What is the formal definition of a "material weakness" in internal control? How do material weaknesses in internal control differ from "significant deficiencies" in internal control?Identify 2 material weaknesses in Exhibit 1 that you believe were most critical.

Exhibit 1 Material

Weaknesses in

Internal Control

Reported by

Navistar in Its

2005 Form 10-K

1. Control Environment: As of October 31, 2005, management was unsuccessful in

establishing an adequately strong consciousness regarding the consistent application

of ethics across all areas of the company and the importance of internal controls over

financial reporting, including adherence to GAAP.

2. Accounting Personnel: We did not have a sufficient number of accounting personnel with

an appropriate level of accounting knowledge, experience and training in the application

of GAAP.

3. Accounting Policies: We did not have a formalized process for monitoring, updating,

disseminating, and implementing GAAP-compliant accounting policies and procedures.

4. Internal Audit: Our internal audit department was not an effective monitoring control

over financial reporting.

5. Segregation of Duties: We did not maintain effective controls to ensure adequate

segregation of duties.

6. Information Technology ("IT"): Our IT general controls over computer program

development, computer program changes, computer operations and system user access to

programs and data were ineffectively designed.

7. Journal Entries: We did not maintain effective controls over the preparation, support,

review and approval of journal entries.

8. Account Reconciliations: We did not maintain effective controls over account

reconciliations and financial analysis and review.

9. Period End Close: We did not maintain effective controls over the period end close

process.

10. Pension Accounting: We did not maintain effective controls to accurately estimate our

pension and OPEB obligations.

11. Warranty Accounting: We did not have appropriate warranty cost accounting models and

methodologies in place to adequately estimate warranty accruals and we did not perform

appropriate financial analyses of the warranty cost estimates on a periodic basis.

12. Income Tax Accounting: We did not have sufficient modeling tools in place or a process

to validate the positive and negative evidence necessary to determine whether valuation

allowances were required to reduce the carrying values of deferred tax assets.

13. Inventory Accounting: We did not maintain effective controls over our inventory

accounting process.

14. Revenue Accounting: We did not maintain effective controls over the revenue accounting

process.

15. Contracts and Agreements: We did not perform effective reviews of contracts and

agreements, including customer agreements, supplier agreements, agreements related

to variable interest entities, derivatives, debt, and leases to assess the accounting

implications related to the contracts and agreements.

Source: Navistar International Corporation's 2005 Form 10-K.