UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~January 31, ~~2009~~2010

[ ] 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 1001-~~4146-1~~04146

NAVISTAR FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

425 N. Martingale Road, Schaumburg, IL 60173

(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code (630) 753-4000

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” 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 Exchange Act).

Yes [ ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of January ~~August~~ 31, ~~2009~~2010, the number of shares outstanding of the registrant's common stock was 1,600,000.

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 H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INDEX
		~~Page Reference~~	Page Reference
~~PART I.~~	~~FINANCIAL~~PART ~~INFORMATION~~I.	FINANCIAL INFORMATION
~~Item 1.~~	~~Consolidated~~Item ~~Financial Statements:~~1.	Consolidated Financial Statements:
	Consolidated Statements of Operations (Unaudited) - Three Months and Nine Months Ended July 31, 2009 and 2008		3
		Consolidated Statements of Operations (Unaudited) - Three Months Ended January 31, 2010 and 2009	3
	Consolidated Statements of Shareowner’s Equity and Comprehensive Income (Loss) (Unaudited) – Nine Months Ended July 31, 2009 and 2008		4
		Consolidated Statements of Shareowner’s Equity and Comprehensive Income (Loss) (Unaudited) – Three Months Ended January 31, 2010 and 2009	4
	Consolidated Statements of Financial Condition – July 31, 2009 (Unaudited) and October 31, 2008		5
		Consolidated Statements of Financial Condition - January 31, 2010 (Unaudited) and October 31, 2009	5
	Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended July 31, 2009 and 2008		6
		Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended January 31, 2010 and 2009	6
	~~Notes to Consolidated Financial Statements (Unaudited)~~	Notes to Consolidated Financial Statements (Unaudited)	7
~~Item 2.~~	~~Management's~~Item ~~Discussion and Analysis of Financial Condition and Results of Operations~~2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2625
~~Item 3.~~	~~Quantitative~~Item ~~and Qualitative Disclosures about Market Risk~~3.	Quantitative and Qualitative Disclosures about Market Risk	3633
~~Item 4.~~	~~Controls~~Item ~~and Procedures~~4.	Controls and Procedures	3633
~~PART II.~~	~~OTHER~~PART ~~INFORMATION~~II.	OTHER INFORMATION
~~Item 6.~~	~~Exhibits~~Item 6.	Exhibits	3834
	~~Signature~~	Signature	3935
	Exhibit Index		40

INDEX

PART I

Item 1. Consolidated Financial Statements

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Millions of Dollars	For the Three Months Ended July 31,						For the Nine Months Ended July 31,
Millions of dollars	For the Three Months Ended January 31,
	2009			2008			2009		2008
	2010			2009
Revenues
Retail notes and finance leases revenue	$	4240.17		$	5347.31		$	~~135.3~~	$	~~172.0~~
Operating leases revenue		5.6.2			5.2			~~16.0~~		~~16.2~~
Wholesale notes interest		34.50			35.72			~~11.0~~		~~12.5~~
Retail and wholesale accounts interest		45.74			45.83			~~15.1~~		~~20.2~~
Securitization income		164.21			210.71			~~37.7~~		~~20.0~~
Other revenues		13.59			42.48			~~5.9~~		~~20.8~~
Total revenues		7364.63			7475.17			~~221.0~~		~~261.7~~
Expenses
Cost of borrowing:
Interest expense		15.76			3826.39			~~57.7~~		~~147.4~~
Other		36.31			3.43			~~10.2~~		~~8.8~~
Credit, collections and administrative		13.05			1315.4			~~43.4~~		~~43.6~~
Provision for credit losses		98.10			134.30			~~21.5~~		~~23.9~~
Depreciation on operating leases		45.12			4.3.9			~~12.1~~		~~12.8~~
Derivative expense		43.56			122.14			~~36.1~~		~~39.6~~
Other expenses		1.6			2.2			4.3		5.1
Other (income) expenses		(0.1	)		2.3
Total expenses		51.39			7678.02			~~185.3~~		~~281.2~~
Income (loss) before taxes		2212.34			(12.95	)		~~35.7~~		~~(19.5~~	)
Income tax expense (benefit)		8.4.7			(0.56	)		~~13.9~~		~~(6.3~~	)
Net income (loss)	$	137.97		$	(1.49	)	$	~~21.8~~	$	~~(13.2~~	)

See Notes to Consolidated Financial Statements

INDEX

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Shareowner’s Equity and Comprehensive Income

~~Income~~ (Loss) (Unaudited)

Millions of dollars	Capital Stock		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total			Comprehensive Income (Loss)
Balance at October 31, 2007	$	1.6	$	139.6	$	127.1		$	(0.2	)	$	268.1
2008 Activity:
Net loss		-		-		(13.2	)		-			(13.2	)	$	(13.2	)
Capital contribution from parent company		-		25.0		-			-			25.0			-
Pension adjustment, (net of tax $0.3)		-		-		-			0.5			0.5			0.5
Impact of adopting FIN 48		-		-		(2.5	)		-			(2.5	)		-
Cash dividend paid to parent company		-		-		(14.8	)		-			(14.8	)		-
Balance at July 31, 2008	$	1.6	$	164.6	$	96.6		$	0.3		$	263.1		$	(12.7	)
Balance at October 31, 2008	$	1.6	$	199.6	$	79.1		$	(7.7	)	$	272.6
2009 Activity:
Net income		-		-		21.8			-			21.8		$	21.8
Net loss		-		-		(1.9	)		-			(1.9	)	$	(1.9	)
Capital contribution from parent company		-		20.0		-			-			20.0			-
Pension adjustment, (net of tax $0.1)		-		-		-			0.4			0.4			0.4
Pension adjustment, (net of tax)		-		-		-			0.2			0.2			0.2
Balance at July 31, 2009	$	1.6	$	219.6	$	100.9		$	(7.3	)	$	314.8		$	22.2
Balance at January 31, 2009	$	1.6	$	219.6	$	77.2		$	(7.5	)	$	290.9		$	(1.7	)
Balance at October 31, 2009	$	1.6	$	219.6	$	107.8		$	(16.8	)	$	312.2
2010 Activity:
Net income		-		-		7.7			-			7.7		$	7.7
Pension adjustment, (net of tax)		-		-		-			0.2			0.2			0.2
Balance at January 31, 2010	$	1.6	$	219.6	$	115.5		$	(16.6	)	$	320.1		$	7.9

See Notes to Consolidated Financial Statements

INDEX

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Financial Condition

Millions of dollars	As of ~~July~~January 31, ~~2009~~2010			As of October 31, ~~2008~~2009
	(Unaudited)
ASSETS
Cash and cash equivalents	$	1712.82		$	3416.41
Finance receivables, net of unearned income:
Finance receivables		2,~~489~~272.51			2,~~906~~538.36
Finance receivables from affiliates		~~127~~119.0			~~212~~154.3
Allowance for losses		(3335.73	)		(2832.46	)
Finance receivables, net		2,~~582~~355.8			32,~~090~~660.23
Amounts due from sales of receivables		~~220~~315.34			~~229~~291.65
Net accounts due from affiliates		3.8			17.5
Net investment in operating leases		92.0			79.5
Net investment in operating leases		72.5			72.9
Vehicle inventory		22.5			26.5
Vehicle inventory		27.9			42.0
Restricted cash and cash equivalents		364.5			421.8
Restricted cash and cash equivalents		475.5			515.4
Other assets		113.4			107.7
Other assets		113.3			123.0
Total assets	$	3,275.8		$	3,603.4
Total assets	$	3,513.9		$	4,125.0
LIABILITIES AND SHAREOWNER’S EQUITY
Senior and secured borrowings	$	3,031.3		$	3,679.1
Net accounts due to affiliates	$	177.2		$	31.2
Other liabilities		167.8			173.3
Senior and secured borrowings		2,631.0			3,093.6
Total liabilities		3,199.1			3,852.4
Other liabilities		147.5			166.4
Total liabilities		2,955.7			3,291.2
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~~219.6
Retained earnings		~~100~~115.95			79107.18
Accumulated other comprehensive loss		(716.36	)		(716.78	)
Total shareowner’s equity		~~314~~320.81			~~272~~312.62
Total liabilities and shareowner’s equity	$	3,~~513~~275.98		$	43,~~125~~603.04

See Notes to Consolidated Financial Statements

INDEX

Navistar Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Millions of dollars	For the Nine Months Ended July 31,
	For the Three Months Ended January 31,
	2009			2008
Millions of dollars	2010			2009
Cash flow from operating activities:
Net income (loss)	$	217.87		$	(131.29	)
Adjustments to reconcile net loss to cash flow from operations:
Net loss on sales of finance receivables		3415.5			1114.48
Net loss on sale and impairment of equipment under operating
Net (gain) loss on sale and impairment of equipment under
leases and vehicle inventory		5.7			0.4
operating leases and vehicle inventory		(0.3	)		2.1
Depreciation and amortization		2010.50			186.75
Provision for credit losses		218.50			234.90
Net change in amounts due from sales of receivables		9(23.39	)		5530.78
Net change in finance receivables - wholesale notes		612.20			~~(49~~6.46	)
Net change in finance receivables from affiliates - wholesale		5030.61			(334.36	)
Net change in net accounts due from affiliates		13.7			41.1
Net change in net accounts due to affiliates		146.0			45.4
Net change in other assets and liabilities		(28.49	)		(581.82	)
Net cash provided by operating activities		~~181~~196.42			26141.57
Cash flow from investing activities:
Originations of retail notes and finance leases, includes affiliates		(446.2	)		(609.1	)
Net originations of retail notes and finance leases, includes affiliates		(185.8	)		(206.7	)
Net change in restricted cash and cash equivalents		3957.93			~~(266~~150.21	)
Collections on retail notes and finance lease receivables, net of change in unearned finance income, includes affiliates		~~780~~245.08			~~1,030~~282.01
Net change in finance receivables from affiliates - accounts		61.04			103.97
Net change in finance receivables - accounts		19166.28			~~103~~85.27
Proceeds from sale of vehicle inventory		5114.28			6114.53
Purchase of equipment leased to others		(2120.92	)		(235.63	)
Proceeds from sale of equipment under operating leases		32.07			110.87
Loans to affiliates		-			(10.0	)
Net cash provided by investing activities		282.8			324.6
Loan repayment from affiliates		-			70.0
Net cash provided by investing activities		431.2			378.5
Cash flow from financing activities:
Net change in senior bank revolver, net of issuance costs		(44.5	)		34.4
Net change in bank revolver facilities, net of issuance costs		(290.7	)		(202.9	)
Principal payments on senior bank term debt		(4.6	)		(3.1	)
Proceeds from issuance of senior bank term debt, net of issuance costs		435.3			-
Proceeds from issuance of secured borrowings, net of issuance costs		326.3			1,049.9
Principal payments on senior bank term debt		(599.8	)		(1.6	)
Payments on secured borrowings		(926.4	)		(1,429.9	)
Proceeds from issuance of secured borrowings, net of issuance costs		239.0			11.5
Dividends paid to parent company		-			(14.8	)
Payments on secured borrowings		(266.7	)		(316.6	)
Capital contribution from parent company		~~20.0~~-			2520.0
Net cash used in financing activities		(629.2	)		(338.5	)
Net cash used by financing activities		(482.9	)		(489.6	)
Change in cash and cash equivalents		(163.69	)		66(23.53	)
Cash and cash equivalents, beginning of year		3416.41			1034.64
Cash and cash equivalents, end of period	$	1712.82		$	7711.1
Supplemental cash flow information:
Interest paid	$	6315.23		$	~~153~~31.34
Income taxes paid, net of refunds		0.45			560.31
Transfers of loans and leases to vehicle inventory		5011.25			8412.15

See Notes to Consolidated Financial Statements

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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.

We prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange ~~Commission~~ Commission (“SEC”). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In our opinion all normal recurring adjustments necessary for a fair presentation are reflected in the consolidated financial statements. We have evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through September 9, 2009, the day the consolidated financial statements were filed with the SEC. Operating results for the three ~~and nine~~ month period ~~periods~~ ended ~~July~~January 31, ~~2009~~2010 are not necessarily indicative of the results for the full year. The accompanying unaudited financial statements have been prepared in accordance with accounting policies described in our ~~2008~~ 2009 Annual Report on Form 10-K and should be read in conjunction with the disclosures therein.

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 have any earning assets located in foreign countries, nor do we derive revenues from any single customer that represents 10% or more of our total revenues.

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.

INDEX

~~Reclassifications~~NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

~~Certain~~NOTES ~~previously~~TO CONSOLIDATED ~~reported~~FINANCIAL ~~amounts~~STATEMENTS ~~have been reclassified to conform to the current quarter’s financial statement presentation.~~(UNAUDITED)

Recently Adopted Accounting Standards

~~FASB~~As ~~FSP~~of January ~~No.~~31, ~~107-1~~2010, ~~and~~we ~~APB~~adopted ~~28-1~~new -accounting Inguidance ~~April~~that ~~2009~~expands ~~the Financial~~disclosure requirements ~~Accounting~~for ~~Standards~~nonfinancial ~~Board~~assets ~~("FASB") approved~~and ~~FASB~~nonfinancial ~~Staff~~liabilities ~~Position~~that ~~("FSP")~~are recognized ~~No.~~or ~~107-1~~disclosed ~~and~~at ~~APB~~fair ~~28-1,~~value ~~Interim~~in ~~Disclosures~~the ~~about~~financial ~~Fair~~statements ~~Value~~on ofa nonrecurring ~~Financial Instruments~~basis. ~~This~~ ~~statement~~Our ~~amends Statement~~nonfinancial ofasset ~~Financial~~impacted ~~Accounting~~by ~~Standards~~this ~~("SFAS") No.~~disclosure ~~107,~~was ~~Disclosures~~Vehicle ~~about~~inventory, ~~Fair~~which ~~Value~~is measured ofat ~~Financial~~the ~~Instruments,~~lower toof ~~require~~cost ~~disclosures~~or ~~about~~ fair value ofand ~~financial~~reviewed ~~instruments~~ for ~~interim~~impairment. ~~reporting~~The ~~periods~~new guidance ofrelates ~~publicly~~to ~~traded~~disclosure ~~companies~~only asand, ~~well~~therefore, asdid innot ~~annual~~have ~~financial~~an ~~statements.~~impact ~~This~~on our ~~FSP~~consolidated isfinancial ~~effective~~condition, ~~for~~results ~~interim~~of ~~periods~~operations or ~~ending~~cash ~~after June 15, 2009~~flows. The disclosure requirements of this ~~FSP~~new accounting guidance are included in Note 13, Fair Value ~~of Financial Instruments~~ Measurements.

~~FASB~~Effective November ~~FSP~~1, ~~No. 157-4 - In April~~ 2009 ~~the FASB approved FSP No. 157-4~~, ~~Determining~~we ~~Fair~~adopted ~~Value~~new ~~When~~accounting ~~the~~guidance ~~Volume~~to ~~and~~establish ~~Level~~accounting ~~of Activity for the Asset or Liability Have Significantly Decreased~~ and ~~Identifying Transactions That Are Not Orderly.~~ ~~This~~reporting ~~statement~~standards ~~provides additional guidance~~ for ~~estimating~~a ~~fair~~noncontrolling ~~value~~interest in ~~accordance~~a ~~with~~subsidiary ~~FASB Statement No. 157, Fair Value Measurements, when the volume~~ and ~~level of activity~~ for the deconsolidation ~~asset~~of ora ~~liability have significantly decreased~~subsidiary. ~~This~~The ~~FSP also includes~~ guidance onclarifies ~~identifying~~that ~~circumstances~~a ~~that~~noncontrolling interest ~~indicate~~in a ~~transaction~~subsidiary is ~~not~~an ~~orderly.~~ownership ~~This~~interest ~~FSP~~in isthe ~~effective~~consolidated ~~for interim~~entity ~~periods~~that ~~ending~~should ~~after~~be ~~June~~reported ~~15,~~as ~~2009.~~equity ~~The~~in ~~adoption~~the ofconsolidated ~~this~~financial ~~FSP~~statements. Adoption did not have ~~any~~an impact on our consolidated financial condition, results of operations or cash flows.

~~FASB~~Effective November ~~FSP~~1, ~~No.~~2009 ~~FAS 140-4~~we ~~and~~adopted ~~FIN 46(R)-8~~new –accounting Inguidance ~~December~~relating ~~2008,~~to ~~the~~business combinations ~~FASB~~that ~~issued~~defines ~~FSP~~the ~~No.~~acquirer ~~FAS 140-4~~as ~~and~~the ~~FIN 46(R)-8,~~entity ~~Disclosures~~that byobtains ~~Public~~control ~~Entities (Enterprises) about Transfers~~ of ~~Financial~~one or ~~Assets~~more ~~and~~businesses ~~Interests~~ in ~~Variable~~ ~~Interest~~the ~~Entities~~business ~~(“FSP~~combination ~~FAS 140-4~~ and ~~FIN 46(R)-8”).~~establishes ~~This~~the ~~FSP~~acquisition date ~~amends~~as ~~SFAS~~the ~~No. 140~~date tothat ~~require~~the ~~public~~acquirer ~~entities~~achieves tocontrol. ~~provide~~Additionally, ~~additional~~the ~~disclosures~~new guidance ~~about~~addresses ~~transfers~~application ofissues ~~financial~~on: ~~assets.~~initial Itrecognition ~~also~~and ~~amends~~measurement; subsequent ~~FIN 46(R) to~~measurement ~~require~~and ~~public~~accounting; ~~enterprises~~and todisclosure ~~provide~~of ~~additional~~assets ~~disclosures~~and ~~about~~liabilities arising ~~their~~from ~~involvement~~contingencies ~~with~~in ~~variable~~a ~~interest~~business ~~entities (“VIEs”)~~combination. ~~The~~Adoption ~~disclosure~~did ~~requirements~~not ofhave ~~FSP FAS 140-4~~an ~~and~~impact ~~FIN 46(R)-8~~on ~~are~~our ~~included~~consolidated infinancial ~~Note 12~~condition, ~~Securitization~~results ~~Transactions~~of operations or cash flows.

FASB FSP No. 157-3 - In September 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active, which clarifies the application of SFAS No. 157 in anRecently ~~inactive~~Issued ~~market~~Accounting and illustrates how an entity would determine fair value when the market for a financial asset in not active. The adoption of FSP No. 157-3 did not have any impact on our consolidated financial condition, results of operations or cash flows.Standards

~~SFAS~~New accounting ~~161~~guidance ~~- In March 2008, the FASB~~ issued ~~SFAS~~by ~~No.~~various ~~161,~~standard ~~Disclosures~~setting ~~about Derivative Instruments~~ and ~~Hedging~~governmental authorities ~~Activities—an~~that ~~amendment~~has ofnot ~~FASB~~yet ~~Statement~~become ~~No.~~effective ~~133,~~with respect to ~~require~~our ~~enhanced disclosures. This statement is effective~~consolidated ~~for~~ financial statements ~~issued~~is ~~for~~described ~~fiscal years and interim periods beginning after November 15~~below, ~~2008.~~together ~~The~~with ~~disclosure~~our ~~requirements~~assessment of ~~SFAS~~the potential ~~No.~~impact ~~161~~it ~~are~~may ~~included~~have inon ~~Note~~our 11financial position, ~~Derivative~~results ~~Financial~~of ~~Instruments.~~operations and cash flows:

~~SFAS~~In January ~~No. 159~~2010, -the InFinancial ~~February~~Accounting ~~2007,~~Standards ~~the~~Board (“FASB”) issued ~~SFAS~~new guidance Noregarding improving disclosures about fair value measurements. ~~159,~~ The guidance ~~Fair~~requires ~~Value~~new ~~Option~~disclosures ~~for~~related ~~Financial~~to ~~Assets~~transfers in and ~~Financial~~out ~~Liabilities~~of Level 1 and Level 2 as well as activity in Level 3 fair value measurements. The ~~statement~~guidance also ~~permits~~provides ~~entities~~clarification to ~~choose~~existing todisclosures. ~~measure~~The ~~many~~new ~~financial~~disclosures ~~instruments~~and clarifications of existing disclosures are effective for interim and annual ~~certain~~reporting ~~other~~periods ~~items~~beginning atafter ~~fair~~December ~~value.~~15, ~~SFAS~~2009, ~~No. 159~~except isfor ~~effective~~the asdisclosures about ofpurchases, sales, issuances, and settlements in the ~~beginning~~rollforward of activity ~~the~~in ~~first~~Level 3 fair value measurements. Those disclosures are effective for fiscal ~~year~~years beginning after ~~November~~ December 15, ~~2007.~~2010, Weand ~~adopted~~for ~~this~~interim periods ~~statement~~within onthose ~~November 1,~~fiscal ~~2008~~years. WeOur ~~have~~effective ~~not~~date ~~elected~~for tothe ~~measure~~new ~~any~~disclosures and ofclarifications ~~our~~is ~~financial~~the ~~assets~~quarter orending ~~financial~~April ~~liabilities~~30, at2010. Our effective ~~fair~~date ~~value~~for ~~which~~the ~~were~~disclosures ~~not~~about ~~previously~~purchases, ~~required~~sales, toissuances, beand settlements ~~measured~~in atthe rollforward of activity in Level 3 fair value; ~~therefore~~measurements is November 1, ~~the~~2011. The new ~~adoption~~guidance ofrelates ~~this~~to ~~statement~~disclosure ~~did~~only and, therefore, will not have an impact on our consolidated financial ~~statements~~condition, results of operations or cash flows. When effective, we will comply with the disclosure provisions of this new guidance.

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.

INDEX

SFAS No. 157 - In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. The statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.NAVISTAR InFINANCIAL ~~February~~CORPORATION ~~2008,~~AND the FASB issued final Staff Positions that (1) deferred the effective date of this statement for one year for certain nonfinancial assets and nonfinancial liabilities (see discussion below regarding FASB FSP No. 157-2) and (2) removed certain leasing transactions from the scope of the statement. We applied this new accounting standard to all other fair value measurements effective November 1, 2008. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The application of SFAS No. 157 resulted in an increase of $4.6 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 the quarter of adoption.SUBSIDIARIES

~~Recently~~NOTES ~~Issued~~TO CONSOLIDATED ~~Accounting~~FINANCIAL ~~Standards~~STATEMENTS (UNAUDITED)

~~Accounting~~In ~~pronouncements~~June 2009, the FASB issued bynew ~~various~~accounting ~~standard~~guidance ~~setting~~that ~~and~~eliminates ~~governmental~~the ~~authorities~~concept ~~that~~of ~~have~~a QSPE, ~~recently~~changes ~~been~~the ~~adopted~~requirements orfor ~~have~~derecognizing ~~not~~financial ~~yet~~assets, ~~become~~and ~~effective~~requires additional ~~with~~disclosures ~~respect~~in order to ~~our~~enhance ~~consolidated~~information reported to users of financial statements ~~are~~by ~~described~~providing ~~below~~greater transparency about transfers of financial assets, ~~together~~including ~~with~~securitization ~~our~~transactions, ~~assessment~~and ofan entity’s continuing involvement in and exposure to the ~~potential~~risks ~~impact~~related ~~they~~to ~~may~~transferred financial ~~have~~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 ~~financial~~consolidated ~~position~~financial condition, results of operations and cash flows:.

~~SFAS 167 -~~ In December ~~June 2009~~2008, the FASB issued ~~SFAS~~new ~~No. 167,~~accounting ~~Amendments to FASB Interpretation No. 46(R), to change the consolidation~~ guidance ~~applicable~~on ~~to a VIE. It also amends the 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 entityemployer’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.~~disclosures ~~This~~about ~~standard~~plan ~~also~~assets ~~requires continuous reassessments~~ of ~~whether an enterprise is the primary beneficiary of~~ a ~~VIE.~~defined ~~Previously,~~benefit ~~FIN~~pension ~~46(R)~~or ~~required~~other ~~reconsideration~~post retirement ~~of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred~~plan. ~~Qualifying special purpose entities (“QSPEs”), which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes effective.~~ This ~~statement also requires enhanced disclosures about an enterprise’s involvement with a VIE. The new~~ guidance is effective for fiscal years ~~beginning~~ending ~~on or~~ after December ~~November~~ 15, 2009. ~~Earlier adoption is prohibited.~~ Our effective date is ~~November~~October 131, 2010. ~~Currently,~~ weThe ~~are~~new ~~evaluating~~guidance relates ~~the~~to ~~impact~~disclosure ofonly ~~adoption~~and, therefore, will not have an impact on our consolidated financial condition, results of operations ~~and~~or cash flows. When effective, we will comply with the disclosure provisions of this new guidance.

SFAS 166 - In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (an Amendment to SFAS No. 140). This statement 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 statement 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.

FASB FSP No. 132(R)-1 - In December 2008 the FASB approved FSP No. 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. This statement provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other post retirement plan. This FSP 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 FSP.

INDEX

FASB FSP No. 157-2 - In February 2008, the FASB approved FSP No. 157-2, Effective Date of FASB Statement No. 157 (FSP No. 157-2), that permits companies to partially defer the effective date of FASB Statement No. 157 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. FSP No. 157-2 does not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. We have decided to defer adoption of SFAS No. 157 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 fair value and tested for impairment. Adoption of FSP No. 157-2 is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.

SFAS 160 - In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, 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 of SFAS No. 160 is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.

SFAS 141(R) - In December 2007, the FASB issued SFAS No. 141(Revised), Business Combinations. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement 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 approved FSP No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This FSP amends and clarifies SFAS No. 141(Revised) 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. SFAS No. 141(Revised) and FSP No. 141(R)-1 apply 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 of SFAS No. 141(Revised) and FSP No. 141(R)-1 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

2. TRANSACTIONS WITH AFFILIATED COMPANIES

Wholesale Notes, Wholesale Accounts and Retail Accounts

~~Receivables~~In accordance ~~purchased~~with bythe agreements between NFC ~~from~~and Navistar, Inc. ~~for~~relating ~~the~~to financing ~~three~~of ~~months~~wholesale ~~ended July 31~~notes, ~~2009~~wholesale ~~and~~accounts ~~2008, were $784.8 million~~ and ~~$1.0~~retail ~~billion~~accounts, ~~respectively. Receivables~~NFC receives ~~purchased~~interest byincome ~~NFC~~ from Navistar, Inc. ~~for~~at rates applied to the ~~nine~~average outstanding ~~months~~balances. These ~~ended~~agreements ~~July~~are ~~31,~~amended ~~2009~~from ~~and~~time ~~2008,~~to ~~were~~time to ~~$2.6~~reflect ~~billion~~prevailing ~~and~~market ~~$2.9~~rates ~~billion,~~and ~~respectively~~fees. ~~Aggregate~~Effective ~~interest~~December ~~revenue from Navistar~~16, ~~Inc.~~2009, ~~excluding~~NFC began ~~Dealcor~~charging ~~dealers (those majority owned by~~ Navistar, Inc.), ~~was~~a ~~$16~~3.50% ~~million~~per ~~and~~annum ~~$13.3~~fee ~~million~~on ~~for~~ the ~~three~~monthly ~~months~~outstanding balance ~~ended~~of ~~July~~the ~~31,~~new ~~2009~~bank ~~and~~credit ~~2008,~~facility ~~respectively. Aggregate~~to ~~interest~~adjust ~~revenue~~for ~~from~~the ~~Navistar,~~incremental ~~Inc.~~cost ~~was $49~~of borrowing.4 ~~million~~This ~~and~~fee was $512.98 million ~~for~~during the ~~nine~~three months ended ~~July~~January 31, 2010, ~~2009~~ and ~~2008,~~is ~~respectively.~~included ~~The~~in ~~interest~~Other revenue. ~~revenues~~Interest ~~are~~paid ~~reported~~by asdealers ~~components~~on ofwholesale ~~Retail~~ notes ~~and finance leases revenue~~, ~~Securitization~~if ~~income~~any, ~~Wholesale~~plus ~~notes~~the payments ~~interest~~made ~~and~~by ~~Retail~~Navistar, ~~and~~Inc. ~~wholesale~~for ~~accounts~~the typical “interest infree” ~~the~~period ~~consolidated~~offered to ~~statements~~the ofdealers ~~operations.~~equals ~~Effective~~the ~~November~~total 1,revenues ~~2008,~~received ~~NFC~~on ~~and Navistar, Inc~~wholesale notes. Substantially ~~amended~~all ~~the~~revenues ~~April~~earned 1,on ~~2007~~wholesale ~~Amended~~accounts and retail ~~Restated~~accounts ~~Master~~are ~~Intercompany~~received ~~Agreement,~~from ~~whereby NFC began charging~~ Navistar, Inc. ~~for:~~Receivables 1)purchased ~~non-use fees assessed~~ by ~~certain providers of~~ NFC’s ~~funding~~from ~~facilities~~Navistar, ~~and~~Inc. 2)for ~~surcharges~~the onthree ~~balances~~months ~~relating~~ended toJanuary ~~retail and wholesale accounts~~31, 2010 and ~~wholesale notes~~2009, ~~and~~were $1.0 3)billion ~~surcharges~~each onperiod. ~~retail~~Aggregate ~~notes~~interest and ~~wholesale~~fee ~~notes~~revenue ~~balances~~from ~~for Dealcor dealers. Effective July 31, 2009, NFC and~~ Navistar, Inc., ~~entered~~excluding ~~into~~Dealcor andealers ~~additional~~(those ~~amendment~~majority ~~allowing~~owned ~~NFC~~by ~~to charge~~ Navistar, Inc.), ~~premium~~for the ~~finance~~three ~~rates~~months onended ~~certain~~January ~~retail~~31, ~~accounts~~2010 ~~that~~and ~~are~~2009, ~~ineligible~~was ~~under~~$22.8 ~~the~~million ~~Truck~~and ~~Retail~~$17.9 million, ~~Accounts~~respectively. ~~Corporation~~The ~~("TRAC") funding~~interest ~~facility.~~and ~~These~~fee ~~intercompany~~revenues ~~fees~~ are ~~included~~reported inas ~~Retail~~components of Retail notes and finance leases revenue, Securitization income, Wholesale notes interest, Retail and wholesale accounts interest and ~~Securitization~~Other ~~income.~~revenue ~~These two amendments resulted~~ in ~~additional revenue of $4.7 million and $15.3 million from Navistar Inc., for~~ the ~~three and nine month periods ended July~~ ~~31,~~consolidated ~~2009,~~statements ~~respectively,~~ of ~~which $1~~operations.~~1 million and $3.4 million, respectively, pertained to Dealcor dealers.~~

Finance Receivable, Operating Leases and Vehicle Inventory

Under certain circumstances Navistar, Inc. ~~may~~is 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 three months ended January 31 (in millions):

	Three Months Ended July 31,				Nine Months Ended July 31,
	2010		2009
	2009		2008		2009		2008
Net losses on finance receivables	$	2.4	$	0.8
Net losses on finance receivables	$	6.1	$	1.9	$	10.8	$	6.7
Impairment losses on vehicle inventory		0.8		4.8
Impairment losses on vehicle inventory		1.2		0.3		8.4		1.5
Net losses on sales of vehicle inventory		0.2		3.2
Net losses on sales of vehicle inventory		-		2.3		3.7		6.2

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”), a Mexican finance subsidiary of NIC. Fee amounts are based on outstanding balances. ~~NFC~~These ~~recorded~~ guarantee fees ~~of $0.7 million and $1.9 million~~ for the three ~~and~~months ~~nine month periods~~ ended ~~July~~January 31, 2010 and 2009, ~~respectively. NFC~~ ~~recorded~~were ~~guarantee fees of~~ $0.38 million and $0.6 million ~~for the three and nine month periods ended July 31~~, ~~2008,~~ 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 NFM~~. NFC~~'s ~~incurred fee expense of $0~~debt.1 Fees ~~million~~paid ~~and~~by ~~$0.3~~NFC ~~million~~ for ~~the~~this ~~three~~backstop ~~and~~guarantee ~~nine~~were less ~~month~~than ~~periods ended July 31, 2009, respectively. NFC incurred fee expense of~~ $0.1 million and $0.31 million for the three ~~and~~months ~~nine month periods~~ ended ~~July~~January 31, 2010 ~~2008~~and 2009, respectively. No losses ~~were~~have been incurred relating to the guarantees ~~in 2009 or 2008~~.

119

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Unsecured Loans to Affiliates

On ~~December 10~~March 1, ~~2008~~2010, NFC entered into a one-year 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~~Eurodollar ~~month~~loan ~~LIBOR~~ rate for each month as set forth in the ~~Amended~~December ~~and~~2009 ~~Restated~~bank ~~Credit~~credit ~~Agreement~~facility). ~~until~~This ~~December 10,~~agreement ~~2009,~~replaces atthe one-year ~~which~~$100.0 ~~time~~million ~~the~~ working capital loan agreement ~~will~~which ~~expire~~expired December 10, 2009. As of ~~July~~January 31, 2010 and October 31, 2009, no amounts were outstanding on under the working capital ~~loan~~loans and ~~there was~~ no interest income was recognized ~~for~~during either of the three ~~and nine~~ month periods ended ~~July~~January 31, 2010 or 2009.

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 was $0.1 million and $1.6 million for the three and nine month periods ended July 31, 2008.

The interest income on the unsecured loans is reported as Other revenues in the consolidated statements of operations.

Support Agreements

~~Under~~As ~~provisions~~a condition ofto the December 2009 bank credit ~~agreement (“Agreement”)~~facility, Navistar, Inc. will not permit NFC’s ratio of the sum of consolidated ~~pretax~~pre-tax income, ~~plus~~ consolidated interest expense and capital contributions from Navistar, Inc. 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 confirming that capital contributions from~~ Navistar, Inc. would be part of consolidated income for purposes of the Fixed Charge Coverage Ratio calculation and that such contributions would reduce, for one year from receipt, the amount otherwise available from which NFC is permitted to make dividend payments. Navistar, Inc. made a capital ~~contribution~~contributions of $20.0 million to to NFC induring the three months ended January 31, 2009, to ensure compliance with the 125% Fixed Charge Coverage Ratio. NoAs ~~other~~of ~~capital~~January ~~contributions were made during the nine month period ended July~~ 31, ~~2009.~~2010, Ano additional ~~capital contribution of $25.0 million was made in July 2008. No other capital~~ contributions ~~were~~have ~~made~~been ~~during the nine month period ended July 31, 2008~~required.

Net Accounts Due and Finance Receivables from Affiliates

NIC has significant ownership interest in, or is ~~the~~ primary beneficiary of ~~variable~~VIEs ~~interest entities~~ related to , certain Dealcor dealers ~~as of July 31, 2009 and 2008~~. These dealers’ operations are consolidated by with NIC. ~~NFC~~Other ~~does~~than ~~not~~being ~~provide~~owned ~~terms~~by ~~favorable~~NIC, to Dealcor dealers ~~versus~~are treated on par with non-owned independent dealers. Total revenue in our consolidated statements of operations includes revenue from Dealcor dealers of $2.0 million and $6.2 ~~million for the three months ended July 31, 2009 and 2008, respectively, and $6~~.~~5 million and $11.~~3 million for the ~~nine~~three months ended ~~July~~January 31, ~~2009~~2010 and ~~2008~~2009, respectively. Net accounts due to ~~from~~ affiliates represents the balance of other ~~miscellaneous~~payables ~~receivables~~and receivables related to operations, such as intercompany charges. Included in our consolidated statements of financial condition are the following ~~finance~~ receivables from affiliates (in millions):

	July 31, 2009		October 31, 2008
	January 31, 2010		October 31, 2009
Finance receivables from affiliates (Dealcor retail)	$	111.7	$	140.4
Finance receivables from affiliates net of unearned income and dealer reserve (Dealcor retail)	$	101.0	$	104.8
Finance receivables from affiliates (Dealcor wholesale)		1518.30		7149.95
Net accounts due from affiliates (non-Dealcor)		3.8		17.5
Net accounts due to affiliates (non-Dealcor)		177.2		31.2

INDEX

3. FINANCE RECEIVABLES

Our primary business is to provide wholesale, retail and lease financing for new and used trucks sold by Navistar, Inc. and ~~its~~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 and we perform regular credit evaluations of our dealers and customers. 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. ~~Finance~~ ~~receivables~~Financial instruments ~~include~~with ~~notes~~potential ~~receivable~~credit ~~from~~risk ~~dealers~~consist ~~and~~primarily ~~retail~~of ~~customers,~~Finance ~~accounts~~receivables. ~~receivable~~Finance ~~from~~receivables ~~dealers~~primarily represent ~~and~~receivables under retail ~~customers and~~ finance ~~leases~~contracts, ~~with~~receivables ~~our~~arising ~~retail customers. We~~from ~~regularly~~leasing ~~evaluate~~transactions ~~the~~and ~~creditworthiness~~notes ~~of our customers~~receivables. As of ~~July~~January 31, ~~2009~~2010 and October 31, ~~2008~~2009, no single customer represented a significant concentration of credit risk.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Finance receivables balances are summarized as follows (in millions):

	July 31, 2009			October 31, 2008
	January 31, 2010			October 31, 2009
Retail notes, net of unearned income	$	21,~~066~~864.28		$	21,~~468~~955.02
Finance leases, net of unearned income		~~133~~124.12			~~122~~121.75
Wholesale notes held for sale		111.8			118.0
Wholesale notes held-for-sale		155.9			167.9
Accounts (includes retail and wholesale)		~~178~~127.42			~~197~~294.60
Finance receivables from affiliates, net of unearned income		~~127~~119.0			~~212~~154.3
Total finance receivables		2,~~616~~391.51			32,~~118~~692.69
Allowance for losses		(3335.73	)		(2832.46	)
Total finance receivables, net	$	2,~~582~~355.8		$	32,~~090~~660.23

4. ALLOWANCE FOR LOSSES

The change in Allowance for losses for finance receivables is summarized as follows (in millions):

	Three Months Ended July 31,						Nine Months Ended July 31,						Year Ended October 31
	Three Months Ended January 31, 2010			Three Months Ended January 31, 2009			Year Ended October 31, 2009
	2009			2008			2009			2008			2008
Allowance for losses, beginning of period	$	32.6		$	28.4		$	28.4
Allowance for losses, beginning of period	$	30.2		$	23.2		$	28.4		$	23.9		$	23.9
Provision for credit losses		8.0			4.0			29.7
Provision for credit losses		9.1			13.3			21.5			23.9			32.2
Net charge-offs		(5.3	)		(2.8	)		(25.5	)
Net charge-offs		(5.6	)		(10.1	)		(16.2	)		(21.4	)		(27.7	)
Allowance for losses, end of period	$	35.3		$	29.6		$	32.6
Allowance for losses, end of period	$	33.7		$	26.4		$	33.7		$	26.4		$	28.4

Finance receivables include the following amounts relating to impaired receivables (in millions):

	July 31, 2009		October 31, 2008
	January 31, 2010		October 31, 2009
Impaired receivables with specific loss reserves	$	6255.83	$	5562.83
Impaired receivables without specific loss reserves		42.48		32.85
Total impaired receivables	$	6758.21	$	5964.68

Specific loss reserves on impaired receivables recorded by NFC	$	1012.05	$	410.63
Specific loss reserves on impaired receivables recorded by Navistar, Inc.		20.7		16.1
Specific loss reserves recorded by Navistar, Inc.		13.4		14.2
Finance receivables over 60 days delinquent		3421.76		1815.67

13The average balances of impaired finance receivables for the three months ended January 31, 2010 and 2009, were $59.4 million and $62.2 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 January 31, 2010, three customers accounted for 43.0% of total impaired receivables with specific loss reserves of $5.7 million recorded by NFC and $5.2 million recorded by Navistar, Inc. 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. NFC would be solely responsible for $10.1 million and $12.5 million of impaired receivables as of January 31, 2010, and October 31, 2009, respectively. Navistar, Inc. would be solely responsible for $2.6 million and $4.4 million of impaired receivables as of January 31, 2010, and October 31, 2009, respectively. Losses on the remaining impaired receivables are allocated between NFC and Navistar, Inc. based on pre-established ratios under the loss sharing arrangements.

INDEX

~~The~~NAVISTAR FINANCIAL ~~average~~CORPORATION ~~balances~~AND of impaired finance receivables for the three and nine month periods ended July 31, 2009 were $65.5 million and $62.8 million, respectively. The average balances of impaired finance receivables for the three and nine month periods ended July 31, 2008 were $39.8 million and $42.6 million, respectively.SUBSIDIARIES

~~Impaired~~NOTES 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 July 31, 2009, four customers accounted forTO ~~54.1%~~CONSOLIDATED ofFINANCIAL ~~total~~STATEMENTS impaired receivables with specific loss reserves of $4.8 million recorded by NFC and $12.3 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 $22.6 million and $17.8 million of impaired receivables as of July 31, 2009, and October 31, 2008, respectively. Navistar, Inc. would be solely responsible for $4.6 million and $8.7 million of impaired receivables as of July 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.(UNAUDITED)

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 three months ended January 31 (in millions):

	Three Months Ended July 31,					Nine Months Ended July 31,
	2010			2009
	2009			2008		2009		2008
Impairment losses on vehicle inventory	$	2.4		$	5.5
Impairment losses on vehicle inventory	$	2.1		$	2.0	$	11.4	$	5.2
Net (gains) losses on sale of vehicle inventory		(1.5	)		4.5
Net losses on sale of vehicle inventory		-			1.7		5.4		6.6

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 (income) expenses in the consolidated statements of operations.

The change in NFC’s Vehicle inventory is summarized as follows (in millions):

	Nine Months Ended July 31, 2009			Nine Months Ended July 31, 2008			Year Ended October 31, 2008
	Three Months Ended January 31, 2010			Three Months Ended January 31, 2009			Year Ended October 31, 2009
Vehicle inventory, beginning of period	$	4226.05		$	2342.20		$	2342.20
Net additions		5011.25			8412.15			~~129~~67.03
Impairment loss:
Recorded by NFC		(31.06	)		(30.7	)		(43.9	)
Recorded by Navistar, Inc.		(80.48	)		(14.58	)		(79.72	)
Net book value of repossessed assets sold		(5213.91	)		(6115.96	)		(9769.67	)
Vehicle inventory, end of period	$	2722.95		$	4033.24		$	4226.05

INDEX

6. NET INVESTMENT IN OPERATING LEASES

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

	July 31, 2009			October 31, 2008
	January 31, 2010			October 31, 2009
Investment in operating leases	$	~~113~~134.37		$	119.58
Less: Accumulated depreciation		(4143.25	)		(4741.50	)
Net investment in equipment under operating leases		7291.12			7278.08
Rent receivable net of reserve for past due operating leases		0.48			0.97
Net investment in operating leases	$	7292.50		$	7279.95

7. INCOME TAXES

~~Under Accounting Principles Board Opinion No. 28, Interim Financial Reporting, a company would~~ We compute on a quarterly basis an estimated annual effective tax rate considering ordinary income and related income tax expense. Ordinary income refers to income (loss) from continuing operations before income tax expense (benefit) excluding significant unusual or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs. ToItems ~~the~~included ~~extent a company cannot reliably estimate annual projected taxes for a taxing jurisdiction, taxes on ordinary income for such a jurisdiction are reported~~ in ~~the period in which they are incurred, which is the case for our tax jurisdictions. Other items included~~ in income tax expense in the periods in which they occur include the cumulative effect of changes in tax laws or rates and adjustments to our valuation allowance following a change in judgment concerning the realizability of deferred tax assets in future years.

As of July 31, 2009 and October 31, 2008, the amount of liability for uncertain tax positions under FASB Interpretation No. 48 exclusive of accrued interest and penalties was $10.7 million and $10.3 million, respectively. If these unrecognized tax benefits were recognized, the entire amount would impact our effective tax rate.12

NFC and its 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 subsidiaries as if NFC filed its own consolidated return. Income tax expense (benefit) includes federal, state and foreign income taxes.

We recognize interest and penalties as part of Income tax expense (benefit) under the provisions of FASB Interpretation No. 48. Total interest and penalties included in Income tax expense (benefit) were $0.5 million and $0.5 million for the nine months ended July 31, 2009 and 2008, respectively. Cumulative interest and penalties included in the consolidated statements of financial condition as of July 31, 2009 and October 31, 2008 were $3.3 million and $2.8 million, respectively.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of January 31, 2010, the gross unrecognized tax benefits exclusive of accrued interest and penalties were $8.0 million, ($5.0 million net of offsetting indirect tax benefits). If these unrecognized tax benefits were recognized, the entire amount would impact our effective tax rate.

We recognize interest and penalties as part of Income tax expense (benefit). Total gross interest and penalties included in Income tax expense (benefit) were $0.2 million for each of the three months ended January 31, 2010 and 2009. Cumulative gross interest and penalties included in the consolidated statements of financial condition as of January 31, 2010 and October 31, 2009 were $3.6 million and $3.4 million ($2.4 million and $2.3 million, respectively, net of indirect benefits).

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 (in millions):

					Weighted Average Interest Rate
	July 31, 2009		October 31, 2008		July 31, 2009			October 31, 2008
	January 31, 2010		October 31, 2009		January 31, 2010			October 31, 2009
Bank credit facility at variable rates due July 2010	$	1,008.5	$	1,057.6		2.2	%		5.7	%
Bank credit facility at variable rates due December 2012	$	756.0	$	-		4.6	%		-
Revolving retail warehouse facility at variable rates, due June 2010		500.0		500.0		0.6	%		4.6	%
Bank credit facility at variable rates refinanced in December 2009		-		1,267.9		-			2.3	%
Borrowings secured by asset-backed securities at various rates, currently between 0.5% to 3.5%, due serially through March 2016		1,394.5		1,989.6		1.7	%		3.8	%
Revolving retail warehouse facility at variable rates, due June 2010		500.0		500.0		0.5	%		0.5	%
Borrowings secured by operating and finance leases due serially through May 2016 at rates currently between 2.6% to 6.6%		128.3		131.9		4.4	%		4.5	%
Secured fixed-rate term loan due March 2013		76.9		-		5.9	%		-
Total senior and secured borrowings	$	3,031.3	$	3,679.1		1.8	%		4.5	%
Borrowings secured by asset-backed securities at various rates, currently between 0.6% and 5.9%, due serially through October 2016		1,160.2		1,191.5		2.2	%		1.6	%
Borrowings secured by operating and finance leases due serially through October 2016 at rates currently between 2.6% and 6.6%		137.9		134.2		4.3	%		4.0	%
Total senior and secured borrowings	$	2,631.0	$	3,093.6		2.8	%		1.8	%

On December 16, 2009, the bank credit facility was refinanced for $815.0 million, maturing in December 2012. The facility 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 facility, NFC is subject to customary operational and financial covenants including an initial minimum collateral coverage ratio of 120%. The term loan principal is to be paid in quarterly installments of $0.9 million through October 31, 2012, with the balance of $354.2 million due on December 16, 2012.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Concurrent with the bank credit facility refinancing, NFC issued borrowings secured by asset-backed securities of $224.9 million and issued a term loan secured by retail notes and leases of $79.3 million with monthly scheduled principal payments through March 2013.

9. POSTRETIREMENT BENEFITS

Defined Benefit Plans

Generally, the qualified and non-qualified pension plans are non-contributory. Our policy is to fund the pension plans in accordance with applicable United States government regulations. As of ~~July~~January 31, ~~2009~~2010, all legal funding requirements have been met. We were not required to make contributions to our pension plans for fiscal year ~~2008~~2009 and did not make contributions ~~during~~for the three ~~and~~months ~~nine month periods~~ ended ~~July~~January 31, ~~2009~~ 2010 or ~~2008~~2009. We currently do not anticipate making any contributions during the remainder of the fiscal year.

Components of Net Postretirement Benefits Expense ~~(Income)~~

Net postretirement benefits expense ~~(income)~~ included in Credit, collections and administrative for the ~~consolidated~~three ~~statements~~months ofended ~~operations~~January 31, is comprised of the following (in millions):

	Three Months Ended July 31,
	Pension Benefits						Other Benefits
	2009			2008			2009			2008
	2010			2009			2010			2009
Service cost for benefits earned during the period	$	-0.1		$	0.1		$	~~0.1~~-		$	-
Interest on obligation		1.0.9			1.0			0.32			0.3
Amortization of cumulative losses		0.2			0.1			-			-
Less expected return on assets		(0.9	)		(10.59	)		(0.21	)		(0.21	)
Net postretirement benefits expense (income)	$	0.3		$	(0.3	)	$	0.2		$	0.1
Net postretirement benefits expense	$	0.3		$	0.3		$	0.1		$	0.2

	Nine Months Ended July 31,
	Pension Benefits						Other Benefits
	2009			2008			2009			2008
Service cost for benefits earned during the period	$	0.2		$	0.3		$	0.1		$	-
Interest on obligation		3.1			3.0			0.9			0.9
Amortization of cumulative losses		0.4			0.7			(0.1	)		-
Less expected return on assets		(2.7	)		(4.5	)		(0.4	)		(0.6	)
Net postretirement benefits expense (income)	$	1.0		$	(0.5	)	$	0.5		$	0.3

INDEX

Defined Contribution Plans

Our defined contribution plans cover a substantial portion of employees. The defined contribution plans contain a 401(k) feature and provide a company match. Many participants covered by the plans receive annual company contributions to their retirement account based on an age-weighted percentage of the participant’s eligible compensation for the calendar year. Defined contribution expense pursuant to these plans was $0.3 million ~~and~~for ~~$0.2~~each ~~million~~of ~~for~~ the three months ended ~~July~~January 31, ~~2009~~2010 and ~~2008, respectively, and $0.9 million and $0.7 million for the nine month periods ended July 31,~~ 2009 ~~and 2008, respectively~~.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10. CONTINGENCIES

Guarantees of Debt

NFC periodically guarantees the outstanding debt of affiliates. The guarantees allow for diversification of funding sources for NFM and Navistar Comercial S. A. de C.V. As of ~~July~~January 31, ~~2009~~2010, NFC’s maximum guarantee exposure to this outstanding debt was $~~199~~207.3 million, the total amount outstanding at that date. As of October 31, ~~2008~~2009, NFC’s maximum guarantee exposure to this outstanding debt was $~~218~~199.6 5 million, the total amount outstanding at that date. See Note 2 for fees recorded by NFC relating to these guarantees.

Guarantees of Derivatives

As of January ~~July~~ 31, ~~2009~~2010 and October 31, ~~2008~~2009, NFC guaranteed derivative contracts for interest rate swaps and interest rate caps of NFM. NFC’s exposure is limited to the default risk of NFM. The unfavorable fair market value of the guaranteed derivatives was immaterial as of ~~July~~January 31, ~~2009. There~~2010 ~~was~~and ~~no unfavorable fair market value of the guaranteed derivatives as of~~ October 31, ~~2008~~2009.

11. DERIVATIVE FINANCIAL INSTRUMENTS

NFC 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 funding fixed rate receivables utilizing a combination of fixed rate debt and variable rate debt ~~with~~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. The fair value of these instruments is ~~determined~~estimated by discounting expected future monthly settlements and is subject to market risk as the instruments may become less valuable inwith ~~case of~~ changes in market conditions, interest rates or ~~interest~~the ~~rates~~credit spreads of the counterparties. NFC 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. NFC does not require collateral or other security to support derivative financial instruments, if any, with credit risk. NFC’s counterparty credit exposure is limited to the positive fair value of contracts at the reporting date. Notional amounts of derivative financial instruments do not represent exposure to credit loss.

Our derivatives are ~~all~~ accounted for as free standing derivatives with no hedge designation, with any change in fair values recorded to earnings each period. The fair values of asset and liability derivative financial instruments are recorded on a gross basis in the consolidated statements of financial condition in Other assets and Other liabilities, respectively. See Note 13, Fair Value Measurements, for information on the fair value measurement of our derivative financial instruments. The interest rate swap agreements have contractual maturity dates ranging from May 18, 2010 to April 18, 2016. The fair values of our derivative instruments are as follows (in millions):

	Other Assets				Other Liabilities
January 31, 2010	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps	$	946.8	$	25.2	$	1,915.5	$	46.8
Interest rate caps purchased		500.0		3.5		-		-
Interest rate caps sold		-		-		500.0		3.2
Total derivatives	$	1,446.8	$	28.7	$	2,415.5	$	50.0

	Other Assets				Other Liabilities
October 31, 2009	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps	$	1,124.7	$	32.4	$	2,314.1	$	61.1
Interest rate caps purchased		500.0		4.8		-		-
Interest rate caps sold		-		-		500.0		4.1
Total derivatives	$	1,624.7	$	37.2	$	2,814.1	$	65.2

INDEX

~~The~~NAVISTAR FINANCIAL ~~interest~~CORPORATION ~~rate~~AND ~~swap and interest rate cap agreements have maturity dates ranging from May 18, 2010 to April 18, 2016 as of July 31, 2009. The fair values of our derivative instruments are as follows (in millions):~~SUBSIDIARIES

	Other Assets				Other Liabilities
July 31, 2009	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps	$	1,310.6	$	38.7	$	2,732.6	$	74.7
Interest rate caps purchased		500.0		4.0		-		-
Interest rate caps sold		-		-		500.0		4.0
Total derivatives	$	1,810.6	$	42.7	$	3,232.6	$	78.7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Other Assets				Other Liabilities
October 31, 2008	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps	$	1,636.4	$	38.7	$	3,469.0	$	79.6
Interest rate caps purchased		500.0		3.3		-		-
Interest rate caps sold		-		-		500.0		3.3
Total derivatives	$	2,136.4	$	42.0	$	3,969.0	$	82.9

The losses (gains) from derivative instruments included in Derivative expense are as follows for the three months ended January 31 (in millions):

The losses (gains) from derivative instruments included in Derivative expense are as follows (in millions):

	2010			2009
Interest rate swaps	$	3.2		$	22.4
Interest rate caps purchased		1.3			2.0
Interest rate caps sold		(0.9	)		(2.0	)
Total	$	3.6		$	22.4

	Three Months Ended July 31,					Nine Months Ended July 31,
	2009			2008		2009			2008
Interest rate swaps	$	4.5		$	1.1	$	36.1		$	39.6
Interest rate caps purchased		(1.9	)		-		(0.7	)		(0.2	)
Interest rate caps sold		1.9			-		0.7			0.2
Total	$	4.5		$	1.1	$	36.1		$	39.6

12. SECURITIZATION TRANSACTIONS

We typically sell our finance receivables to our various special purpose entities, while continuing to service the receivables thereafter. In addition to servicing, NFC’s continued involvement includes retained interests in the sold receivables and hedging interest rates of the special purpose entity debt using interest rate swaps and caps. We maintain an ownership interest in a subordinated tranche that is in a first loss position. In accordance with ~~SFAS~~ASC Topic ~~No. 140~~860, ~~Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,~~ some of these transactions qualify as sales of financial assets (off-balance sheet) whereby an initial gain or loss is recorded and servicing fee revenue;, excess spread income and associated collection and servicing costs are recorded over the remaining life of the finance receivables. For transactions that are accounted for as secured borrowings, 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.

Securitizations accounted for as sales of financial assets

NFC securitizes wholesale notes receivables and retail accounts receivables through off-balance sheet funding facilities.

The wholesale notes owner trust owned $~~668~~807.37 million of wholesale notes and $61212.1 0 million ofin ~~marketable~~cash ~~securities~~equivalents as of ~~July~~January 31, ~~2009~~2010, and $~~818~~763.61 million of wholesale notes and ~~$95.3~~no ~~million~~cash ofequivalents ~~marketable securities~~ as of October 31, ~~2008~~2009.

18Components of available wholesale note trust funding facilities were as follows (in millions):

	Maturity	January 31, 2010		October 31, 2009
Investor notes	February 2010	$	212.0	$	212.0
Variable funding certificate (“VFC”)	August 2010		500.0		650.0
Investor notes	October 2012		350.0		-
Total		$	1,062.0	$	862.0

The utilized portion of the VFC was $200.0 million and $350.0 million as of January 31, 2010 and October 31, 2009, respectively. Our retained interest was $249.3 million and $191.9 million as of January 31, 2010 and October 31, 2009, respectively. On November 10, 2009, NFC completed the sale of $350.0 million of three-year investor notes within the wholesale note trust funding facility. This sale was eligible for funding under the U.S. Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”) program. Concurrent with this sale, the VFC facility commitment was reduced from $650.0 million to $500.0 million.

On February 12, 2010, NFC completed the sale of $250.0 million of two-year investor notes within the wholesale note trust funding facility. This sale was also eligible for funding under TALF. In addition, on February 25, 2010, NFC paid off investor notes of $212.0 million upon maturity.

The Truck Retail Accounts Corporation (“TRAC’) facility owned $81.3 million of retail accounts and $13.0 million of cash equivalents as of January 31, 2010, and $89.2 million of retail accounts and $19.6 million of cash equivalents as of October 31, 2009.

INDEX

~~Components~~NAVISTAR FINANCIAL ofCORPORATION ~~available~~AND ~~wholesale note trust funding certificates were as follows (in millions):~~SUBSIDIARIES

	Maturity	July 31, 2009		October 31, 2008
Investor certificate	February 2010	$	212.0	$	212.0
Variable funding certificate (“VFC”)	August 2010		650.0		800.0
Total		$	862.0	$	1,012.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The VFC commitment decreased from $750.0 million to $650.0 million as of June 30, 2009. The utilized portion of the VFC was $400.0 million and $550.0 million as of July 31, 2009, and October 31, 2008, respectively. Our retained interest was $114.3 million as of July 31, 2009, and $139.6 million as of October 31, 2008. On August 25, 2009, NFC entered into a renewal and extension of the VFC for $650.0 million, maturing on August 24, 2010.

The TRAC facility owned $94.5 million of retail accounts and $37.4 million of marketable securities as of July 31, 2009, and $123.1 million of retail accounts and $22.8 million of marketable securities as of October 31, 2008. On July 31, 2009, the maturity of the facility was extended from August 7, 2009 to November 9, 2009.

Amount of available retail accounts funding was as follows (in millions):

	Maturity	~~July~~January 31, ~~2009~~2010			October 31, ~~2008~~2009
Conduit funding facility	~~November~~October ~~2009~~2010	$	100.0		$	100.0
Funding utilized			(2527.01	)		(477.57	)
Total availability		$	7572.09		$	5292.53

Our retained interest held in TRAC was $~~106~~66.01 million ~~as of July 31, 2009,~~ and $9099.06 million as of January 31, 2010 and October 31, ~~2008~~2009, respectively.

Amounts due from sales of receivables

Amounts due from sales of receivables represent NFC’s retained interest in ~~its~~those off-balance sheet securitization transactions described above for wholesale notes and retail accounts. NFC transfers pools of finance receivables to various subsidiaries. The subsidiaries’ assets are available to satisfy their creditors’ claims prior to such assets becoming available for the subsidiaries’ own uses or to NFC or affiliated companies. NFC is under no obligation to repurchase any sold receivable that becomes delinquent in payment or otherwise is in default. The terms of receivable sales generally require NFC to provide credit enhancements in the form of receivables over-collateralization and/or cash reserves with the trusts and conduits. The use of such cash reserves by NFC is restricted under the terms of the securitized sales agreements. The maximum exposure under all securitizations accounted for as sales is the fair value of the Amounts due from sales of receivables of $~~220~~315.34 million and $~~229~~291.65 million as of ~~July~~January 31, ~~2009~~ 2010 and October 31, ~~2008~~2009, respectively.

We estimate the payment speeds for the receivables sold, the discount rate used to determine the fair value of our retained interests and the anticipated net losses on the receivables in order to calculate the gain or loss on the sale of the receivables. Estimates are based on historical experience, anticipated future portfolio performance, market-based discount rates and other factors and are made separately for each securitization transaction. The fair value of our retained interests is based on these assumptions. See Note 13, Fair Value Measurements, for more ~~specific~~information ~~assumption~~on ~~values~~the fair value measurement of our retained interests. We re-evaluate the fair value of our retained interests on a monthly basis and recognize in current income changes as required. Our retained interests are classified as trading securities and are recorded as Amounts due from sales of receivables in our consolidated statements of financial condition.

19Amounts due from sales of receivables are summarized as follows (in millions):

	January 31, 2010		October 31, 2009
Excess seller’s interest	$	291.0	$	275.3
Interest only strip		12.3		9.6
Restricted cash reserves		12.1		6.6
Total amounts due from sales of receivables	$	315.4	$	291.5

INDEX

~~Amounts~~NAVISTAR FINANCIAL ~~due~~CORPORATION ~~from~~AND ~~the sales of receivables are summarized as follows (in millions):~~SUBSIDIARIES

	July 31, 2009		October 31, 2008
Excess seller’s interest	$	205.7	$	218.7
Interest only strip		7.5		2.1
Restricted cash reserves		7.1		8.8
Total amounts due from sales of receivables	$	220.3	$	229.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The key economic assumptions as of ~~July~~January 31, ~~2009~~2010 and October 31, ~~2008~~2009, and the sensitivity of the current fair values of residual cash flows as of ~~July~~January 31, ~~2009~~ 2010, to an immediate adverse change of 10 and 20 percent in that assumption are as follows (in millions):

	July 31,	October 31,	Adverse Fair Value Change at July 31, 2009
	January 31,	October 31,	Adverse Fair Value Change at January 31, 2010
	2009	2008		10%			20%
	2010	2009		10	%		20	%
Discount rate (annual)	118.01 to 2219.01 %	149.61 to 2320.05 %	$	13.60		$	3.6.5
Estimated credit losses	0.0 to 0.24 %	0.0 to 0.24 %		0.1			0.12
Payment speed (percent of portfolio per month)	6.10 to 8386.57 %	84.89 to 7570.78 %		0.38			01.67

The lower end of the discount rate assumption range and the upper end of the payment speed assumption range were used to value our retained interests in TRAC. No percentage for estimated credit losses were assumed for TRAC as no losses have been incurred to date and none are expected. The upper end of the discount rate assumption range and the lower end of the payment speed assumption range were used to value our retained interests in the wholesale note securitization facility.

The following tables reconcile the total serviced portfolio to the on-balance sheet portfolio, net of unearned income, ~~as of July 31, 2009 and October 31, 2008~~ (in millions):

July 31, 2009

Retail Notes

Finance Leases

Wholesale Notes

Accounts

Affiliates

Total

January 31, 2010

Retail Notes

Finance Leases

Wholesale Notes

Accounts

Affiliates

Total

Serviced portfolio

21,~~066~~864.28

~~133~~124.12

~~692~~886.18

~~272~~208.95

~~215~~195.08

3,~~379~~280.31

Less sold receivables – off-balance sheet

(~~580~~730.39

)

(9481.53

)

(8876.08

)

(~~762~~889.80

)

Total on-balance sheet.

21,~~066~~864.28

~~133~~124.12

~~111~~155.89

~~178~~127.42

~~127~~119.0

2,~~616~~391.51

October 31, 2008	Retail Notes		Finance Leases		Wholesale Notes			Accounts			Affiliates			Total
October 31, 2009	Retail Notes		Finance Leases		Wholesale Notes			Accounts			Affiliates			Total
Serviced portfolio	$	21,~~468~~955.02	$	~~122~~121.75	$	~~839~~835.43		$	~~320~~383.72		$	~~309~~250.50		$	43,~~060~~545.32
Less sold receivables – off-balance sheet		-		-		(721.4	)		(123.1	)		(97.2	)		(941.7	)
Less sold receivables –off-balance sheet		-		-		(667.4	)		(89.2	)		(95.7	)		(852.3	)
Total on-balance sheet	$	21,~~468~~955.02	$	~~122~~121.75	$	~~118~~167.09		$	~~197~~294.60		$	~~212~~154.3		$	32,~~118~~692.69

For sold receivables, wholesale notes and affiliates balances past due over 60 days were $1.0.6 million and $30.28 million, ~~respectively,~~ as of ~~July~~January 31, ~~2009~~2010 and October 31, ~~2008~~2009, respectively. Accounts balances in TRAC past due over 60 days were $0.51 million and $1.6 million as of ~~July~~January 31, ~~2009.~~2010 ~~There~~and ~~were no past due balances in TRAC as of~~ October 31, ~~2008~~2009, respectively. No credit losses on sold receivables were recorded for the three ~~and~~months ~~nine month periods~~ ended January ~~July~~ 31, ~~2009,~~2010 ~~and~~or ~~2008, respectively~~2009.

INDEX

Securitization income

The following table sets forth the activity related to off-balance sheet securitizations reported in Securitization income inon the consolidated statements of operations asfor ~~follows~~the three months ended January 31 (in millions):

	Three Months Ended July 31,						Nine Months Ended July 31,
	2010			2009
	2009			2008			2009			2008
Fair value adjustments	$	6.8		$	19.5
Fair value adjustments	$	15.3		$	0.3		$	44.6		$	5.4
Excess spread income		10.6			2.1
Excess spread income		8.7			3.6			20.1			14.5
Servicing fees revenue		2.2			2.2
Servicing fees revenue		1.9			2.5			6.1			7.6
Losses on sales of receivables		(15.5	)		(14.8	)
Losses on sales of receivables		(9.8	)		(4.7	)		(34.5	)		(11.4	)
Investment income		-			1.1
Investment income		0.1			1.0			1.4			3.9
Securitization income	$	4.1		$	10.1
Securitization income	$	16.2		$	2.7		$	37.7		$	20.0

~~Cash flows from off-balance sheet securitization transactions are as follows (in millions):~~18

	Three Months Ended July 31,				Nine Months Ended July 31,
	2009		2008		2009		2008
Proceeds from sales of finance receivables	$	1,045.4	$	891.2	$	2,985.2	$	2,708.1
Servicing fees		1.9		2.5		6.2		7.8
Cash from net excess spread		8.5		3.8		18.8		12.5
Investment income		0.1		0.8		1.1		3.6
Net cash received	$	1,055.9	$	898.3	$	3,011.3	$	2,732.0

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cash flows from off-balance sheet securitization transactions for the three months ended January 31 are as follows (in millions):

	2010		2009
Proceeds from sales of finance receivables	$	1,073.0	$	1,042.5
Servicing fees		2.2		2.2
Cash from net excess spread		10.4		1.7
Investment income		-		0.7
Net cash from securitization transactions	$	1,085.6	$	1,047.1

We have not provided any financial or other support that we were not contractually obligated to provide to any special purpose entity or related beneficial interest holders, and there are no third party liquidity arrangements, guarantees or other commitments that may affect the fair value of our retained interests in our securitizations.

Securitizations accounted for as secured borrowings

Securitizations accounted for as secured borrowings include retail owner trust VIEs for which we are the primary beneficiary and other securitizations that do not qualify for sale accounting treatment. These secured borrowings are payable solely out of collections on the finance receivables, operating leases and other assets ~~transferred~~ transferred to those subsidiaries. The asset -backed debt is the legal obligation of the consolidated subsidiary whereby there is generally no recourse to NFC.

Variable interest entities

We consolidate the retail owner trusts as VIEs since we remain the primary beneficiary of the ~~trust~~trusts’s assets and liabilities.

As transferors of wholesale ~~financial~~notes ~~assets~~ to QSPEs ~~subject to the reporting requirements of SFAS No. 140~~, such transfers are not subject to the ~~scope~~accounting ofstandard ~~FIN~~on ~~46(R)~~consolidation of VIEs, therefore, we do ~~not~~do not consolidate any QSPEs to which those financial assets are transferred. The maximum loss exposure relating to these QSPEs is limited to our retained interests in the related securitization transactions and relates to credit risk only. As of ~~July~~January 31, ~~2009,~~2010 and October 31, ~~2008~~2009, our retained interest in the QSPEs was $~~220~~315.3 4 million and $~~229~~291.65 million, respectively.

21There was no change in the determination to consolidate these entities during the three months ended January 31, 2010, and we have not provided any financial or other support that we were not contractually obligated to provide.

INDEX

~~There~~NAVISTAR FINANCIAL ~~was~~CORPORATION noAND change in the determination to consolidate these entities during the three and nine month periods ended July 31, 2009, and we have not provided any financial or other support that we were not contractually obligated to provide.SUBSIDIARIES

~~The~~NOTES ~~following~~TO CONSOLIDATED ~~table~~FINANCIAL ~~sets~~STATEMENTS ~~forth the carrying amount of transferred financial assets and liabilities of the consolidated VIEs and other securitizations that do not qualify for sale accounting treatment~~ (~~in millions~~UNAUDITED):

	Consolidated			Other
July 31, 2009	VIEs			Securitizations		Total
Finance receivables, net of allowance	$	1,502.5		$	337.6	$	1,840.1
Net investment in operating leases		-			72.5		72.5
Restricted cash and cash equivalents		137.6			337.7		475.3
Vehicle inventory		14.9			4.7		19.6
Net derivative fair value		(37.5	)		4.0		(33.5	)
Secured borrowings		1,394.5			628.3		2,022.8

The following table sets forth the carrying amount of transferred financial assets and (liabilities) of the consolidated VIEs and other securitizations that do not qualify for sale accounting treatment (in millions):

	Consolidated			Other
October 31, 2008	VIEs			Securitizations			Total
January 31, 2010	VIEs			Securitizations			Total
Finance receivables, net of allowance	$	1,~~983~~074.19		$	~~333~~644.67		$	21,~~316~~719.76
Net investment in operating leases		-			7292.90			7292.90
Restricted cash and cash equivalents		~~205~~112.51			~~309~~249.73			~~515~~361.24
Vehicle inventory		2212.83			73.9			3016.72
Net derivative fair value		(3825.70	)		3.35			(3521.45	)
Secured borrowings		~~1,989~~(946.68	)		~~631~~(851.93	)		2(1,~~621~~798.51	)

NFC securitized finance receivables and investment in operating leases of $7.1 million and $327.7 million under secured borrowings for the three and nine month periods ended July 31, 2009, respectively, and $240.9 million and $1.0 billion for the three and nine month periods ended July 31, 2008, respectively.

	Consolidated			Other
October 31, 2009	VIEs			Securitizations			Total
Finance receivables, net of allowance	$	1,310.8		$	404.9		$	1,715.7
Net investment in operating leases		-			79.5			79.5
Restricted cash and cash equivalents		134.9			286.7			421.6
Vehicle inventory		13.9			5.6			19.5
Net derivative fair value		(31.6	)		4.8			(26.8	)
Secured borrowings		(1,191.5	)		(634.2	)		(1,825.7	)

NFC securitized finance receivables and investments in operating leases of $239.1 million and $11.8 million under secured borrowings for the three months ended January 31, 2010 and 2009, respectively.

13. FAIR VALUE MEASUREMENTS

In accordance ~~September~~with ~~2006, the~~ FASB ~~issued~~ASC ~~FASB~~820, ~~Statement~~we ~~No. 157~~use ~~Fair~~a ~~Value~~three-level ~~Measurements.~~valuation ~~This~~hierarchy ~~standard addresses aspects~~ of ~~the expanding application of~~ fair value ~~accounting.~~measurements ~~Effective~~based ~~November~~upon 1,the ~~2008,~~reliability weof ~~adopted~~observable ~~SFAS No. 157.~~and ~~Pursuant~~unobservable inputs toused ~~the~~in ~~provisions~~valuations of ~~FSP~~fair Novalue. ~~157-2, we~~ ~~have~~Observable ~~decided~~inputs toreflect ~~defer~~market ~~adoption~~data obtained offrom ~~SFAS No. 157~~independent ~~for~~sources, ~~one~~while ~~year~~unobservable ~~for~~inputs ~~nonfinancial~~reflect ~~assets~~our ~~and~~market assumptions. ~~nonfinancial~~The ~~liabilities~~use ~~that~~of ~~are~~observable ~~recognized~~and orunobservable ~~disclosed~~inputs atresult ~~fair value~~ in the following ~~financial~~fair ~~statements~~value onhierarchy aof ~~nonrecurring basis. We consider Vehicle inventory a nonfinancial asset recognized at~~ fair value ~~on a nonrecurring basis.~~measurements:

SFAS No. 157 provides for the following:

• Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value; • Establishes a three-level hierarchy of fair value measurements based upon the observability of inputs used to value assets and liabilities as of the measurement date; • Requires consideration of non-performance risk ; and • Expands disclosures about instruments measured at fair value.

INDEX

SFAS No. 157 establishes a three-level valuation hierarchy of fair value measurements based upon the reliability of observable and unobservable inputs used in valuations of fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The use of observable and unobservable inputs result in the following fair value hierarchy of fair value measurements:


	•	Level 1 — based upon quoted prices for identical instruments in active markets;

	•	Level 2 — based upon quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose significant inputs are observable: and

	•	Level 3 — based upon one or more significant unobservable input

The following section describes the valuation methodologies used to measure fair value, key inputs and significant assumptions:

Retail Notes. The fair values of retail notes are estimated by discounting the future contractual cash flows using the interest rates and credit spreads currently being offered for notes with similar terms.

Finance Receivables from Affiliates. Finance Receivables from Affiliates are comprised of retail notes, wholesale notes and wholesale accounts for which fair values are estimated separately as described in the respective category.

Wholesale Notes. Wholesale notes are classified as held-for-sale and are valued at the lower of amortized cost or fair value on an aggregate basis. Fair values approximate amortized cost as a result of the short-term nature and variable interest rate terms charged on wholesale notes.

Derivative Assets and Liabilities. We measure derivative fair values assuming that the unit of account is an individual derivative transaction and that derivative could be sold or transferred on a stand-alone basis. Certain interest rate swaps are amortized based on actual loan liquidations which can fluctuate from month to month. In these cases, market data is not available and we estimate the amortization of the notional amount which is used to determine fair value. Measurements based upon these assumptions are Level 3. Changes in fair value are recognized in Derivative expense. We consider counterparty non-performance risk under SFAS No. 157 in the recognized measure of fair value of derivative financial instruments. We use our counterparty’s non-performance spread for derivative assets and our non-performance spread for derivative liabilities. As of July 31, 2009 our cumulative adjustment for non-performance risk reduced our derivative assets by $0.2 million and reduced our derivative liabilities by $2.6 million.20

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Derivative Assets and Liabilities. We measure derivative fair values assuming that the unit of account is an individual derivative transaction and that derivative could be sold or transferred on a stand-alone basis. Certain interest rate swaps are amortized based on actual loan liquidations which can fluctuate from month to month. In these cases, market data is not available and we estimate the amortization of the notional amount which is used to determine fair value. Measurements based upon these assumptions are Level 3. Changes in fair value are recognized in Derivative expense. We consider counterparty non-performance risk in the recognized measure of fair value of derivative financial instruments. We use our counterparty’s non-performance spread for derivative assets and our non-performance spread for derivative liabilities.

Amounts Due from Sales of Receivables (Retained Interests). We retain certain interests in receivables sold in off-balance sheet securitization transactions. We estimate the fair value of retained interests using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. The fair value of retained interests is estimated based on the present value of monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions. In addition to the amount of debt and collateral held by the securitization vehicle, the three key inputs that affect the valuation of our retained interests include credit losses, prepayment speed, and the discount rate. Changes in fair value are recognized in Securitization income.

Senior and Secured Borrowings. The fair values of Senior and secured borrowings are estimated by discounting the future contractual cash flows using an estimated discount rate reflecting interest rates and credit spreads currently being offered for debt with similar terms since there is no public market for this debt.

Cash and Cash Equivalents, Accounts (Wholesale and Retail), ~~and~~ Restricted Cash and Cash Equivalents, and Net Accounts Due to Affiliates. The estimated fair values of these financial instruments approximate the respective carrying values as a result of their short-term maturity or highly liquid nature.

INDEX

The following table presents the carrying amounts and estimated fair values of our financial instruments (in millions):

	As of July 31, 2009
	January 31, 2010				October 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	$	1712.82	$	1712.82	$	16.1	$	16.1
Retail notes		21,~~066~~864.28		1,~~879~~728.32		1,955.2		1,814.5
Finance receivables from affiliates		~~127~~119.0		~~116~~111.67		154.3		144.1
Accounts (wholesale and retail)		~~178~~127.42		~~178~~127.42		294.0		294.0
Wholesale notes		~~111~~155.89		~~111~~155.89		167.9		167.9
Amounts due from sales of receivables		~~220~~315.34		~~220~~315.34		291.5		291.5
Restricted cash and cash equivalents		~~475~~364.5		~~475~~364.5		421.8		421.8
Derivative assets		42.7		42.7
Derivative financial instruments		28.7		28.7		37.2		37.2
Financial liabilities:
Senior and secured borrowings	$	3,031.3	$	2,859.8
Net accounts due to affiliates		177.2		177.2		31.2		31.2
Derivative liabilities		78.7		78.7
Senior and secured borrowings		2,631.0		2,659.5		3,093.6		3,008.2
Derivative financial instruments		50.0		50.0		65.2		65.2

~~The following table presents the fair values of financial instruments measured on a recurring basis as of July 31, 2009 (in millions):~~21

	Level 1		Level 2		Level 3		Total
Assets:
Derivative financial instruments	$	-	$	4.0	$	38.7	$	42.7
Amounts due from sales of receivables		-		-		220.3		220.3
Assets total	$	-	$	4.0	$	259.0	$	263.0
Liabilities:
Derivative financial instruments		-		41.2		37.5		78.7
Liabilities total	$	-	$	41.2	$	37.5	$	78.7

INDEX

~~The~~NAVISTAR FINANCIAL ~~following~~CORPORATION ~~tables~~AND ~~present the changes in Level 3 financial instruments measured at fair value on a recurring basis (in millions):~~SUBSIDIARIES

Three Months ended July 31, 2009	Net Derivatives			Retained Interests			Total
Beginning balance	$	1.3		$	239.2		$	240.5
Unrealized (losses) gains included in earnings		(0.1	)		5.5			5.4
Purchases, issuances and settlements		-			(24.4	)		(24.4	)
Ending balance	$	1.2		$	220.3		$	221.5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine Months ended July 31, 2009	Net Derivatives		Retained Interests			Total
Beginning balance	$	-	$	229.6		$	229.6
Unrealized gains included in earnings		1.2		10.5			11.7
Purchases, issuances and settlements		-		(19.8	)		(19.8	)
Ending balance	$	1.2	$	220.3		$	221.5

The following tables present the fair values of financial instruments measured on a recurring basis (in millions):

January 31, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Derivative financial instruments	$	-	$	3.5	$	25.2	$	28.7
Amounts due from sales of receivables		-		-		315.4		315.4
Assets total	$	-	$	3.5	$	340.6	$	344.1
Liabilities:
Derivative financial instruments		-		25.0		25.0		50.0
Liabilities total	$	-	$	25.0	$	25.0	$	50.0

October 31, 2009
	Level 1		Level 2		Level 3		Total
Assets:
Derivative financial instruments	$	-	$	4.8	$	32.4	$	37.2
Amounts due from sales of receivables		-		-		291.5		291.5
Assets total	$	-	$	4.8	$	323.9	$	328.7
Liabilities:
Derivative financial instruments		-		33.6		31.6		65.2
Liabilities total	$	-	$	33.6	$	31.6	$	65.2

The following tables present the changes in Level 3 financial instruments measured at fair value on a recurring basis for the three months ended January 31 (in millions):

2010	Net Derivatives			Retained Interests			Total
Beginning balance	$	0.8		$	291.5		$	292.3
Realized and unrealized losses included in earnings		(0.6	)		(5.1	)		(5.7	)
Purchases, issuances and settlements		-			29.0			29.0
Ending balance	$	0.2		$	315.4		$	315.6

2009	Net Derivatives		Retained Interests			Total
Beginning balance	$	-	$	229.6		$	229.6
Realized and unrealized gains included in earnings		2.0		5.1			7.1
Purchases, issuances and settlements		-		(35.9	)		(35.9	)
Ending balance	$	2.0	$	198.8		$	200.8

Purchases, issuances and settlements represent the net cash activity related to new securitizations, liquidations and pay downs of retained interests.

Certain impaired finance receivables are measured at fair value on a nonrecurring basis. An impairment charge is recorded for the amount by which the carrying value of the receivables exceeds the fair value of the underlying collateral, net of remarketing costs. As of July 31, 2009, impaired receivables measured at fair value with a carrying amount of $62.8 million have specific loss reserves of $30.7 million and a fair value of $32.1 million. Of the specific loss reserves of $30.7 million, $10.0 million was recorded by NFC and $20.7 million was recorded by Navistar, Inc. based on pre-established ratios under the loss sharing arrangements. Fair values of the underlying collateral are determined by dealer vehicle value publications, adjusted for certain market factors, which are Level 2 inputs.22

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents assets measured at fair value on a nonrecurring basis (in millions):

	January 31, 2010			October 31, 2009
Impaired finance receivables measured at fair value	$	55.3		$	62.3
Specific loss reserve recorded by NFC		(12.5	)		(10.3	)
Specific loss reserve recorded by Navistar, Inc.		(13.4	)		(14.2	)
Fair value of impaired finance receivables	$	29.4		$	37.8

Vehicle inventory	$	22.5		$	26.5

An impairment charge is recorded for the amount by which the carrying value of the finance receivables exceeds the fair value of the underlying collateral, net of remarketing costs. Fair values of the underlying collateral and Vehicle inventory are determined by dealer vehicle value publications, adjusted for certain market factors, which are Level 2 inputs. Combined impairment losses for NFC and Navistar, Inc. on Vehicle inventory were $2.4 million and $5.5 million for the three months ended January 31, 2010 and 2009, respectively.

14. 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. We Our ~~are~~2005 ~~fully~~Annual ~~cooperating~~Report on ~~with~~Form 10-K, which included the ~~SEC~~restated onfinancial ~~this~~statements, ~~investigation~~was filed in December 2007. ~~Based~~ onWe ~~the~~have ~~status~~been ofproviding ~~the~~information ~~investigation, we~~to ~~are~~the ~~not~~SEC ~~able~~and toare ~~predict~~fully cooperating ~~its~~with ~~final~~their ~~outcome~~investigation.

25NIC 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.

INDEX

NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

15. SUBSEQUENT EVENT

On March 5, 2010, NFC entered into a three-year Operating Agreement (with one year automatic extensions and subject to early termination provisions) with GE Capital Corporation and GE Capital Commercial, Inc. (collectively “GE”), Navistar, Inc. and NIC. Under the terms of the agreement, GE becomes Navistar, Inc.’s preferred source of retail customer financing for equipment offered by Navistar, Inc. and its dealers in the U.S. GE will co-locate its operations in NFC’s existing facility and will offer employment to NFC’s sales, credit and marketing personnel. Navistar, Inc. will also provide GE a loss sharing arrangement for credit losses similar to the loss sharing arrangement currently in place with NFC. While under limited circumstances, NFC retains the rights to originate retail customer financing, the Company expects its retail finance receivables and retail finance revenues will decline over the next five years as its retail portfolio pays down. For the three months ended January 31, 2010 and 2009, retail note and lease originations were $206.0 million and $212.0 million, respectively. Retail note and lease revenues for the three months ended January 31, 2010 and 2009, were $46.9 million and $52.3 million, respectively. We estimate that exit costs associated with this transaction will not exceed $5.0 million.

INDEX

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements; Risk Factors

Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such forward–looking statements only speak as of the date of this report and ~~the~~NFC ~~company~~ assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see Item 1A, Risk Factors included within our Form 10-K for year ended October 31, ~~2008~~2009, which was filed on December 3021, ~~2008~~2009. Although we believe that these forward-looking statements are based on reasonable assumptions, ~~there are~~ 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.

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 Annual Report on Form 10-K for the year ended October 31, ~~2008~~2009, including the consolidated financial statements and the ~~accompanying~~ accompanying notes presented therein. 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 during the period reported, 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

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.

~~During~~Credit spreads, which generally represent the ~~three~~default ~~months~~risk ~~ended~~component ~~July~~above ~~31,~~the ~~2009~~base interest rate that a lender charges its customer, remain at historically high levels but are currently lower than the ~~traditional~~unprecedented ~~truck~~levels ~~retail~~seen ~~industry~~at ~~continued~~the toend beof 2008 ~~under~~and ~~pressure~~beginning ~~from~~of a2009. ~~tight~~The increase in credit ~~environment~~spreads ~~relative~~has tobeen ~~historical~~partially offset ~~trends~~by lower base interest rates. The ~~general~~value ~~economic~~of ~~downturn~~our ~~has~~lease ~~adversely~~and ~~affected~~loan portfolio, the ~~trucking~~underlying ~~industry~~collateral ~~this~~and ~~year~~our ability to generate new business at competitive rates depend substantially on the economic condition of the trucking industry. ~~There~~These ~~has~~conditions ~~been~~have ~~decreased~~negatively ~~demand~~impacted unit sales volumes for Navistar, ~~vehicles~~Inc. Both retail and wholesale portfolio balances reflect the decline in the traditional truck industry volume. With the decline in the truck market, anthe ~~increase~~retail portfolio is liquidating faster than new acquisitions are being financed. Navistar, Inc. expects a slight recovery in ~~customer~~traditional ~~defaults~~truck industry retail deliveries in 2010. On the wholesale side, dealer financing has ~~impaired~~increased ~~asset~~slightly ~~values~~as ~~and~~credit ~~less~~markets ~~competitive~~have ~~interest~~stabilized. ~~and~~NFC’s ~~lease~~ability to raise rates ~~throughout~~has not been enough to counterbalance the ~~year~~entire impact of the lower financing volume. ~~Increased~~In 2010, credit spreads inare expected to decrease slightly from year end 2009 levels but remain higher than historical norms. NFC’s borrowing costs on our recent securitizations and the ~~asset~~refinancing ~~backed~~of ~~securitization~~our ~~market~~bank facility have ~~forced~~increased usdramatically toand a large portion of the increase ~~rates~~has been passed on to Navistar, Inc. in the form of higher finance rates and fees. We have also increased dealer wholesale ~~dealers~~finance rates. If borrowing costs on future funding facilities continue to increase, NFC will likely raise its finance rates to Navistar, Inc. and ~~retail~~other customers.

2625

INDEX

~~The~~On ~~value~~March 5, of 2010, NFC’s ~~lease~~entered into a three-year Operating Agreement (with one year automatic extensions and ~~loan~~subject ~~portfolio~~to early termination provisions) with GE Capital Corporation and GE Capital Commercial, Inc. (collectively “GE”), Navistar, Inc. and NIC. Under the ~~underlying~~terms ~~collateral~~of the agreement, GE becomes Navistar, Inc.’s preferred source of retail customer financing for equipment offered by Navistar, Inc. and its ~~ability~~dealers toin ~~generate~~the ~~new~~U.S. ~~business~~GE will atco-locate ~~competitive~~its operations ~~rates~~in isNFC’s ~~highly~~existing ~~dependent~~facility onand ~~the~~will ~~economic~~offer ~~condition~~employment ofto ~~the~~NFC’s ~~trucking~~sales, credit ~~industry~~and marketing personnel. Navistar, AsInc. awill ~~result~~also ofprovide ~~continued~~GE ~~economic~~a loss ~~weakness,~~sharing wearrangement ~~expect~~for ~~2009~~credit ~~financing~~losses ~~activity~~similar to bethe atloss orsharing arrangement ~~below~~currently ~~2008~~in ~~levels~~place with ~~lower~~NFC. ~~retail deliveries~~While inunder ~~the~~limited ~~first~~circumstances, ~~half~~NFC retains ~~partially~~the ~~offset~~rights byto ~~higher~~originate retail ~~deliveries~~customer infinancing, the ~~second~~Company ~~half~~expects its ofretail ~~2009. We~~finance ~~expect~~receivables ~~2009~~and toretail ~~continue~~finance torevenues bewill adecline ~~challenging~~over ~~year~~the next onfive ~~our~~years as its retail portfolio ~~quality~~pays asdown. For ~~NFC’s~~the ~~customers~~three months ~~are~~ended ~~still~~January ~~subject~~31, to2010 ~~the~~and ~~effects~~2009, ofretail ~~overall~~note ~~economic~~and ~~weakness~~lease originations were $206.0 million and $212.0 million, ~~continued~~respectively. ~~high~~Retail ~~cost~~note ofand ~~fuel~~lease revenues for the three months ended January 31, as2010 ~~well~~and as2009, ~~numerous~~were ~~other~~$46.9 ~~economic~~million ~~challenges~~and $52.3 million, respectively.

Revenues have been declining reflecting lower financing volume as a direct result of lower Navistar, Inc. vehicle sales. Our Cost of borrowing ~~has~~ declined substantially reflecting the ~~lower~~impact ~~interest~~of ~~rate~~a ~~environment. However, since~~ lower ~~interest~~base ~~rates reduce the net fair value of our~~ interest rate ~~swaps,~~environment and welower ~~continue~~average tooutstanding ~~recognize~~debt ~~expense relating to these derivatives~~balances. NFC uses interest rate swaps and caps as an economic ~~hedge~~hedges on the future cash flows of our secured borrowings. These swaps do not qualify for hedge accounting under ~~Statement of~~ Financial Accounting Standards ~~No.~~Board ~~133,~~(“FASB”) Accounting ~~for~~Standards ~~Derivative~~Codification ~~Instruments~~(“ASC”) ~~and~~Topic ~~Hedging~~815, Derivatives ~~Activities~~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 decreased ~~increased~~reflecting asthe aimpact ~~result~~ of ~~the~~higher ~~market~~over-collateralization ~~stabilization~~requirements ~~which~~of our ~~has~~renewed ~~tightened~~VFC ~~credit~~wholesale ~~spreads,~~notes ~~allowing~~facility usand tofunding ~~reduce~~under the ~~discount~~TALF ~~rates~~facility. Additionally, ~~used to value~~ our ~~retained~~Provision for ~~interests,~~credit ~~and~~losses ~~the~~has ~~increase~~increased inas ~~margin~~a ~~which~~result ~~increases~~ the ~~cash~~increase ~~flows~~in ~~used~~our allowance to ~~compute~~finance ~~the~~receivables ~~fair~~coverage ~~value~~ratio offrom ~~our~~1.1% ~~retained~~at ~~interests~~January ~~in sold receivables. Additionally~~31, ~~our~~2009 ~~Provision~~to ~~for~~1.7% ~~credit losses has~~at ~~decreased~~January as31, a2010, ~~result~~attributable ofto ~~the~~an ~~decline~~increase in ~~portfolio~~specific ~~balances~~loss reserves and ~~reduced~~the impact ~~credit~~of higher historical losses, partially offset by the ~~impact~~decline ~~of an increase~~ in ~~specific reserves~~portfolio balances.

Consolidated Comparison of Business Results

The following tables summarize our unaudited consolidated statements of operations and illustrate the key financial indicators used to assess the consolidated financial results. Financial information is presented for the three ~~and nine month periods~~ months ended ~~July~~January 31, ~~2009~~2010 and ~~2008~~2009, as prepared in accordance with U.S. GAAP for interim financial information (in millions).

	Three Months Ended July 31,
	Three Months Ended January 31
	2009			2008			Change			% Change
	2010			2009			Change			% Change
Revenues
Financing revenue	$	50.31		$	6157.86		$	(117.5	)		(1813.60	)
Securitization income		164.21			210.71			13(6.50	)		~~500~~(59.04	)
Operating leases and other revenue		710.1			98.60			(2.51	)		(26.03	)
Total revenues		7364.63			7475.17			(011.54	)		(015.71	)
Expenses
Cost of borrowing		1921.07			4130.72			(228.75	)		(5428.41	)
Credit, collections and administrative		13.05			1315.4			(01.49	)		(312.03	)
Provision for credit losses		98.10			134.30			(4.20	)		~~(31~~100.60	)
Depreciation on operating leases		45.12			4.3.9			(01.23	)		(433.73	)
Derivative expense		43.56			122.14			3(18.48	)		~~309~~(83.19	)
Other expenses		1.6			2.2			(0.6	)		(27.3	)
Other (income) expenses		(0.1	)		2.3			(2.4	)	N.M.
Total expenses		51.39			7678.02			(2426.73	)		(3233.56	)
Income before taxes		22.3			(1.9	)		24.2		N.M.
Income (loss) before taxes		12.4			(2.5	)		14.9		N.M.
Income tax expense		8.4			(0.5	)		8.9		N.M.
Income tax expense (benefit)		4.7			(0.6	)		5.3		N.M		.
Net income	$	13.9		$	(1.4	)	$	15.3		N.M.
Net income (loss)	$	7.7		$	(1.9	)	$	9.6		N.M.

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

2726

INDEX

	Nine Months Ended July 31,
	2009		2008			Change			% Change
Revenues
Financing revenue	$	161.4	$	204.7		$	(43.3	)		(21.2	)
Securitization income		37.7		20.0			17.7			88.5
Operating leases and other revenue		21.9		37.0			(15.1	)		(40.8	)
Total revenues		221.0		261.7			(40.7	)		(15.6	)
Expenses
Cost of borrowing		67.9		156.2			(88.3	)		(56.5	)
Credit, collections and administrative		43.4		43.6			(0.2	)		(0.5	)
Provision for credit losses		21.5		23.9			(2.4	)		(10.0	)
Depreciation on operating leases		12.1		12.8			(0.7	)		(5.5	)
Derivative expense		36.1		39.6			(3.5	)		(8.8	)
Other expenses		4.3		5.1			(0.8	)		(15.7	)
Total expenses		185.3		281.2			(95.9	)		(34.1	)
Income (loss) before taxes		35.7		(19.5	)		55.2		N.M.
Income tax expense (benefit)		13.9		(6.3	)		20.2		N.M.
Net income (loss)	$	21.8	$	(13.2	)	$	35.0		N.M.

Financing Revenue

~~The~~Financing revenues ~~following~~is ~~tables~~comprised ~~summarize~~of ~~our~~interest ~~financing~~ revenue from the following interest earning assets (in millions):

	Three Months Ended July 31,
	Three Months Ended January 31
	2009		2008		Change			% Change
	2010		2009		Change			% Change
Retail notes and finance leases	$	4240.17	$	5347.31	$	(116.24	)		(2113.06	)
Wholesale notes		34.50		35.72		(01.2	)		(523.41	)
Retail and wholesale accounts		45.74		45.83		(0.1	)		~~(2.~~1.9	)
Total financing revenue	$	50.31	$	6157.86	$	(117.5	)		(1813.60	)

	Nine Months Ended July 31,
	2009		2008		Change			% Change
Retail notes and finance leases	$	135.3	$	172.0	$	(36.7	)		(21.3	)
Wholesale notes		11.0		12.5		(1.5	)		(12.0	)
Retail and wholesale accounts		15.1		20.2		(5.1	)		(25.2	)
Total financing revenue	$	161.4	$	204.7	$	(43.3	)		(21.2	)

Three month period ended January 31, 2010 compared to the three month period ended January 31, 2009

~~Three~~Financing ~~month~~revenue ~~period~~decreased as ~~ended~~a ~~July~~result ~~31,~~of ~~2009~~a ~~compared~~decrease toin the ~~three~~average ~~month~~finance ~~period~~receivable ~~ended~~portfolio ~~July~~balance from 31$3.0 billion to $2.5 billion, ~~2008~~as originations decreased on declining industry demand for vehicles. The average interest rates of the finance receivable portfolio were 8.0% and 7.7% for 2010 and 2009, respectively.

~~Financing~~Securitization income represents all revenue ~~decreased~~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 $612.81 million to $5010.36 million asprimarily aresulting ~~result~~from the effect of anew ~~decrease~~pricing programs. inGains ~~the~~and ~~average~~losses ~~finance~~on ~~receivable~~sales ~~portfolio~~of ~~balance~~receivables net of fair value adjustments decreased from a gain of $34.37 ~~billion~~million to a loss of $28.7 ~~billion,~~million as ~~originations~~a ~~decreased~~result onof increased ~~declining~~over-collateralization ~~industry~~requirements ~~demand~~effective ~~from~~with ~~both~~the recent renewal of the VFC wholesale ~~and~~funding ~~retail~~facility. ~~sides~~This ofdecrease ~~the~~was partially offset by a ~~business~~reduction in discount rates. ~~The~~Servicing ~~average~~fees remained constant and investment income decreased as a result of lower interest rates ofon ~~the~~restricted ~~finance~~cash ~~receivable~~accounts established ~~portfolio~~as ~~were~~additional ~~7.4%~~collateral for ~~each~~our ~~period~~sold facilities.

~~Securitization~~Operating ~~income~~leases ~~represents~~and ~~all~~other revenue primarily includes ~~and~~rental ~~expense components resulting from off-balance sheet sales of receivables including: excess spread~~ income, on ~~servicing~~operating ~~fees~~leases, ~~initial~~interest ~~gain~~earned oron ~~loss~~cash ataccounts ~~time of sale, investment income~~ and ~~fair~~guarantee ~~value adjustments related to retained interests~~fees. These ~~Excess~~revenues ~~spread income~~ increased from $38.60 million to $810.71 million, primarily ~~resulting~~as ~~from~~a ~~the~~result ~~effect~~ of an ~~new~~increase ~~pricing~~in ~~programs~~rent ~~and~~from ~~lower~~higher ~~lender~~investment ~~interest~~in ~~rates.~~equipment ~~Income~~in onoperating ~~sales~~leases, ofas well ~~receivables~~as ~~net~~an ofadditional ~~fair~~fee ~~value~~charged ~~adjustments~~to ~~improved~~NIC ~~from~~for athe ~~loss~~incremental ofcredit ~~$4.4~~spread effective ~~million~~with tothe abank ~~gain~~refinancing ofin $5December 2009.5 ~~million~~These asincreases awere partially ~~result~~offset ofby ~~increased~~lower ~~pricing~~investment tointerest ~~dealers, a reduction in discount~~ rates ~~used to value retained interests~~ and ~~decreased~~lower ~~borrowing~~invested ~~costs which~~cash balances.

28Cost of borrowing primarily includes interest expense on Senior and secured borrowings. Cost of borrowing decreased from $30.2 million to $21.7 million as a result of lower average debt balances and lower borrowing rates. Our average interest rates on Senior and secured borrowings were 2.2% and 3.1% for the respective periods in 2010 and 2009 driven by lower LIBOR rates, partially offset by a higher credit spread on the retail securitization completed in April 2009 and the bank refinancing completed in December 2009. The average outstanding debt balance decreased from $3.4 billion to $2.9 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 decrease of $1.9 million resulted from separation costs in the 2009 period of $2.3 million that were not incurred in the 2010 period. The decrease was partially offset by $0.4 million relating to increases in wages, benefits and other administrative costs.

Provision for credit losses on receivables increased from $4.0 million to $8.0 million as we increased our allowance to finance receivables coverage ratio from 1.1% at January 31, 2009 to 1.7% at January 31, 2010, attributable to an increase in specific loss reserves and the impact of higher historical losses.

Depreciation on operating leases increased from $3.9 million to $5.2 million reflecting an increase in the investment in equipment under operating leases. The average investment in operating leases increased from $118.2 million to $127.3 million.

INDEX

~~increased~~Derivative ~~the~~expense ~~fair~~decreased from ~~value~~$22.4 ofmillion ~~the~~to ~~interest~~$3.6 ~~only~~million. ~~strip,~~An asabrupt ~~well~~decrease asin aforward ~~pay~~interest ~~down~~rate curves onduring the ~~debt~~three inmonths ~~the~~ended ~~wholesale~~January ~~trust~~31, ~~which~~2009, ~~reduces~~caused ~~the~~net ~~amount~~fair ofvalues ~~required~~to decrease ~~seller’s interest~~dramatically. ~~Servicing~~Additionally, ~~fees~~the ~~and~~notional ~~investment~~amounts ~~income~~of ~~also~~amortizing ~~declined~~swaps were ~~primarily~~lower asduring ~~a result of~~ the ~~decrease~~three inmonths ~~the~~ended ~~average~~January ~~balances~~31, ~~of sold facilities~~2010.

~~Operating~~Other ~~leases~~(income) ~~and~~expenses ~~other~~moved from ~~revenue~~an ~~includes~~expense ~~rental~~position of $2.3 million to an income onposition ~~operating~~of ~~leases,~~$0.1 ~~interest~~million primarily ~~earned~~as ona ~~cash~~result ~~accounts~~of ~~and~~a ~~guarantee~~net ~~fees.~~gain ~~These~~on ~~revenues~~sales ~~decreased~~of ~~from~~vehicle $9inventory.6 ~~million~~This toreflects some ~~$7.1~~improvement ~~million~~in ~~primarily~~used astruck avalues ~~result~~which ofhave ~~lower~~declined ~~interest~~throughout ~~rates~~the onrecent adverse ~~invested~~economic ~~cash~~environment.

~~Cost~~Income oftax ~~borrowing~~expense ~~primarily~~ (benefit) includes ~~interest~~federal, ~~expense~~state ~~on Senior~~ and ~~secured~~foreign ~~borrowings~~taxes. Our ~~Cost~~income oftax expense ~~borrowing~~changed ~~decreased~~ from ~~$41.7~~a ~~million~~benefit toof $~~19.~~0.6 million asto aan ~~result~~ expense of ~~lower average debt balances and lower borrowing rates~~$4. ~~Our average interest rates on Senior and secured borrowings were 1.9% and 3.~~7% ~~for~~million primarily ~~the~~as ~~respective~~a ~~periods~~result inof ~~2009~~moving ~~and~~from ~~2008~~a ~~driven~~pre-tax byloss ~~lower~~position ~~LIBOR rates. The average outstanding debt balance decreased from $4.1 billion~~ to ~~$3.2~~a ~~billion,~~pre-tax ~~reflecting lower funding needs resulting from lower origination volume~~profit position.

Credit, collections and administrative expenses include costs relating to the management and servicing of receivables as well as general business expenses and wages. The decrease from $13.4 million to $13.0 million resulted primarily from reduced wages and consultant fees of $0.7 million and was partially offset by an increase in amortization expense of $0.3 million relating to the capitalized costs of the recently implemented enhancements to our information systems.

Provision for credit losses on receivables decreased from $13.3 million to $9.1 million primarily as a result of the decrease in the average finance receivable portfolio balance as well as a decrease in charge-offs. The decrease was partially offset by the effect of an increase in our allowance to finance receivables coverage ratio at period end from 0.9% at July 31, 2008, to 1.4% at July 31, 2009, 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 $4.3 million to $4.1 million reflecting the continued decline in originations of operating leases and lower investment in equipment under operating leases. The average investment in operating leases decreased from $116.3 million to $115.1 million.

Derivative expense increased from $1.1 million to $4.5 million as a result of fluctuations in forward interest rate curves. The increase was partially offset by the regular amortization of notional amounts.

Other expenses decreased from $2.2 million to $1.6 million primarily as a result of a decrease in impairment losses on vehicle inventory. The write-downs reflect declining values of certain used truck models which are sensitive to the adverse economic environment.

Income tax expense includes federal, state and foreign taxes. Our effective tax rate changed from a benefit of 26.3% to an expense of 37.7% primarily as a result of moving from a pre-tax loss position to a pre-tax profit position. Our 2009 state tax expense includes $0.3 million of FASB Interpretation No. 48 expense adjustments.

Nine month period ended July 31, 2009 compared to the nine month period ended July 31, 2008

Financing revenue decreased from $204.7 million to $161.4 million as a result of a decrease in the average finance receivable portfolio balance from $3.4 billion to $2.8 billion, as originations decreased on declining industry demand from both the wholesale and retail sides of the business. The average interest rates of the finance receivable portfolio were 7.6% and 7.9%, respectively.

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 $14.5 million to $20.1 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 $6.0 million to a gain of $10.1 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 and investment income also declined primarily as a result of the decrease in the average balances of sold facilities.

INDEX

Operating leases and other revenue primarily includes rental income on operating leases, interest earned on cash accounts and guarantee fees. These revenues decreased from $37.0 million to $21.9 million primarily as a result of lower interest rates on invested cash.

Cost of borrowing primarily includes interest expense on Senior and secured borrowings. Cost of borrowing decreased from $156.2 million to $67.9 million as a result of lower average debt balances and lower borrowing rates. Our average interest rates on Senior and secured borrowings were 2.3% and 4.8% for the respective periods in 2009 and 2008 driven by lower LIBOR rates. The average outstanding debt balance decreased from $4.1 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 decrease from $43.6 million to $43.4 million resulted from an increase of $2.3 million relating to separation costs, $1.7 million relating to amortization expense on capitalized costs of the recently implemented enhancements to our information systems, and $1.3 million relating to increases in wages, benefits and other administrative costs. The 2008 period included $5.5 million of costs related to the relocation of NFC’s regional offices to Schaumburg.

Provision for credit losses on receivables decreased from $23.9 million to $21.5 million as a result of the decrease in the average finance receivable portfolio balance as well as a decrease in charge-offs. The decrease was partially offset by the effect of an increase in our allowance to finance receivables coverage ratio at period end from 0.9% at July 31, 2008, to 1.4% at July 31, 2009, 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 $12.8 million to $12.1 million reflecting the continued decline in originations of operating leases and lower investment in equipment under operating leases. The average investment in operating leases decreased from $123.1 million to $116.4 million.

Derivative expense decreased from $39.6 million to $36.1 million as a result of fluctuations in forward interest rate curves and the regular amortization of notional amounts. In addition, the expense decreased by $2.4 million as a result of including non-performance risk in the fair value calculation of our swaps pursuant to the adoption of SFAS No. 157.

Other expenses decreased from $5.1 million to $4.3 million primarily as a result of a decrease in impairment losses on vehicle inventory. The write-downs reflect declining 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 effective tax rate changed from a benefit of 32.3% to an expense of 38.9% primarily as a result of moving from a pre-tax loss position to a pre-tax profit position. In addition, state tax expense increased from $0.7 million to $1.9 million. Our 2009 state tax expense includes $1.0 million of FASB Interpretation No. 48 expense adjustments.

INDEX

Financial Condition (in millions):

	As of
	July 31, 2009		October 31, 2008		Change			% Change
	January 31, 2010		October 31, 2009		Change			% Change
Cash and cash equivalents	$	1712.82	$	3416.41	$	(163.69	)		(4824.32	)
Finance receivables, net		2,~~582~~355.8		32,~~090~~660.23		(~~507~~304.45	)		(1611.4	)
Amounts due from sales of receivables		~~220~~315.34		~~229~~291.65		(923.39	)		(48.12	)
Net accounts due from affiliates		3.8		17.5		(13.7	)		(78.3	)
Net investment in operating leases		92.0		79.5		12.5			15.7
Net investment in operating leases		72.5		72.9		(0.4	)		(0.5	)
Vehicle inventory		22.5		26.5		(4.0	)		(15.1	)
Vehicle inventory		27.9		42.0		(14.1	)		(33.6	)
Restricted cash and cash equivalents		364.5		421.8		(57.3	)		(13.6	)
Restricted cash and cash equivalents		475.5		515.4		(39.9	)		(7.7	)
Other assets		113.4		107.7		5.7			5.3
Other assets		113.3		123.0		(9.7	)		(7.9	)
Total assets	$	3,275.8	$	3,603.4	$	(327.6	)		(9.1	)
Total assets	$	3,513.9	$	4,125.0	$	(611.1	)		(14.8	)
Net accounts due to affiliates	$	177.2	$	31.2	$	146.0			467.9
Senior and secured borrowings	$	32,~~031~~631.30	$	3,~~679~~093.16	$	(~~647~~462.86	)		(1715.60	)
Other liabilities		~~167~~147.85		~~173~~166.34		(518.59	)		(311.24	)
Total liabilities		32,~~199~~955.17		3,~~852~~291.42		(~~653~~335.35	)		(1710.02	)
Total shareowner’s equity		~~314~~320.81		~~272~~312.62		427.29			152.5
Total liabilities and shareowner’s equity	$	3,~~513~~275.98	$	43,~~125~~603.04	$	(~~611~~327.16	)		(149.81	)

Balances as of ~~July~~January 31, ~~2009~~2010 compared to balances as of October 31, ~~2008~~2009

Finance receivables, net decreased $~~507~~304.45 million to a balance of $2.64 billion ~~as of July 31, 2009~~. Of the $~~507~~304.4 5 million decrease, retail notes and finance leases, net of unearned income decreased $~~391~~87.47 million which was the result of fewer acquisitions combined with ~~customer~~ customer payments. Accounts, ~~primarily wholesale,~~ decreased by $19166.28 million primarily relating to Ford business for which originations contractually ceased during the first fiscal quarter of 2010. Wholesale notes decreased $612.20 million as dealer concentration ~~limits~~in ~~allowed~~the trust eased, allowing more notes to be sold into the ~~wholesale note facility~~ trust. Finance receivables from affiliates decreased $8535.3 million as a result of Dealcor’s continuing effort to reduce inventories. Allowance for losses increased $52.37 million primarily as a result of an increase in specific loss reserves and the impact of higher ~~losses in the~~ historical ~~component~~losses ~~of the loss allowance calculation~~ which was offset by the impact of a decline in the finance receivable portfolio balance.

Amounts due from ~~the~~sales ~~sale~~ of receivables ~~decreased~~increased from $~~229~~291.65 million to $~~220~~315.34 million primarily as a result of a $2557.34 million ~~decrease~~increase in retained interests in sold wholesale notes caused by ahigher ~~lower~~over-collateralization ~~portfolio~~requirements ~~level~~in the amended VFC facility, and athe ~~pay~~sale ~~down~~of on$350.0 ~~the~~million ~~VFC~~of ~~which~~investor ~~reduces~~notes within the ~~amount~~wholesale note oftrust ~~required seller’s~~funding ~~interest~~facility. The ~~decrease~~increase was partially offset by ~~the~~a ~~increase~~decrease in TRAC retained interest of $1633.05 million as customer concentration ~~limits~~in ~~reduced~~ the facility eased, allowing higher facility utilization ~~level~~.

Vehicle inventory decreased from $4226.05 million to $2722.95 million as a result of impairment losses of $112.4 million of which Navistar, Inc. recognized $80.48 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 $475.5 million as a result of $67.9 million in lower collateral account balances in Navistar Financial Retail Receivables Corporation (“NFRRC”) attributable to the lower outstanding portfolio level. This was partially offset by an increase of $27.9 million cash collateral in Truck Retail Instalment Paper Corporation (“TRIP”) to compensate for lower finance receivable levels. The TRIP facility is required to maintain a combined balance of $500.0 million of finance receivables and cash equivalents as collateral.28

Other assets decreased from $123.0 million to $113.3 million as a result of the amortization of debt issuance costs, prepaid expenses and other capitalized assets.

INDEX

~~Senior~~Restricted cash and ~~secured~~cash equivalents ~~borrowings~~ decreased from $3421.78 ~~billion~~million to $3364.05 ~~billion~~million ~~primarily~~ as a result of $~~926~~22.48 million ofin ~~payments~~lower oncollateral ~~secured~~account ~~borrowings~~balances in Navistar Financial Retail Receivables Corporation (“NFRRC”) attributable to the lower outstanding portfolio level. ~~The~~ ~~payments~~In ~~were~~addition, ~~partially~~cash ~~offset~~collateral in Truck Retail Instalment Paper Corporation (“TRIP”) was lower by $~~327~~48.71 million inas ~~new~~finance ~~secured~~receivable ~~borrowings~~levels increased. ~~which~~The ~~included~~TRIP ~~the~~facility ~~issuance~~is ofrequired to maintain a combined balance of $~~298~~500.60 million of finance receivables and cash equivalents as collateral. These decreases were partially offset primarily by the addition of ~~asset-backed~~cash ~~notes~~collateral held in ~~April~~Navistar ~~2009~~Financial Asset Sales Corp. (“NFASC”).

Other ~~liabilities~~assets ~~decreased~~increased from $~~173~~107.37 million to $~~167~~113.84 million as a result of ~~the~~new ~~change~~debt inissuance ~~fair~~costs ~~value~~relating to ofthe ~~derivative~~refinancing ~~liabilities~~of ~~which~~the ~~are~~bank ~~impacted~~credit byfacility ~~fluctuations~~which inare ~~forward~~amortized ~~interest~~over ~~rate~~the facility ~~curves~~term. The ~~change~~new indebt ~~fair~~issuance ~~value~~costs ~~includes~~were partially offset by the amortization ~~consideration~~and acceleration of ~~counterparty~~issuance ~~non-performance risk~~costs ~~pursuant~~relating to ~~the~~existing ~~application~~and refinanced ~~SFAS~~debt, ~~No.~~prepaid ~~157.~~expenses ~~The~~and ~~derivative~~other ~~liability~~capitalized ~~increase~~assets, ~~was~~as ~~partially~~well ~~offset~~as bythe effect aof ~~decrease~~monthly settlement payments and changes in ~~interest~~fair ~~payable~~value on derivative assets.

~~Shareholder’s~~Senior ~~equity~~and ~~increased~~secured borrowings decreased from $~~272~~3.61 ~~million~~billion to $~~314~~2.86 ~~million~~billion primarily as a result of a net ~~income~~reduction ofin ~~$21.8~~borrowings ~~million~~under ~~and~~the arefinanced ~~capital~~bank ~~contribution~~credit facility of $20511.0 9 million ~~from~~and ~~Navistar,~~normal ~~Inc.~~payments ~~The~~on ~~capital~~secured ~~contribution~~borrowings ~~was~~of a$266.7 ~~direct~~million. ~~result~~These payments ofwere ~~the~~partially ~~commitment~~offset by ~~Navistar,~~new ~~Inc.~~borrowings towhich ~~ensure~~included ~~our~~the ~~Fixed~~issuance of ~~Charge~~$224.9 ~~Coverage~~million ~~Ratio~~of isasset-backed atnotes ~~least~~and ~~125%~~a on$79.3 amillion ~~rolling~~loan ~~four~~secured ~~quarter~~by ~~basis~~retail notes and leases.

Other liabilities decreased from $166.4 million to $147.5 million primarily as a result of the monthly settlement payments and changes in fair value on derivative liabilities of $15.2 million, and a decrease in other accrued expenses of $3.7 million.

Shareholder’s equity increased from $312.2 million to $320.1 million as a result of net income of $7.7 million and pension adjustments of $0.2 million.

Asset Quality

The following table summarizes delinquencies and ~~the Allowance for losses as a percentage of the respective finance receivables, net of unearned income~~charge-offs:

	As of
	January 31, 2010			October 31, 2009			Change
	July 31, 2009			October 31, 2008			Change
Delinquencies
Retail notes & finance leases greater than 60 days		1.5	%		0.7	%		0.8
Retail notes and finance leases greater than 60 days.		0.9	%		0.7	%		0.2	%
Wholesale notes greater than 60 days		0.21	%		0.41	%		~~(0.2~~-	)
Wholesale accounts greater than 60 days		20.39	%		2.0.9	%		~~0.3~~-
Allowance to finance receivable coverage ratio		1.4	%		1.0	%		0.4
Allowance to finance receivables coverage ratio		1.7	%		1.4	%		0.3	%

The following table summarizes charge-offs for the period ended July 31 (dollars in millions):

Millions of dollars	Three Months Ended January 31,
	2010			2009			Change
Charge-offs
Retail notes and finance leases charge-offs	$	5.3		$	2.8		$	2.5

Retail notes and finance leases charge-offs to liquidations		1.9	%		1.7	%		0.2	%

	2009			2008			Change
Charge-offs
Retail notes & finance leases charge-offs – three months	$	5.6		$	7.8		$	(2.2	)
Retail notes & finance leases charge-offs – nine months		16.2			19.0			(2.8	)
Retail notes & finance leases charge-offs to liquidations – three months		2.0	%		1.8	%		0.2
Retail notes & finance leases charge-offs to liquidations – nine months		2.2	%		1.5	%		0.7

Retail notes and finance leases delinquencies greater than 60 days have returned to prior year levels after increased levels during most of the previous year attributed to the general economic downturn. Repossessions increased from $9.5 million to $11.0 million for the three months ended January 31, 2009 and 2010, respectively, reflecting a higher delinquency status than January 31, 2009, partially offset by the impact of a lower receivable portfolio level.

~~Repossessions~~The overall ~~for~~allowance ~~the~~to ~~quarter~~finance ~~totaled~~receivables ~~$16.7~~coverage ~~million~~ratio ~~and~~increased ~~retail~~as ~~notes~~a ~~and~~result ~~finance~~of an ~~leases~~increase ~~charge-offs~~in ~~recognized~~specific ~~were~~loss reserves of $52.62 million~~. Impaired~~, ~~receivables~~the ~~increased~~impact ~~from~~of ~~$62.6~~higher losses ~~million~~in tothe ~~$67.2~~historical ~~million~~component ~~during~~of the ~~quarter~~loss ~~which~~allowance ~~resulted~~calculation inand anthe decline ~~increase~~ in ~~specific~~the ~~reserves. As~~finance areceivables ~~result~~portfolio ofbalance. ~~these~~The ~~trends,~~average ~~we increased~~impaired ~~our~~receivables ~~general~~as ~~allowance~~a ~~coverage~~percentage onof ~~the~~finance ~~retail~~receivables ~~notes~~were 2.8% and ~~finance~~2.4% ~~leases portfolio~~ for the three ~~quarter~~months ended ~~July~~January 31, 2010 and 2009, respectively.

The overall allowance to finance receivable coverage ratio was 1.4% and 1.0% as of July 31, 2009 and October 31, 2008, respectively. The increase in the coverage ratio resulted from an increase in specific loss reserves of $5.4 million, the impact of higher losses in the historical component of the loss allowance calculation and the decline in the finance receivable portfolio balance.29

INDEX

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

	January 31, 2010		October 31, 2009
Retail Notes and Finance Leases	$	34.5	$	31.8
Accounts		0.8		0.8
Total	$	35.3	$	32.6

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 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 12 quarters, a qualitative component based upon current economic and portfolio quality trends, and a specific reserve component.

The historical component based on 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.

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 as a 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 notes and finance lease originations/purchases were $~~130~~185.58 million and $~~446~~206.27 million during the three ~~and~~months ~~nine month periods~~ ended ~~July~~January 31, ~~2009,~~2010 ~~respectively. Net retail notes~~ and ~~finance lease originations/purchases were $192.6 million and $609.1 million during the three and nine month periods ended July 31~~2009, ~~2008,~~ respectively. NFC provided 912.07% and 1012.16% of retail and lease financing for the Navistar, Inc. new trucks sold in the U.S. during the ~~nine~~ three months ended ~~July~~January 31, ~~2009~~2010 and ~~2008~~2009, respectively. NFC experienced a ~~decrease~~slight increase in market share as a result of ~~proportionately~~an ~~lower~~increase ~~sales~~in ~~from~~financing ~~Navistar, Inc.~~ to customers not normally requiring or seeking financing from NFC.

NFC provided 96.84% and 97.95% of the wholesale financing of new trucks sold to Navistar, Inc.’s dealers for the ~~rolling~~three ~~twelve~~months ~~month periods~~ ended ~~July~~January 31, ~~2009~~2010 and ~~2008~~2009, respectively. Wholesale note originations were $~~692~~864.08 million and $2777.26 ~~billion~~ million for the three ~~and~~months ~~nine month periods~~ ended ~~July~~January 31, ~~2009,~~2010 ~~respectively. Wholesale note originations were $842.7 million~~ and ~~$2.5 billion for the three and nine month periods ended July 31~~2009, ~~2008,~~ respectively.

Serviced wholesale notes balances, including the portion from affiliates, were $~~783~~967.7 1 million and $~~990~~964.87 million as of ~~July~~January 31, ~~2009~~2010 and October 31, ~~2008~~2009, respectively. The ~~decrease~~first ~~reflects~~quarter ~~Navistar,~~increase ~~Inc.’s~~reflects ~~lower~~higher ~~sales~~dealer ~~to its dealers in the United States~~acquisition activity.

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 ~~long-term~~ 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.

INDEX

Credit Ratings

NFC’s credit ratings as of January 31, 2010, were as follows:

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

Outlook as of January 26, 2010	Negative	Stable

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.

Funding Trends

The uncertainty and market volatility in capital and credit markets has stabilized recently. The asset-backed securitization market used by NFC and its lending conduit banks continues to show signs of improvement. The launch of TALF has added some stability to the securitization market. Pricing has improved, although it remains higher than historical norms. 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 and credit spreads which reduce discounted future cash flows. Given present market conditions, we expect a near-term decrease in our borrowing costs relating to new funding facilities since market credit spreads are currently lower than spreads of our more recently issued 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 investor notes 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. Concurrent with the refinancing, NFC issued secured borrowings of $304.2 million secured by retail notes and leases. As a result of the decrease in the size of the bank facility, we have increased the balance of our trade payable with Navistar, Inc. which is included in Net accounts due to affiliates. As of January 31, 2010, the balance of the trade payable was $167.0 million. There was no balance as of October 31, 2009.

On February 12, 2010, we completed the sale of $250.0 million of two-year investor notes within the wholesale note trust funding facility. This sale was eligible for funding under the TALF program. In addition, on February 25, 2010, NFC paid off investor notes of $212.0 million upon maturity.

Funding Facilities

We finance receivables through securitizations utilizing the asset-backed public market and private placement sales. NFC, ~~finances~~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 ~~through~~using ~~NFRRC~~a process commonly known as securitization, whereby ~~Navistar~~asset-backed ~~Financial~~securities ~~Securities~~are ~~Corporation~~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 (“~~NFSC~~SPE”). The SPE then transfers the receivables to a special purpose entity, ~~Truck~~generally ~~Retail~~a ~~Accounts~~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 (“~~TRAC~~NFSC”) finances wholesale notes, ~~TRIP~~NFRRC finances retail notes and finance leases, International Truck Leasing Corporation (“ITLC”), ~~all~~finances operating ~~special~~leases ~~purpose,~~and ~~wholly-owned~~some ~~subsidiaries~~finance ofleases, ~~NFC. We~~and ~~provide~~Truck ~~limited~~Retail ~~recourse~~Accounts ~~for~~Corporation (“TRAC”) ~~all~~finances ~~subordinated receivables~~retail accounts. ~~The~~NFC ~~recourse~~uses isTRIP ~~limited~~ to ~~our~~temporarily ~~retained~~fund retail ~~interest~~notes and ~~relates~~retail tofinance ~~credit~~leases. ~~risk~~Navistar ~~only~~Financial Asset Sales Corp. (“NFASC”) finances certain retail notes.

~~We securitized $343.3 million of retail notes through NFRRC and issued secured borrowings of $298.6 million during the nine months ended July~~ 31, 2009. We securitized $1.1 billion of retail notes and issued secured borrowings of $1.0 billion during the nine months ended July 31, 2008. Generally, NFC enters into interest rate swap agreements in connection with a sale 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 held $668.3 million of wholesale notes and $61.1 million of marketable securities as of July 31, 2009, and $818.6 million and $95.3 million of marketable securities as of October 31, 2008. As discussed in Note 12, Securitization Transactions, a portion of the wholesale trust is funded by a $650.0 million bank conduit which was renewed on August 25, 2009, and now expires in August 2010. The renewal contains higher over-collateralization requirements which will have an adverse impact on Securitization income in future periods.

Effective July 31, 2009, the TRAC facility was amended to allow NFC more flexibility with regard to pricing on certain retail accounts and extended to November 9, 2009. TRAC obtains financing for its retail accounts with a bank conduit that provides for the funding of up to $100.0 million of eligible retail accounts, at the lenders’ cost of funds plus a spread. As a result of the amendment, the spread was increased 100 basis points. The utilized portion of the TRAC funding facility was $25.0 million and $47.5 million as of July 31, 2009, and October 31, 2008, respectively. TRAC held a retained interest in the facility of $106.0 million as of July 31, 2009, and $90.0 million as of October 31, 2008. Customer concentration limits prevented full utilization of the facility.

INDEX

~~NFC~~We securitized ~~uses~~$246.8 ~~TRIP~~million toof ~~temporarily fund~~ retail notes ~~and~~through ~~retail~~NFASC ~~leases,~~and ~~other~~issued ~~than~~secured borrowings ~~operating~~of ~~leases~~$224. ~~This~~9 ~~facility~~million ~~is used primarily~~ during the ~~periods~~three ~~prior~~months toended aJanuary ~~securitization~~31, of2010. No retail securitizations ~~notes~~were ~~and~~completed ~~finance~~through ~~leases.~~NFRRC ~~NFC~~or ~~retains~~NFASC aduring ~~repurchase option against~~ the ~~retail~~three ~~notes and leases sold into TRIP therefore TRIP’s assets and liabilities~~months ~~are~~ended ~~included~~January ~~in our consolidated statements of financial condition. As of July~~ 31, 2009. ~~and October 31~~Generally, ~~2008~~ NFC ~~had~~enters ~~$224.3~~into interest ~~million~~rate ~~and~~swap agreements ~~$242.5 million, respectively,~~ in ~~retail~~connection ~~notes~~with ~~and~~a ~~finance~~securitization ~~leases~~of inretail ~~TRIP~~note receivables. In On ~~addition,~~a ~~the~~consolidated ~~TRIP~~basis, ~~facility~~NFC ~~held~~effectively ~~$326.7~~fixes ~~million~~the ~~and~~rate on ~~$298.8~~a ~~million~~portion of ~~marketable~~its ~~securities~~variable asrate ofdebt ~~July~~by ~~31,~~entering ~~2009~~into ~~and~~interest ~~October~~rate ~~31,~~swap agreements ~~2008,~~with ~~respectively~~contractual amortization schedules.

~~ITLC,~~NFC securitizes ~~our~~wholesale ~~wholly-owned~~notes ~~subsidiary~~through NFSC, ~~was~~which ~~established~~has toin ~~provide~~place a revolving wholesale note trust that provides for the funding of ~~certain~~eligible ~~leases~~wholesale notes. ~~For~~The ~~the~~trust ~~nine~~owned ~~month~~$807.7 ~~periods~~million ~~ended July 31, 2009 and 2008, ITLC received proceeds~~ of ~~$29.1~~wholesale ~~million~~notes and $33212.~~3 million, respectively,~~ 0 in ~~the~~cash ~~form~~equivalents ofas ~~on-balance sheet collateralized borrowings. As~~ of ~~July~~January 31, ~~2009~~2010, ~~the balance of ITLC’s collateralized borrowings secured by operating~~ and ~~finance leases was~~ $~~127~~763.71 million asof ~~compared~~wholesale notes toand ~~$130.4~~no ~~million~~cash onequivalents as of October 31, ~~2008~~2009.

~~Our ability to sell our receivables may be dependent on the following factors: the volume and credit quality~~ Components of ~~receivables,~~available ~~the~~wholesale ~~performance~~note oftrust ~~previously~~funding 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~~were ~~certain securitization programs. If~~ as afollows 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.(in millions):

The bank credit agreement (“Agreement”), as amended in March 2007, has two primary components, an unamortized term loan balance of $599.0 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 Agreement matures in July 2010 and the Company is executing its plan to refinance the debt by calendar year end.

	Maturity	January 31, 2010		October 31, 2009
Investor notes	February 2010	$	212.0	$	212.0
Variable funding certificate (“VFC”)	August 2010		500.0		650.0
Investor notes (TALF)	October 2012		350.0		-
Total		$	1,062.0	$	862.0

~~Availability~~The utilized portion of the VFC was $200.0 million and $350.0 million as of January 31, 2010 and October 31, 2009, respectively. The VFC facility was reduced to $500.0 million in conjunction with the sale of the $350.0 million of three-year investor notes under the ~~revolver~~TALF ~~portion~~program on November 10, 2009. NFSC held a retained interest in the facility of $249.3 million as of January 31, 2010 and $191.9 million as of October 31, 2009. On February 12, 2010, NFC completed the ~~Agreement~~sale of $250.0 million of two-year investor notes within the wholesale note trust funding facility. This sale was asalso ~~follows~~eligible ~~(in~~for ~~millions):~~funding under TALF. On February 25, 2010, NFC paid off investor notes of $212.0 million upon maturity.

	July 31, 2009			October 31, 2008
Revolver bank loan	$	800.0		$	800.0
NFC revolving loan utilized		(409.5	)		(454.0	)
Mexican sub-revolver loan utilized		(29.0	)		(100.0	)
Total availability	$	361.5		$	246.0

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. The utilized portion of the TRAC funding facility was $27.1 million and $7.7 million as of January 31, 2010 and October 31, 2009, respectively. TRAC held a retained interest in the facility of $66.1 million as of January 31, 2010, and $99.6 million as of October 31, 2009. The facility expires on October 29, 2010.

~~Other~~TRIP, ~~Considerations~~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 January 31, 2010 and October 31, 2009, NFC had $349.0 million and $301.1 million, respectively, in retail notes and finance leases in TRIP. In addition, the TRIP facility held $227.4 million and $275.5 million of cash equivalents as of January 31, 2010 and October 31, 2009, respectively.

~~The~~ITLC, ~~uncertainty~~our wholly-owned ~~and~~subsidiary, ~~market~~was ~~volatility~~established into ~~capital~~provide ~~and~~for ~~credit~~the ~~markets~~funding ~~has~~of ~~stabilized recently~~certain leases. ~~During~~ITLC ~~the~~received ~~first~~proceeds ~~half~~ of ~~our~~$14.2 ~~fiscal~~million ~~year~~and ~~market~~$11.8 ~~volatility~~million ~~produced~~in the ~~downward~~form ~~pressure~~of on-balance ~~credit~~sheet ~~availability~~collateralized borrowings for ~~most~~the ~~issuers~~three ~~without~~months ended ~~regard~~January to31, ~~those~~2010 ~~issuers’ underlying financial strength~~ and ~~resulted~~2009, ~~in increased borrowings costs~~respectively. ~~The~~As ~~funding strategy~~ of ~~NFC~~January ~~has~~31, ~~been~~2010 and ~~adversely~~October ~~affected~~31, by2009, ~~stress~~respectively, in the ~~credit~~balance ~~markets~~of ~~caused~~ITLC’s collateralized borrowings secured by aoperating ~~lack~~and offinance ~~liquidity~~leases ~~and~~were ~~increased~~$129.0 ~~capital~~million ~~reserve~~and $125.0 ~~requirements~~million.

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 theirOn ~~previous~~December rates increase significantly. The recent launch of the U.S. Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”) has however added some stability to the securitization market. Pricing has improved16, ~~although it remains higher than historical norms. On April 30,~~ 2009, ~~NFC~~we ~~issued~~entered ~~$298.6 million of asset-backed notes~~ into a bank~~-sponsored,~~ ~~multi-seller~~term ~~conduit~~loan ~~facility~~for $79.3 ~~This~~million ~~was~~secured ~~our~~by specific ~~first~~ retail ~~securitization transaction completed in fiscal 2009. This issuance of asset-backed~~ notes and ~~credit~~leases ~~rating~~with ~~thereon,~~monthly ~~demonstrates~~scheduled ~~our~~principal ~~ability~~payments through toMarch ~~access credit markets in the current environment~~2013. 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 do not expect a near-term reduction in our borrowing costs.

3432

INDEX

~~Credit~~On December ~~Ratings~~16, 2009, our bank credit facility was refinanced for $815.0 million due in 2012. The new facility 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 facility, NFC is subject to customary operational and financial covenants including an initial minimum collateral coverage ratio of 120%. The term loan principal is to be paid in quarterly installments of $0.9 million through October 31, 2012, with the balance of $354.2 million due on December 16, 2012.

~~NFC’s~~The availability ~~credit~~under ~~ratings~~the asrevolver portion of ~~July~~the ~~31,~~current ~~2009,~~and ~~were~~prior bank credit facilities was as follows (in millions):

	Fitch	Standard and Poor’s
		January 31, 2010			October 31, 2009
Senior unsecured debt	BB-	BB-
Revolver bank loan		$	450.0		$	800.0
Outlook as of February 2008	Negative	Negative
NFC revolving loan utilized			(391.0	)		(670.5	)
In July 2006, Moody’s withdrew its credit rating for both NIC and NFC. In January 2006, Standard and Poor’s changed its outlook to Negative from Stable. During February 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.
Mexican sub-revolver loan utilized			(20.0	)		(14.0	)
Total availability		$	39.0		$	115.5

Fair Value Measurements on a Recurring Basis

On November 1, 2008, we adopted the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. Refer to Note 13 of Notes to Consolidated Financial Statements for additional information regarding the adoption and effects of SFAS No. 157.

In connection with the adoption of SFAS No. 157, we measure certain assets and liabilities at fair value using Level 3, or significant unobservable inputs that require judgment. The following section describes the valuation methodologies used to measure fair value, key inputs and significant assumptions:

Derivative financial instruments - We measure derivative fair values assuming that the unit of account is an individual derivative transaction and that derivative could be sold or transferred on a stand-alone basis. Certain interest rate swaps are amortized based on actual loan liquidations which can fluctuate from month to month. In these cases, market data is not available and we estimate the amortization of the notional amount which is used to determine fair value. Measurements based upon these assumptions are Level 3. Changes in fair value are recognized in Derivative expense. We consider counterparty non-performance risk under SFAS No. 157 in the recognized measure of fair value of derivative financial instruments. We use our counterparty’s non-performance spread for derivative assets and our non-performance spread for derivative liabilities.

Amounts due from sales of receivables - We retain certain interests in receivables sold in off-balance sheet securitization transactions. We estimate the fair value of retained interests using internal valuation models that incorporate market inputs and our own assumptions about future cash flows. The fair value of retained interests is estimated based on the present value of monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions. In addition to the amount of debt and collateral held by the securitization vehicle, the three key inputs that affect the valuation of our retained interests include credit losses, prepayment speed, and the discount rate. Changes in fair value are recognized in Securitization income.

These unobservable inputs are based on management’s judgment which are subject to change and may diverge materially from the amounts we realize on settlement or maturity. The amount of assets and liabilities measured at fair value using Level 3 inputs as a percentage of the total assets and liabilities measured at fair value as of July 31, 2009, were 98.5% and 47.7%, respectively.

New Accounting Pronouncements

See Note 1 of Notes to Consolidated Financial Statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~NFC~~See ~~measures~~Item 7A, ~~its~~Quantitative ~~interest rate risk by estimating the net amount by which the fair value of all interest rate sensitive assets~~ and Qualitative ~~liabilities,~~Disclosures ~~including~~about ~~derivative~~Market ~~financial instruments~~Risk, ~~would~~of beour ~~impacted~~Annual byReport ~~selected~~on ~~hypothetical changes in market interest rates. Fair value is estimated using a discounted cash flow analysis. Assuming~~Form ~~a hypothetical instantaneous~~ 10%-K ~~adverse~~for ~~change~~the inyear ~~interest~~ended ~~rates as of July 31, 2009 and~~ October 31, ~~2008, the estimated fair value of the net assets would decrease by approximately $33~~2009.4 ~~million~~There ~~and~~have ~~$38.7~~been ~~million,~~no ~~respectively. NFC’s~~significant ~~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~~our ~~relationship~~exposure ~~between~~to ~~short-term~~market ~~and~~risk ~~long-term~~since ~~interest~~October ~~rates~~31, 2009.

Item 4. Controls and Procedures

This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

~~Management’s evaluation of the effectiveness of the Company’s disclosure~~ Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofunder the Exchange Act) ~~was~~are ~~performed~~designed ~~under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer. The purpose of disclosure controls and procedures is~~ to ensure that information required to be disclosed in ~~the~~ reports filed or submitted under the Exchange Act ~~are~~ is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

AsIn connection ~~previously~~with ~~disclosed~~the ~~under~~preparation ~~“Item~~of 9Athis –Report, ~~Controls~~our ~~and~~management, ~~Procedures”~~under inthe supervision ~~our~~and ~~Annual~~with ~~Report~~the onparticipation ~~Form~~of ~~10-K for~~ the ~~fiscal~~Chief ~~year~~Executive ~~ended~~Officer ~~October~~and ~~31,~~Chief Financial ~~2008~~Officer, ~~management~~conducted ~~concluded~~an ~~that~~evaluation of the ~~Company’s~~effectiveness ~~internal~~of ~~control~~the ~~over~~design and ~~financial~~operation ~~reporting~~of ~~was~~our ~~not~~disclosure ~~effective~~controls ~~based~~and onprocedures ~~the~~as ~~material~~of ~~weakness~~January ~~identified.~~31, 2010. Based on that ~~material~~evaluation, ~~weakness~~ our Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended ~~July~~January 31, ~~2009~~2010, ~~the Company’s~~ our disclosure controls and procedures were ~~not~~ effective. Nevertheless, based on a number of factors, including the performance of additional procedures by management designed to ensure the reliability of our financial reporting, management believes that the consolidated financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Management continues to make progress toward achieving the effectiveness of the Company’s disclosure controls and procedures. Specifically, the Company’s management is continuing remediation efforts as described below under “Management’s Remediation Initiatives”.

Management’s Remediation Initiatives

Remediation generally requires making changes to how controls are designed and then adhering to those changes for a sufficient period of time such that the effectiveness of those changes is demonstrated with an appropriate amount of consistency. Management has made significant improvements in the Company’s internal control over financial reporting and is committed to remediating the Company’s remaining material weakness. Under management’s direction, our Sarbanes-Oxley compliance function is responsible for helping develop and monitor management’s short-term and long-term remediation plans. In addition, executive owners assigned to oversee the necessary remedial changes to the overall design of the Company’s internal control environment continue to address the root causes of the Company’s material weakness.

Management’s remediation initiatives summarized below are intended to address our specific material weakness and continue to enhance the Company’s internal control over financial reporting:

· Management is committed to achieving and maintaining a strong control environment, high ethical standards and financial reporting integrity. This commitment will continue to be communicated to and reinforced with our employees.

· Management will continue to foster awareness and understanding of standards and principles for accounting and financial reporting. This includes the implementation and clarification of specific accounting policies and procedures and effective execution of our accounting training program.

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· Management will continue to monitor adherence to company accounting policies and procedures through the testing of key controls directly linked to these accounting policies to test for operating effectiveness and help ensure critical accounting procedures are being performed correctly.

Collectively, these and other actions are improving the foundation of the Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 and 15d-15 that occurred during the quarter ended ~~July~~January 31, ~~2009~~2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 6. Exhibits

Any exhibits filed herewith are listed in the accompanying index.


Number		Page

10	Material Contracts	E-1
31.1	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	E-3
31.2	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	E-5
32	CEO and CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	E-7

38All exhibits other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information called for is shown in the consolidated financial statements and notes thereto in the Quarterly Report on Form 10-Q for the period ended January 31, 2010.

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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)
Date: September 9, 2009	By: /s/	DAVID L. DERFELT
Date: March 9, 2010	By: /s/	DAVID L. DERFELT
		David L. Derfelt
		V.P., and Controller
		(Principal Accounting Officer)

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10	Material Contracts (incorporated by reference): 10.1 Treasurer’s Agreement Number 1, dated January 30, 2009, between Navistar Financial Corporation and Navistar, Inc. An amendment to the Amended and Restated Master Intercompany Agreement dated April 1, 2007. Filed as Exhibit 10.1 to NFC’s Form 8-K on August 6, 2009. Commission file No. 001-04146. 10.2 Treasurer’s Agreement Number 2, dated July 31, 2009, between Navistar Financial Corporation and Navistar, Inc. An amendment to the Amended and Restated Master Intercompany Agreement dated April 1, 2007. Filed as Exhibit 10.2 to NFC’s Form 8-K on August 6, 2009. Commission file No. 001-04146. 10.3 Amendment No. 2 to Receivables Sale Agreement, dated July 31, 2009, between Truck Retail Accounts Corporation and Navistar Financial Corporation. Filed as Exhibit 10.3 to NFC’s Form 8-K on August 6, 2009. Commission file No. 001-04146. 10.4 Amendment No. 10 to Receivables Purchase Agreement, dated July 31, 2009, among Truck Retail Accounts Corporation, Navistar Financial Corporation, JS Siloed Trust and JPMorgan Chase Bank, N.A., successor by merger to Bank One, N.A. Filed as Exhibit 10.4 to NFC’s Form 8-K on August 6, 2009. Commission file No. 001-04146. 10.5 Amendment No. 4, dated August 25, 2009, to the Series 2000-VFC Supplement to the Pooling and Servicing Agreement, dated January 28, 2000, among Navistar Financial Securities Corporation, as Seller, Navistar Financial Corporation, as Servicer, and The Bank of New York Mellon, a New York banking corporation, as Master Trust Trustee. Filed as Exhibit 10.1 to NFC’s Form 8-K on August 26, 2009. Commission file No. 001-04146. 10.6 Amendment and Extension to Amended and Restated Certificate Purchase Agreement, dated August 25, 2009, among Navistar Financial Securities Corporation, Navistar Financial Corporation, Kitty Hawk Funding Corporation, as a Conduit Purchaser, Liberty Street Funding LLC (f/k/a Liberty Street Funding Corp.), as a Conduit Purchaser, The Bank of Nova Scotia, as a Managing Agent and a Committed Purchaser, and Bank of America, National Association, as a Managing Agent, the Administrative Agent and a Committed Purchaser. Filed as Exhibit 10.2 to NFC’s Form 8-K on August 26, 2009. Commission file No. 001-04146.
31	Rule 13a-14(a) and 15d-14(a) Certifications: 31.1 Certification of Principal Executive Officer 31.2 Certification of Principal Financial Officer
32	Section 1350 Certification: CEO and CFO Certification Pursuant to of Chapter 1350 of Chapter 63 of Title 18 of the United States Code

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