of the other postretirement benefit plans would result in an increase in other postretirement obligations of $6.5 million and a decrease of less than $0.1 million in the net periodic benefit cost. The calculation of the expected return on plan assets is described in Note 9, Postretirement Benefits, to the accompanying consolidated financial statements. The expected return on assets was 9.0% for 2009, 2008 and 2007. The expected return on assets is a long-term assumption whose accuracy can only be measured over a long time period based upon past experience. We modified our investment policies during the year and have reallocated the related plan assets for the pension plan asset trust. As a result, we have lowered our expectations for future returns on plans assets from 9.0% to 8.5% as of October 31, 2009.

Income taxes

We account for income taxes using the asset and liability method. Tax laws require certain items to be reported in tax filings at different times than the items are recognized in the consolidated financial statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred income taxes represent the future consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred income taxes are adjusted for enacted changes in tax laws in the period such changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Realization is dependent on generating sufficient future taxable income. Changes in estimates of future taxable income could affect future evaluations. Income tax (benefit) expense is computed under a tax sharing agreement between us and our parent as if we were a separate taxpayer, as are tax payments and realization of deferred tax assets. The ultimate recovery of certain of our 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 that valuation allowances should be recorded against deferred tax assets. We have provided valuation allowances at October 31, 2009, and October 31, 2008 aggregating $0.9 million and $1.5 million, respectively, for state deferred tax assets based upon our current assessment of factors described above.

On November 1, 2007 we adopted new accounting guidance which 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 new accounting 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 should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Guidance is provided on de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods. Upon adoption, we increased our liability for uncertain tax positions by $3.9 million, resulting in a decrease to retained earnings of $2.5 million. After adoption, the amount of liability for uncertain tax positions was $7.9 million and $10.3 million at October 31, 2009, and October 31, 2008, respectively. If these unrecognized tax benefits are recognized, the entire amount would impact our effective tax rate. We recognize interest and penalties related to uncertain tax positions as part of Income tax (benefit) expense. While it is probable that the liability for uncertain tax positions may change during the next 12 months, we do not believe that such change would have a material impact on our financial condition, results of operations, or cash flows.

INDEX

New Accounting Standards

See Note 1 of Notes to Consolidated Financial Statements

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Fluctuating interest rates are our primary market risk. Interest rate risk arises when we fund a portion of the fixed rate receivables with floating rate debt. NFC has managed this exposure to interest rate changes by funding floating rate receivables with floating rate debt and fixed rate receivables with fixed rate debt, floating rate debt and equity capital. We have reduced the net exposure, which results from the funding of fixed rate receivables with floating rate debt by generally securitizing fixed rate receivables and by utilizing derivative financial instruments, primarily swaps, when appropriate. Since we do not use hedge accounting for our derivatives, the adjustments to the derivative fair values are recorded in the consolidated statements of operations which can cause volatility in our earnings. The derivatives do however provide NFC with an economic hedge of the expected future interest cash flows associated with the variable rate debt. NFC does not use derivative financial instruments for trading purposes.

NFC measures its interest rate risk by estimating the net amount by which the fair value of all interest rate sensitive assets and liabilities, including derivative financial instruments, would be impacted by selected hypothetical changes in market interest rates. Fair value is estimated using a discounted cash flow analysis. Assuming a hypothetical instantaneous 10% adverse change in interest rates as of October 31, 2009 and 2008, the estimated fair value of the net assets would decrease by approximately $20.3 million and $29.9 million, respectively. NFC’s 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. The estimated fair value decrease is not reflective of the impact on our pre-tax earnings, since not all interest rate sensitive assets and liabilities are recorded at fair value.

INDEX

Item 8. Financial Statements and Supplementary Data

Index

Consolidated Financial Statements:	Page
Report of Independent Registered Public Accounting Firm		22
Consolidated Statements of Operations Years ended October 31, 2009, 2008 and 2007		23
Consolidated Statements of Shareowner’s Equity and Comprehensive Income (Loss) Years ended October 31, 2009, 2008 and 2007		24
Consolidated Statements of Financial Condition As of October 31, 2009 and 2008		25
Consolidated Statements of Cash Flows Years ended October 31, 2009, 2008 and 2007		26
Notes to Consolidated Financial Statements		27

INDEX

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareowner

Navistar Financial Corporation:

We have audited the accompanying consolidated statements of financial condition of Navistar Financial Corporation and subsidiaries (the Company) as of October 31, 2009 and 2008, and the related consolidated statements of operations, shareowner’s equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended October 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Navistar Financial Corporation and subsidiaries as of October 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended October 31, 2009, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Chicago, Illinois

December 21, 2009

INDEX

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Operations

	For the years ended October 31,
Millions of dollars	2009		2008			2007
Revenues
Retail notes and finance leases revenue	$	174.8	$	221.4		$	262.4
Operating leases revenue		21.7		22.3			23.9
Wholesale notes interest		13.7		15.9			28.1
Retail and wholesale accounts interest		21.3		26.0			34.7
Securitization income		40.5		12.2			73.2
Other revenues		7.1		26.8			31.1
Total revenues		279.1		324.6			453.4

Expenses
Cost of borrowing:
Interest expense		69.6		186.8			238.0
Other		13.4		12.3			10.2
Credit, collections and administrative		57.4		56.9			50.6
Provision for credit losses		29.7		32.2			19.6
Depreciation on operating leases		16.3		17.0			18.5
Derivative expense		40.6		55.0			8.9
Other expenses		5.5		9.2			2.2
Total expenses		232.5		369.4			348.0

Income (loss) before taxes		46.6		(44.8	)		105.4
Income tax expense (benefit)		17.9		(14.1	)		38.1
Net income (loss)	$	28.7	$	(30.7	)	$	67.3

See Notes to Consolidated Financial Statements

INDEX

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Shareowner’s Equity and Comprehensive Income (Loss)

Millions of dollars	Capital Stock		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total			Comprehensive Income (Loss)
Balance at October 31, 2006	$	1.6	$	139.6	$	459.8		$	(1.7	)	$	599.3		$	86.4
2007 Activity:
Net income		-		-		67.3			-			67.3			67.3
Pension adjustment, (net of tax $0.2)		-		-		-			0.3			0.3			0.3
Impact of accounting for postretirement benefit plans (net of tax $0.6)		-		-		-			1.2			1.2			-
Cash dividend paid to parent company		-		-		(400.0	)		-			(400.0	)		-
Balance at October 31, 2007	$	1.6	$	139.6	$	127.1		$	(0.2	)	$	268.1		$	67.6
2008 Activity:
Net loss		-		-		(30.7	)		-			(30.7	)		(30.7	)
Pension adjustment, (net of tax $4.5)		-		-		-			(7.5	)		(7.5	)		(7.5	)
Impact of accounting for uncertainties for income tax		-		-		(2.5	)		-			(2.5	)		-
Capital contribution from parent company		-		60.0		-			-			60.0			-
Cash dividend paid to parent company		-		-		(14.8	)		-			(14.8	)		-
Balance at October 31, 2008	$	1.6	$	199.6	$	79.1		$	(7.7	)	$	272.6		$	(38.2	)
2009 Activity:
Net income		-		-		28.7			-			28.7			28.7
Pension adjustment, (net of tax $5.0)		-		-		-			(9.1	)		(9.1	)		(9.1	)
Capital contribution from parent company		-		20.0		-			-			20.0			-
Balance at October 31, 2009	$	1.6	$	219.6	$	107.8		$	(16.8	)	$	312.2		$	19.6

See Notes to Consolidated Financial Statements

INDEX

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Financial Condition

	As of October 31,
Millions of dollars	2009			2008
ASSETS

Cash and cash equivalents	$	16.1		$	34.4
Finance receivables, net of unearned income:
Finance receivables		2,538.6			2,906.3
Finance receivables from affiliates		154.3			212.3
Allowance for losses		(32.6	)		(28.4	)
Finance receivables, net		2,660.3			3,090.2

Amounts due from sales of receivables		291.5			229.6
Net accounts due from affiliates		-			17.5
Net investment in operating leases		79.5			72.9
Vehicle inventory		26.5			42.0
Restricted cash and cash equivalents		421.8			515.4
Other assets		107.7			123.0
Total assets	$	3,603.4		$	4,125.0

LIABILITIES AND SHAREOWNER’S EQUITY
Net accounts due to affiliates	$	31.2		$	-
Senior and secured borrowings		3,093.6			3,679.1
Other liabilities		166.4			173.3
Total liabilities		3,291.2			3,852.4

Shareowner’s equity
Capital stock ($1 par value, 2,000,000 shares authorized, 1,600,000 shares issued and outstanding)		1.6			1.6
Paid-in capital		219.6			199.6
Retained earnings		107.8			79.1
Accumulated other comprehensive loss		(16.8	)		(7.7	)
Total shareowner’s equity		312.2			272.6
Total liabilities and shareowner’s equity	$	3,603.4		$	4,125.0

See Notes to Consolidated Financial Statements

INDEX

Navistar Financial Corporation and Subsidiaries Consolidated Statements of Cash Flows
	For the years ended October 31
Millions of dollars	2009			2008			2007

Cash flow from operating activities:
Net income (loss)	$	28.7		$	(30.7	)	$	67.3
Adjustments to reconcile net income to cash flow from operations:
Net loss on sales of finance receivables		48.1			23.8			9.3
Net loss on sale and impairment of equipment under operating leases and vehicle inventory		7.5			9.7			1.5
Depreciation and amortization		27.7			24.8			25.2
Provision for credit losses		29.7			32.2			19.6
Net change in amounts due from sales of receivables		(61.9	)		89.5			387.7
Net change in finance receivables - wholesale notes		(49.9	)		(12.4	)		140.4
Net change in finance receivables from affiliates - wholesale		20.6			(44.8	)		37.7
Net change in net accounts due to/from affiliates		48.7			42.6			(41.4	)
Net change in other assets and liabilities		(10.3	)		(78.6	)		7.8
Net cash provided by operating activities		88.9			56.1			655.1

Cash flow from investing activities:
Originations of retail notes and finance leases, includes affiliates		(585.6	)		(868.7	)		(1,185.6	)
Net change in restricted cash and cash equivalents		93.6			(144.9	)		280.5
Collections on retail notes and finance lease receivables, net of change in unearned finance income, includes affiliates		1,011.1			1,312.0			1,305.7
Net change in finance receivables from affiliates - accounts		1.8			7.3			(10.4	)
Net change in finance receivables - accounts		(96.4	)		71.8			(105.6	)
Proceeds from sale of vehicle inventory		67.2			92.8			30.1
Purchase of equipment leased to others		(35.0	)		(29.3	)		(24.3	)
Proceeds from sale of equipment under operating leases		3.4			17.7			15.5
Loans to affiliates		-			(20.0	)		(110.0	)
Loan repayment from affiliates		-			80.0			50.0
Net cash provided by investing activities		460.1			518.7			245.9

Cash flow from financing activities:
Net change in senior bank revolver, net of issuance costs		216.5			35.0			(253.7	)
Proceeds from issuance of senior bank term debt, net of issuance costs		-			-			217.2
Principal payments on senior bank term debt		(6.2	)		(6.2	)		(5.1	)
Proceeds from issuance of secured borrowings, net of issuance costs		346.3			1,069.9			887.0
Payments on secured borrowings		(1,143.9	)		(1,694.9	)		(1,361.4	)
Dividends paid to parent company		-			(14.8	)		(400.0	)
Capital contribution from parent company		20.0			60.0			-
Net cash used in financing activities		(567.3	)		(551.0	)		(916.0	)

Change in cash and cash equivalents		(18.3	)		23.8			(15.0	)
Cash and cash equivalents, beginning of year		34.4			10.6			25.6
Cash and cash equivalents, end of year	$	16.1		$	34.4		$	10.6

Supplemental cash flow information:
Interest paid	$	75.6		$	191.6		$	237.5
Income taxes paid, net of refunds		0.6			73.0			32.4
Transfers of loans and leases to vehicle inventory		67.3			129.0			49.6

See Notes to Consolidated Financial Statements

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

Nature of Operations

Navistar Financial Corporation was incorporated in Delaware in 1949 and is a wholly-owned subsidiary of Navistar, Inc. which is a wholly-owned subsidiary of Navistar International Corporation (“NIC”). As used herein, “us,” “we,” “our” or “NFC” refers to Navistar Financial Corporation and its wholly-owned subsidiaries unless the context otherwise requires. NFC is a commercial financing organization that provides retail, wholesale and lease financing of products sold by Navistar, Inc. and its dealers within the United States. NFC also finances wholesale accounts and selected retail accounts receivable of Navistar, Inc. Sales of new products (including trailers) of other manufacturers are also financed regardless of whether they are designed or customarily sold for use with Navistar, Inc.’s truck products.

Revenue includes interest revenue from retail notes, finance leases, wholesale notes, retail accounts, wholesale accounts, securitization income and rental income from operating leases. Cost of borrowing includes interest expense on debt financing and amortization of debt issuance costs.

We have traditionally obtained the funds to provide financing to Navistar, Inc.'s dealers and retail customers from the securitization of finance receivables, short and long-term bank borrowings, and medium and senior debt. We securitize wholesale notes through our wholly-owned subsidiary Navistar Financial Securities Corporation (“NFSC”), which has in place a revolving wholesale note trust that provides for the funding of eligible wholesale notes. We finance non-fleet retail notes and finance leases through Navistar Financial Retail Receivables Corporation (“NFRRC”) and Truck Retail Instalment Paper Corporation (“TRIP”), our wholly-owned subsidiaries. Fleet accounts receivables are financed via Truck Retail Accounts Corporation (“TRAC”), our wholly-owned subsidiary. International Truck Leasing Corporation, (“ITLC”), our wholly-owned subsidiary, was established to provide for the funding of certain leases. See Securitization Transactions below.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the assets, liabilities, revenues, and expenses of Navistar Financial Corporation, its wholly-owned subsidiaries and variable interest entities (“VIEs”), if any, of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.

To date, the only potential VIEs identified are the retail owner trusts which are consolidated and the bank conduits used in various financing transactions. We determined we are not the primary beneficiary of any conduit VIEs since our variable interest in the assets in each conduit VIE is significantly less than 50% of the fair value of the conduit VIE’s total assets and therefore is not deemed to be a variable interest in the conduit VIE itself. The maximum loss exposure relating to these non-consolidated conduit VIEs is limited to our subordinated interests in various securitization transactions and relates to credit risk only. If, at any time, our interest in the specific assets of a conduit VIE (including any derivative or other indemnification agreement) exceeds 50% of the fair value of the conduit VIE’s total assets, we would perform the required analysis to determine whether we were the primary beneficiary of that conduit VIE and, if so, would include the assets and liabilities of the conduit VIE in our consolidated financial statements. We make a similar evaluation at the end of each reporting period.

We evaluate our performance and allocate resources based on a single segment concept. Accordingly, there are no separately identified material operating segments for which discrete financial information is available. We do not derive revenues from any single customer that represents 10% or more of our total revenues. We have evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through December 21, 2009, the day the consolidated financial statements were filed with the SEC.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but are not limited to: (1) allowance for losses; (2) amounts due from sales of receivables (including fair value calculations); (3) derivative financial instruments; (4) vehicle inventory; (5) income taxes; and (6) pension and other postretirement benefits. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations for statistical models and pension and benefits. Actual results could differ from the estimates we have used.

Revenue Recognition

Finance Receivables

We recognize revenue from retail notes, finance leases, wholesale notes, retail accounts and wholesale accounts, including amounts received from Navistar, Inc. for reimbursement of interest income for various dealer and buyer incentives, as interest income using the effective interest method. Certain direct origination costs and fees are deferred and recognized as an adjustment to yield and are reported as part of interest income over the life of the receivables as specified by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 315, Receivables. Loans are considered to be impaired when we conclude it is probable 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 is discontinued on all impaired receivables. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest revenue. 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 Leases

We recognize revenue on operating leases as rental income on a straight-line basis over the life of the lease. Recognition of revenue is suspended when we determine the collection of future rental revenue is not probable. Income recognition is resumed if collection doubts are removed.

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, NFC sells a pool of finance receivables to a bankruptcy remote, special purpose entity (“SPE”). The SPE then transfers the receivables to a special purpose entity, generally a trust, 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 transferred to the trust. These transactions are subject to the provisions of ASC Topic 860, Transfers and Servicing, as to accounting treatment. When we finance receivables we use various wholly-owned special purpose subsidiaries depending on the type of assets being financed. TRIP finances retail notes and finance leases on a short term basis. NFRRC finances retail notes and finance leases on a long term basis; ITLC finances operating leases and certain finance leases. NFRRC, TRIP and ITLC securitizations are accounted for as secured borrowings. Wholesale notes are financed through NFSC and retail accounts for parts, special items or large fleet customers of Navistar, Inc. are financed through TRAC. Financings of receivables by NFSC and TRAC comply with the requirements of ASC Topic 860 and are accounted for as sales. When we account for securitizations as sales, we have retained interests in the receivables sold (transferred). The retained interests may include subordinated securities, undivided interests in receivables used as over-collateralization, 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. Our exposure to credit losses on the transferred receivables is limited to our retained interests.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The SPEs’ assets are available to satisfy the creditors’ claims against the assets prior to such assets becoming available for the SPEs’ own uses or to NFC or affiliated companies. The transfer is structured as a legal sale, and 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 receivables fail to meet these representations and warranties, we, as seller of the receivables, are required to repurchase the affected receivables.

Off-balance sheet securitizations:

For transactions that qualify as sales under ASC Topic 860, receivables and associated liabilities are removed from the consolidated statements of financial condition. Gains or losses from these sales are recognized at the time of sale based on the relative carrying value of the portion sold and the portions allocated to the retained interests and are included in Securitization income. The gain or loss is determined by the difference between the proceeds received and the allocated carrying value of the sold receivables. We estimate the payment speeds for the receivables sold, the discount rate used to determine the present value of the retained interests and the anticipated net losses on the receivables in order to calculate the gain or loss. 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 retained interests is based on these assumptions. We re-evaluate the fair value of the retained interests on a monthly basis and recognize in current income changes as required. The retained interests are classified as trading securities and are recorded as Amounts due from sales of receivables in our consolidated statements of financial condition.

The trusts used for off-balance sheet sales engage us as servicer for a servicing 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. We apply the same servicing policies and procedures that are applied to our owned receivables. The servicing income received by us is just adequate to compensate us for our servicing responsibilities. Therefore, no servicing asset or liability is recorded.

The following elements of income related to the off-balance sheet securitizations are included in Securitization income in the consolidated statements of operations and in operating activities in the consolidated statements of cash flows.

Fair value adjustments –

Gains or losses on changes in the estimated fair value of the retained interests.

Excess spread income –

Income generated by the receivables in off-balance sheet securitization trusts, net of interest expense, credit losses and administrative expenses.

Servicing fee revenue –

Fees charged for collection and reporting on behalf of the investors.

Gains and losses on sale of receivables –

Proceeds less initial relative carrying value calculated in the period of sale.

Investment income –

Interest income on cash reserve accounts.

On-balance sheet securitizations:

For transactions that do not qualify as sales under ASC Topic 860, the financed receivables remain on our balance sheet net of allowance for losses and the associated debt issued is recorded as secured borrowings in the consolidated statements of financial condition under Finance receivables and Senior and secured borrowings, respectively. Interest revenue and expense are recorded as earned or incurred in the consolidated statements of operations and debt issuance costs are capitalized and included in Other assets and amortized on a level yield basis over the term of the debt. For these on-balance sheet receivables, a Provision for credit losses is recognized for probable losses. There are no gains or losses recorded upon transfer and income is earned over the life of the assets transferred.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

NIC and its domestic subsidiaries file a consolidated federal income tax return and both combined and separate state income tax returns. We determine our provision for income taxes using the asset and liability approach for accounting for income taxes. Tax laws require certain items to be reported in tax filings at different times than the items are recognized in the consolidated financial statements. A current liability or receivable is recognized for the estimated taxes payable or receivable for the current year. Deferred income taxes represent the future consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred income taxes are adjusted for enacted changes in tax laws in the period such changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Realization is dependent on generating sufficient future taxable income; changes in estimates of future taxable income could affect future valuations. We recognize an accrual for tax exposures for uncertain tax positions. Income taxes are computed under a tax sharing agreement between us and our parent as if we were a separate taxpayer, as are tax payments and realization of tax assets.

On November 1, 2007 we adopted new accounting guidance, which 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 new accounting 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 should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Guidance is provided on de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods. We recognize interest and penalties related to uncertain tax positions as part of Income tax (benefit) expense.

Cash and Cash Equivalents

Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less.

Finance Receivables

ASC Topic 942, Financial Services – Depository and Lending, requires companies to report loans and trade receivables not held for sale on the balance sheet at outstanding principal adjusted for any charge offs, the allowance for losses, fees or costs deferred on origination and any unamortized premiums or discounts on purchased loans. Loans held for sale are reported at the lower of cost or fair value. NFC’s retail notes, finance leases, retail accounts and wholesale accounts are classified as held for investment. Upon origination, wholesale notes are classified as held-for-sale and are valued at the lower of amortized cost or fair value on an aggregate basis. Finance receivables from affiliates include retail and wholesale notes and wholesale accounts. Our 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. At acquisition, we record the retail notes at their gross value (principal and interest) and record, as a reduction to the gross value, the amount of unearned interest. Revenue is recorded over the term of the note using the effective interest method.

Finance Leases --

Finance leases consist of direct financing leases to commercial customers to facilitate their acquisition of new and used trucks, trailers and related equipment. Finance leases are recorded at origination as gross finance receivable, unearned income and the guaranteed residual value of the leased equipment. Unearned income represents the excess of the gross receivable, plus the guaranteed residual value over the cost of the equipment. Revenue is recorded over the term of the lease using the effective interest method.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Wholesale Notes --

Wholesale notes purchased primarily from Navistar, Inc. consist of variable rate loans to dealers for the purchase of new and used trucks, trailers and related equipment.

Retail Accounts --

Retail accounts purchased from Navistar, Inc. consist of short-term accounts receivables related to the sale of products to commercial customers.

Wholesale Accounts --

Wholesale accounts purchased from Navistar, Inc. consist of short-term accounts receivables primarily related to the sales of items other than trucks, trailers and related equipment (e.g. service parts) to Navistar, Inc.’s dealers.

Allowance for Losses

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 believed that there is a greater than 50% likelihood that the account could be 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 using loss ratios based on a pool method by asset type: retail notes, finance leases and accounts. NFC’s estimate of the required allowance is based upon three factors: a historical component based upon a weighted average of actual loss experience from the most recent three years, a qualitative component based upon current economic and portfolio quality trends, and 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 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. The actual losses related to the retail notes and finance leases portfolio are also stratified by customer types to reflect the differing loss statistics for each.

Under various agreements, Navistar, Inc. and its dealers may be liable for a portion of customer losses or may be required to repurchase the repossessed collateral at the receivable principal value. The amount of losses we record in our Provision for credit losses does not include any amount for receivables covered under these agreements. Allocation of the losses on the portfolio between us, Navistar, Inc. and dealers is generally dependent on the type of collateral being financed and loss sharing percentages established at the date of financing. Navistar, Inc.’s proportion of total losses depends on a number of factors including the type of collateral financed, the size of the customer exposure and the loss sharing arrangement previously established.

In order to establish a specific reserve in the loss allowance for finance receivables, we look at many of the same factors listed 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, type of equipment normally financed (over the road or local use/delivery vehicles) and the seasonality of the business (e.g., primarily a bus dealer). We may continue to collect payments on accounts with specific reserves as the amount of the reserve is reviewed at least quarterly. In addition, when we identify significant customers at probable risk of default, we segregate those customers’ receivables from the pools and separately evaluate the estimated losses based on the market value of the collateral and specific terms of the receivable contracts. We use the same process in estimating the collateral values as we do in estimating the values of our Vehicle Inventory.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Investment in Operating Leases

We have investments in trucks, tractors and trailers that are leased to customers under operating lease agreements. These vehicles are depreciated on a straight-line basis over the term of the lease in an amount necessary to reduce the leased asset to the residual value guaranteed by the secured lender, normally a bank, at the end of the lease. The residual values of the equipment represent estimates of the values of the assets at the end of the lease contracts, at which time, the net investment in the equipment is transferred to Vehicle inventory.

Vehicle Inventory

We recognize repossessed assets and the return of equipment under operating leases at the lower of cost or fair value, less estimated remarketing costs and reclassify the net investment from Finance receivables or Net investment in operating leases to Vehicle inventory. Losses arising from the repossession of collateral supporting finance receivables are recognized upon repossession and charged to the Allowance for losses account. Operating lease returns are adjusted to fair market value when a decrease in value is determined to have occurred, and any loss is charged to Other expense. The value of the asset is recorded as Vehicle inventory. Once the repossessed or returned assets are sold, the additional losses or gains, if any, are charged to Other expenses. Realization of the carrying values is dependent on our future ability to market the vehicles under then prevailing conditions. We review inventory values periodically to determine if recorded amounts are appropriate and have not been impaired. If the value of the equipment has been impaired, the carrying value is reduced and charged to Other expenses.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents are primarily those held in designated bank accounts for our securitization facilities which are accounted for as secured borrowings. These amounts are used to pay interest expense, principal, or other amounts in accordance with the related securitization agreements. Interest income on short-term cash equivalents which are restricted for on-balance sheet securitizations is included in Other revenues.

Pension and Postretirement Benefits

We use actuarial methods and assumptions to account for our defined benefit pension plans and our postretirement benefit plans. Pension and postretirement benefit 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 based on fair market values, the straight-line amortization of net actuarial gains and losses, and adjustments due to plan amendments. Net actuarial gains and losses are generally amortized over the expected average remaining service period of the employees.

Derivative Financial Instruments

We recognize all derivatives as assets or liabilities in the consolidated statements of financial condition and measure them at fair value in accordance with ASC Topic 815, Derivatives and Hedging. When certain criteria are met, the timing of gain or loss recognition on the derivative instrument is matched with the recognition of (a) the changes in the fair value or cash flows of the hedged asset or liability attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. Our policy prohibits the use of derivative financial instruments for speculative purposes. We use derivative financial instruments to reduce our exposure to interest rate volatility. We may use forward starting swap or cap contracts to limit interest rate risk exposure on the notes and certificates related to an expected sale of receivables. We may use interest rate swaps or caps to reduce exposure to interest rate changes when we sell fixed rate receivables on a variable rate basis. 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 if market conditions, interest rates or credit spreads of the counterparties change. We do not use hedge accounting for any swaps or caps under ASC Topic 815, thus changes in fair value of these instruments are recognized in Derivative expense.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Adopted Accounting Standards

In April 2009, the FASB issued new accounting guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This includes identifying circumstances that indicate a transaction is not orderly. This guidance was effective for interim periods ending after June 15, 2009. Adoption of this guidance did not have any impact on our consolidated financial condition, results of operations or cash flows.

In December 2008, the FASB issued new accounting guidance to require public entities to provide additional disclosures about transfers of financial assets. It also requires public enterprises to provide additional disclosures about their involvement with variable interest entities (“VIEs”). The disclosure requirements of this new accounting guidance are included in Note 13, Securitization Transactions.

In September 2008, the FASB issued new accounting guidance which clarifies and illustrates how an entity would determine fair value when the market for a financial asset in not active. The adoption of this new accounting guidance did not have any impact on our consolidated financial condition, results of operations or cash flows.

In March 2008, the FASB issued new accounting guidance to require enhanced disclosures relating to derivative assets and liabilities. This guidance was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The disclosure requirements of this new accounting guidance are included in Note 12, Derivative Financial Instruments.

In February 2007, the FASB issued new accounting guidance permitting entities to choose to measure many financial instruments and certain other items at fair value. This guidance was effective as of the beginning of the first fiscal year beginning after November 15, 2007. We adopted this guidance on November 1, 2008. We have not elected to measure any of our financial assets or financial liabilities at fair value which were not previously required to be measured at fair value; therefore, the adoption of this new accounting guidance did not impact our consolidated financial statements.

In September 2006, the FASB issued new accounting guidance defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements. In February 2008, the FASB amended this new accounting guidance to (1) defer the effective date one year for certain nonfinancial assets and nonfinancial liabilities and (2) remove certain leasing transactions from the scope of the new guidance. We applied this new accounting guidance to all other fair value measurements effective November 1, 2008. This new accounting guidance was effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The application of this guidance resulted in an increase of $2.2 million to the net fair value of our derivative assets and derivative liabilities for non-performance risk and a corresponding reduction to Derivative expense in fiscal 2009.

Recently Issued Accounting Standards

New accounting guidance issued by various standard setting and governmental authorities 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 financial position, results of operations and cash flows:

In June 2009, the FASB issued new accounting guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, 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 standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previous guidance required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. Qualifying special purpose entities (“QSPEs”), which were previously exempt from the application of this guidance, will be subject to the provisions of this new accounting guidance when it becomes effective. This new guidance also requires enhanced disclosures about an enterprise’s involvement with a VIE. The new guidance is effective for fiscal years beginning on or after November 15, 2009. Earlier adoption is prohibited. Our effective date is November 1, 2010. Currently, we are evaluating the impact of adoption on our consolidated financial condition, results of operations and cash flows.

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NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 2009, the FASB issued new accounting guidance that eliminates the concept of a 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. This guidance is effective for fiscal years beginning after November 15, 2009. Our effective date is November 1, 2010. Currently, we are evaluating the impact of adoption on our consolidated financial condition, results of operations and cash flows.

In December 2008, the FASB issued new accounting guidance on an employer’s disclosures about plan assets of a defined benefit pension or other post retirement plan. This guidance is effective for fiscal years ending after December 15, 2009. Our effective date is November 1, 2009. When effective, we will comply with the disclosure provisions of this new guidance.

In February 2008, the FASB issued new accounting guidance that permits companies to defer the effective date of new disclosure requirements for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. We have decided to defer adoption of the new disclosure requirements until November 1, 2009 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in our consolidated financial statements on a nonrecurring basis. Our primary nonfinancial assets that could be impacted by this deferral include Vehicle inventory, which is measured at the lower of cost or fair value and tested for impairment. Adoption is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.

In December 2007, the FASB issued new accounting guidance to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Our effective date is November 1, 2009. Adoption is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.

In December 2007, the FASB issued new accounting guidance relating to business combinations and defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Subsequently, in April 2009 the FASB issued new accounting guidance clarifying the December 2007 guidance to address application issues on: initial recognition and measurement; subsequent measurement and accounting; and disclosure of assets and liabilities arising from contingencies in a business combination. This new guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited. Our effective date is November 1, 2009. Adoption is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.

We have determined that all other recently issued accounting pronouncements are not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. TRANSACTIONS WITH AFFILIATED COMPANIES

Wholesale Notes, Wholesale Accounts and Retail Accounts

In accordance with the agreements between NFC and Navistar, Inc. relating to financing of wholesale notes, wholesale accounts and retail accounts, NFC receives interest income from Navistar, Inc. at prevailing market rates applied to the average outstanding balances. Interest paid by dealers on wholesale notes, if any, plus the payments made by Navistar, Inc. for the typical “interest free” period offered to the dealers equals the total revenues received on wholesale notes. Substantially all revenues earned on wholesale accounts and retail accounts are received from Navistar, Inc. Receivables purchased by NFC from Navistar, Inc. for the years ended October 31, 2009, 2008 and 2007, were $3.6 billion, $4.2 billion and $4.9 billion, respectively. Aggregate interest revenue from Navistar, Inc., excluding Dealcor dealers (those majority owned by Navistar, Inc.), for the years ended October 31, 2009, 2008 and 2007, was $66.0 million, $66.6 million and $118.5 million, respectively. The interest revenues are reported as components of Retail notes and finance leases revenue, Securitization income, Wholesale notes interest and Retail and wholesale accounts interest in the consolidated statements of operations. Effective November 1, 2008, NFC and Navistar, Inc. amended the April 1, 2007 Amended and Restated Master Intercompany Agreement, whereby NFC began charging Navistar, Inc. for: 1) non-use fees assessed by certain providers of NFC’s funding facilities, and 2) surcharges on balances relating to retail and wholesale accounts, and wholesale notes, and 3) surcharges on retail notes and wholesale notes balances for Dealcor dealers. Effective July 31, 2009, NFC and Navistar, Inc. entered into an additional amendment allowing NFC to charge Navistar, Inc. premium finance rates on certain retail accounts that are ineligible under the TRAC funding facility. These intercompany fees are included in Retail notes and finance leases revenue, Wholesale notes interest, Retail and wholesale accounts interest and Securitization income. These two amendments resulted in additional revenue of $19.7 million from Navistar Inc., for the year ended October 31, 2009, of which $4.3 million pertained to Dealcor dealers.

Finance Receivable, Operating Leases and Vehicle Inventory

Navistar, Inc. may be contractually liable for certain losses on NFC’s finance receivables and investments in equipment on operating leases and may be required to repurchase the repossessed collateral at the receivable principal unpaid balance or share in the impairment losses or losses on sale of vehicle inventory with NFC. Losses recorded by Navistar, Inc. on vehicles financed by NFC were as follows for the years ended October 31 (in millions):

	2009		2008		2007
Net losses on finance receivables	$	18.4	$	9.0	$	6.8
Impairment losses on vehicle inventory		9.2		7.7		-
Net losses on sales of vehicle inventory		4.2		10.9		1.6

Guarantee Fee Revenue

NFC receives fees for its guarantee of revolving debt owed by Navistar Financial, S.A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad No Regulada (“NFM”). Fee amounts are based on outstanding balances. Effective January 1, 2008, the fees on outstanding balances were raised from 25 basis points to 100 basis points. These guarantee fees for the years ended October 31, 2009, 2008 and 2007 were $2.7 million, $2.5 million and $0.6 million, respectively. Concurrently, NFC pays fees to NIC to provide a full backstop guarantee on all losses incurred as a result of NFC’s guarantee of NIC’s Mexican finance subsidiaries. Fees paid by NFC for this backstop guarantee were $0.4 million each for the years ended October 31, 2009, 2008 and 2007. No losses have been incurred relating to the guarantees.

Unsecured Loans to Affiliates

On December 10, 2008, NFC entered into a working capital loan agreement with NFM whereas NFC has agreed to lend an aggregate amount not to exceed $100.0 million (at a floating rate equal to a predetermined credit spread over the one month LIBOR rate for each month as set forth in the Amended and Restated Credit Agreement) until December 10, 2009, at which time the working capital loan agreement will expire. As of October 31, 2009 no amounts were outstanding on the working capital loan and there was no interest income recognized for the year ended October 31, 2009.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On October 19, 2007, NFC entered into a working capital loan agreement with NFM whereas NFC agreed to lend an aggregate amount not to exceed $80.0 million at a floating rate equal to one percent over the prime rate for each month until October 19, 2008, at which time the agreement expired. The loan was repaid in 2008. Interest revenue recognized on this loan included in Other revenues was $1.6 million and $0.1 million for the years ended October 31, 2008 and 2007, respectively.

Support Agreements

Under provisions of the bank credit agreement (“Agreement”), Navistar, Inc. will not permit NFC’s ratio of the sum of consolidated pretax income plus consolidated interest expense to consolidated interest expense (“Fixed Charge Coverage Ratio”) to be less than 125% on the last day of any fiscal quarter for the period of four consecutive fiscal quarters then ended. In May 2008 we received an Acknowledgement and Consent from the lenders that confirmed that capital contributions from Navistar, Inc., if any, would be part of consolidated income for purposes of the Fixed Charge Coverage Ratio calculation. Navistar, Inc. made capital contributions of $20.0 million and $60.0 million to NFC during fiscal 2009 and 2008, respectively, to ensure compliance with the 125% Fixed Charge Coverage Ratio. No such contributions were required during the fiscal year 2007.

Administrative Expenses

NFC pays a fee to Navistar, Inc. for data processing and other administrative services based on the cost of actual services performed. The amount of the fee was $5.0 million, $4.2 million, and $2.9 million for the years ended October 31, 2009, 2008 and 2007, respectively. The fee is reported in Credit, collections and administrative expenses in the consolidated statements of operations.

Net accounts due and finance receivables from affiliates

NIC has significant ownership interest in, or is primary beneficiary of VIEs related to, certain Dealcor dealers at October 31, 2009 and 2008. These dealers’ operations are consolidated with NIC. Other than being owned by NIC, Dealcor dealers are treated on par with non-owned independent dealers. Total revenue in our consolidated statements of operations includes revenue from Dealcor dealers of $8.3 million, $13.8 million and $13.9 million for the years ended October 31, 2009, 2008 and 2007, respectively. Net accounts due from affiliates represents the balance of other miscellaneous receivables related to operations, such as intercompany charges. Included in our consolidated statements of financial condition are the following finance receivables from affiliates as of October 31 (in millions):

	2009			2008
Finance receivables from affiliates net of unearned income and dealer reserve (Dealcor retail)	$	104.8		$	140.4
Finance receivables from affiliates (Dealcor wholesale)		49.5			71.9
Net accounts due (to) from affiliates (non-Dealcor)		(31.2	)		17.5

3. FINANCE RECEIVABLES

Concentration of credit risk

Our primary business is to provide wholesale, retail and lease financing for new and used trucks sold by Navistar, Inc. and Navistar, Inc.’s dealers, and as a result, our receivables and leases have significant concentration in the trucking industry. On a geographic basis, there is not a disproportionate concentration of credit risk in any region of the United States. We retain as collateral an ownership interest in the equipment associated with leases and, on behalf of the various trusts we maintain, a security interest in the equipment associated with wholesale notes and retail notes.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial instruments with potential credit risk consist primarily of Finance receivables. Finance receivables primarily represent receivables under retail finance contracts, receivables arising from leasing transactions and notes receivables. We generally maintain a secured interest in the equipment financed and perform regular credit evaluations of our dealers and customers. At October 31, 2009 and 2008, respectively, no single customer represented a significant concentration of credit risk.

Finance receivables balances, as of October 31, are summarized as follows (in millions):

	2009			2008
Retail notes, net of unearned income	$	1,955.2		$	2,468.0
Finance leases, net of unearned income		121.5			122.7
Wholesale notes held for sale		167.9			118.0
Accounts (includes retail and wholesale)		294.0			197.6
Finance receivables from affiliates, net of unearned income		154.3			212.3
Total finance receivables		2,692.9			3,118.6
Allowance for losses		(32.6	)		(28.4	)
Total finance receivables, net	$	2,660.3		$	3,090.2

Accounts include $175.3 million and $41.6 million as of October 31, 2009 and 2008, respectively, from Ford relating to an engine supply contract with Navistar, Inc. which expires in December 2009. NFC recorded financing revenue relating to the Ford accounts of $10.1 million, $13.0 million and $22.1 million for the years ended October 31, 2009, 2008 and 2007, respectively.

Contractual maturities of finance receivables as of October 31, 2009, are summarized as follows (in millions):

	Retail notes			Finance leases			Wholesale notes		Accounts		Affiliates
Due in fiscal year:
2010	$	794.2		$	47.4		$	167.9	$	294.0	$	81.4
2011		582.8			31.9			-		-		31.4
2012		391.8			21.2			-		-		20.7
2013		225.4			31.5			-		-		11.6
2014		100.8			5.2			-		-		6.2
Thereafter		40.2			2.3			-		-		3.5
Gross finance receivables		2,135.2			139.5			167.9		294.0		154.8
Unearned finance income		(180.0	)		(18.0	)		-		-		(0.5	)
Finance receivables, net of unearned income	$	1,955.2		$	121.5		$	167.9	$	294.0	$	154.3

The actual cash collections from finance receivables may vary from the contractual cash flows because of sales, prepayments, extensions, delinquencies, credit losses, and renewals. The contractual maturities, therefore, should not be regarded as a forecast of future collections.

4. ALLOWANCE FOR LOSSES

The Allowance for losses for finance receivables is summarized as follows for the fiscal years ended October 31 (in millions):

	2009			2008			2007
Allowance for losses, beginning of year	$	28.4		$	23.9		$	15.3
Provision for credit losses		29.7			32.2			19.6
Net charge-offs		(25.5	)		(27.7	)		(11.0	)
Allowance for losses, end of year	$	32.6		$	28.4		$	23.9

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Finance receivables include the following amounts relating to impaired receivables as of October 31 (in millions):

	2009		2008		2007
Impaired receivables with specific loss reserves.	$	62.3	$	55.8	$	37.2
Impaired receivables without specific loss reserves.		2.5		3.8		0.9
Total impaired receivables	$	64.8	$	59.6	$	38.1



Specific loss reserves on impaired receivables recorded by NFC	$	10.3	$	4.6	$	3.1
Specific loss reserves on impaired receivables recorded by Navistar, Inc.		14.2		16.1		6.8
Finance receivables over 60 days delinquent		15.7		18.6		23.0

The average balances of impaired finance receivables for the years ended October 31, 2009, 2008 and 2007 were $64.2 million, $46.8 million and $27.5 million, respectively.

Impaired receivables include customer balances identified as troubled loans as a result of financial difficulties, and other receivables on which earnings were suspended. NFC continued to collect payments on certain impaired receivable balances on which earnings were suspended. As of October 31, 2009, three customers accounted for 42.5% of total impaired receivables with specific loss reserves of $5.6 million recorded by NFC and $2.0 million recorded by Navistar, Inc. As of October 31, 2008, two customers accounted for 36.5% of total impaired receivables with specific loss reserves of $0.2 million recorded by NFC and $9.2 million recorded by Navistar, Inc. NFC would be solely responsible for $12.5 million and $17.8 million of impaired receivables as of October 31, 2009, and October 31, 2008, respectively. Navistar, Inc. would be solely responsible for $4.4 million and $8.7 million of impaired receivables as of October 31, 2009, and October 31, 2008, respectively. Losses on the remaining impaired receivables are allocated between NFC and Navistar, Inc. based on pre-established ratios under the loss sharing arrangements.

5. VEHICLE INVENTORY

NFC has inventory relating to asset repossessions of defaulted receivables and leased equipment returned at the end of the lease term that it reports separately in the consolidated statements of financial condition. Certain impairment losses and losses on the sale of vehicle inventory are allocated between NFC and Navistar, Inc. based on pre-established ratios under the loss sharing arrangements. Combined net losses recorded by NFC and Navistar, Inc. are summarized as follows for the years ended October 31 (in millions):

	2009		2008		2007
Impairment losses on vehicle inventory	$	13.1	$	12.6	$	-
Net losses on sale of vehicle inventory		6.7		15.7		3.1

See Note 2, Transactions with Affiliated Companies, for the portion of the above losses recorded by Navistar, Inc. The remaining impairment losses and losses on the sale of vehicles recorded by NFC are included in Other expenses in the consolidated statements of operations.

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NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The change in NFC’s Vehicle inventory is summarized as follows for the years ended October 31 (in millions):

	2009			2008			2007
Vehicle inventory, beginning of period	$	42.0		$	23.2		$	5.2
Net additions		67.3			129.0			49.6
Impairment loss:
Recorded by NFC		(3.9	)		(4.9	)		-
Recorded by Navistar, Inc.		(9.2	)		(7.7	)		-
Net book value of inventory sold		(69.7	)		(97.6	)		(31.6	)
Vehicle inventory, end of period	$	26.5		$	42.0		$	23.2

6. NET INVESTMENT IN OPERATING LEASES

Net investment in operating leases is summarized as follows as of October 31 (in millions):

	2009			2008
Investment in equipment under operating leases	$	119.8		$	119.5
Less: Accumulated depreciation		(41.0	)		(47.5	)
Net investment in equipment under operating leases		78.8			72.0
Rent receivable net of reserve for past due operating leases		0.7			0.9
Net investment in operating leases	$	79.5		$	72.9

Future minimum rentals on operating leases are as follows: 2010, $20.4 million; 2011, $13.3 million; 2012, $9.9 million; 2013, $7.3 million; 2014, $3.1 million, and $2.2 million thereafter.

7. INCOME TAXES

Taxes on income for the years ended October 31 are summarized as follows (in millions):

	2009			2008			2007
Federal and foreign	$	14.8		$	0.6		$	43.2
State and local		(0.4	)		1.7			3.0
Total current		14.4			2.3			46.2
Deferred (primarily federal)		3.5			(16.4	)		(8.1	)
Total income tax (benefit) expense	$	17.9		$	(14.1	)	$	38.1

A reconciliation of the statutory federal income tax expense (benefit) to recorded income tax expense (benefit) for the years ended October 31 is as follows:

	2009		2008			2007
Statutory federal income tax expense (benefit)	$	16.3	$	(15.7	)	$	36.9
State income taxes net of federal income taxes		0.6		0.5			1.4
Other		1.0		1.1			(0.2	)
Income tax expense (benefit)	$	17.9	$	(14.1	)	$	38.1

NFC and its domestic subsidiaries are included in NIC’s consolidated federal income tax returns. Certain state income tax returns are required to be filed on a separate basis and others are included in various combined reports. In accordance with its intercompany tax sharing agreement with NIC, all federal income tax liabilities or credits are determined by NFC and its domestic subsidiaries as if NFC filed its own consolidated return. No income tax payments were made to NIC during fiscal 2009. Total income tax payments made to NIC during fiscal 2008 and 2007 were $71.0 million and $30.8 million, respectively. The amount of federal and state income taxes payable to (due from) NIC as of October 31, 2009 and 2008 were $5.9 million and ($0.9) million, respectively. Accrued income tax is included in Other liabilities on the consolidated statements of financial condition.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The net deferred tax asset is included in Other assets on the consolidated statements of financial condition. The components of deferred tax assets and liabilities from operations as of October 31 are as follows (in millions):

	2009			2008
Deferred tax assets:
Pension and other postretirement benefits	$	13.8		$	8.6
Allowance for losses		11.9			10.4
Secured borrowings		48.0			47.8
Market value adjustments on derivatives and retained interest		16.3			23.1
Other		6.2			8.6
Less valuation allowance		(0.9	)		(1.5	)
Total deferred tax assets		95.3			97.0

Deferred tax liabilities:
Lease transactions		(24.1	)		(27.0	)
Equipment under operating lease		(24.7	)		(23.6	)
Total deferred tax liabilities		(48.8	)		(50.6	)
Net deferred tax assets	$	46.5		$	46.4

We have incurred net operating losses in certain states where we file separately from NIC. As a result of those losses and our net deferred tax asset position, we assessed the need for a valuation allowance based on a determination of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. As a result of that assessment, a valuation allowance was established in the amount of $0.9 million and $1.5 million as of October 31, 2009 and 2008, respectively. We believe that the remaining deferred tax assets will more likely than not be realized.

On November 1, 2007, we adopted new accounting guidance which 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 new 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 should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. New guidance is provided on de-recognition, classification, interest and penalties on income taxes, and accounting in interim periods. Upon adoption, we increased our liability for uncertain tax positions by $3.9 million, resulting in a decrease to retained earnings of $2.5 million. As of October 31, 2009 and 2008, the amount of liability for uncertain tax positions exclusive of accrued interest and penalties was $7.9 million and $10.3 million, respectively. If these unrecognized tax benefits are recognized, the entire amount would impact our effective tax rate.

The recognition of the beginning and ending gross unrecognized tax benefits is as follows (in millions):

Balance at November 1, 2008	$	10.3
Increase related to prior year tax positions		-
Decrease related to prior year tax positions		(0.5	)
Decrease related to current year tax positions		(0.8	)
Reductions related to lapse in applicable statute of limitations		(1.1	)
Balance at October 31, 2009	$	7.9

We recognize interest and penalties as part of Income tax (benefit) expense. Total interest and penalties included in income tax expense for the year ended October 31, 2009 were less than $0.1 million and for the year ended October 31, 2008 were $0.7 million. Cumulative interest and penalties included in the consolidated balance sheets as of October 31, 2009, were $3.4 million.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We, as a subsidiary of NIC, are subject to examination in the United States federal tax jurisdiction for the years 2002 to 2008. Also, as a subsidiary of NIC or as a separate filing entity, we are subject to examination in various state and foreign jurisdictions over various periods. 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. We believe we have sufficient accruals for our contingent liabilities. While it is probable that the liability for uncertain tax positions may change during the next twelve months, we do not believe that such change would have a material impact on our financial condition, results of operations, or cash flows.

8. SENIOR AND SECURED BORROWINGS

Senior and secured borrowings are summarized as follows for the fiscal years ended October 31 (in millions):

					Weighted Average Interest Rate
	2009		2008		2009			2008
Senior bank credit facility at variable rates due July 2010, refinanced subsequent to year end	$	1,267.9	$	1,057.6		2.3	%		5.7	%
Revolving retail warehouse facility at variable rates due June 2010		500.0		500.0		0.5	%		4.6	%
Borrowings secured by asset-backed securities at various rates, currently between 0.5% and 4.4% due serially through 2016		1,191.5		1,989.6		1.6	%		3.8	%
Borrowings secured by operating and finance leases at rates currently between 2.6% and 6.6% due serially through July 2016		134.2		131.9		4.0	%		4.5	%
Total senior and secured borrowings	$	3,093.6	$	3,679.1		1.8	%		4.5	%

The senior bank credit agreement (“Agreement”), as amended in March 2007, has two primary components, a term loan of $620.0 million and a revolving bank loan of $800.0 million. The latter has a Mexican sub-revolver up to $100.0 million which may be used by NIC’s Mexican finance subsidiaries. The term loan principal balance as of October 31, 2009 and 2008 was $597.4 million and $603.6 million, respectively.

Availability under the revolver portion of the Agreement as of October 31 was as follows (in millions):

	2009			2008
Revolver bank loan	$	800.0		$	800.0
NFC revolving loan utilized		(670.5	)		(454.0	)
Mexican sub-revolver loan utilized		(14.0	)		(100.0	)
Total availability	$	115.5		$	246.0

Under the terms of the Agreement, as amended, NFC is required to maintain a debt to tangible net worth ratio of no greater than 6:1, a twelve-month rolling fixed charge coverage ratio of no less than 125%, and a twelve-month rolling combined retail/lease losses to liquidations ratio of no greater than 6%. The Agreement grants security interests in substantially all of NFC’s unsecured assets to the participants in the Agreement. Compensating cash balances are not required. Annual facility fees of 0.375% are paid in quarterly installments on the revolving loan portion only, regardless of usage.

The amount of dividends permitted by the Agreement to be paid to our parent company is $400.0 million plus net income and any non-core asset sale proceeds from May 1, 2007, through the date of such payment. As of October 31, 2009, no dividends were available for distribution to our parent company.

On December 16, 2009, the Agreement was refinanced for $815.0 million due in 2012. The refinancing contains a term loan of $365.0 million and a revolving loan of $450.0 million with a sub-revolver of $100.0 million designated for NIC’s Mexican finance subsidiaries. Under the new agreement, NFC is subject to customary operational and financial covenants including an initial minimum collateral coverage ratio of 120%. Concurrent with the refinancing, NFC issued secured borrowings of $304.2 million secured by retail notes and leases.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TRIP, a special purpose, wholly-owned subsidiary of NFC, has a $500 million revolving retail warehouse facility which matures in June 2010 and is 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 uses TRIP to temporarily fund retail notes and retail leases, other than operating leases. This facility is used primarily during the periods prior to a securitization of retail notes and finance leases. NFC retains a repurchase option against the retail notes and leases sold into TRIP, therefore TRIP’s assets and liabilities are included in our consolidated statements of financial condition. The balance of receivables in TRIP fluctuates based on the demand for retail truck financing and the timing of our retail securitizations. As of October 31, 2009 and 2008 NFC had $301.1 million and $242.5 million, respectively, in retail notes and finance leases in TRIP.

The 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 $1.2 billion and $2.0 billion as of October 31, 2009 and 2008, respectively. The carrying amount of the retail notes and finance leases used as collateral was $1.3 billion and $2.0 billion as of October 31, 2009 and 2008, respectively. On November 16, 2009, NFC exercised its right to pay off retail securitization debt of $66.9 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 Senior and secured borrowings as borrowings secured by leases. In connection with the securitizations and secured borrowing agreements of certain of its leasing portfolio assets, NFC and its wholly-owned subsidiary, Navistar Leasing Services Corporation (“NLSC”) have established Navistar Leasing Company (“NLC”), a Delaware business trust. NLSC was formerly known as Harco Leasing Company, Inc. prior to its name change effective September 21, 2006. 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 of NLC totaled $9.2 million and $1.5 million as of October 31, 2009 and 2008, respectively.

ITLC, a special purpose, wholly-owned subsidiary of NFC, was established in June 2004 to provide NFC with another vehicle to obtain borrowings secured by leases. The balances are classified under Senior and secured borrowings 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 $125.0 million and $130.4 million as of October 31, 2009 and 2008, respectively. The carrying amount of the finance and operating leases used as collateral was $105.4 million and $121.2 million as of October 31, 2009 and 2008, respectively. Restricted cash and cash equivalents used as collateral was $11.2 million as of October 31, 2009 and $10.9 million as of October 31, 2008. In addition, these secured borrowings are secured by the monthly rental payments on operating leases.

The future aggregate annual contractual maturities and required payments of Senior and secured borrowings as of October 31, 2009, presented reflecting the impact of the subsequent refinancing of our bank facility in December 2009, are as follows (in millions):

Year ended October 31
2010	$	692.2
2011		210.4
2012		25.1
2013		1,042.8
2014		344.7
Thereafter		778.4
Total	$	3,093.6

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. POSTRETIREMENT BENEFITS

Defined Benefits Plans

We provide postretirement benefits to some employees. Costs associated with postretirement benefits include pension and postretirement healthcare expenses for employees, retirees, and surviving spouses and dependents. We use an October 31 measurement date for all of our defined benefit plans.

Effective October 31, 2007, we adopted new accounting guidance requiring that the funded status of our pension plans and the benefit obligations of our post-retirement benefit plans be recognized in our consolidated statements of financial condition. The new guidance also requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year end. We have historically measured the plan assets and benefit obligations as of our balance sheet date.

Generally, the plans are non-contributory. Our policy is to fund pension plans in accordance with applicable United States government regulations. As of October 31, 2009, all legal funding requirements had been met. We were not required to make contributions to our pension plans for fiscal years 2008 or 2009.

Obligations and Funded Status

A summary of the changes in benefit obligations and plan assets is as follows (in millions):

	Pension Benefits						Other Benefits
	2009			2008			2009			2008
Change in benefit obligation
Benefit obligation at beginning of year	$	51.9		$	65.5		$	15.2		$	20.4
Amendments		0.5			-			-			-
Service cost		0.3			0.3			0.1			0.1
Interest on obligation		4.2			3.9			1.2			1.2
Actuarial net loss (gain)		13.0			(13.1	)		3.0			(5.4	)
Plan participants’ contributions		-			-			0.3			0.2
Benefits paid		(4.3	)		(4.7	)		(1.6	)		(1.5	)
Subsidy receipts		-			-			0.2			0.2
Benefit obligation at end of year	$	65.6		$	51.9		$	18.4		$	15.2

Change in plan assets
Fair value of plan assets at beginning of year	$	42.4		$	68.1		$	6.0		$	9.5
Actual return on plan assets		5.5			(21.5	)		0.9			(3.1	)
Employer contributions		0.5			0.5			-			0.1
Benefits paid		(4.3	)		(4.7	)		(0.4	)		(0.5	)
Fair value of plan assets at end of year	$	44.1		$	42.4		$	6.5		$	6.0

Unfunded status	$	(21.5	)	$	(9.5	)	$	(11.9	)	$	(9.2	)

Amounts recognized in the consolidated statements of financial condition consist of:
Other assets	$	-		$	-		$	-		$	-
Other liabilities		(21.5	)		(9.5	)		(11.9	)		(9.2	)
Net amount recognized	$	(21.5	)	$	(9.5	)	$	(11.9	)	$	(9.2	)

Amounts recognized in our accumulated other comprehensive loss (pretax) consist of:
Net actuarial loss (gain)	$	25.8	$	15.0	$	0.2	$	(2.7	)
Prior service cost		0.5		0.1		-		-
Net amount recognized	$	26.3	$	15.1	$	0.2	$	(2.7	)

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accumulated benefit obligation for pension benefits, a measure which excludes the effect of salary and wage increases, was $63.9 million and $50.7 million as of October 31, 2009 and 2008, respectively.

The amounts included in Accumulated other comprehensive loss are net of deferred income taxes of $9.7 million and $4.7 million at October 31, 2009 and 2008, respectively.

Net periodic postretirement benefits expense (income) included in the consolidated statements of operations for the years ended October 31, is comprised of the following (in millions):

	Pension Benefits									Other Benefits
	2009			2008			2007			2009			2008			2007
Service cost for benefits earned during the period	$	0.3		$	0.3		$	0.3		$	0.1		$	0.1		$	0.1
Interest on obligation		4.2			3.9			3.9			1.2			1.2			1.2
Amortization of cumulative losses (gains)		0.5			0.2			0.5			(0.2	)		-			-
Less expected return on assets		(3.6	)		(5.9	)		(5.3	)		(0.5	)		(0.8	)		(0.7	)
Net postretirement benefits expense (income):	$	1.4		$	(1.5	)	$

Filing Compare · NAVISTAR FINANCIAL CORP