[Notes to Financial Statements]

11 COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS AND LEASES

COMMITMENTS, CONTINGENCIES AND RESTRICTED ASSETS At October 31, 1999, commitments for capital expenditures in progress were approximately $505 million. The company's truck assembly facility located in Escobedo, Mexico is encumbered by a lien in favor of certain lenders of the company as collateral for the $125 million revolving Mexican credit facility. At October 31, 1999, $52 million of a Mexican subsidiary's receivables were pledged as collateral for bank borrowings. In addition, as of October 31, 1999, the company is contingently liable for approximately $204 million for various purchasing commitments, credit guarantees and buyback programs. Based on historical loss trends, the company's exposure is not considered material. Additionally, restrictions under the terms on the senior and senior subordinated notes and Mexican credit facility include a limitation on indebtedness and a limitation on certain restricted payments.

At October 31, 1999, the Canadian operating subsidiary was contingently liable for retail customers' contracts and leases financed by a third party. The Canadian operating subsidiary is subject to maximum recourse of $251 million on retail contracts and $22 million on retail leases. The Canadian operating subsidiary, NFC and certain other subsidiaries included in financial services operations are parties to agreements that may result in the restriction of amounts which can be distributed to Transportation in the form of dividends or loans and advances. At October 31, 1999, the maximum amount of dividends which were available for distribution under the most restrictive covenants was $220 million.

The company and Transportation are obligated under certain agreements with public and private lenders of NFC to maintain the subsidiary's income before interest expense and income taxes at not less than 125% of its total interest expense. No income maintenance payments were required for the three years ended October 31, 1999.

CONCENTRATIONS At October 31, 1999, the company employed 10,800 hourly workers and 6,700 salaried workers in the United States and Canada. Approximately 98% of the hourly employees and 21% of the salaried employees are represented by unions. Of these represented employees, 92% of the hourly workers and 100% of the salaried workers are represented by the United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) or the National Automobile, Aerospace, and Agricultural Implement Workers of Canada (CAW). The company's current master contract with the UAW expires on October 1, 2002. The collective bargaining agreement with the CAW expires on June 1, 2002. Additionally, of the company's 1,070 employees in Mexico, approximately 71% are represented by a union.

Reflecting higher consumer demand for light trucks and vans, sales of mid-range diesel engines to Ford Motor Company by the engine segment were 17% of consolidated sales and revenues in 1999 and 14% in both 1998 and 1997. The company has a 10-year agreement, effective with model year 2003, to continue supplying Ford Motor Company with diesel engines for use in its diesel-powered light trucks and vans.

LEASES The company has long-term noncancellable leases for use of various equipment and facilities. Lease terms are generally for five to 25 years and, in many cases, provide for renewal options. The company is generally obligated for the cost of property taxes, insurance and maintenance. The company leases office buildings, distribution centers, furniture and equipment, machinery and equipment, and computer equipment.

The majority of the company's lease payments are for operating leases. At October 31, 1999, future minimum lease payments under operating leases having lease terms in excess of one year are: 2000Ð$43 million, 2001Ð$33 million, 2002Ð$21 million, 2003Ð$19 million, 2004Ð$9 million and thereafterÐ$26 million. Total operating lease expense was $30 million in 1999, $36 million in 1998 and $40 million in 1997. Income received from sublease rentals was $7 million in 1999 and 1998, and $6 million in 1997.

12 LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS

The company and its subsidiaries 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 the business of the company and its subsidiaries. In the opinion of the company's management, none of these proceedings or claims is material to the business or the financial condition of the company.

The company has been named a potentially responsible party (PRP), in conjunction with other parties, in a number of cases arising under an environmental protection law, the Comprehensive Environmental Response, Compensation, and Liability Act, popularly known as the Superfund law. These cases involve sites which allegedly have received wastes from current or former company locations. Based on information available to the company, which, in most cases, consists of data related to quantities and characteristics of material generated at or shipped to each site as well as cost estimates from PRPs and/or federal or state regulatory agencies for the cleanup of these sites, a reasonable estimate is calculated of the company's share, if any, of the probable costs and is provided for in the financial statements. These obligations are generally recognized no later than completion of the remedial feasibility study and are not discounted to their present value. The company reviews its accruals on a regular basis and believes that, based on these calculations, its share of the potential additional costs for the cleanup of each site will not have a material effect on the company's financial results.

  Annual Report 1999