PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-9618
N A V I S T A R I N T E R N A T I O N A L C O R P O R A T I O N
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
---------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
-------------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------- -----------------------
Common stock, par value $0.10 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Series A warrants New York Stock Exchange
Pacific Stock Exchange
$6.00 cumulative convertible preferred stock,
Series G (with $1.00 par value) New York Stock Exchange
Cumulative convertible junior preference stock,
Series D (with $1.00 par value) New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days: Yes X No
--- ---
As of January 20, 1994, the aggregate market value of Common Stock
(excluding Class B Common Stock) held by non-affiliates of the registrant
was $1,312,845,561.
As of January 20, 1994, the number of shares outstanding of the
registrant's Common Stock was 49,776,135 and the Class B Common was
25,240,305.
Documents Incorporated by Reference
-----------------------------------
1993 Annual Report to Shareowners (Parts I, II and IV)
1993 Proxy Statement (Parts I and III)
Navistar Financial Corporation 1993 Annual Report on Form 10-K (Part IV)
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NAVISTAR INTERNATIONAL CORPORATION
FORM 10-K
Year Ended October 31, 1993
INDEX
10-K Page
---------
PART I
Item 1. Business ....................................... 3
Item 2. Properties ..................................... 12
Item 3. Legal Proceedings .............................. 13
Executive Officers of the Registrant ........... 15
Item 4. Submission of Matters to a Vote of
Security Holders ............................. 16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters .............. 16
Item 6. Selected Financial Data ........................ 16
Item 7. Management's Discussion and Analysis
of Results of Operations and
Financial Condition .......................... 16
Item 8. Financial Statements and Supplementary Data .... 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ....... 16
PART III
Item 10. Directors and Executive Officers
of the Registrant ........................... 16
Item 11. Executive Compensation ........................ 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management ....................... 16
Item 13. Certain Relationships
and Related Transactions .................... 16
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K ..................... 17
SIGNATURES
Principal Accounting Officer ............................ 19
Directors ............................................... 20
POWER OF ATTORNEY ......................................... 20
INDEPENDENT AUDITORS' REPORT .............................. 22
INDEPENDENT AUDITORS' CONSENT ............................. 22
SCHEDULES ................................................. F-1
EXHIBITS .................................................. E-1
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PART I
Item 1. BUSINESS
Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. referred to as "Transportation". As used hereafter, "Navistar" or
"Company" refers to Navistar International Corporation and its subsidiaries
and "Parent Company" refers to Navistar International Corporation alone.
Navistar, through its wholly-owned subsidiary Transportation, operates
in one principal business segment, the manufacture and marketing of medium
and heavy diesel trucks, including school bus chassis, mid-range diesel
engines and service parts in North America and in selected export markets.
Transportation is the industry market share leader in the North American
combined medium and heavy truck market, offering a full line of diesel-
powered products in the common carrier, private carrier,
government/service, leasing, construction, energy/petroleum and student
transportation markets. Transportation also produces mid-range diesel
engines for use in its medium trucks and for sale to original equipment
manufacturers. Transportation markets its products through an extensive
distribution network which includes 950 North American dealer and
distribution outlets. Service and customer support are also supplied at
these outlets. As a further extension of its business, Transportation
provides financing and insurance for its dealers, distributors and retail
customers through its wholly-owned subsidiary, Navistar Financial
Corporation, referred to as "Navistar Financial". See "Important
Supporting Operations".
THE MEDIUM AND HEAVY TRUCK INDUSTRY
Navistar competes in the North American market for medium and heavy
trucks, including school bus chassis, which spans weight classes 5 and
above (16,000 lbs. and over). This market is subject to considerable
volatility as it moves in response to cycles in the overall business
environment and is particularly sensitive to the industrial sector which
generates a significant portion of the freight tonnage hauled. Government
regulation has impacted and will continue to impact trucking operations and
efficiency and the specifications of equipment.
The following table shows retail deliveries in the combined United
States and Canadian markets for the five years ended October 31, 1993, in
thousands of units.
YEARS ENDED OCTOBER 31,
-----------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
Medium trucks
and school bus chassis .. 122.5 118.3 120.1 149.8 162.8
Heavy trucks .............. 166.4 125.2 109.0 139.0 172.2
----- ----- ----- ----- -----
Total ..................... 288.9 243.5 229.1 288.8 335.0
===== ===== ===== ===== =====
Source: Based upon monthly data by the American Automobile
Manufacturers Associations (AAMA) in the United States and Canada and other
sources.
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The North American truck market is highly competitive. Major domestic
competitors include PACCAR, Ford and General Motors, as well as foreign-
controlled manufacturers, such as Freightliner, Mack and Volvo GM. In
addition, manufacturers from Japan (Hino, Isuzu, Nissan, Mitsubishi) are
attempting to increase their North American sales levels. The intensity of
this competitiveness, which is expected to continue, results in price
discounting and margin pressures throughout the industry. In addition to
the influence of price, market position is driven by product quality,
engineering, styling and utility and a comprehensive distribution system.
TRANSPORTATION MARKET SHARE
Transportation delivered 79,800 medium and heavy trucks in North
America in fiscal 1993, compared to a total of 69,300 for fiscal 1992, an
increase of 15.1% in overall units. Navistar's combined share of the
medium and heavy truck market in 1993 was 27.6%. Transportation has been
the leader in combined market share for medium and heavy trucks, including
school bus chassis, in North America in each of its last 13 fiscal years.
PRODUCTS AND SERVICES
The following table illustrates the percentage of Transportation's
sales by class of product by dollar amount:
YEARS ENDED OCTOBER 31,
--------------------------
PRODUCT CLASS 1993 1992 1991
- ------------- ---- ---- ----
Medium trucks
and school bus chassis ........ 35% 40% 44%
Heavy trucks .................... 40 34 31
Service parts ................... 14 16 16
Engines ......................... 11 10 9
--- --- ---
Total ......................... 100% 100% 100%
=== === ===
Transportation offers a full line of medium and heavy trucks, with the
objective of serving the customer better and more effectively by addressing
requirements for increased performance and value. Transportation has made
continuing improvements in its heavy truck image and performance and has
responded to drivers' desires for increased amenities with the introduction
of new sleeper compartments, interiors and aerodynamic chassis skirts for
premium conventional models. New interiors were also introduced for
cabover and severe service trucks. In addition, new mid-range DT 408 and
DT 466 diesel engines were introduced into the medium model trucks which
meet 1994 emission control standards without the need for catalytic
converters. These engines will further enhance medium truck operating
performance and life.
In 1993, Transportation introduced new products including the 9200
model premium conventional tractor as well as other enhancements to its
products to improve operating performance and durability. In addition,
Transportation has launched special "NavTrucks" programs to meet the needs
of customers in targeted regional vocations. Each NavTruck program tailors
existing medium, heavy and severe service truck models to an individual
regional vocation by packaging appropriate vehicle specifications and
marketing programs.
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According to a recent survey conducted by J. D. Power and Associates
on 1993 Medium-Duty Truck Customer Satisfaction, Navistar ranked number one
in customer satisfaction in product and service for medium conventional
trucks.
For over two decades, Transportation has been the leading supplier of
school bus chassis in the United States. Chassis have traditionally been
sold to body companies, which complete the buses and deliver them to the
ultimate customer. Transportation manufactures chassis for conventional
and transit-style school buses, as well as chassis for use in small
capacity buses designed to meet the needs of disabled students. In
addition to its traditional chassis business, Transportation has invested
in American Transportation Corporation (AmTran), a manufacturer of school
bus bodies. Through its relationship with AmTran, Transportation
participates in the trend toward the integrated design and manufacture of
school buses, which offers the potential for improved production and
marketing efficiencies and a reduction in the school bus order cycle.
Transportation offers only diesel-powered trucks and buses because of
their improved fuel economy, ease of serviceability and greater durability
over gasoline-powered vehicles. Transportation's heavy trucks use diesel
engines purchased from outside suppliers, while its medium trucks are
powered by diesel engines manufactured by Transportation. In 1993,
Transportation launched its all new world class series of in-line six
cylinder diesel engines for bus, medium and heavy models. Transportation is
the leading supplier of mid-range diesel engines in the 150-300 horsepower
range according to data supplied by a private research firm, Power Systems
Research of Minneapolis, Minnesota. Based upon information published by
R.L. Polk & Company, diesel-powered medium truck shipments represented 81%
of all medium truck shipments for fiscal year 1993 in North America.
Transportation's North American truck manufacturing operations consist
principally of the assembly of components manufactured by its suppliers,
although Transportation produces its own medium range truck engines, sheet
metal components (including cabs) and miscellaneous other parts.
The following is a summary of Transportation's truck manufacturing
capacity utilization for the five years ended October 31, 1993.
YEARS ENDED OCTOBER 31,
-------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
Production units .......... 88,274 73,901 70,502 80,737 90,897
Total production
capacity ................ 106,032 106,088 106,762 114,402 119,325
Capacity utilization ...... 83.3% 69.7% 66.0% 70.6% 76.2%
Total production capacity varies as a result of changes in the number
of days of production during a year as well as changes in production
constraints.
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ENGINE & FOUNDRY
Transportation builds diesel engines for use in its medium trucks and
for sale to original equipment manufacturers. Production in 1993 totalled
175,500 units, an increase of 18% from the 149,000 units produced in 1992.
In 1993, Transportation produced the DTA 466 (195-270 horsepower), DTA 360
(170-190 horsepower) and 7.3 liter (155-190 horsepower) mid-range diesel
engines. In September 1993, the DT 408 (175-230 horsepower) was introduced
which replaced the DTA 360 while the DT 466 (195-275 horsepower) replaced
the DTA 466. Transportation believes that its family of mid-range diesel
engines, each designed to provide superior performance in customer
applications, offers both the lowest cost of ownership and excellent
durability to users.
Based on U.S. registrations published by R.L. Polk & Company, the 7.3
liter diesel engine is the leading engine of its class. In addition to its
strong contribution to the market position of Transportation's medium
trucks, the 7.3 liter engine and the predecessor 6.9 liter engine have had
significant external sales.
Engine sales to original equipment manufacturers are primarily made to
a major automotive company, which currently accounts for approximately 91%
of sales, and to DINA Camiones, S.A. (DINA), a major truck manufacturer in
Mexico. The automotive company uses the engine in all of its diesel-
powered light trucks and vans having a gross vehicle weight between 8,500
pounds and 14,000 pounds. Shipments to original equipment manufacturers
totalled a record 118,200 units in 1993, an increase of 21% from the 97,400
units shipped in 1992.
In addition to the use of foundry castings in its products,
Transportation sells castings to other original equipment manufacturers.
Sales of rough grey iron engine blocks and cylinder heads to Consolidated
Diesel Corporation (CDC) for its B and C engines were 24,700 tons in 1993
and represented 26% of total foundry capacity. 1993 was the fifth year of
a five year agreement with CDC.
The following is a summary of Transportation's engine capacity
utilization for the five years ended October 31, 1993.
YEARS ENDED OCTOBER 31,
-------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
Engine production units ... 175,464 148,991 126,103 160,434 169,797
Total production capacity . 166,260 166,260 166,720 166,720 167,242
Capacity utilization ...... 105.5% 89.6% 75.6% 96.2% 101.5%
Total production capacity varies as a result of changes in product
mix.
Transportation recently completed a major capital improvement program
in its engine facilities to manufacture a new generation of mid-range
diesel engines in both the in-line six cylinder and V-8 configurations to
be used in trucks and school bus chassis manufactured by the Company and
also sold to other original equipment manufacturers. This new generation
of engines is designed to respond to customer demands for engines that have
more power, improved fuel economy, longer life, and meet current emission
requirements through 1997. The engines also will be offered in a wider
horsepower range, which will give Transportation an opportunity to expand
the number of applications for its engines and broaden its customer base.
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In September 1993, Transportation introduced three new in-line six
cylinder engines that replaced its current DT family of engines in
International medium trucks. These new engines, which offer displacements
of 408, 466 and 530 cubic inches and encompass a horsepower range from 175
to 300, feature 20 percent longer life as a result of larger main and rod
bearings, stronger crankshafts, gear driven accessories and, in 1994,
electronically controlled fuel systems will be introduced. With their
expanded horsepower range and larger displacement, Transportation will also
be able to offer the new engines as a lighter-weight, more cost-effective
product, which meet emission standards, to customers who currently buy
heavier engines from other suppliers.
The 7.3 Liter V-8 diesel engine product will also be replaced in
February 1994, when Transportation begins production of an entirely new
product, with electronically controlled fuel injection. This new diesel
engine will offer significant customer advantages, with a 10 to 15 percent
improvement in fuel economy, 30 to 40 percent enhancement in durability,
and improved power and torque, when compared to Transportation's existing
V-8 product. The new V-8 also will meet the 1994 emissions requirements
cost-effectively and will allow such options as cruise control,
electronically controlled power take-off and diagnostics capabilities.
Transportation has entered into an agreement to supply the new 7.3 Liter
engine to a major automotive company through the year 2000 for use in all
of its diesel-powered light trucks and vans.
Transportation is exploring the development of alternative fuel
engines, including engines powered by compressed natural gas.
Transportation has entered into an agreement with Detroit Diesel
Corporation to develop a natural gas engine based upon one of
Transportation's existing engines and Detroit Diesel's electronic
alternative fuel technology.
SERVICE PARTS
The service parts business is a significant contributor to
Transportation's sales and gross margin and to the maintenance of its
medium and heavy truck customer base. In North America, Transportation
operates seven regional parts distribution centers, which allows it to
offer 24-hour availability and same day shipment of the parts most
frequently requested by customers. Transportation is undertaking
initiatives to increase parts sales outside of North America. As customers
have explored ways to reduce their costs and improve efficiency,
Transportation and its dealers have established programs to help them
manage the parts and maintenance aspects of their businesses more
efficiently. Transportation also offers a "Fleet Charge" program, which
allows participating customers to purchase parts on credit at all of its
dealer locations at consistent and competitive prices. In 1993, service
parts sales increased as a result of higher net selling prices, export
business expansion and growth in dealer and national accounts.
<PAGE>
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MARKETING AND DISTRIBUTION
North American Operations. Transportation's truck products are
distributed in virtually all key markets in North America through the
largest retail organization specializing in medium and heavy trucks. As
part of its continuing program to adapt to changing market conditions,
Transportation has been assisting dealers to expand their operations to
better serve their customer base. Transportation's truck distribution and
service network in North America was composed of 950, 952 and 919 dealers
and retail outlets at October 31, 1993, 1992 and 1991, respectively.
Included in these totals were 467, 460 and 415 secondary and associate
locations at October 31, 1993, 1992 and 1991, respectively.
Retail dealer activity is supported by 5 regional operations in the
United States and a Canadian general office. Transportation has a national
account sales group responsible for its 175 major national account
customers.
Transportation's 10 retail and 6 wholesale North American used truck
centers provide sales and trade-in benefits to its dealers and retail
customers.
International Operations. International Operations exports trucks,
components and service parts, both wholesale and retail, to more than 70
countries around the world and is active in procurement of United States
Government business worldwide. Transportation exported 5,300 trucks in
1993 and 4,900 trucks in 1992 and cumulatively, from 1986 through 1992, was
the leading North American exporter of Class 6-8 trucks from the United
States and Canada, according to data provided by the AAMA.
In Mexico, Transportation has an agreement with DINA to supply product
technology, components and technical services for assembly of DINA trucks
and buses. In 1993, Transportation exported almost 7,000 engines to DINA,
bringing the total engines shipped to approximately 20,000 over the past
three years. Transportation also has initiated sales of the in-line six
cylinder family of mid-range diesel engines to Perkins Group, Ltd., of
Peterborough, England, for worldwide distribution and to Detroit Diesel
Corporation, the North American distributor of Perkins.
NAVISTAR FINANCIAL CORPORATION
Navistar Financial is engaged in the wholesale, retail and to a lesser
extent lease financing of new and used trucks sold by Transportation and
its dealers in the United States. Navistar Financial also finances
wholesale accounts and selected retail accounts receivable of
Transportation. To a minor extent, sales of new products (including
trailers) of other manufacturers are also financed regardless of whether
designed or customarily sold for use with Transportation's truck products.
During fiscal 1993 and 1992, Navistar Financial provided wholesale
financing for 90% and 89%, respectively, of the new truck units sold by
Transportation to its dealers and distributors, and retail financing for
approximately 15% and 14%, respectively, of the new truck units sold by
Transportation and its dealers and distributors in the United States.
Navistar Financial's wholly-owned insurance subsidiary, Harco National
Insurance Company, provides commercial physical damage and liability
insurance coverage to Transportation's dealers and retail customers and to
the general public through an independent insurance agency system.
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IMPORTANT SUPPORTING OPERATIONS
Third Party Sales Financing Agreements. In the United States,
Transportation has an agreement with Associates Commercial Corporation
(Associates) to provide wholesale financing to certain of its truck dealers
and retail financing to their customers. During fiscal 1993 and 1992,
Associates provided 10% and 11%, respectively, of the wholesale financing
utilized by Transportation's dealers and distributors.
Navistar International Corporation Canada has an agreement with a
subsidiary of General Electric Canadian Holdings Limited to provide
financing for Canadian dealers and customers.
Foreign Insurance Subsidiaries. Harbour Assurance Company of Bermuda
Limited offers a variety of programs to the Company, including general
liability insurance, ocean cargo coverage for shipments to and from foreign
distributors and reinsurance coverage for various Transportation policies.
The company also writes minimal third party coverage and provides a variety
of insurance programs to Transportation, its dealers, distributors and
customers.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Transportation designs and manufactures its trucks and diesel engines
to meet or exceed specific industry requirements. New models are
introduced and improvements of current models are made, from time to time,
in accordance with operating plans and market requirements and not on a
predetermined cycle.
During 1993, capital expenditures totalled $110 million. Major
product program expenditures included continued investment in machinery and
equipment at the Melrose Park, Illinois and Indianapolis, Indiana engine
facilities to manufacture a new generation of mid-range diesel engines to
be used in trucks and school bus chassis manufactured by the Company and
also sold to other original equipment manufacturers. The Company began
introducing these engines in the fall of 1993. Other expenditures were
made for truck product improvements, modernization of facilities and
compliance with environmental regulations.
Capital expenditures totalled $55 million in 1992. Major product
program expenditures included machinery and equipment to manufacture the
new series of mid-range diesel engines at the Melrose Park, Illinois and
Indianapolis, Indiana engine facilities. Other expenditures were made for
truck product improvements, modernization of facilities and compliance with
environmental regulations. In 1991, capital expenditures were $77 million.
Product development is an ongoing process at Transportation. Research
and development activities are directed toward the introduction of new
products and improvement of existing products and processes used in their
manufacture. Spending for company-sponsored activities totalled $95
million, $90 million and $87 million for 1993, 1992 and 1991, respectively.
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BACKLOG
The backlog of unfilled truck orders (subject to cancellation or
return in certain events) was as follows:
AT OCTOBER 31 MILLIONS OF DOLLARS UNITS
------------- ------------------- -------
1993 ........ $ 1,353 23,939
1992 ........ $ 1,124 20,456
1991 ........ $ 613 13,534
Although the backlog of unfilled orders is one of many indicators of
market demand, many factors may affect point-in-time comparisons such as
changes in production rates, available capacity, new product introductions
and competitive pricing actions.
EMPLOYEES
The following table summarizes employment levels as of the end of
fiscal years 1991 through 1993:
TOTAL
AT OCTOBER 31 EMPLOYMENT
------------- ----------
1993 ........................... 13,612
1992 ........................... 13,945
1991 ........................... 13,472
LABOR RELATIONS
At October 31, 1993, the United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW) represented approximately 7,144 of the
Company's active employees in the U.S., and the Canadian Auto Workers (CAW)
represented approximately 1,393 of the Company's active employees in
Canada. Other unions represented approximately 1,342 of the Company's
active employees in North America. The Company entered into collective
bargaining agreements with the UAW and CAW in 1993 which expire on October
1, 1995 and October 24, 1996, respectively. These agreements permit
greater productivity and efficiency, manufacturing flexibility and customer
responsiveness, which will contribute to a reduction in costs and the
Company's goal of improving profitability.
PATENTS AND TRADEMARKS
Transportation continuously obtains patents on its inventions and thus
owns a significant patent portfolio. Additionally, many of the components
which Transportation purchases for its products are protected by patents
that are owned or controlled by the component manufacturer. Transportation
has licenses under third party patents relating to its products and their
manufacture, and Transportation grants licenses under its patents. The
royalties paid or received under these licenses are not significant. No
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particular patent or group of patents is considered by Transportation to be
essential to its business as a whole.
Like all businesses which offer well-known products or services,
Transportation's primary trademarks symbolize the Company's goodwill and
provide instant identification of its products and services in the
marketplace and thus, are an important part of its worldwide sales and
marketing efforts. To support these efforts, Transportation maintains, or
has pending, registrations of its primary trademarks in those countries in
which it does business or expects to do business.
RAW MATERIALS AND ENERGY SUPPLIES
Transportation purchases raw materials, parts and components from
numerous outside suppliers but relies upon some suppliers for a substantial
number of components for its truck products. Transportation's purchasing
strategies have been designed to improve access to the lowest cost, highest
quality sources of raw materials, parts and components, and to reduce
inventory carrying requirements. A portion of Transportation's
requirements for raw materials and supplies is filled by single source
suppliers.
The impact of an interruption in supply will vary by commodity. Some
parts are generic to the industry while others are of a proprietary design
requiring unique tooling which would require time to recreate. However,
the Company's exposure to a disruption in production as a result of an
interruption of raw materials and supplies is no greater than the industry
as a whole. In order to remedy any losses resulting from an interruption
in supply, the Company maintains contingent business interruption
insurance. Transportation does not currently foresee critical shortages of
raw materials and supplies.
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers have faced continually increasing
governmental regulation of their products especially in the environmental
and safety areas. In particular, diesel engine manufacturers will be
required to achieve lower emission levels in terms of unburned
hydrocarbons, particulates and oxides of nitrogen. These regulations have
and will impose significant research, design and tooling costs on diesel
engine manufacturers. They may also result in the use of after-treatment
equipment, such as particulate traps and catalytic converters, which will
add to the cost of the vehicle emission control system.
The Company's engines are subject to extensive regulatory
requirements. Specific emissions standards for diesel engines are imposed
by the U.S. Environmental Protection Agency (the U.S. EPA) and by other
regulatory agencies such as the California Air Resources Board (CARB). The
Company believes that its diesel engine products comply with all applicable
emissions requirements currently in effect. The Company's ability to
comply with emissions requirements which may be imposed in the future is an
important element in maintaining and improving the Company's position in
the diesel engine marketplace. Capital and operating expenditures will
continue to be required to comply with these emissions requirements.
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The 1990 Clean Air Act amendments established the U.S. emissions
standards for on-highway diesel engines produced through 2001. Insofar as
light and medium heavy duty diesel engines are concerned, the CARB
standards are similar to those adopted by the U.S. EPA. The Company's
products meet the U.S. EPA and CARB standards for on-highway diesel engines
produced through 1993. The Company expects that its engines will satisfy
all U.S. EPA and CARB on-highway emissions control requirements applicable
through 1997.
In North America, both Canada and Mexico are expected to adopt U.S.
emissions standards. Various diesel engine manufacturers, including the
Company, have voluntarily signed a memorandum of understanding with the
Canadian government, pursuant to which these manufacturers have agreed to
sell only U.S. certified engines in Canada beginning in 1995. In June
1993, Mexico proposed a regulatory program that incorporates U.S. standards
and test procedures. This program is expected to be in place in 1994.
Truck manufacturers are subject to various noise standards imposed by
federal, state and local regulations. The engine is one of a truck's
primary noise sources, and the Company therefore works closely with
original equipment manufacturers to develop strategies to reduce engine
noise. The Company is also subject to the National Traffic and Motor
Vehicle Safety Act (Safety Act) and Federal Motor Vehicle Safety Standards
(Safety Standards) promulgated by the National Highway Traffic Safety
Administration. The Company believes it is in compliance with the Safety
Act and the Safety Standards.
Expenditures to comply with various environmental regulations relating
to the control of air, water and land pollution at production facilities
and to control noise levels and emissions from Transportation's products
have not been material. Investigations into the nature and extent of
cleanup activities under the Superfund law are being conducted at two sites
formerly owned by the Company. The eventual scope, timing and cost of such
activities as well as the availability of defenses to any such claims, and
possible claims against third parties and insurance companies are not known
and cannot be reasonably estimated; however, substantial claims could be
asserted against the Company. See "Management's Discussion and Analysis in
the 1993 Annual Report to Shareowners-Environmental Matters."
ITEM 2. PROPERTIES
Transportation has 7 manufacturing and assembly plants in the United
States and 1 in Canada. All plants are owned by Transportation. The
aggregate floor space of these 8 plants is approximately 8 million square
feet.
Transportation also owns or leases other significant properties in the
United States and Canada, including a paint facility, a small component
fabrication plant, vehicle and parts distribution centers, sales offices,
engineering centers and its headquarters in Chicago.
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ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
Beginning in March 1984, Transportation received several enforcement
notices from the U.S. EPA, all of which relate to Transportation's painting
activities at its Springfield, Ohio assembly and body plants. The notices
alleged that these painting activities violated the Federal Clean Air Act
because the paint contained volatile organic compounds (VOC) in greater
quantities than permitted under applicable Ohio regulations (the VOC
Regulations).
In an administrative action instituted under Section 120 of the Clean
Air Act, begun in September 1984, U.S. EPA seeks to recover a noncompliance
penalty, measured as the costs allegedly saved by Transportation by not
complying with the VOC Regulations at the assembly plant. Transportation
has calculated that it did not save any costs. The case went to a hearing
before an administrative law judge who ruled in early 1987 that
Transportation was liable for a noncompliance penalty in an amount to be
determined in a subsequent hearing. All Transportation appeals of this
ruling were denied. No hearing to determine the amount of the
noncompliance penalty has yet been scheduled.
In a court action instituted under Section 113(b) of the Clean Air
Act, the United States filed civil complaints pertaining to the assembly
plant (filed on April 30, 1985) and the body plant (filed on November 3,
1986) in the U.S. District Court in the Southern District of Ohio. These
complaints ask the judge to impose fines of up to $25,000 per violation of
the VOC Regulations per day since December 31, 1982, and also ask the judge
to issue an injunction prohibiting Transportation from continuing the
alleged violations. In March 1993, the judge granted the United States'
motion for partial summary judgment, ruling that Transportation violated
the VOC Regulations at the assembly plant during the period from December
31, 1982 to April 30, 1985. The judge has not yet made any determination
as to fines for the violation.
Transportation built a new paint facility adjacent to the assembly
plant which replaced some of the painting activities formerly performed at
the assembly plant and the body plant. New technology at the paint
facility reduces or destroys VOCs emitted in the painting operations.
These reductions enabled Transportation to apply for a bubble variance, an
administrative exemption which permits Transportation to comply with the
VOC Regulations by averaging VOC emissions from the assembly and body
plants with VOC emissions from the paint facility. Ohio EPA issued the
bubble variance to Transportation in February 1989. U.S. EPA approved the
bubble variance in December 1990, effective January 1991.
In November 1993, Transportation received a settlement offer from U.S.
EPA to settle all allegations contained in both the administrative action
and the court action in exchange for a payment of $2.7 million.
Transportation is pursuing settlement discussions to resolve these cases.
<PAGE>
PAGE 14
OTHER MATTERS
In July 1992, the Company announced its decision to change its retiree
health care benefit plans and concurrently filed a declaratory judgment
class action lawsuit in the U.S. District Court for the Northern District
of Illinois (Illinois Court) to confirm its right to change these benefits.
A countersuit was filed against the Company by its unions in the U.S.
District Court for the Southern District of Ohio (Ohio Court). On October
16, 1992, the Company withdrew its declaratory judgment action in the
Illinois Court and began negotiations with the UAW to resolve issues
affecting both retirees and employees. On December 17, 1992, the Company
announced that a tentative agreement had been reached with the UAW on
restructuring retiree health care and life insurance benefits (the
Settlement Agreement). During the third quarter of 1993, all court,
regulatory agency and shareowner approvals required to implement the
Settlement Agreement concerning retiree health care benefit plans were
obtained. The Settlement Agreement became effective and the restructured
retiree health care and life insurance plan was implemented on July 1,
1993.
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages. In order to
appeal the verdict in the case, the Company was required to post a bond
collateralized with $30 million in cash. This amount has been recorded as
restricted cash on the Statement of Financial Condition. The amount of any
potential liability is uncertain and Transportation believes that there are
meritorious arguments for overturning or diminishing the verdict.
The Company and its subsidiaries are subject to various other 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 are material to
the business or the financial condition of the Company.
<PAGE>
PAGE 15
EXECUTIVE OFFICERS
The following selected information for each of the Company's current
executive officers was prepared as of November 5, 1993.
OFFICERS AND POSITIONS WITH
NAME AGE NAVISTAR AND OTHER INFORMATION
---- --- ------------------------------
James C. Cotting ... 60 Chairman and Chief Executive Officer since 1987
and a Director since 1983. Mr. Cotting also
is Chairman and Chief Executive Officer of
Transportation since 1990 and a Director
since 1987. Prior to this, Mr. Cotting
served as Vice Chairman and Chief Financial
Officer, 1983-1987.
John R. Horne ...... 55 President and Chief Operating Officer and a
Director since 1990. Mr. Horne also is
President and Chief Operating Officer of
Transportation since 1990 and a Director
since 1987. Prior to this, Mr. Horne served
as Group Vice President and General Manager,
Engine and Foundry, 1990 and Vice President
and General Manager, Engine and Foundry,
1983-1990.
Robert C. Lannert .. 53 Executive Vice President and Chief Financial
Officer and a Director since 1990.
Mr. Lannert also is Executive Vice President
and Chief Financial Officer of Transportation
since 1990 and a Director since 1987. Prior
to this, Mr. Lannert served as Vice President
and Treasurer, 1987-1990 and Vice President
and Treasurer of Transportation, 1979-1990.
Robert A. Boardman . 46 Senior Vice President and General Counsel
since 1990. Mr. Boardman also is Senior
Vice President and General Counsel of
Transportation since 1990. Prior to this,
Mr. Boardman served as Vice President of
Manville Corporation, 1988-1990 and Corporate
Secretary, 1983-1990.
Thomas M. Hough ... 48 Vice President and Treasurer since 1992.
Mr. Hough also is Vice President and
Treasurer of Transportation since 1992.
Prior to this, Mr. Hough served as
Assistant Treasurer 1987-1992, and
Assistant Treasurer of Transportation,
1987-1992. Mr. Hough also served as
Assistant Controller, Accounting and
Financial Systems, 1987 and Controller of
Navistar Financial Corporation, 1982-1987.
Robert I. Morrison . 55 Vice President and Controller since 1987.
Mr. Morrison also is a Vice President and
Controller of Transportation since 1985.
Prior to this, Mr. Morrison served as
Assistant Treasurer and Vice President,
Finance and Planning, International Group,
1983-1985.
Steven K. Covey ... 42 Corporate Secretary since 1990. Mr. Covey is
Associate General Counsel of Transportation
since November 1992. Prior to this,
Mr. Covey served as General Attorney,
Finance and Securities of Transportation,
1989-1992, Senior Counsel, Finance and
Securities, 1986-1989 and Senior Attorney,
Corporate Operations 1984-1986.
<PAGE>
PAGE 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
The information required by Items 5-8 is incorporated herein by
reference from the 1993 Annual Report to Shareowners, filed as Exhibit 13
to this Form 10-K as follows:
1993
Annual
Report
Page
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS .............. 62
ITEM 6. SELECTED FINANCIAL DATA ...................... 60
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION .......................... 3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .. 17
With the exception of the aforementioned information (Part II; Items 5-
8) and the information specified under Items 1 and 14 of this report, the
1993 Annual Report to Shareowners is not to be deemed filed as part of this
report.
----------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12 AND 13
Information required by Part III (Items 10, 11, 12 and 13) of this Form
is incorporated herein by reference from Navistar's definitive Proxy
Statement for the March 16, 1994 Annual Meeting of Shareowners.
<PAGE>
PAGE 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Information required by Part IV (Item 14) of this form is incorporated
herein by reference from Navistar International Corporation's 1993 Annual
Report to Shareowners, filed as Exhibit 13 to this Form 10-K as follows:
1993
Annual
Report
Page
------
Financial Statements
- --------------------
Statement of Income (Loss) for the years ended
October 31, 1993, 1992 and 1991 ...................... 17
Statement of Financial Condition as of
October 31, 1993 and 1992 ............................ 19
Statement of Cash Flow for the years ended
October 31, 1993, 1992 and 1991 ...................... 21
Statement of Non-Redeemable Preferred, Preference
and Common Shareowners' Equity for the years
ended October 31, 1993, 1992 and 1991 ................ 23
Notes to Financial Statements .......................... 25
Form
10-K
Schedules Page
- --------- ----
VII - Guarantees of Securities of Other Issuers ..... F-1
VIII - Valuation and Qualifying Accounts and Reserves. F-2
IX - Short-Term Borrowings ......................... F-4
X - Supplementary Income Statement Information .... F-5
All schedules other than those indicated above are omitted because of
the absence of the conditions under which they are required or because
information called for is shown in the financial statements and notes
thereto in the 1993 Annual Report to Shareowners.
Finance and Insurance Subsidiaries:
The financial statements of Navistar Financial Corporation for the
years ended October 31, 1993, 1992 and 1991 appearing on pages 5 through 7
in Annual Report on Form 10-K for Navistar Financial Corporation for the
fiscal year ended October 31, 1993, Commission No. 1-4146-1, are
incorporated herein by reference and filed as Exhibit 28 to this Form 10-K.
Financial information regarding all Navistar subsidiaries engaged in
finance and insurance operations, including Navistar Financial Corporation,
appears as supplemental information to the Financial Statements in the
Navistar 1993 Annual Report to Shareowners and is incorporated herein by
reference.
<PAGE>
PAGE 18
Exhibits, Including those Incorporated by Reference Form 10-K Page
- --------------------------------------------------- --------------
(3) Articles of Incorporation and By-Laws ......... E-1
(4) Instruments Defining the Rights
of Security Holders, including Indentures ... E-2
(10) Material Contracts ............................ E-4
(11) Computation of Net Income (Loss)
Per Common Share ............................ E-5
(13) Navistar International Corporation
1993 Annual Report to Shareowners ........... N/A
(22) Subsidiaries of the Registrant ................ E-6
(24) Independent Auditors' Consent ................. 20
(25) Power of Attorney ............................. 18
(28) Navistar Financial Corporation Annual Report
on Form 10-K for the fiscal year ended
October 31, 1993 ............................ N/A
All 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 financial statements and notes
thereto in the 1993 Annual Report to Shareowners.
Reports on Form 8-K
- -------------------
A report on Form 8-K dated December 9, 1992, was filed by the Company
to describe developments in negotiations with the United Automobile,
Aerospace and Agricultural Implement Workers of America.
A report on Form 8-K dated December 9, 1992, was filed by the Company
to disclose a change in credit rating.
A report on Form 8-K dated December 14, 1992, was filed by the Company
to disclose a change in credit rating.
A report on Form 8-K dated December 18, 1992, was filed by the Company
to announce a tentative agreement on restructuring retiree health care and
life insurance benefits.
A report on Form 8-K, dated May 14, 1993, was filed by the Company
indicating Navistar Financial Corporation granted security interests in
substantially all of its assets pursuant to an Amended and Restated Credit
Agreement and amended and restated an existing revolving credit facility
and a retail notes receivable purchase facility.
A report on Form 8-K, dated May 28, 1993, was filed by the Company
announcing court approval of a retiree health care and life insurance
benefit settlement.
A report on Form 8-K, dated July 1, 1993, was filed by the Company
describing shareowner approval of the postretirement health care and life
insurance benefit settlement as well as a one-for-ten reverse split of the
Common stock and Class B Common stock.
A report on Form 8-K, dated July 9, 1993, was filed by the Company
announcing the merger of Navistar International Corporation with and into
its wholly-owned subsidiary, Navistar Holding, Inc.
<PAGE>
PAGE 19
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SIGNATURE
Pursuant to the requirements of Section 13 and 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 INTERNATIONAL CORPORATION
- ----------------------------------
(Registrant)
/s/ Robert I. Morrison
- -------------------------------------
Robert I. Morrison January 27, 1994
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
PAGE 20 EXHIBIT 25
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
---------------------------------
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute
and appoint James C. Cotting and Robert I. Morrison and each of them acting
individually, true and lawful attorneys-in-fact and agents with power to
act without the other and with full power of substitution, to execute,
deliver and file, for and on such person's behalf, and in such person's
name and capacity or capacities as stated below, any amendment, exhibit or
supplement to the Form 10-K Report making such changes in the report as
such attorney-in-fact deems appropriate.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- ------------------------ -------------------------- ----------------
/s/ James C. Cotting
- ------------------------
James C. Cotting Chairman of the Board, January 27, 1994
and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Robert I. Morrison
- -------------------------
Robert I. Morrison Vice President and Controller January 27, 1994
(Principal Accounting Officer)
/s/ Jack R. Anderson
- -------------------------
Jack R. Anderson Director January 27, 1994
/s/ William F. Andrews
- -------------------------
William F. Andrews Director January 27, 1994
/s/ Wallace W. Booth
- -------------------------
Wallace W. Booth Director January 27, 1994
/s/ Andrew F. Brimmer
- -------------------------
Andrew F. Brimmer Director January 27, 1994
/s/ Bill Casstevens
- -------------------------
Bill Casstevens Director January 27, 1994
<PAGE>
PAGE 21 EXHIBIT 25 (CONTINUED)
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
---------------------------------
SIGNATURES (Continued)
/s/ Richard F. Celeste
- -------------------------
Richard F. Celeste Director January 27, 1994
/s/ William Craig
- -------------------------
William Craig Director January 27, 1994
/s/ Jerry E. Dempsey
- -------------------------
Jerry E. Dempsey Director January 27, 1994
/s/ Mary Garst
- -------------------------
Mary Garst Director January 27, 1994
/s/ Arthur G. Hansen
- -------------------------
Arthur G. Hansen Director January 27, 1994
/s/ John R. Horne
- -------------------------
John R. Horne Director January 27, 1994
/s/ Robert C. Lannert
- -------------------------
Robert C. Lannert Director January 27, 1994
/s/ Donald D. Lennox
- -------------------------
Donald D. Lennox Director January 27, 1994
/s/ Elmo R. Zumwalt, Jr.
- -------------------------
Elmo R. Zumwalt, Jr. Director January 27, 1994
<PAGE>
PAGE 22
SIGNATURE
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1993 and 1992, and the related Statement of Income (Loss), of Cash Flow,
and of Non-Redeemable Preferred, Preference and Common Shareowners' Equity
for each of the three years in the period ended October 31, 1993, and have
issued our report thereon dated December 15, 1993 (which includes an
explanatory paragraph relating to the change in methods of accounting for
postretirement benefits other than pensions and for income taxes as
required by Statements of Financial Accounting Standards No. 106 and No.
109); such consolidated financial statements and report are included in
your 1993 Annual Report to Shareowners and are incorporated herein by
reference. Our audits also included the financial statement schedules of
Navistar International Corporation and Consolidated Subsidiaries, listed in
Item 14. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set
forth therein.
Deloitte & Touche
December 15, 1993
Chicago, Illinois
----------------------------------
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
Navistar International Corporation:
We consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Registration No. 2-70979 on Form S-8 and in Post-
Effective Amendment No. 6 to Registration No. 2-55544 on Form S-8 and in
Post-Effective Amendment No. 1 to Registration No. 2-9604 on Form S-8 of
our report dated December 15, 1993 (which includes an explanatory paragraph
relating to the change in methods of accounting for postretirement benefits
other than pensions and for income taxes as required by Statements of
Financial Accounting Standards No. 106 and 109); appearing in the Annual
Report on Form 10-K of Navistar International Corporation for the year
ended October 31, 1993.
Deloitte & Touche
January 27, 1994
Chicago, Illinois
<PAGE>
PAGE 23
<TABLE> SCHEDULE VII
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
===========
GUARANTEES OF SECURITIES OF OTHER ISSUERS
OCTOBER 31, 1993
(MILLIONS OF DOLLARS)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN F
-------- -------- -------- --------
NAME OF ISSUER OF
SECURITIES TOTAL
GUARANTEED BY TITLE OF ISSUE OF AMOUNT
PERSON FOR EACH CLASS GUARANTEED
WHICH STATEMENT IS OF SECURITIES AND NATURE OF
FILED GUARANTEED OUTSTANDING GUARANTEE
------------------ ----------------- ----------- ---------
<S> <S> <C> <S>
Guarantees by
Navistar
International
Transportation
Corp.:
Iowa Industrial
Hydraulics Industrial revenue
bonds ............ $ 2 Principal
=====
<FN>
NOTE: Columns D, E, and G are omitted as the answer would be "None".
</TABLE>
F-1
<PAGE>
PAGE 24
<TABLE> SCHEDULE VIII
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
============
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1993, 1992 AND 1991
(MILLIONS OF DOLLARS)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- -------- -------- -------- --------
DESCRIPTION BALANCE ADDITIONS DEDUCTIONS FROM
DESCRIPTION AT CHARGED RESERVES BALANCE
OF DEDUCTED BEGINNING TO AT END
RESERVES FROM OF YEAR INCOME DESCRIPTION AMOUNT OF YEAR
----------- -------- -------- --------- ----------- ------ -------
<S> <S> <C> <C> <S> <C> <C>
Reserves deducted
from assets to
which they apply:
1993
----
Uncollectible
notes and
Allowance for Notes and accounts
losses on accounts written off,
receivables .. receivable .. $ 34 $ 6 less recoveries. $ 3 $ 37
===== ===== ===== =====
1992
----
Uncollectible
notes and
Allowance for Notes and accounts
losses on accounts written off,
receivables .. receivable .. $ 27 $ 21 less recoveries. $ 14 $ 34
===== ===== ===== =====
1991
----
Uncollectible
notes and
Allowance for Notes and accounts
losses on accounts written off,
receivables .... receivable .. $ 24 $ 26 less recoveries. $ 23 $ 27
===== ===== ===== =====
</TABLE>
F-2
<PAGE>
PAGE 25
<TABLE> SCHEDULE VIII (CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
============
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1993, 1992 AND 1991
(MILLIONS OF DOLLARS)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE DEDUCTIONS FROM
AT RESERVES BALANCE
DESCRIPTION BEGINNING ADDITIONS CHARGED AT END
OF RESERVES OF YEAR TO INCOME AMOUNT OF YEAR
----------- --------- ----------------- ------ -------
<S> <C> <C> <C> <C>
Reserve for costs
relating to plant
closings or
disposal of
business
segment (a):
1993 $ 19 $ - $ 10 $ 9
====== ====== ====== ======
1992 $ 22 $ - $ 3 $ 19
====== ====== ====== ======
1991 $ 24 $ - $ 2 $ 22
====== ====== ====== ======
<FN>
(a) Includes current and non-current portion.
</TABLE>
F-3
<PAGE>
PAGE 26
<TABLE> SCHEDULE IX
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
===========
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED OCTOBER 31, 1993, 1992 AND 1991
(MILLIONS OF DOLLARS)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
WEIGHTED WEIGHTED
CATEGORY OF AVERAGE MAXIMUM AVERAGE
AGGREGATE BALANCE INTEREST AMOUNT AVERAGE INTEREST
SHORT-TERM AT END RATE AT MONTH AMOUNT RATE
BORROWINGS OF PERIOD OCTOBER 31 END BALANCE OUTSTANDING (a) DURING YEAR (b)
- ---------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1993
- ----
Borrowings
from banks . $ 75 6.50% $ 75 $ 1 6.50%
-------- ======== --------
Total ... $ 75 6.50% $ 75 $ 1 6.50%
======== ======== ========
1992
- ----
Borrowings
from banks . $ - - $ 40 $ 12 5.60%
========
Commercial
paper
borrowings . - - $ 163 44 5.47%
-------- ======== --------
Total ... $ - - $ 203 $ 56 5.50%
======== ======== ========
1991
- ----
Borrowings
from banks . $ 40 5.81% $ 175 $ 60 7.19%
========
Commercial
paper
borrowings . 144 6.03% $ 512 316 7.12%
-------- ======== --------
Total ..... $ 184 5.98% $ 687 $ 376 7.13%
======== ======== ========
<FN>
(a) The amount outstanding is calculated based on average daily borrowings outstanding.
(b) Calculated by dividing the actual interest for the year by the average daily balance
outstanding.
</TABLE>
F-4
<PAGE>
PAGE 27
<TABLE> SCHEDULE X
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
===========
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED OCTOBER 31, 1993, 1992 AND 1991
(MILLIONS OF DOLLARS)
<CAPTION>
COLUMN A COLUMN B
-------- --------
CHARGED TO COSTS AND EXPENSES
---------------------------------------------
ITEM 1993 1992 1991
-------------- -------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs ....... $ 64 $ 57 $ 61
Taxes, other than taxes on income:
Social security, unemployment
and other social insurance $ 50 $ 44 $ 44
Real estate, personal
property, etc. .............. $ 12 $ 17 $ 14
</TABLE>
F-5
PAGE 1
EXHIBIT 3
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
ARTICLES OF INCORPORATION AND BY-LAWS
The following documents of Navistar International Corporation are
included herein in those executed and conformed copies of this report
provided to the Securities and Exchange Commission, the New York Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange:
3.1 The By-Laws of Navistar International Corporation effective July
1, 1993, filed as Exhibit 3.1 on Annual Report on Form 10-K
dated October 31, 1993, which was filed on January 27, 1994, on
Commission File No. 1-9618.
3.2 Restated Certificate of Incorporation of Navistar International
Corporation effective July 1, 1993, filed as Exhibit 3.2 to Form
10-K dated October 31, 1993, which was filed on January 27,
1994, Commission File No. 1-9618.
E-1
EXHIBIT 3.1
AMENDED AND RESTATED
BY-LAWS
OF
NAVISTAR INTERNATIONAL CORPORATION
_______________
Incorporated Under the Laws
of the State of Delaware
<PAGE>
PAGE 1
AMENDED AND RESTATED
BY-LAWS
OF
NAVISTAR INTERNATIONAL CORPORATION
ARTICLE I.
----------
Meetings of Stockholders
------------------------
Section 1. Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be held in
the first three (3) months of each calendar year.
Section 2. Special Meetings. A special meeting of the
stockholders for any purpose or purposes, unless otherwise prescribed by
statute, may be called at any time by the Chairman of the Board and Chief
Executive Officer or the Board of Directors.
Section 3. Time and Place of Meetings. All meetings of the
stockholders shall be held at such times and places, within or without the
State of Delaware, as may from time to time be fixed by the Board of
Directors, or as shall be specified or fixed in the respective notices or
waivers of notice thereof.
Section 4. Notice of Meetings. Except as otherwise expressly
required by law or by the Certificate of Incorporation of Navistar
International Corporation ("Corporation"), notice of each meeting of the
stockholders shall be given, at least fifteen (15) days in the case of an
annual meeting, and ten (10) days in the case of a special meeting, before
the day on which the meeting is to be held, to each stockholder of record
entitled to vote at such meeting by mailing such notice in a postage
prepaid envelope addressed to the' stockholder at the stockholder's last
post office address appearing on the stock records of the Corporation.
Except as otherwise expressly required by law, no publication of any
notice of a meeting of the stockholders shall be required. At special
meetings of stockholders no business other than that specified in the
notice of the meeting or germane thereto shall be transacted at such
meeting. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given.
<PAGE>
PAGE 2
Section 5. Quorum. At each meeting of the stockholders, except
as otherwise expressly required by law, stockholders holding one-third
(1/3) of the shares of stock of the Corporation, issued and outstanding,
and entitled to be voted thereat, shall be present in person or by proxy
to constitute a quorum for the transaction of business. In the absence of
a quorum at any such meeting or any adjournment or adjournments thereof, a
majority in voting interest of those present in person or by proxy and
entitled to vote thereat,or in the absence therefrom of all the
stockholders, any officer entitled to preside at, or to act as secretary
of, such meeting may adjourn such meeting from time to time until
stockholders holding the amount of stock requisite for a quorum shall be
present or represented. At any such adjourned meeting at which a quorum
may be present any business may be transacted which might have been
transacted at the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders,
one of the following shall act as chairman of the meeting and preside
thereat, in the following order of precedence:
(a) the Chairman of the Board and Chief Executive officer;
(b) the President and Chief Operating Officer;
(c) an Executive Officer in order of rank of office and by
seniority within the same rank; or
(d) a stockholder of record of the Corporation who shall be
chosen chairman of such meeting by a majority in voting interest of
the stockholders present in person or by proxy and entitled to vote
thereat.
The Secretary, or, if he or she shall be absent from such meeting, the
person (who shall be an Assistant Secretary, if an Assistant Secretary
shall be present thereat) whom the chairman of such meeting shall appoint,
shall act as secretary of such meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at each
meeting of the stockholders shall be determined by the chairman of such
meeting, but such order of business at any meeting at which a quorum is
present may be changed by the vote of a majority in voting interest of
those present in person or by proxy at such meeting and entitled to vote
thereat.
Section 8. Voting. Each stockholder shall, at each meeting of
the stockholders, be entitled to one vote in person or by proxy for each
share of stock of the Corporation held by the stockholder and registered
in the stockholder's name on the books of the Corporation on the date
fixed or determined pursuant to the provisions of Section 5 of Article VI
of these By-laws as the record date for the determination of stockholders
who shall be entitled to receive notice of and to vote at such meeting.
<PAGE>
PAGE 3
Shares of its own stock belonging to the Corporation shall not
be voted directly or indirectly. Any vote on stock of the Corporation may
be given at any meeting of the stockholders by the stockholder entitled
thereto in person or by the stockholder's proxy appointed by an instrument
in writing delivered to the Secretary or an Assistant Secretary of the
Corporation or to the secretary of the meeting. The attendance at any
meeting of a stockholder who may theretofore have given a proxy shall not
have the effect of revoking the same unless the stockholder shall in
writing so notify the secretary of the meeting prior to the voting of the
proxy. At all meetings of the stockholders all matters, except as
otherwise provided in these By-laws or by law, shall be decided by the
vote of a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat, a quorum being present.
Except in the case of votes for the election of directors, the vote at any
meeting of the stockholders on any question need not be by ballot, unless
so directed by the chairman of the meeting. On a vote by ballot each
ballot shall be signed by the stockholder voting, or by the stockholder's
proxy, if there be such proxy.
Section 9. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of its
stock ledger to prepare and make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled
to vote thereat, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to said
meeting either at a place within the city where said meeting is to be held
and which place shall be specified in the notice of said meeting, or, if
not so specified, at the place where said meeting is to be held, and such
list shall be produced and kept at the time and place of said meeting
during the whole time thereof, and may be inspected by any stockholder who
is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger or such list or the
books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
Section 10. Inspectors or Judges. The Board of Directors, in
advance of any meeting of stockholders, may appoint one or more inspectors
or judges to act at such meeting or any adjournment thereof. If the
inspectors or judges shall not be so appointed, or if any of them shall
fail to appear or act, the chairman of such meeting shall appoint the
inspectors or judges, or such replacement or replacements therefor, as the
case may be. Such inspectors or judges, before entering on the discharge
of their duties, shall take and sign an oath or affirmation faithfully to
execute the duties of inspectors or judges at meetings for which they are
appointed. At such meeting, the inspectors or judges shall receive and
take in charge the proxies and ballots and decide all questions touching
the qualification of voters and the validity of proxies and the acceptance
or rejection of-votes. An inspector or judge need not be a stockholder of
the Corporation, and any officer of the Corporation may be an inspector or
judge on any question other than a vote for or against his or her election
to any position with the Corporation.
<PAGE>
PAGE 4
ARTICLE II.
-----------
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by the Board of Directors.
Section 2. Number and Time of Holding office. Subject to the
requirements of the laws of the State of Delaware, the Board may from time
to time by the vote of the majority of the whole Board determine the
number of directors. Until the Board shall otherwise so determine, the
number of directors shall be fifteen (15). Each of the directors of the
Corporation shall hold office until the expiration of his or her term and
until his or her successor shall be elected. Directors need not be
stockholders.
Section 3. Election of Directors. Except as otherwise provided
in the Certificate of Incorporation of the Corporation, at each meeting of
the stockholders for the election of directors, at which a quorum is
present, the persons receiving the greatest number of votes, up to the
number of directors to be elected, shall be the directors. Such election
shall be by ballot; provided, however, a nomination shall be accepted and
votes cast for a nominee shall be counted by the inspectors or judges of
the election, only if the Secretary of the Corporation has received at
least 24 hours prior to the meeting a statement over the signature of the
nominee that he or she consents to being a nominee and, if elected,
intends to serve as a director.
Section 4. Organization and Order of Business. At each meeting
of the Board, one of the following shall act as chairman of the meeting
and preside thereat, in the following order of precedence:
(a) the Chairman of the Board and Chief Executive officer;
(b) any director chosen by a majority of the directors present
thereat.
The Secretary, or in case of his or her absence the person whom the
chairman of such meeting shall appoint, shall act as secretary of such
meeting and keep the minutes thereof. The order of business at each
meeting of the Board of Directors shall be determined by the chairman of
such meeting.
Section 5. Resignations. Any director may resign at any time
by giving written notice of his or her resignation to the Chairman of the
Board and Chief Executive Officer, or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein, or,
if the time when it shall become effective shall not be specified therein,
then it shall take effect when accepted by action of the Board of
Directors. Except as aforesaid, the acceptance of such resignation shall
not be necessary to make it effective.
Section 6. Vacancies, etc. Except as otherwise provided in the
Certificate of Incorporation of the Corporation, in case of any vacancy on
the Board, or in case of any newly created directorship, a director to
fill the vacancy or the newly created directorship for the unexpired
portion of the term being filled may be elected by the holders of shares
of stock of the Corporation entitled to vote in respect thereof at an
annual or special meeting of said holders or by a majority of the
directors of the Corporation then in office though less than a quorum.
<PAGE>
PAGE 5
Section 7. Place of Meeting. The Board may hold its meetings
at such place or places within or without the State of Delaware as the
Board may from time to time by resolution determine or as shall be
specified or fixed in the respective notices or waivers of notice thereof;
provided, that all meetings, regular or special, shall be held at the
chief executive office of the Corporation in Chicago, Illinois, unless
otherwise ordered or approved by a majority of the whole Board.
Section 8. First Meeting. As soon as practicable after each
annual election of directors, the Board shall meet for the purpose of
organization, the election of officers and the transaction of other
business. Such meeting shall be held at the time and place theretofore
fixed by the Board for the next regular meeting of the Board and no notice
thereof need be given; provided, however, that the Board may determine
that such meeting shall be held at a different place and time but notice
thereof shall be given in the manner hereinafter provided for special
meetings of the Board.
Section 9. Regular Meetings. Regular meetings of the Board
shall be held at such times as the Board shall from time to time
determine. Notices of regular meetings need not be given. If any day
fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting which would otherwise be held
on that day shall be postponed until the same hour on the same day of the
next succeeding week in which such day shall not be a legal holiday at
such place, or at such other time and place as the Board shall determine
in which event notice thereof shall be given.
Section 10. Special Meetings; Notice. Special meetings of the
Board shall be held whenever called by the Chairman of the Board and Chief
Executive Officer or one-third (1/3) of the directors at the time in
office. The Secretary shall give notice to each director as hereinafter
in this Section provided of each such special meeting, in which shall be
stated the time and place of such meeting. Notice of each such meeting
shall be mailed to each director, addressed to the director at his or her
residence or usual place of business, at least two (2) days before the day
on which such meeting is to be held; or shall be sent addressed to him or
her at such place by telegraph, cable, wireless or other form of recorded
communication, or be delivered personally or by telephone not later than
the day before the day on which such meeting is to be held. Notice of any
meeting of the Board need not, however, be given to any director, if
waived by him or her in writing or by telegraph, cable, wireless or other
form of recorded communication, before, during or after such meeting, or
if he or she shall be present at such meeting; and any meeting of the
Board shall be a legal meeting without any notice thereof having been
given if all the directors of the Corporation then in office shall be
present thereat.
Dividends may be declared upon the stock of the Corporation at
any special meeting of the Board of Directors; provided, that the notice
of said special meeting states specifically the fact that dividend action
is to be considered. Any and all other business may be transacted at a
special meeting unless notice of the meeting specifically states that
action will be taken only upon the matters listed in the notice.
<PAGE>
PAGE 6
Section 11. Quorum and Manner of Acting. Except as otherwise
provided in these By-laws or by law, a majority of directors at the time
in office shall be present in person at any meeting of the Board of
Directors in order to constitute a quorum for the transaction of business
at such meeting, and the affirmative vote of at least a majority of the
directors present at any such meeting, at which a quorum is present, shall
be necessary for the passage of any resolution or act of the Board. In
the absence of a quorum from any such meeting, a majority of the directors
present thereat may adjourn such meeting from time to time until a quorum
shall be present thereat. Notice of any adjourned meeting need not be
given. The directors shall act only as a board and the individual
directors shall have no power as such.
Section 12. Action by Consent. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the Board or of such committee
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board or committee.
Section 13. Committees. The Board of Directors may appoint
standing committees of its members. Such committees shall have such
powers as are conferred by the By-laws or authorized by the Board of
Directors. The members of all standing committees shall be appointed
annually at the first meeting of the Board of Directors after the annual
meeting of the stockholders and shall continue as members until their
successors are appointed, subject to the power of the Board to remove any
member of a committee at any time and to appoint a successor.
Section 14. Meeting by Communication Equipment. Members of the
Board of Directors or any committee appointed by the Board of Directors,
may participate in a meeting of the Board of Directors or of such
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall constitute
presence in person at such meeting.
ARTICLE III.
------------
Executive Committee
-------------------
Section 1. Number, Appointment, Term of Office. There shall be
an Executive Committee consisting of not less than three (3) and not more
than eight (8) regular members appointed from and by the Board of
Directors. In addition to the regular members, the Chairman of the Board
and Chief Executive Officer shall be a member ex officio. The regular
members of the Committee shall be appointed by the affirmative vote of a
majority of the whole Board and shall hold office until the first meeting
of the Board after the next annual meeting of the stockholders until their
successors are appointed. The Board shall also designate two (2) of its
members as first and second alternates to serve as members of the
Executive Committee in the absence of a regular member or members. A
vacancy in a regular or alternate membership may be filled by the Board at
any time.
<PAGE>
PAGE 7
Any appointed regular or alternate member of the Executive
Committee shall be subject to removal at any time by the affirmative vote
of a majority of the whole Board.
Section 2. Functions and Powers. The Executive Committee shall
represent the Board of Directors between meetings for the purpose of
consulting with the officers and giving special consideration to matters
of importance affecting the policies, financing, management and operations
of the business, and taking action thereon or making recommendations to
the Board. The Board of Directors reserves to itself alone the power to
elect and remove officers, to declare dividends, issue stock, recommend to
shareholders any action requiring their approval, change the membership of
any committee at any time, and discharge any committee either with or
without cause at any time. Subject to the foregoing limitations, the
Executive Committee shall possess and may exercise all other powers of the
Board of Directors during the intervals between meetings of the Board of
Directors.
Section 3. Meetings. The Executive Committee shall meet as
often as may be deemed necessary and expedient. Meetings may be called by
standing resolution of the Committee, or at the request of the Chairman of
the Board and Chief Executive Officer or of any two (2) members of the
Committee. The Secretary shall notify each member of the Committee of
each meeting, giving at least two (2) days' notice by mail or one (1)
day's notice by telegraph or telephone, but such notice may be waived by
any member. The purposes of a meeting need not be specified in the notice
or waiver of notice of any meeting. Whenever it appears that a regular
member will be unable to attend a meeting, the Secretary shall endeavor to
obtain the attendance of an alternate member.
At each meeting of the Board of Directors the Committee shall
make a report to the Board of all action taken since its last report.
Such reports may be made orally or in writing and only such matters need
be recorded in the minutes of the Executive Committee as the Committee
deems proper or the Board of Directors may require.
Section 4. Organization. A majority of the Executive Committee
shall constitute a quorum. The Chairman of the Board and Chief Executive
Officer shall preside at meetings of the Executive Committee. If the
Chairman of the Board and Chief Executive Officer is absent, the Committee
shall appoint a temporary Chairman from among the members present. In
other respects the Committee shall fix its own rules of procedures.
ARTICLE IV.
-----------
Officers
--------
Section 1. Election, Appointment, Term of Office. The
Executive Officers of the Corporation shall consist of a Chairman of the
Board and Chief Executive officer, a President and Chief Operating Officer
and such number of other Executive Officers as the Board of Directors may
determine from time to time. There shall also be a General Counsel, a
Treasurer, a Controller and a Secretary, any of whom may also be an
Executive Officer.
The Board of Directors may also appoint such other officers and
agents as it may deem necessary, who shall have such authority and perform
such duties as may be prescribed by the Board.
<PAGE>
PAGE 8
All Executive Officers and other officers of the Corporation
shall be regularly elected or appointed by the majority vote of the whole
Board of Directors at its first meeting after the annual meeting of the
stockholders and shall hold office until the first meeting of the Board
after the next annual meeting of the stockholders, and until their
successors are elected or appointed.
If additional officers are elected or appointed during the year,
they shall hold office until the next annual meeting of the Board of
Directors at which officers are regularly elected or appointed and until
their successors are elected or appointed.
A vacancy in any office may be filled for the unexpired portion
of the term in the same manner as provided for election or appointment to
such office.
All officers and agents elected or appointed by the Board of
Directors shall be subject to removal at any time by the Board of
Directors.
Section 2. Chairman of the Board and Chief Executive Officer.
The Chairman of the Board and Chief Executive Officer shall be the chief
executive officer of the Corporation, and shall have the powers and
perform the duties incident to that position. Subject to the Board of
Directors, he or she shall be in general and active charge of the entire
business and all the affairs of the Corporation, and shall be its chief
policy-making officer. He or she shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or
provided in the Bylaws.
Section 3. President and Chief Operating Officer. Under the
direction of the Chairman of the Board and Chief Executive Officer and
subject to the Board of Directors, the President and Chief Operating
Officer shall have general charge of the business operations. He shall
have such other powers and perform such other duties as may be prescribed
by the Chairman of the Board and Chief Executive Officer, or the Board of
Directors or as may be provided in the By-laws.
Section 4. Executive Officers. Each Executive Officer shall
have such powers, duties and titles as shall be prescribed by the Board of
Directors at the time of his or her election and such other powers and
duties as may be assigned to him or her from time to time by the Chairman
of the Board and the Chief Executive officer, the President and Chief
Operating officer, or the Board of Directors.
Section 5. General Counsel. The General Counsel shall have
charge of all matters of legal import concerning the Corporation and of
the department relating to such matters. He or she shall have such other
powers and duties as may be assigned to him or her by the Chairman of the
Board and Chief Executive Officer, the President and Chief Operating
Officer, or the Board of Directors.
Section 6. Treasurer. The Treasurer shall be responsible for
safeguarding the cash and securities of the Corporation and the
formulation of the investment and financial policies of the Corporation.
He or she shall have such other powers and duties as may be assigned to
him or her by the Chairman of the Board and' Chief Executive Officer, the
President and Chief Operating Officer, or the Board of Directors.
<PAGE>
PAGE 9
Section 7. Controller. The Controller shall be in charge of
the accounts of the Corporation and the maintenance of adequate accounting
procedure and records of the Corporation. He or she shall have such other
powers and duties as may be assigned to him or her by the Chairman of the
Board and Chief Executive officer, the President and Chief Operating
Officer, or the Board of Directors.
Section 8. Secretary. The Secretary shall keep the records of
all meetings of the stockholders and of the Board of Directors and of the
Executive Committee. He or she shall affix the seal of the Corporation to
all deeds, contracts, bonds or other instruments requiring the corporate
seal when the same have been signed on behalf of the Corporation by a duly
authorized officer. He or she shall perform such other duties as may be
assigned to him or her from time to time by the Chairman of the Board and
Chief Executive Officer, the President and Chief Operating Officer, or the
Board of Directors.
ARTICLE V.
----------
Contracts, Checks, Drafts, Bank Accounts, Etc.
---------------------------------------------
Section 1. Execution of Documents by Officers. All of the
Executive Officers of the Corporation elected as provided in Section 1 of
Article IV of the By-laws, shall have power to execute and deliver any
deeds, contracts, mortgages, bonds, debentures and other documents for and
in the name of the Corporation.
All appointed officers shall have such powers with respect to
execution and delivery of deeds, contracts, mortgages, bonds, debentures
and other documents as may be assigned to them by the Board of Directors.
Section 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of
the Corporation or otherwise as the Board of Directors, the Chairman of
the Board and Chief Executive Officer, the President and Chief Operating
officer, or the Treasurer shall direct in such banks, trust companies or
other depositories as the Board of Directors may select or as may be
selected by any officer or officers or agent or agents of the Corporation
to whom power in that respect shall have been delegated by the Board of
Directors. For the purpose of deposit and for the purpose of collection
for the account of the Corporation, checks, drafts and other orders for
the payment of money which are payable to the order of the Corporation may
be endorsed, assigned and delivered by any officer or agent of the
Corporation.
<PAGE>
PAGE 10
Section 3. Proxies in Respect of Stock or Other Securities of
Other Corporations. Unless otherwise provided by resolution adopted by
the Board, each of the Executive officers of the Corporation elected as
provided in Section 1 of Article IV of the By-laws may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation to
exercise in the name and on behalf of the Corporation the powers and
rights which the Corporation may have as the holder of stock or other
securities in any other corporation to vote or consent in respect of such
stock or other securities, may instruct the person or persons so appointed
as to the manner of exercising such powers and rights, and may execute or
cause to be executed in the name and on behalf of the Corporation and
under its corporate seal, or otherwise, all such written proxies, powers
of attorney or other instruments as such Executive Officer may deem
necessary or proper in order that the Corporation may exercise its said
powers and rights.
ARTICLE VI.
-----------
Shares and Their Transfers
--------------------------
Examination of Books
--------------------
Section 1. Certificates for Stock. Every holder of stock of
the Corporation shall be entitled to have a certificate or certificates,
in such form as the Board shall prescribe, certifying the number of shares
of stock of the Corporation owned by the stockholder. The certificates
representing shares of such stock shall be numbered in the order in which
they shall be issued and shall be signed in the name of the Corporation by
the person who was at the time of signing the Chairman of the Board and
Chief Executive Officer, the President and Chief Operating officer, or an
Executive Officer and by the person who was at the time of the Treasurer
or an Assistant Treasurer and its seal may be affixed thereto; provided,
however, that the signature of such Executive Officer of the Corporation
and of such Treasurer or Assistant Treasurer and the seal of the
Corporation may be facsimile. In case any officer or officers of the
Corporation who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates
shall cease to be such officer or officers, whether because of death,
resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation such certificate or certificates
may nevertheless be adopted by the Corporation and be issued and delivered
as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been
used thereon, had not ceased to be such officer or officers. A record
shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by certificates for stock of the
Corporation, the number of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of
cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be canceled
and a new certificate or certificates shall not be issued in exchange for
any existing certificate until such existing certificate shall have been
so canceled except in cases provided for in Section 4 of this Article VI.
<PAGE>
PAGE 11
Section 2. Transfers of Stock. Transfers of shares of the
stock of the Corporation shall be made only on the books of the
Corporation by the registered holder thereof, or by his or her attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, or with a transfer clerk or a transfer agent
appointed as in Section 3 of this Article VI provided, and upon surrender
of the certificate or certificates for such shares properly endorsed and
payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation.
Section 3. Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates for stock
of the Corporation. The Board may appoint or authorize any officer or
officers to appoint one or more transfer clerks, any of whom may be
employees of the Corporation, or one or more transfer agents and one or
more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them; provided, however, that the
signature of any transfer clerk, transfer agent, or registrar may be
facsimile. In case any transfer clerk, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such transfer clerk, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such transfer clerk, transfer agent, or
registrar at the date of issue.
Section 4. Lost, Destroyed and Mutilated Certificates. The
owner of any stock of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate
therefor, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been
lost or destroyed, and the Board may, in its discretion, require the owner
of the lost or destroyed certificate, or his or her legal representatives,
to give the Corporation a bond in such sum, limited or unlimited, and in
such form and with such surety or sureties, as the Board shall in its
uncontrolled discretion determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or the issuance of such new
certificate.
Section 5. Record Date. To determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. If no record date is fixed by the
Board of Directors:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice
is given.
<PAGE>
PAGE 12
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors shall fix a new record date for the
adjourned meeting.
Section 6. Examination of Books by Stockholders. The Board may
determine, from time to time, whether and to what extent, at what times
and places, and under what conditions and regulations, the accounts and
books of the Corporation, or any of them, shall be open to the inspection
of the stockholders, and no stockholder shall have any right to inspect
any account or book or document of the Corporation, except as conferred by
the laws of the State of Delaware or as authorized by resolution adopted
by the Board or by the stockholders of the Corporation entitled to vote in
respect thereof.
ARTICLE VII.
------------
Offices, Etc.
-------------
Section 1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle, and the name of the resident agent in charge thereof
shall be The Corporation Trust Company.
Section 2. Other Offices. The Corporation also may have an
office or offices other than sad principal office at such place or places,
either within or without the State of Delaware, as provided in these By-
laws or as the Board may from time to time appoint or as the business of
the Corporation may require.
Section 3. Books and Records. Except as otherwise required by
law, the Certificate of Incorporation or these By-laws, the Corporation
may keep the books and records of the Corporation in such place or places
within or without the State of Delaware as the Board may from time to time
by resolution determine or the business of the Corporation may require;
provided, however, the principal accounting books and records of the
Corporation, including the records of meetings of the Board of Directors,
shall be kept at the chief executive office of the Corporation in Chicago,
Illinois, unless otherwise determined by resolution of the Board of
Directors.
<PAGE>
PAGE 13
ARTICLE VIII.
-------------
Dividends
---------
Subject to the provisions of law, of the Certificate of
Incorporation of the Corporation and of these By-laws, the Board may
declare and pay dividends upon the shares of the stock of the Corporation
either (a) out of its net assets in excess of its capital as computed in
accordance with the provisions of the laws of the State of Delaware or
(b) in case there shall be no such excess, out of its net profits for the
fiscal year then current and/or the preceding fiscal year, whenever and in
such amounts as, in the opinion of the Board, the condition of the affairs
of the Corporation shall render it advisable. Dividends upon the shares
of stock of the Corporation may be declared at any regular meeting of the
Board of Directors and also at a special meeting, if notice of such
proposed action is given as provided Section 10 of Article II of these By-
laws.
ARTICLE IX.
-----------
Seal
----
The Board shall provide a corporate seal, which shall be in the
form of a circle and shall bear the full name of the Corporation and the
words and figures "Incorporated 1985 Delaware", or words and figures of
similar import. The seal or a facsimile thereof may be impressed or
affixed or reproduced or other use made thereof by the Secretary or any
Assistant Secretary or any other officer authorized by the Board.
ARTICLE X.
----------
Fiscal Years
------------
The fiscal year of the Corporation shall end on the thirty-first
day of October in each year.
ARTICLE XI.
-----------
Waiver of Notices
-----------------
Whenever any notice whatever is required to be given by these
By-laws or by the Certificate of Incorporation of the Corporation or by
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto.
<PAGE>
PAGE 14
ARTICLE XII.
------------
Indemnification
---------------
Section 1. Coverage. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("proceeding"), by reason of the fact that he or she is or
was a director or officer of the Corporation (which term shall include any
predecessor corporation of the Corporation) or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
("indemnitee"), whether the basis of such proceeding is alleged action in
an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided however, that,
except as provided in Section 2 of this Article XII with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this Article XII shall be a contract right
and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided however, that, if the Delaware General Corporation
law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it ultimately be
determined by final judicial decision from which there is no further right
to appeal that such indemnitee is not entitled to be indemnified for such
expenses under this Article XII or otherwise.
<PAGE>
PAGE 15
Section 2. Claims. If a claim under Section 1 of this Article
XII is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation, except in the case of
a claim for expenses incurred in defending a proceeding in advance of its
final disposition, in which case the applicable period shall be twenty
(20) days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit or in a suit brought by the
Corporation to recover payments by the Corporation of expenses incurred by
an indemnitee in defending in his or her capacity as a director or
officer, a proceeding in advance of its final disposition, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending
such claim. In any action brought by the indemnitee to enforce a right to
indemnification hereunder (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to
the Corporation) or by the Corporation to recover payments by the
Corporation of expenses incurred by an indemnitee in defending, in his or
her capacity as a director or officer, a proceeding in advance of its
final disposition, the burden of proving that the indemnitee is not
entitled to be indemnified under this Article XII or otherwise shall be on
the Corporation. Neither the failure of the Corporation (including the
Board of Directors, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation law, nor an actual determination by the
Corporation (including the Board of Directors, independent legal counsel
or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall be a presumption that the indemnitee has not
met the applicable standard of conduct, or in the case of such an action
brought by the indemnitee, be a defense to the action.
Section 3. Rights Not Exclusive. The rights conferred on any
person by Sections 1 and 2 of this Article XII shall not be exclusive of
any other right which such person may have or hereafter acquire under any
statute, this certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or
agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation law.
Section 5. Employees. Persons who are not included as
indemnities under Section 1 of this Article XII but are employees of the
Corporation or any subsidiary may be indemnified to the extent authorized
at any time or from time to time by the Board of Directors.
<PAGE>
PAGE 16
ARTICLE XIII.
-------------
Amendments
----------
These By-laws as they shall be at any time may be amended,
altered or repealed by the Board of Directors at any regular meeting of
the Board of Directors or at any special meeting if the proposed
amendment, alteration or repeal is stated in the notice of the special
meeting; but any by-laws made by the Board may be altered, amended or
repealed by the stockholders in the manner provided in the Certificate of
Incorporation of the Corporation.
ARTICLE XIV.
------------
National Emergency
------------------
Section 1. Definition and Application. For the purposes of
this Article XIV the term "national emergency" is defined as an emergency
situation resulting from an attack upon the United States, a nuclear
disaster within the United States, a catastrophe, or other emergency
condition, as a result of which attack, disaster, catastrophe or emergency
condition a quorum of the Board of Directors cannot readily be convened
for action. Persons not directors of the Corporation may conclusively
rely upon the determination by the Board of Directors of the Corporation,
at a meeting held or purporting to be held pursuant to this Article XIV
that a national emergency as hereinabove defined exists regardless of the
correctness of such determination made or purporting to be made as
hereinafter provided. During the existence of a national emergency the
provisions of this Article XIV shall become operative, but, to the extent
not inconsistent with such provisions, the other provisions of these By-
laws shall remain in effect during any national emergency and upon its
termination the provisions of this Article XIV shall cease to be
operative.
Section 2. Meetings, etc. When it is determined in good faith
by any director that a national emergency exists, special meetings of the
Board of Directors may be called by such director. The director calling
any such special meeting shall make a reasonable effort to notify all
other directors of the time and place of such special meeting, and such
effort shall be deemed to constitute the giving of notice of such special
meeting, and every director shall be deemed to have waived any
requirement, of law or otherwise, that any other notice of such special
meeting be given. At any such special meeting two directors shall
constitute a quorum for the transaction of business including without
limiting the generality hereof the filling of vacancies among directors
and officers of the Corporation and the election of additional Executive
Officers, Assistant Controllers, Assistant Secretaries and Assistant
Treasurers. The act of a majority of the directors present thereat shall
be the act of the Board of Directors. If at any such special meeting of
the Board of Director there shall be only one director present, such
director present may adjourn the meeting from time to time until a quorum
is obtained, and no further notice thereof need be given of any such
adjournment.
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PAGE 17
The directors present at any such special meeting shall make
reasonable effort to notify all absent directors of any action taken
thereat, but failure to give such notice shall not affect the validity of
the action taken at any such meeting. All directors, officers, employees
and agents of, and all persons dealing with, the Corporation, if acting in
good faith, may conclusively rely upon any action taken at any such
special meeting.
Section 3. Amendment. The Board of Directors shall have the
power to alter, amend, or repeal any of these By-laws by the affirmative
vote of at least two-thirds (2/3) of the directors present at any special
meeting attended by two (2) or more directors and held in the manner
prescribed in Section 2 of this Article XIV, if it is determined in good
faith by said two-thirds (2/3) that such alteration, amendment or repeal
would be conducive to the proper direction of the Corporation's affairs.
Section 4. Chief Executive and Operating Officers. If during
the existence of a national emergency, the Chairman of the Board and Chief
Executive Officer becomes incapacitated, cannot by reasonable effort be
located or otherwise is unable or unavailable to perform the duties of his
or her office, the President and Chief Operating Officer is hereby
designated also as Chairman of the Board and Chief Executive Officer and
will act as both Chief Executive Officer and Chief Operating Officer. If,
during the existence of a national emergency, the President and Chief
Operating Officer becomes incapacitated or unavailable to perform the
duties of his office, the Chairman of the Board and Chief Executive
Officer is hereby designated also as President and Chief Operating Officer
and will act as both Chief Executive officer and Chief Operating Officer.
If both the Chairman of the Board and Chief Executive Officer and the
President and Chief Operating Officer are unable to perform the duties of
their offices, the senior available officer of the Corporation is hereby
designated as Chairman of the Board and Chief Executive officer and
President and Chief Operating Officer, the seniority of such officer to be
determined in order of rank of office and within the same rank by the date
on which he or she was first elected or appointed to such office.
Section 5. Substitute Directors. To the extent required to
constitute a quorum at any meeting of the Board of Directors during a
national emergency, the officers of the Corporation who are present shall
be deemed, in order of rank of office and within the same rank in order of
election or appointment of such offices, directors for such meeting.
PAGE 1
Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
of
NAVISTAR INTERNATIONAL CORPORATION
(originally incorporated IH International, Inc. on March 29, 1985)
First: The name of the corporation (hereinafter called the
"Company") is
NAVISTAR INTERNATIONAL CORPORATION
Second: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
Third: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of
Delaware, as amended.
Fourth: The total number of shares of stock which the Company
shall have authority to issue is 1,400,000,000, consisting of:
(1) 30,000,000 shares, with a par value of $1.00 per
share, are to be of a class designated "Preferred Stock;"
(2) 10,000,000 shares, with a par value of $1.00 per
share, are to be of a class designated "Preference Stock;"
(3) 1,100,000,000 shares, with a par value of $0.01 per
share, are to be of a class designated "Common Stock;" and
(4) 260,000,000 shares with a par value of $0.01 per
share, are to be of a class designated "Class B Common."
The Common Stock and Class B Common are hereafter collectively
referred to as the "Parent Common Stock."
I. Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series of any number of shares, provided
that the aggregate number of shares issued and not canceled of any
and all such series shall not exceed the total number of shares of
Preferred Stock hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the
resolution or resolutions providing for the issue of such Preferred
Stock from time to time adopted by the Board of Directors pursuant to
authority so to do which is hereby vested in the Board of Directors.
Each series of Preferred Stock (i) may have such voting powers, full
or limited, or may be without voting powers; (ii) may be subject to
redemption at such time or times and at such prices; (iii) may be
entitled to receive dividends (which may be cumulative or
<PAGE>
PAGE 2
noncumulative) at such rate or rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or series of stock;
(iv) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the corporation; (v) may be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the corporation, at such price or prices or at
such rates of exchange, and with such adjustments; (vi) may be
entitled to the benefit of a sinking fund to be applied to the
purchase or redemption of shares of such series in such amount or
amounts; (vii) may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the Company or any
subsidiary, upon the issue of any additional stock (including
additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Company or any
subsidiary of any outstanding stock of the Company; and (viii) may
have such other relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof; all as
shall be stated in said resolution or resolutions providing for the
issue of such Preferred Stock. Shares of any series of Preferred
Stock which have been redeemed (whether through the operation of a
sinking fund or otherwise) or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any
other class or classes shall have the status of authorized and
unissued shares of Preferred Stock of the same series and may be
reissued as a part of the series of which they were originally a part
or may be reclassified and reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock,
all subject to the conditions or restrictions on issuance set forth
in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock.
A. Series G Stock. The designated powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, of 4,800,000 shares of a series of
Preferred Stock are as follows:
(1) Designation. The designation of this series of Preferred
Stock shall be "$6.00 Cumulative Convertible Preferred Stock, Series
G (With $1.00 Par Value)" (hereinafter called the "Series G Stock").
(2) Dividends. The holders of shares of the Series G Stock
shall be entitled to receive, when and as declared by the Board of
Directors, dividends in cash in the amount of $6.00 per share per
annum, payable quarterly on the 15th day of January, April, July and
October in each year, commencing April 15, 1987 (each of the
quarterly periods ending on the 15th day of such months,
respectively, being hereinafter called a "dividend period");
provided, however, that the holders of shares of Series G Stock shall
be entitled to receive, when and as declared by the Board of
<PAGE>
PAGE 3
Directors, dividends in cash in the amount of $3.75 per share per
annum, and such dividends shall accrue at such rate from the Date of
Accrual to January 14, 1987. Dividends on shares of the Series G
Stock shall be cumulative from the Date of Accrual with respect to
such shares (whether or not there shall be net profits or net assets
of the Company legally available for the payment of such dividends)
so that, if at any time Full Cumulative Dividends upon the Series G
Stock to the end of the last completed dividend period shall not have
been paid, or declared and a sum sufficient for payment thereof set
apart, the amount of the deficiency in such dividends shall be fully
paid, but without interest, before any dividend shall be declared or
paid or any other distribution ordered or made upon, or any purchase
or redemption made of, any stock ranking as to dividends or upon
liquidation junior to the Series G Stock (other than a dividend
payable in such junior stock, or a purchase or redemption made by
issue or delivery of such junior stock); provided, however, that any
moneys theretofore deposited in any sinking fund with respect to any
preferred stock of the Company in compliance with the provisions of
such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of
such sinking fund regardless of whether at the time of such
application Full Cumulative Dividends upon shares of the Series G
Stock outstanding to the end of the last completed dividend period
shall have been paid or declared and set apart for payment. All
dividends upon the shares of the Series G Stock and any other
preferred stock ranking on a parity as to dividends with the Series G
Stock shall be declared pro rata, so that the amounts of dividends
declared per share on the Series G Stock and such other preferred
stock, shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of the Series G Stock and
such other preferred stock bear to each other. Holders of shares of
the Series G Stock shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of Full Cumulative
Dividends.
(3) Rights of Redemption. The shares of the Series G Stock
shall be subject to redemption as follows:
(a) Optional Redemption. Subject to subparagraph (b) of
this paragraph (3), the shares of the Series G Stock may be
redeemed at the option of the Company, in whole or in part, at
any time or from time to time upon not less than 30 days' prior
notice to the holders of record of shares of the Series G Stock
to be so redeemed, sent by first class mail, postage prepaid, to
each registered holder of shares of the Series G Stock at his
address appearing on the Series G Stock register maintained by
the Company, at the redemption price of $50.00 per share, plus
an amount equal to Accrued Dividends to and including the date
fixed for redemption of such shares (hereinafter called the
"Redemption Date").
<PAGE>
PAGE 4
(b) Pro Rata Redemption or Redemption by Lot. If less
than all shares of the Series G Stock are to be redeemed
pursuant to subparagraph (a) of this paragraph (3), the shares
to be redeemed shall be selected (x) by lot or (y) pro rata so
that there shall be redeemed from each registered holder of such
shares that number of whole shares, as nearly as practicable to
the nearest share, as bears the same ratio to the total number
of shares of such Series held by such holder as the total number
of shares to be redeemed bears to the total number of shares of
the Series G Stock at the time outstanding. The determination
of whether such selection shall be made by lot or pro rata shall
be made by the Board of Directors. If the Board of Directors
shall determine to redeem less than all shares of the Series G
Stock by lot, the selection by lot of the shares of the Series G
Stock shall be conducted by an independent bank or trust company
selected by the Board of Directors of the Company.
(c) Sinking Fund, Etc. Shares of the Series G Stock are
not subject or entitled to the benefit of a sinking fund. All
or a portion of the shares of the Series G Stock may be
purchased by the Company from time to time upon the best terms
obtainable.
(d) Effect of Redemption. Unless default be made in the
payment in full of the redemption price and any accumulated and
unpaid dividends, dividends on the shares of Series G Stock
called for redemption shall cease to accumulate on the
Redemption Date, and all rights of the holders of such shares as
stockholders of the Company by reason of the ownership of such
shares shall cease on the Redemption Date, except the right to
receive the amount payable upon redemption of such shares on
presentation and surrender of the respective certificates
representing such shares. After the Redemption Date, such
shares shall not be deemed to be outstanding and shall not be
transferable on the books of the Company except to the Company.
(e) Receipt of Redemption Price. At any time on or after
the Redemption Date, the respective holders of record of shares
of Series G Stock to be redeemed shall be entitled to receive
the redemption price upon actual delivery to the Company of
certificates for the shares to be redeemed, such certificates,
if required by the Company, to be properly stamped for transfer
and duly endorsed in blank or accompanied by proper instruments
of assignment and transfer thereof duly executed in blank.
(f) Return of Deposits, Etc. Any moneys deposited with
the transfer agent, or other redemption agent, for the
redemption of any shares of Series G Stock which shall not be
claimed after five years from the Redemption Date shall be
repaid to the Company by such agent on demand, and the holder of
any such shares of Series G Stock shall thereafter look only to
the Company for any payment to which such holder may be
<PAGE>
PAGE 5
entitled. Any interest accrued on moneys so deposited shall
belong to the Company and shall be paid to it from time to time
on demand.
(4) Rights on Liquidation, Dissolution, Winding Up.
(a) In the event of any involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of the Series G
Stock then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its stockholders, before
any payment shall be made to the holders of any class of capital
stock of the Company ranking junior upon liquidation to the Series G
Stock, an amount equal to $50 per share plus an amount equal to all
Accrued Dividends thereon to and including the date of payment.
(b) In the event of any voluntary liquidation, dissolution or
winding up of the Company, the holders of shares of the Series G
Stock then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its stockholders, before
any payment shall be made to the holders of any class of capital
stock of the Company ranking junior upon liquidation to the Series G
Stock, an amount per share equal to the then applicable redemption
price specified in subparagraph (a) of paragraph (3) of this
Section B regarding Series G Stock, plus in each case an amount equal
to all Accrued Dividends thereon to and including the date of
payment. The merger or consolidation of the Company into or with any
other corporation or the merger or consolidation of any other
corporation into or with the Company shall not in any event be
considered a dissolution, liquidation or winding up of the Company
under this paragraph (4).
(c) In the event the assets of the Company available for
distribution to the holders of shares of Series G Stock upon any
involuntary or voluntary liquidation, dissolution or winding up of
the Company shall be insufficient to pay in full all amounts to which
such holders are entitled pursuant to subparagraph (a) or (b), as the
case may be, of this paragraph (4), no such distribution shall be
made on account of any shares of any other class or series of
preferred stock ranking on a parity with the shares of Series G Stock
upon liquidation unless proportionate distributive amounts shall be
paid on account of the shares of Series G Stock, ratably, in
proportion to the full distributive amounts to which the holders of
all such parity shares are respectively entitled upon such
liquidation, dissolution or winding up.
(5) Voting. The shares of the Series G Stock shall not have any
voting powers, either general or special, except as required by applicable
law and as follows:
(a) Without the affirmative. vote or consent of the holders of
at least two-thirds of the number of shares of Series G Stock at the
time outstanding, voting or consenting (as the case may be)
separately as a class, given in person or by proxy, either in writing
<PAGE>
PAGE 6
or by resolution adopted at a special meeting called for the purpose,
the Company shall not (i) create any preferred stock ranking prior to
the Series G Stock as to dividends or upon liquidation, or securities
convertible into stock ranking prior to the Series G Stock as to
dividends or upon liquidation or (ii) amend, alter or repeal any of
the preferences, special rights or powers of the holders of the
Series G Stock so as adversely to affect such preferences, special
rights or powers.
(b) Whenever dividends payable on any series of Preferred Stock
shall be in default in an aggregate amount equivalent to six full
quarterly dividends on all shares of such series at the time
outstanding, the number of directors constituting the Board of
Directors of the Company shall be increased by two, and the holders
of Preferred Stock shall have, in addition to any other voting
rights, the exclusive and special right, voting separately as a class
without regard to series, to elect two persons to fill such newly
created directorships. Whenever such right of holders of shares of
Preferred Stock shall have vested, it may be exercised initially
either at a special meeting of such holders called as provided below,
or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders. The right of holders of shares of
Preferred Stock voting separately as a class to elect members of the
Board of Directors as aforesaid shall continue until such time as all
dividends accumulated on all series of Preferred Stock shall have
been paid in full, at which time the special right of the holders of
shares of Preferred Stock so to vote separately as a class for the
election of directors shall terminate, subject to revesting in the
event of each and every subsequent default in an aggregate amount
equivalent to six full quarterly dividends. For purposes only of
this subparagraph (b), each holder of Series G Stock shall be
entitled to cast one-half vote for each share of Series G Stock held
by such holder.
At any time when such special voting power shall have vested in
the holders of shares of Preferred Stock as provided in this
subparagraph (b), a proper officer of the Company shall, upon written
request of the holders of record of at least 10% of the number of
shares of Preferred Stock at the time outstanding, regardless of
series, addressed to the Secretary of the Company, call a special
meeting of the holders of shares of Preferred Stock and of any other
class of stock having voting power, for the purpose of electing
directors. Such meeting shall be held at the earliest practicable
date at the principal office of the Company. If such meeting shall
not be called by a proper officer of the Company within 20 days after
personal service of said written request upon the Secretary of the
Company, or within 20 days after mailing the same within the United
States of America by registered mail addressed to the Secretary of
the Company at its principal office, then the holders of record of at
least 10% of the number of shares of Preferred Stock at the time
outstanding, regardless of series, may designate in writing one of
their number to call such meeting at the expense of the Company, and
such meeting may be called by such person so designated upon the
<PAGE>
PAGE 7
notice required for annual meetings of stockholders and shall be held
at said principal office. Any holder of shares of Preferred Stock so
designated shall have access to the stock books of the Company for
the purpose of causing meetings of stockholders to be called pursuant
to these provisions. Notwithstanding the provisions of this
subparagraph (b), no such special meeting shall be called during the
90 days immediately preceding the date fixed for the next annual
meeting of stockholders.
At any meeting held for the purpose of electing directors at
which the holders of shares of Preferred Stock shall have the special
right, voting separately as a class, to elect directors as provided
in this subparagraph (b), the presence, in person or by proxy, of the
holders of 51% of the number of shares of Preferred Stock at the time
outstanding shall be required to constitute a quorum of such class
for the election of any director by the holders of the Preferred
Stock as a class, each share of Series G Stock counting, for purposes
only of determining the presence of such a quorum, as one-half share
of Preferred Stock. At any such meeting or adjournment thereof, (i)
the absence of a quorum of Preferred Stock shall not prevent the
election of directors other than those to be elected by the holders
of shares of Preferred Stock voting as a class and the absence of a
quorum for the election of such other directors shall not prevent the
election of the directors to be elected by holders of shares of
Preferred Stock voting as a class and (ii) in the absence of either
or both such-quorums, a majority of the holders present in person or
by proxy of the stock or stocks which lack a quorum shall have power
to adjourn the meeting for the election of directors which they are
entitled to elect from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
During any period the holders of shares of Preferred Stock have
the right to vote as a class for directors as provided in this
subparagraph (b), (i) the directors so elected by the holders of the
Preferred Stock shall continue in office until termination of the
right of the holders of the Preferred Stock to vote as a class for
directors, and (ii) any vacancies in the Board of Directors shall be
filled only by vote of a majority (which majority may consist of only
a single director) of the remaining directors theretofore elected by
the holders of the class or classes of stock which elected the
director whose office shall have become vacant.
(6) Conversion Rights. The holders of shares of the Series G
Stock shall have the right, at their option, to convert each share of
the Series G Stock into one and one-third shares of Common Stock of
the Company at any time on and subject to the following terms and
conditions:
(a) The shares of the Series G Stock shall be convertible at
the office of any transfer agent for the Series G Stock, and at such
other office or offices, if any, as the Board of Directors may
designate, into fully paid and nonassessable shares (calculated as to
each conversion to the nearest 1/100th of a share) of Common Stock of
<PAGE>
PAGE 8
the Company, at the conversion price, determined as hereinafter
provided, in effect at the time of conversion, each share of the
Series G Stock being taken at $50.00 for the purpose of such
conversion. The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "conversion price")
shall be initially $37.50 per share of Common Stock. The conversion
price shall be adjusted as provided in subparagraph (d) of this
paragraph (6).
(b) In order to convert shares of the Series G Stock into
Common Stock the holder thereof shall surrender at any office
hereinabove mentioned the certificate or certificates therefor, duly
endorsed to the Company or in blank, and give written notice to the
Company at said office that such holder elects to convert such
shares. No payment or adjustment shall be made upon any conversion
on account of any dividends accrued on the shares of the Series G
Stock surrender for conversion or on account of any dividends on the
Common Stock issued upon such conversion.
Shares of the Series G Stock shall be deemed to have been
converted immediately prior to the close of business on the day of
the surrender of such shares for conversion in accordance with the
foregoing provisions, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Stock at
such time. As promptly as practicable on or after the conversion
date, the Company shall issue and shall deliver at said office a
certificate or certificates for the number of full shares of Common
Stock issuable upon such conversion, together with a cash payment in
lieu of any fraction of a share, as hereinafter provided, to the
person or persons entitled to receive the same. In case shares of
the Series G Stock are called for redemption, the right to convert
such shares shall cease and terminate at the close of business on the
Redemption Date, unless default shall be made in payment of the
redemption price.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of the Series G Stock, but, instead of any
fraction of a share of Common Stock which would otherwise be issuable
in respect of the aggregate number of shares of the Series G Stock
surrendered for conversion at one time by the same holder, the
Company shall pay a cash adjustment of such fraction in an amount
equal to the same fraction of the Closing Date Price on the date on
which such shares of the Series G Stock were duly surrendered for
conversion, or, if such date is not a Trading Day, on the next
Trading Day.
(d) The conversion price shall be adjusted from time to time as
follows:
(I) In case the Company shall (i) pay a dividend or make a
distribution on its outstanding shares of Common Stock in Common
Stock, (ii) subdivide its outstanding shares of Common Stock,
<PAGE>
PAGE 9
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue any shares by reclas-
sification of its shares of Common Stock, the conversion price
in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the
holder of any shares of the Series G Stock surrendered for
conversion after such time shall be entitled to receive the
number of shares of capital stock of the Company which he would
have owned or been entitled to receive had such shares of the
Series G Stock been converted immediately prior to such time.
(II) In case the Company shall hereafter issue rights or
warrants to all holders of its Common Stock entitling them (for
a period expiring within forty-five days after the record date
mentioned below) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price
per share--as determined pursuant to clause (IV) of this
subparagraph (d)--on the record date mentioned below, the
conversion price shall be adjusted so that the same shall equal
the price determined by multiplying the conversion price in
effect immediately prior to the date of issuance of such rights
or warrants by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the record date
mentioned below plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of
Common Stock so offered would purchase at such current market
price and of which the denominator shall be the number of shares
of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock offered for subscription or
purchase. Such adjustment shall become effective at the opening
of business on the business day next following the record date
for the determination of stockholders entitled to receive such
rights or warrants; and to the extent that shares of Common
Stock are not delivered after the expiration of such rights or
warrants, the conversion price shall be readjusted (but only
with respect to shares of the Series C Stock converted after
such expiration) to the conversion price which would then be in
effect had the adjustments made upon the distribution of such
rights or warrants been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered. No
adjustment in the conversion price shall be required or made
under this clause (II) or clause (III) immediately below or
otherwise under this paragraph (6) in respect of any right
granted by the Company to all holders of its Common Stock to
purchase additional shares of Common Stock from the Company at a
discount from the current market price per share of Common Stock
by reinvestment of dividends on Common Stock if either (i) such
discount does not exceed 6% of such current market price or (ii)
the holders of the Series G Stock shall be entitled to purchase
shares of Common Stock from the Company at the same discount by
reinvestment of dividends on the Series G Stock.
<PAGE>
PAGE 10
(III) In case the Company shall distribute to all holders
of its Common Stock evidences of its indebtedness or assets--
excluding any cash dividend or distributions and dividends
referred to in clause (I) of this paragraph (6)--or subscription
rights or warrants (excluding those referred to in clause (II)
immediately above), then in each such case the conversion price
shall be adjusted so that the same shall equal the price
determined by multiplying the conversion price in effect
immediately prior to the date of such distribution by a fraction
of which the numerator shall be the current market price per
share (determined as provided in clause (IV) immediately below)
of the Common Stock on the record date mentioned below less the
then fair market value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the
portion of the assets or evidences of indebtedness so
distributed or of such subscription rights or warrants
applicable to one share of Common Stock, and the denominator
shall be such current market price per share of the Common
Stock. Such adjustment shall become effective on the opening of
business on the business day next following the record date for
the determination of stockholders entitled to receive such
distribution.
(IV) For the purpose of any computation under clause (II) or
(III) immediately above, the current market price per share of Common
Stock on any date shall be deemed to be the average of the daily
Closing Price for the thirty consecutive Trading Days selected by the
Company commencing not more than fortyfive Trading Days before the
day in question.
(V) In any case in which this paragraph (6) shall require that
an adjustment as a result of any event become effective at the
opening of business on the business day next following a record date,
the Company may elect to defer until after the occurrence of such
event (i) issuing to the holder of any shares of the Series G Stock
converted after such record date and before the occurrence of such
event the additional shares of Common Stock issuable upon such
conversion over and above the shares of Common Stock issuable upon
such conversion on the basis of the conversion price prior to
adjustment and (ii) paying to such holder any amount in cash in lieu
of a fractional share of Common Stock pursuant to subparagraph (c) of
this paragraph (6); and, in lieu of the shares the issuance of which
is so deferred, the Company shall issue or cause its transfer agents
to issue due bills or other appropriate evidence of the right to
receive such shares.
(VI) Any adjustment in the conversion price otherwise required
by this paragraph (6) to be made may be postponed up to, but not
beyond, three years from the date on which it would otherwise be
required to be made provided that such adjustment (plus any other
adjustments postponed pursuant to this clause (VI) and not
theretofore made) would not require an increase or decrease of more
than $0.50 in such price and would not, if made, entitle the holders
<PAGE>
PAGE 11
of all then outstanding shares of the Series G Stock upon conversion
to receive additional shares of Common Stock equal in the aggregate
to 3% or more of the then issued and outstanding shares of Common
Stock. All calculations under this paragraph (6) shall be made to
the nearest cent or to the nearest 1/100 of a share, as the case may
be.
(e) Whenever the conversion price is adjusted as herein
provided:
(I) the Company shall compute the adjusted conversion
price in accordance with this paragraph (6) and shall prepare a
certificate signed by the Treasurer of the Company setting forth
the adjusted conversion price, and such certificate shall
forthwith be filed with the transfer agent or agents for the
Series G Stock; and
(II) a notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price shall,
as soon as practicable, be mailed to the holders of record of
the outstanding shares of the Series G Stock.
(f) In case of any consolidation of the Company with, or merger
of the Company with or into, any other corporation (other than a
merger in which the Company is the surviving corporation and which
does not result in any reclassification or change of the outstanding
shares of the Company into which shares of the Series G Stock are
then convertible), or in case of any conveyance or transfer of the
property and assets of the Company substantially as an entirety, each
share of Series G Stock shall thereafter be convertible into the
number and kind of shares of stock and other securities and cash,
property and rights receivable upon such consolidation, merger,
conveyance or transfer by a holder of the number and kind of shares
of the Company into which such shares of Series G Stock might have
been converted immediately prior to such consolidation, merger,
conveyance or transfer. The above provisions of this subparagraph
(f) shall similarly apply to successive consolidations, mergers,
conveyances or transfers.
(g) In case:
(I) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash
out of its retained earnings; or
(II) the Company shall authorize the granting to the
holders of its Common Stock of rights to subscribe for or
purchase any shares of capital stock of any class or of any
other rights; or
(III) of any reclassification of the capital stock of the
Company (other than a subdivision or combination of its
outstanding shares of Common Stock), or of any consolidation or
<PAGE>
PAGE 12
merger to which the Company is a party and for which approval of
any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the
Company; or
(IV) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be mailed to the transfer agent or
agents for the Series G Stock and to the holders of record of the
outstanding shares of the Series G Stock at least 20 days--or 10 days
in any case specified in clause (I) or (II) of this subparagraph
(g)--prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or, if a record is
not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights are to
be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.
(h) The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of the
shares of the Series G Stock, the full number of shares of Common
Stock then deliverable upon the conversion of all shares of the
Series G Stock then outstanding.
(i) The Company will pay any and all taxes that may be payable
in respect of the issuance or delivery of shares of Common Stock on
conversion of shares of this Series pursuant hereto. The Company
shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares
of this Series so converted were registered, and no such issue or
delivery shall be made unless and until the person requesting such
issue has paid to the Company the amount of any such tax, or has
established, to the satisfaction of the Company, that such tax has
been paid.
(j) For the purpose of this paragraph (6) the term "Common
Stock" shall include any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, and which is not subject to redemption by
the Company. However, shares issuable on conversion of shares of the
Series G Stock shall include only shares of the class designated as
Common Stock of the Company as of the original date of issue of the
Series G Stock or shares of any class or classes resulting from any
<PAGE>
PAGE 13
reclassification or reclassifications thereof and which have no
preference in respect of dividends or of amounts payable in the event
of any voluntary or involuntary liquidation, dissolution or winding
up of the Company and which are not subject to redemption by the
Company, provided that if at any time there shall be more than one
such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all
such reclassifications.
(k) As used in this paragraph (6), the term "Closing Price" on
any day shall mean the reported last sales price regular way on such
day or, in case no such sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in each case
on the New York Stock Exchange, or, if the Common Stock is not listed
or admitted to trading on such Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted
to trading on any national securities exchange, the average of the
closing bid and asked prices as furnished by any New York Stock
Exchange member firm selected from time to time by the Company for
that purpose; and the term "Trading Day" shall mean a date on which
the New York Stock Exchange (or any successor to such Exchange) is
open for the transaction of business.
(7) Definitions.
(a) The term "Accrued Dividends" shall mean Full Cumulative
Dividends to the date as of which Accrued Dividends are to be
computed, less the amount of all dividends paid, upon the relevant
shares of Series G Stock.
(b) The term "Date of Accrual" shall mean, as to any shares of
the Series G Stock issued, January 1, 1987.
(c) The term "Full Cumulative Dividends" shall mean (whether or
not in any dividend period, or any part thereof, in respect of which
such term is used there shall have been net profits or net assets of
the Company legally available for the payment of such dividends) that
amount which shall be equal to dividends at the full rate fixed for
the Series G Stock provided in paragraph (2) of this Section B
regarding Series G Stock for the period of time elapsed from the Date
of Accrual to the date as of which Full Cumulative Dividends are to
be computed (including an amount equal to the dividend at such rate
for any fraction of a dividend period included in such period of time
calculated on the basis of a 360-day year of 12 30-day months).
(d) The term "Preferred Stock" shall mean any Preferred Stock
created and issued under this Article Fourth; provided, however, that
for purposes only of subparagraph (b) of paragraph (5) of this
Section B regarding Series G Stock, each holder of Series G Stock
shall be entitled to cast one-half vote for each share of Series G
Stock held by such holder and for purposes of determining a quorum at
<PAGE>
PAGE 14
any meeting held for the purpose of electing directors at which the
holders of Preferred Stock shall have this special right, voting
separately as a class, to elect directors as provided in such
subparagraph (b), each share of Series G Stock shall count, for
purposes of determining the presence of a quorum of such class at
such meeting, as one-half share of Preferred Stock. The term
"preferred stock" shall mean shares of any class of stock (including
Preferred Stock) if the holders of such class shall be entitled to
the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, in preference or priority to
the holders of shares of Common Stock.
(e) For the purposes hereof any stock of any class or classes
of the Company shall be deemed to rank (i) prior to shares of the
Series G Stock, either as to dividends or upon liquidation, if the
holders of such class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the
holders of shares of the Series G Stock; (ii) on a parity with shares
of the Series G Stock, either as to dividends or upon liquidation,
whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from
those of the Series G Stock, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rate or liquidation prices,
without preference or priority of one over the other as between the
holders of such stock and the holders of shares of Series G Stock;
and (iii) junior to shares of the Series G Stock, either as to
dividends or upon liquidation, if such class shall be Common Stock or
if the holders of the Series G Stock shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of such class of classes.
(f) The shares of the Series G Stock shall rank senior as to
the dividends and upon liquidation to the shares of the $120
Redeemable Convertible Preferred Stock, Series E (With $1.00 Par
Value) of the Company and to the shares of the Convertible Junior
Preference Stock, Series D (With $1.00 Par Value) of the Company.
(8) Retirement of Redeemed or Converted Shares, Etc. Shares of the
Series G Stock which have been (i) redeemed or (ii) converted into Common
Stock pursuant to the provisions of paragraph (6) of this Section B
regarding Series G Stock shall have the status of authorized and unissued
Preferred Stock.
II. Preference Stock. The Preference Stock may be issued from
time to time in one or more series of any number of shares, provided
that the aggregate number of shares issued and not canceled of any
and all such series shall not exceed the total number of shares of
Preference Stock hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the
<PAGE>
PAGE 15
resolution or resolutions providing for the issue of such Preference
Stock from time to time adopted by the Board of Directors pursuant to
authority so to do which is hereby vested in the Board of Directors.
Each series of Preference Stock (i) may have such voting powers, full
or limited, or may be without voting powers; (ii) may be subject to
redemption at such time or times and at such prices; (iii) may be
entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or series of stock;
(iv) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the corporation; (v) may be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the corporation, at such price or prices or at
such rates of exchange, and with such adjustments; (vi) may be
entitled to the benefit of a sinking fund to be applied to the
purchase or redemption of shares of such series in such amount or
amounts; (vii) may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the Company or any
subsidiary, upon the issue of any additional stock (including
additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Company or any
subsidiary of any outstanding stock of the Company; and (viii) may
have such other relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof; all as
shall be stated in said resolution or resolutions providing for the
issue of such Preference Stock. Shares of any series of Preference
Stock which have been redeemed (whether through the operation of a
sinking fund or otherwise) or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any
other class or classes shall have the status of authorized and
unissued shares of Preference Stock of the same series and may be
reissued as a part of the series of which they were originally a part
or may be reclassified and reissued as part of a new series of
Preference Stock to be created by resolution or resolutions by the
Board of Directors or as part of any other series of Preference
Stock, all subject to the conditions or restrictions on issuance set
forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preference Stock.
A. Series A Stock. The designated powers, preferences and relative
participating, optional or other special rights and the
qualifications, limitations or restrictions thereof, of one (1) share
of a series of Preference Stock are as follows:
(1) Designation. The designation of this series of
Preference Stock shall be "Nonconvertible Junior Preference
Stock, Series A (With Par Value of $1.00)" (hereinafter called
the "Series A Stock").
<PAGE>
PAGE 16
(2) Dividends. The holder of the Series A Stock shall not
be entitled to receive dividends with respect to the Series A
Stock.
(3) Rights of Redemption. The Series A Stock shall be
subject to redemption as follows:
(a) Optional Redemption. At any time after the date
of the earliest to occur of (i) the passage of twelve
consecutive calendar months at all times during which the
Supplemental Benefit Trust holds less than 5% of the total
number of then outstanding shares of Parent Common Stock,
(ii) the date on which the Supplemental Benefit Program
terminates and (iii) the Profit Sharing Cessation Date, the
Series A Stock may be redeemed at the option of the Company
at any time upon not less than five days' prior notice to
the holder of record of the Series A Stock sent by first
class mail, postage prepaid, to such holder at its address
appearing on the Series A Stock register maintained by the
Company, at a redemption price of $1.00 (hereinafter called
the "Series A Redemption Date").
(b) Effect of Redemption. All rights of the holder
of Series A Stock as a stockholder of the Company by reason
of the ownership of Series A Stock shall cease on the
Series A Redemption Date, except the right to receive the
amount payable upon redemption of such share on presenta-
tion and surrender of the certificate representing such
share. After the Series A Redemption Date, such share
shall not be deemed to be outstanding.
(4) Rights on Liquidation, Dissolution, Winding Up.
(a) Liquidation Payment. In the event of any
involuntary liquidation, dissolution or winding up of the
Company, the holder of the Series A Stock (if then out-
standing) shall be entitled to be paid out of the assets of
the Company available for distribution to its stockholders,
before any payment shall be made to the holders of any
class of capital stock of the Company ranking junior upon
liquidation to the Series A Stock, an amount equal to $1.00
per share. The merger or consolidation of the Company into
or with any other corporation or the merger or
consolidation of any other corporation into or with the
Company shall not in any event be considered a dissolution,
liquidation or winding up of the Company under this
paragraph (4).
<PAGE>
PAGE 17
(b) Proportionate Distribution. In the event the assets
of the Company available for distribution to the holder of the
Series A Stock upon any involuntary or voluntary liquidation,
dissolution or winding up of the Company shall be insufficient
to pay in full all amounts to which such holder is entitled
pursuant to subparagraph (a) of this paragraph (4), no such
distribution shall be made on account of any shares of any other
class or series of preference stock ranking on a parity with the
Series A Stock upon liquidation unless proportionate
distributive amounts shall be paid on account of the Series A
Stock, ratably, in proportion to the full distributive amounts
to which the holders of all such parity shares are respectively
entitled upon such liquidation, dissolution or winding up.
(5) Voting. The Series A Stock shall not have any voting
powers, either general or special, except as required by
applicable law and as follows:
(a) Change of Priority or Rights. Without the
affirmative vote or consent of the holder of the Series A
Stock, voting or consenting (as the case may be) separately
as a class, given in person or by proxy, either in writing
or by resolution adopted at a special meeting called for
the purpose, the Company shall not (i) change the number of
authorized shares of the Series A Stock or (ii) amend this
Certificate of Incorporation or take any other action
(including, without limitation, a merger or consolidation
to which the Company is a constituent party) which would
have the effect of eliminating the Series A Stock or of
amending, altering or repealing any of the preferences,
special rights or powers of the holder of the Series A
Stock so as adversely to affect such preferences, special
rights or powers.
(b) Election of Directors. For so long as the
Supplemental Benefit Trust holds 20% or more of the total
number of then outstanding shares of Parent Common Stock,
the number of directors constituting the Board of Directors
of the Company shall be increased by two, and the holder of
the Series A Stock shall have, in addition to any other
voting rights, the exclusive and special right, voting
separately as a class, to elect two persons to serve as
directors of the Company (one of whom shall be designated
the "First Designee," and the other of whom shall be
designated the "Second Designee") to fill such two direc-
torships. Except for the involuntary resignation of any
such director under clauses (i) or (ii) of this first
paragraph of this subparagraph (b) or the removal of any
such director by the holder of the Series A Stock, each
director elected by the holder of the Series A Stock shall
have a one year term of office. The right of the holder of
Series A Stock to elect directors may be exercised by
written consent of such holder. The right of the holder of
<PAGE>
PAGE 18
the Series A Stock voting separately as a class to elect
two members of the Board of Directors as aforesaid shall
continue until such time as the Supplemental Benefit Trust
holds less than 20% of the total number of then outstanding
shares of Parent Common Stock. At such time, the special
right of the holder of the Series A Stock to vote sepa-
rately as a class for the election of directors shall be
subject to the following restrictions:
(i) Upon the earlier to occur of (A) the date on
which the Supplemental Benefit Trust has held less
than 20% but 19% or more of the total number of then
outstanding shares of Parent Common Stock at all times
for six consecutive months and (B) the date on which
the Supplemental Benefit Trust holds less than 19% of
the total number of then outstanding shares of Parent
Common Stock, the holder of the Series A Stock shall
be entitled to elect only one director in total and
the Second Designee shall be deemed to have resigned
as a director effective immediately without any
further action on such person's part; and
(ii) Notwithstanding anything to the contrary
contained in clause (i) immediately above, upon the
earlier to occur of (A) the date on which the
Supplemental Benefit Trust has held less than 10% but
9% or more of the total number of then outstanding
shares of Parent Common Stock at all times for six
consecutive months and (B) the date on which the
Supplemental Benefit Trust holds less than 9% of the
total number of then outstanding shares of Parent
Common Stock, the holder of the Series A Stock shall
not be entitled to elect any directors and each
remaining director elected by such holder shall be
deemed to have resigned as a member of the Board of
Directors effective immediately without further action
on such person's part.
The special right of the holder of the Series A Stock
to vote separately as a class for the election of directors
shall be subject to revesting as follows:
(i) Upon the earlier to occur of (A) the date on
which the Supplemental Benefit Trust has held more
than 10% but not more than 11% of the total number of
then outstanding shares of Parent Common Stock at all
times for six consecutive months and (B) the date on
which the Supplemental Benefit Trust holds more than
11% of the total number of then outstanding shares of
Parent Common Stock, the right of the holder of
Series A Stock to elect a total of one director shall
vest immediately; and
<PAGE>
PAGE 19
(ii) Notwithstanding anything to the contrary
contained in clause (i) immediately above, upon the
earlier to occur of (A) the date on which the
Supplemental Benefit Trust has held more than 20% but
not more than 21% of the total number of then
outstanding shares of Parent Common Stock at all times
for six consecutive months and (B) the date on which
the Supplemental Benefit Trust holds more than 21% of
the total then outstanding shares of Parent Common
Stock, the right of the holder of Series A Stock to
elect a total of two directors shall vest immediately.
For purposes of this subparagraph (b), all calcu-
lations of the Supplemental Benefit Trust's holdings of the
then outstanding shares of Parent Common Stock shall be
made as if the Common Stock and Class B Common were a
single class.
At any time when the holder of the Series A Stock has
the right to elect directors as provided in this
subparagraph (b), (i) such holder shall have the exclusive
right to remove the First Designee and/or the Second
Designee, with or without cause, from time to time and
elect their successors and (ii) any vacancies in the seats
held by the First Designee or the Second Designee shall be
filled only by a vote of the holder of the Series A Stock.
(6) Conversion Rights. The holder of the share of the
Series A Stock shall have no conversion rights with respect to
such share.
(7) Nontransferability. The Series A Stock will be issued
to the Supplemental Benefit Trust and the Series A Stock and any
rights thereunder shall be nontransferable. Any attempted
transfer shall be void and of no effect. The Company shall
place on the certificate representing any issued share of the
Series A Stock a legend consistent with the provisions hereof.
(8) Definitions.
(a) Profit Sharing Cessation Date. The term "Profit
Sharing Cessation Date" shall have the meaning assigned to
such term in the Settlement Agreement.
(b) Settlement Agreement. The term "Settlement
Agreement" shall mean the Settlement Agreement, dated as of
March 31, 1993, and the exhibits thereto, in the class
action of Shy, et al. v. Navistar, (Civil Action No. C-3-
92-333) (S.D.O.), as any of the same may be amended from
time to time in accordance with the terms thereof. The
Company shall provide a copy of the Settlement Agreement to
any holder of shares of its stock upon request by such
holder.
<PAGE>
PAGE 20
(c) Supplemental Benefit Program. The term
"Supplemental Benefit Program" shall have the meaning
assigned to such term in the Settlement Agreement.
(d) Supplemental Benefit Trust. The term
"Supplemental Benefit Trust" shall have the meaning
assigned to such term in the Settlement Agreement.
(9) Rank of Series A Stock. The share of the Series A
Stock shall rank junior upon liquidation to (i) the shares of
the Series G Stock, (ii) the shares of the Convertible Junior
Preference Stock, Series D (With Par Value of $1.00) (the
"Series D Stock"), and (iii) any other series of Preferred Stock
or Preference Stock (other than the Nonconvertible Junior
Preference Stock, Series B (With Par Value of $1.00) of the
Company) (the "Series B Stock") authorized or designated after
the initial date of issuance of the Series A Stock. The share
of the Series A Stock shall rank on a parity upon liquidation
with the Series B Stock. The share of the Series A Stock shall
rank senior upon liquidation to the shares of the Parent Common
Stock.
(10) Retirement of Redeemed Shares, Etc. When redeemed,
the share of the Series A Stock shall have the status of
authorized and unissued Preference Stock.
(11) No Fractional Shares. No fractional shares of
Series A Stock shall be issued.
(12) Stock Calculations. In making any calculations with
respect to holdings or ownership of the Company's stock, the
Company's stock records shall be conclusive evidence of such
holdings and ownership.
B. Series B Stock. The designated powers, preferences and relative
participating, optional or other special rights and the
qualifications, limitations or restrictions thereof, of one (1) share
of a series of Preference Stock are as follows:
(1) Designation. The designation of this series of
Preference Stock shall be "Nonconvertible Junior Preference
Stock, Series B (With Par Value of $1.00)" (referred to herein
as the "Series B Stock").
(2) Dividends. The holder of the share of the Series B
Stock shall not be entitled to receive dividends with respect to
the Series B Stock.
(3) Rights of Redemption. The Series B Stock shall be
subject to redemption as follows:
(a) Optional Redemption. At any time after the
holder of Series B Stock has not been entitled to vote
separately as a class to elect a director at any time for
<PAGE>
PAGE 21
five consecutive years, the Series B Stock may be redeemed
at the option of the Company, in whole or in part, at any
time or from time to time upon not less than five days'
prior notice to the holder of record of the Series B Stock
sent by first class mail, postage prepaid, to such holder
at its address appearing on the Series B Stock register
maintained by the Company, at a redemption price of $1.00
(hereinafter called the "Series B Redemption Date").
(b) Effect of Redemption. All rights of the holder
of Series B Stock as a stockholder of the Company by reason
of the ownership of Series B Stock shall cease on the
Series B Redemption Date, except the right to receive the
amount payable upon redemption of such share on presenta-
tion and surrender of the certificate representing such
share. After the Series B Redemption Date, such share
shall not be deemed to be outstanding.
(4) Rights on Liquidation, Dissolution, Winding Up.
(a) Liquidation Payment. In the event of any
involuntary liquidation, dissolution or winding up of the
Company, the holder of the Series B Stock (if then out-
standing) shall be entitled to be paid out of the assets of
the Company available for distribution to its stockholders,
before any payment shall be made to the holders of any
class of capital stock of the Company ranking junior upon
liquidation to the Series B Stock, an amount equal to $1.00
per share. The merger or consolidation of the Company into
or with any other corporation or the merger or
consolidation of any other corporation into or with the
Company shall not in any event be considered a dissolution,
liquidation or winding up of the Company under this
paragraph (4).
(b) Proportionate Distribution. In the event the
assets of the Company available for distribution to the
holder of the Series B Stock upon any involuntary or
voluntary liquidation, dissolution or winding up of the
Company shall be insufficient to pay in full all amounts to
which such holder is entitled pursuant to subparagraph (a)
of this paragraph (4), no such distribution shall be made
on account of any shares of any other class or series of
preference stock ranking on a parity with the Series B
Stock upon liquidation unless proportionate distributive
amounts shall be paid on account of the Series B Stock,
ratably, in proportion to the full distributive amounts to
which the holders of all such parity shares are
respectively entitled upon such liquidation, dissolution or
winding up.
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PAGE 22
(5) Voting. The Series B Stock shall not have any voting
powers, either general or special, except as required by
applicable law and as follows:
(a) Change of Priority or Rights. Without the
affirmative vote or consent of the holder of the Series B
Stock, voting or consenting (as the case may be) separately
as a class, given in person or by proxy, either in writing
or by resolution adopted at a special meeting called for
the purpose, the Company shall not (i) change the number of
authorized shares of the Series B Stock or (ii) amend this
Certificate of Incorporation or take any other action
(including, without limitation, a merger or consolidation
to which the company is a constituent party) which would
have the effect of eliminating the Series B Stock or of
amending, altering or repealing any of the preferences,
special rights or powers of the holder of the Series B
Stock so as adversely to affect such preferences, special
rights or powers.
(b) Election of Director. Until the Fully Funded
Date, the number of directors constituting the Board of
Directors of the Company shall be increased by one, and the
holder of the Series B Stock shall have, in addition to any
other voting rights, the exclusive and special right,
voting separately as a class, to elect one person to fill
such newly created directorship. Except for the
involuntary resignation of any such director under this
subparagraph b or the removal of any such director by the
holder of the Series B Stock, the director elected by the
holder of the Series B Stock shall have a one year term of
office. The right of the holder of Series B Stock to elect
a director may be exercised by written consent of such
holder. On the Fully Funded Date, the special right of the
holder of the Series B Stock so to vote separately as a
class for the election of a director shall terminate
(subject to subsequent revesting as provided below) and the
director elected by the holder of the Series B Stock shall
be deemed to have resigned effective immediately without
any further action upon such person's part. Subsequent to
the Fully Funded Date, the special right of the holder of
Series B Stock to vote separately as a class for the
election of a director shall revest at any time when the
balance of the Employers' funding contribution held under
the Health Benefit Trust falls below 85% of the Fully
Funded Amount; provided, however, that such revested
special right of the holder of Series B Stock to vote
separately as a class for the election of a director shall
terminate (subject to revesting as provided by this
subparagraph (b)) if the balance of the Employers' funding
contribution held under the Health Benefit Trust rises
above 85% of the Fully Funded Amount.
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PAGE 23
At any time when the holder of the Series B Stock has
the right to elect a director as provided in this
subparagraph (b), (i) such holder shall have the exclusive
right to remove such director, with or without cause, from
time to time and elect his or her successor and (ii) any
vacancies in the seat held by the director elected by the
holder of the Series B Stock shall be filled only by vote
of the holder of the Series B Stock.
(6) Conversion Rights. The holder of the share of the
Series B Stock shall have no conversion rights with respect to
such share.
(7) Nontransferability. The Series B Stock shall be
issued to the UAW and the Series B Stock and any rights
thereunder shall be nontransferable. Any attempted transfer
shall be void and of no effect. The Company shall place on the
certificate representing any issued share of the Series A Stock
a legend consistent with the provisions hereof.
(8) Definitions.
(a) Employers. The term "Employers" shall have the
meaning assigned to such term in the Settlement Agreement.
(b) Fully Funded Amount. The term "Fully Funded
Amount" shall have the meaning assigned to such term in the
Settlement Agreement.
(c) Fully Funded Date. The term "Fully Funded Date"
shall have the meaning assigned to such term in the
Settlement Agreement.
(d) Health Benefit Trust. The term "Health Benefit
Trust" shall have the meaning assigned to such term in the
Settlement Agreement.
(e) UAW. The term "UAW" shall have the meaning
assigned to such term in the Settlement Agreement.
(9) Rank of Series B Stock. The share of the Series B
Stock shall rank junior upon liquidation to (i) the shares of
the Series G Stock, (ii) the shares of the Series D Stock, and
(iii) any other series of Preferred or Preference Stock (other
than the Series A Stock) authorized or designated after the
initial date of issuance of the Series B Stock. The share of
the Series B Stock shall rank on a parity upon liquidation with
the Series A Stock. The share of the Series B Stock shall rank
senior upon liquidation to the shares of the Parent Common
Stock.
(10) Retirement of Redeemed Shares, Etc. When redeemed,
the share of the Series B Stock shall have the status of
authorized and unissued Preference Stock.
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PAGE 24
(11) Fractional Shares. No fractional shares of Series B
Stock shall be issued.
(12) Stock Calculations. In making any calculations with
respect to holdings or ownership of the Company's stock, the
Company's stock records shall be conclusive evidence of such
holdings and ownership.
C. Series D Stock. The designated powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, of 3,000,000 shares of a series of
Preference Stock are as follows:
(1) Designation. The designation of this series of Preference
Stock shall be "Convertible Junior Preference Stock, Series D (With
Par Value of $1.00)" (referred to herein as the "Series D Stock").
(2) Dividends. The holders of shares of the Series D Stock
shall not be entitled to receive any dividends unless cash dividends
are declared on the shares of stock issuable upon conversion of the
Series D Stock (herein called "conversion stock"). In the event any
cash dividend is declared on the shares of conversion stock,
following the record date for such dividend the holders of shares of
the Series D Stock shall be entitled to receive, when, as, and to the
extent declared by the Board of Directors, a dividend in cash in an
amount per share equal to 120% of the cash dividend per share
declared on the shares of conversion stock multiplied by the number
of shares of conversion stock which, as of such record date, is
deliverable on the Conversion Date upon the conversion of a share of
Series D Stock. If at any time after the right to receive such
dividend shall have accrued such dividend shall not have been paid,
or declared and a sum sufficient for payment thereof set apart, the
amount of the deficiency in such dividend shall be fully paid, but
without interest, before the dividend on the conversion stock which
gave rise to the accrual of such dividend shall be paid and before
any other dividend shall be declared or paid or any other
distribution ordered or made upon, or any other purchase or
redemption made of, any stock ranking as to dividends or upon
liquidation junior to the Series D Stock (other than a dividend
payable in such junior stock or a purchase or redemption made by
issue or delivery of such junior stock); provided, however, that any
moneys theretofore deposited in any sinking fund with respect to any
preferred stock of the Company in compliance with the provisions of
such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of
such sinking fund regardless of whether at the time of such appli-
cation Full Accrued Dividends upon shares of the Series D Stock shall
have been paid or declared and set apart for payment. At any time
when any dividend has accrued on the Series D Stock but has not been
paid, all dividends declared upon the shares of the Series D Stock
and any other preferred stock ranking on a parity as to dividends
with the Series D Stock shall be declared pro rata, so that the
amounts of dividends declared per share on the Series D Stock and
<PAGE>
PAGE 25
such other preferred stock shall in all cases bear to each other the
same ratio that accrued unpaid dividends per share on the shares of
the Series D Stock and such other preferred stock (determined
immediately prior to payment) bear to each other, provided that in
making such calculation, dividends accrued on such other parity stock
since the most recent January 15 or July 15 may be ignored. Holders
of shares of the Series D Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of
Full Accrued Dividends.
(3) Rights of Redemption. The shares of the Series D Stock
shall be subject to redemption as follows:
(a) Optional Redemption. Subject to the succeeding
provisions of this subparagraph (a), the shares of the Series D
Stock may be redeemed at the option of the Company, in whole or
in part, at any time or from time to time upon not less than 30
days' prior notice to the holders of record of shares of the
Series D Stock to be so redeemed, sent by first class mail,
postage prepaid, to each registered holder of shares of the
Series D Stock at his address appearing on the Series D Stock
stock register maintained by the Company, at the redemption
price per share of $25.00, plus in each case an amount equal to
Unpaid Accrued Dividends to and including the date fixed for
redemption of such shares (hereinafter called a "Redemption
Date"). If less than all shares of the Series D Stock are to be
redeemed pursuant to this subparagraph (a), the shares to be
redeemed shall be selected pro rata so that there shall be
redeemed from each registered holder of such shares that number
of whole shares, as nearly as practicable to the nearest share,
as bears the same ratio to the total number of shares of such
Series held by such holder as the total number of shares to be
redeemed bears to the total number of shares of the Series D
Stock at the time outstanding.
(b) No Mandatory Redemption. The shares of the Series D
Stock shall not be subject to mandatory redemption.
(c) No Sinking Fund. Shares of the Series D Stock are not
subject or entitled to the benefit of a sinking fund.
(d) Effect of Redemption. Unless default be made in the
payment in full of the redemption price and any Accrued
Dividends: dividends on the shares of Series D Stock called for
redemption shall cease to accrue on the Redemption Date on which
such shares are to be redeemed; all rights of the holders of
such shares as stockholders of the Company by reason of the
ownership of such shares shall cease on such Redemption Date,
except the right to receive the amount payable upon redemption
of such shares on presentation and surrender of the respective
certificates representing such shares; and after such Redemption
Date, such shares shall not be deemed to be outstanding and
shall not be transferable on the books of the Company except to
the Company.
<PAGE>
PAGE 26
(e) Receipt of Redemption Price. At any time on or after
a Redemption Date, the respective holders of record of shares of
Series D Stock to be redeemed on such Redemption Date shall be
entitled to receive the redemption price upon actual delivery to
the Company of certificates for the shares to be redeemed, such
certificates, if required by the Company, to be properly stamped
for transfer and duly endorsed in blank or accompanied by proper
instruments of assignment and transfer thereof duly executed in
blank.
(f) Return of Deposits. Any moneys deposited with the
transfer agent, or other redemption agent, for the redemption of
any shares of Series D Stock on a Redemption Date which shall
not be claimed after five years from such Redemption Date shall
be repaid to the Company by such agent on demand, and the holder
of any such shares of Series D Stock shall thereafter look only
to the Company for any payment to which such holder may be
entitled. Any interest accrued on moneys so deposited shall
belong to the Company and shall be paid to it from time to time
on demand.
(4) Rights on Liquidation, Dissolution, Winding up.
(a) Liquidation Payment. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company,
the holders of shares of the Series D Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for
distribution to its stockholders, before any payment shall be made to
the holders of any class of capital stock of the Company ranking
junior upon liquidation to the Series D Stock, an amount equal to
$25.00 per share plus an amount equal to all Accrued Dividends
thereon as of the date of payment. The merger or consolidation of
the Company into or with any other corporation or the merger or
consolidation of any other corporation into or with the Company shall
not in any event be considered a liquidation, dissolution or winding
up of the Company under this paragraph (4).
(b) Proportionate Distribution. In the event the assets of the
Company available for distribution to the holders of shares of Series
D Stock upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to subparagraph
(a) of this paragraph (4), no such distribution shall be made on
account of any shares of any other class or series of preferred stock
ranking on a parity with the shares of Series D Stock upon
liquidation unless proportionate distributive amounts shall be paid
on account of the shares of Series D Stock, ratably, in proportion to
the full distributive amounts to which the holders of all such parity
shares are respectively entitled upon such liquidation, dissolution
or winding up.
(5) Voting. The shares of the Series D Stock shall not have any
voting powers, either general or special, except as required by applicable
law and as follows:
<PAGE>
PAGE 27
(a) Change of Priority or Rights. Without the affirmative vote
or consent of the holders of at least two-thirds of the number of
shares of Series D Stock at the time outstanding, voting or
consenting (as the case may be) separately as a class, given in
person or by proxy, either in writing or by resolution adopted at a
special meeting called for the purpose, the Company shall not (i)
amend, alter or repeal any of the preferences, special rights or
powers of the holders of, the Series D Stock so as adversely to
affect such preferences, special rights or powers or (ii) increase
above 3,000,000 the aggregate number of shares constituting the
Series D Stock or issue or reissue any shares of Series D Stock
(other than for purposes of exchanges or transfers) in excess of the
first 3,000,000 shares issued. No vote or consent by the holders of
the Series D Stock shall be required as a condition to the creation
or issuance of any class or series of capital stock of the Company
(including, without limitation, capital stock which may rank senior
to, or on a parity with, the Series D Stock as to dividends or upon
liquidation or both).
(b) Default in Dividend Payments. Whenever dividends payable
on any series of Preference Stock shall be in default in an aggregate
amount equivalent to six full quarterly dividends on all shares of
such series at the time outstanding, the number of directors
constituting the Board of Directors of the Company shall be increased
by one and the holders of Preference Stock shall have, in addition to
any other voting rights, the exclusive and special right, voting
separately as a class without regard to series, to elect one person
to fill such newly created directorship. Whenever such right of
holders of Preference Stock shall have vested, it may be exercised
initially either at a special meeting of such holders called as
provided below, or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders. The right of holders
of shares of Preference Stock voting separately as a class to elect
one member of the Board of Directors as aforesaid shall continue
until such time as all dividends accumulated on all series of
Preference Stock shall have been paid in full, at which time the
special right of the holders of shares of Preference Stock so to vote
separately as a class for the election of directors shall terminate,
subject to revesting in the event of each and every subsequent
default in an aggregate amount equivalent to six full quarterly
dividends.
At any time when such special voting power shall have vested in
the holders of Preference Stock as provided in this subparagraph (b),
a proper officer of the Company shall, upon the written request of
the holders of record of at least 10% of the number of shares of
Preference Stock at the time outstanding and entitled to vote,
regardless of series, addressed to the Secretary of the Company, call
a special meeting of the holders of shares of Preference Stock and of
any other class of stock having voting power, for the purpose of
electing directors. Such meeting shall be held at the earliest
practicable date at the principal office of the Company. If such
meeting shall not be called by a proper officer of the Company within
<PAGE>
PAGE 28
20 days after personal service of said written request upon the
Secretary of the Company, or within 20 days after mailing the same
within the United States of America by registered mail addressed to
the Secretary of the Company at its principal office, then the
holders of record of at least 10% of the number of shares of
Preference Stock at the time outstanding and entitled to vote,
regardless of series, may designate in writing one of their number to
call such meeting at the expense of the Company, and such meeting may
be called by such person so designated upon the notice required for
annual meetings of stockholders and shall be held at said principal
office. Any holder of shares of Preference Stock so designated shall
have access to the stock books of the Company for the purpose of
causing meetings of stockholders to be called pursuant to these
provisions. Notwithstanding the provisions of this subparagraph (b),
no such special meeting shall be called during the 90 days
immediately preceding the date fixed for the next annual meeting of
stockholders.
At any meeting held for the purpose of electing directors at
which the holders of shares of Preference Stock shall have the
special right, voting separately as a class, to elect a director as
provided in this subparagraph (b), the presence, in person or by
proxy, of the holders of 51% of the number of shares of Preference
Stock at the time outstanding and entitled to vote shall be required
to constitute a quorum of such class for the election of any director
by the holders of the Preference Stock as a class, each share of
Series D Stock outstanding and entitled to vote counting, for
purposes only of determining the presence of such a quorum, as one
share of Preference Stock. At any such meeting or adjournment
thereof, (i) the absence of a quorum of Preference Stock shall not
prevent the election of directors other than those to be elected by
the holders of shares of Preference Stock voting as a class and the
absence of a quorum for the election of such other directors shall
not prevent the election of the directors to be elected by holders of
shares of Preference Stock voting as a class and (ii) in the absence
of either or both such quorums, a majority of the holders present in
person or by proxy of the stock or stocks which lack a quorum shall
have power to adjourn the meeting for the election of directors which
they are entitled to elect from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
During any period the holders of Preference Stock have the right
to vote as a class for a director as provided in this subparagraph
(b), (i) the director so elected by the holders of the Preference
Stock shall continue in office until termination of the right of the
holders of the Preference Stock to vote as a class for directors, and
(ii) any vacancies in the Board of Directors shall be filled only by
vote of a majority (which majority may consist of only a single
director) of the remaining directors theretofore elected by the
holders of the class or classes of stock which elected the director
whose office shall have become vacant.
<PAGE>
PAGE 29
(6) Conversion Rights. The shares of the Series D Stock shall be
subject to conversion as follows:
(a) Optional Conversion. At any time, the holders of shares
of the Series D Stock shall have the right, at their option, to
convert each share of Series D Stock into shares of any other stock
of the Company on the following terms:
(I) Conversion Price. The shares of the Series D Stock
shall be convertible at the Company's principal office and at
such other office or offices, if any, as the Board of Directors
may designate, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100th of a
share) of Common Stock of the Company, at the conversion price,
determined as hereinafter provided, in effect at the time of
conversion, each share of Series D Stock being taken at $25.00
for the purpose of such conversion. The price at which shares
of Common Stock shall be delivered upon conversion (herein
called the "conversion price") shall be initially $8.00 per
share of Common Stock. The conversion price shall be adjusted
as provided in clause (IV) of this subparagraph (a).
(II) Conversion Procedure. No payment or adjustment shall
be made upon the conversion of the Series D Stock on account of
any dividends declared but unpaid on the shares of the Series D
Stock converted or on account of any dividends on the Common
Stock issued upon such conversion.
Shares of the Series D Stock shall be deemed to have been
converted immediately prior to the close of business on the
Conversion Date, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such Common
Stock at such time. Following the Conversion Date, each holder
of shares of the Series D Stock converted will surrender, at the
Company's principal office or at any other office as the Board
of Directors may designate, the certificate or certificates
therefor, duly endorsed to the Company or in blank. As promptly
as practicable after such surrender, the Company shall issue and
shall deliver at said office a certificate or certificates for
the number of full shares of Common Stock issuable upon such
conversion to the person or persons entitled to receive the
same.
In case shares of Series D Stock are called for redemption,
the right to convert such shares shall cease and terminate at
the close of business on the Redemption Date on which such
shares are to be redeemed, unless default shall be made in
payment of the redemption price (in which event the right to
convert such shares shall cease when such redemption price shall
actually be paid).
<PAGE>
PAGE 30
(III) Cash Payment. No fractional shares of Common Stock
shall be issued upon conversion of shares of the Series D Stock,
but, instead of any fraction of a share of Common Stock which
would otherwise be issuable in respect of the aggregate number
of shares of the Series D Stock held by the same holder, the
Company shall pay a cash adjustment of such fraction in an
amount equal to the same fraction of the Closing Price on the
Conversion Date, or, if the Conversion Date is not a Trading
Day, on the next Trading Day.
(IV) Conversion Price Adjustments. The conversion price
shall be adjusted from time to time as follows:
(A) In case the Company shall hereafter (i) pay a
dividend or make a distribution on its outstanding shares
of Common Stock in Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue any shares by reclassification of its
shares of Common Stock, the conversion price in effect at
the time of the record date for such dividend or
distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that
the holder of any shares of the Series D Stock converted
after such time shall be entitled to receive the number of
shares of capital stock of the Company which he would have
owned or been entitled to receive by reason of the
conversion of such shares of the Series D Stock had such
shares of the Series D Stock been converted immediately
prior to such time.
(B) In case the Company shall hereafter issue rights
or warrants to all holders of its Common Stock entitling
them (for a period expiring within fortyfive days after the
record date mentioned below) to subscribe for or purchase
shares of Common Stock at a price per share less than the
current market price per share--as determined pursuant to
subclause (D) of this clause (IV)--on the record date for
the determination of the stockholders entitled to receive
such rights or warrants, the conversion price shall be
adjusted so that the same shall equal the price determined
by multiplying the conversion price in effect immediately
prior to the date of issuance of such rights or warrants by
a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the record date for
the determination of the stockholders entitled to receive
such rights or warrants plus the number of shares of Common
Stock which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase
at such current market price and of which the denominator
shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of
Common Stock offered for subscription or purchase. Such
<PAGE>
PAGE 31
adjustment shall become effective at the opening of
business on the business day next following the record date
for the determination of stockholders entitled to receive
such rights or warrants; and to the extent that shares of
Common Stock are not delivered after the expiration of such
rights or warrants, the conversion price shall be
readjusted (but only with respect to shares of the Series D
Stock converted after such expiration) to the conversion
price which would then be in effect had the adjustments
made upon the distribution of such rights or warrants been
made upon the basis of delivery of only the number of
shares of Common Stock actually delivered. No adjustment
in the conversion price shall be required or made under
this subclause (B) or subclause (C) immediately below or
otherwise under this subparagraph (a) in respect of any
right granted by the Company to all holders of its Common
Stock to purchase additional shares of Common Stock from
the Company at a discount from the current market price per
share of Common Stock by reinvestment of dividends on
Common Stock if either (i) such discount does not exceed 6%
of such current market price or (ii) the holders of the
Series D Stock shall be entitled to purchase shares of
Common Stock from the Company at the same discount by
reinvestment of dividends on the Series D Stock.
(C) In case the Company shall hereafter distribute to all
holders of its Common Stock evidences of its indebtedness or
assets--excluding any cash dividend or distributions and
dividends referred to in subclause (A) of this clause (IV)--or
subscription rights or warrants (excluding those referred to in
subclause (B) immediately above), then in each such case the
conversion price shall be adjusted so that the same shall equal
the price determined by multiplying the conversion price in
effect immediately prior to the date of such distribution by a
fraction of which the numerator shall be the current market
price per share (determined as provided in subclause (D)
immediately below) of the Common Stock on the record date for
the determination of stockholders entitled to receive such
distribution less the then fair market value (as determined by
the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or
warrants applicable to one share of Common Stock, and the
denominator shall be such current market price per share of the
Common Stock. Such adjustment shall become effective on the
opening of business on the business day next following the
record date for the determination of stockholders entitled to
receive such distribution.
(D) For the purpose of any computation under subclause (B)
or (C) immediately above, the current market price per share of
Common Stock on any date shall be deemed to be the average of
the daily Closing Price for the thirty consecutive Trading Days
<PAGE>
PAGE 32
selected by the Company commencing not more than fortyfive
Trading Days before the day in question.
(E) In any case in which this subparagraph (a) shall
require that an adjustment as a result of any event become
effective at the opening of business on the business day next
following a record date, the Company may elect to defer until
after the occurrence of such event (i) issuing to the holder of
any shares of the Series D Stock converted after such record
date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion over and
above the shares of Common Stock issuable upon such conversion
on the basis of the conversion price prior to adjustment and
(ii) paying to such holder any amount in cash in lieu of a
fraction share of Common Stock pursuant to clause (IV) of this
subparagraph (a); and, in lieu of the shares the issuance of
which is so deferred, the Company shall issue or cause its
transfer agents to issue due bills or other appropriate evidence
of the right to receive such shares.
(F) Any adjustment in the conversion price otherwise
required by this subparagraph (a) to be made may be postponed up
to, but not beyond, three years from the date on which it would
otherwise be required to be made provided that such adjustment
(plus any other adjustments postponed pursuant to this subclause
(F) and not theretofore made) would not require an increase or
decrease of more than $.50 in such price and would not, if made,
entitle the holders of all then outstanding shares of the Series
D Stock upon conversion to receive additional shares of Common
Stock equal in the aggregate to 3% or more of the then issued
and outstanding shares of Common Stock. All calculations under
this subparagraph (a) shall be made to the nearest cent or to
the nearest 1/100 of a share of Common Stock, as the case may
be.
(V) Conversion Price Adjustment Certificates and Notices.
Whenever the conversion price is adjusted as herein provided, the
Company shall compute the adjusted conversion price in accordance
with this subparagraph (a), shall prepare a notice stating that the
conversion price has been adjusted and setting forth the adjusted
conversion price and shall mail such notice as soon as practicable to
the holders of record of the outstanding shares of the Series D
Stock.
(VI) Mergers, etc. In case of any consolidation of the Company
with, or merger of the Company with or into, any other corporation
(other than a merger in which the Company is the surviving
corporation and which does not result in any reclassification or
change of the outstanding shares of the Company into which shares of
the Series D Stock would have been converted had the automatic
conversion of the Series D Stock occurred immediately prior thereto),
or in case of any conveyance or transfer of the property and assets
of the Company substantially as an entirety, lawful provision shall
<PAGE>
PAGE 33
be made as a part of the terms of such transaction so that each share
of Series D Stock shall be converted on the Conversion Date into the
number and kind of shares of stock (and/or other securities, cash,
property or rights) receivable upon such consolidation, merger,
conveyance or transfer by a holder of the number and kind of shares
of the Company into which such share of Series D Stock would have
been converted had the automatic conversion of the Series D Stock
occurred immediately prior to such consolidation, merger, conveyance
or transfer, subject to subsequent adjustments as nearly equivalent
as practicable to the adjustments provided for in this subparagraph
(a). The above provisions of this clause (VI) shall similarly apply
to successive consolidations, mergers, conveyances or transfers.
(VII) Reservation of Shares. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting
the conversion of the shares of the Series D Stock on the Conversion
Date, the full number of shares of Common Stock which at the time is
deliverable on the Conversion Date upon the conversion of all shares
of the Series D Stock outstanding at such time.
(VIII) Taxes. The Company shall pay any and all taxes that
may be payable in respect of the issuance or delivery of shares of
Common Stock on conversion of shares of Series D Stock pursuant
hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in
which the shares of Series D Stock so converted were registered, and
no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Company the amount of any such
tax, or has established, to the satisfaction of the Company, that
such tax has been paid.
(IX) Common Stock. For the purpose of this paragraph (6) the
term "Common Stock" shall include any stock of any class of the
Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, and which is not subject to
redemption by the Company. However, shares issuable on conversion of
shares of the Series D Stock shall include only shares of the class
designated as Common Stock of the Company as of the original date of
issue of the Series D Stock or shares of any class or classes
resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to
redemption by the Company, provided that if at any time there shall
be more than one such resulting class, the shares of each such class
then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such
classes resulting from all such reclassifications.
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(X) Closing Price. As used in this paragraph (6), the term
"Closing Price" on any day shall mean the reported last sales price
regular way on such day or, in case no such sale takes place on such
day, the average of the reported closing bid and asked prices regular
way, in each case on the New York Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if not listed or admitted to
trading on any national securities exchange, the average of the
closing bid and asked prices as furnished by any New York Stock
Exchange member firm selected from time to time by the Company for
that purpose; and the term "Trading Day" shall mean a date on which
the New York Stock Exchange (or any successor to such Exchange) is
open for the transaction of business.
(7) Definitions.
(a) Conversion Date. The term "Conversion Date" shall mean the
date on which the holder of shares of Series D Stock exercises his or
its option to convert the shares of Series D Stock into Common Stock.
(b) Accrued Dividends. The term "Accrued Dividends" shall mean
Full Accrued Dividends as of the date as of which Accrued Dividends
are to be computed, less the amount of all dividends paid, upon the
relevant shares of Series D Stock.
(c) Full Accrued Dividends. The term "Full Accrued Dividends"
shall mean the aggregate amount of dividends, if any, which the
holders of shares of Series D Stock shall have become entitled to
receive as of the date as of which Full Accrued Dividends are to be
computed.
(d) Preferred Stock. The term "Preferred Stock" shall mean any
Preferred Stock created and issued under this Article Fourth. The
term "preferred stock" shall mean shares of any class of stock
(including any class of Preferred Stock or Preference Stock) if the
holders of such class shall be entitled to the receipt of dividends
or of amounts distributable upon liquidation, dissolution or winding
up, in preference or priority to the holders of shares of Common
Stock.
(e) Preference Stock. The term "Preference Stock" shall mean
any Preference Stock created and issued under this Article Fourth.
(f) Ranking of Shares. For the purposes hereof any stock of
any class or classes of the Company shall be deemed to rank (i) prior
to shares of the Series D Stock, either as to dividends or upon
liquidation, if the holders of such class or classes shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of the Series D
Stock; (ii) on a parity with shares of the Series D Stock, either as
to dividends or upon liquidation, whether or not the dividend rates,
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PAGE 35
dividend payment dates, or redemption or liquidation prices per share
thereof be different from those of the Series D Stock, if the holders
of such stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
liquidation prices, without preference or priority of one over the
other as between the holders of such stock and the holders of shares
of Series D Stock; and (iii) junior to shares of the Series D Stock,
either as to dividends or upon liquidation, if such class shall be
Common Stock or if the holders of the Series D Stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of such class or
classes.
(8) Rank of Series D Stock. The shares of the Series D Stock shall
rank junior as to dividends and upon liquidation to the shares of the
$6.00 Cumulative Convertible Preferred Stock, Series G (With Par Value of
$1.00) of the Company. Except as otherwise fixed at the time such class
is created, the shares of the Series D Stock shall rank on a parity as to
dividends and upon liquidation with the shares of the stock of any other
class of Preferred Stock or Preference Stock.
(9) Fractional Shares. The Series D Stock may be issued in
fractions of a share equal to one one-hundredth (.01) of a share or any
integral multiple thereof. Each fractional share of Series D Stock issued
shall have a corresponding fraction of the voting powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, attributable to a
full share of Series D Stock.
(10) Retirement of Converted Shares, etc. Shares of the Series D
Stock which have been converted into Common Stock pursuant to the
provisions of paragraph (6) of this Section C regarding Series D Stock
shall have the status of authorized and unissued Preferred Stock but shall
not be reissued as Series D Stock.
III. Parent Common Stock. Except as otherwise provided in this
Section III or as otherwise required by applicable law, all shares of
Common Stock and Class B Common shall be identical in all respects
and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and
restrictions.
A. Voting Rights.
(1) Common Stock. Except as otherwise provided in this
Section III, as otherwise required by law or by the resolution
or resolutions providing for the issuance of any series of
Preferred Stock or Preference Stock and subject to the
provisions of any applicable law or of the By-laws of the
Company, as from time to time amended, with respect to the
closing of the transfer books or the fixing of a record date for
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PAGE 36
the determination of stockholders entitled to vote, the holders
of outstanding shares of Common Stock shall exclusively possess
voting power for the election of directors and for other pur-
poses, each holder of record of shares of Common Stock being
entitled to one vote for each share of Common Stock standing in
his name on the books of the Company.
(2) Class B Common. The holders of shares of Class B
Common shall have no right to vote on any matters to be voted on
by the stockholders of the Company except as follows:
(a) Without the affirmative vote or consent of the holders
of the Class B Common, voting or consenting (as the case may be)
separately as a class, in person or by proxy, either in writing
or by resolution adopted at a special meeting called for the
purpose, the Company shall not (i) change the number of
authorized shares of the Class B Common or (ii) amend this
Certificate of Incorporation or take any other action
(including, without limitation, a merger or consolidation to
which the Company is a constituent party) which would have the
effect of eliminating the Class B Common or of amending,
altering or repealing any of the preferences, special rights or
powers of the holders of the Class B Common so as adversely to
affect such preferences, special rights or powers.
(b) The holders of shares of Class B Common shall have the
right to vote together with the holders of shares of the Common
Stock as a single class on any Super-Majority Transaction sub-
mitted to the holders of Parent Common Stock for their vote,
approval or consent. When voting on any Super-Majority
Transaction, each holder of shares of Class B Common shall be
entitled to cast one vote for each share of Class B Common
standing in his name on the books of the Company.
(3) Super-Majority Transactions. The affirmative vote or
consent of the greater of (a) the holders of at least 85% of the
shares of the Parent Common Stock, voting as a single class,
present in person or by proxy at a meeting at which a Super-
Majority Transaction is submitted for a vote of the Company's
stockholders and (b) the holders of a majority of the voting
power of all of the Parent Common Stock shall be required to
approve any Super-Majority Transaction.
B. Dividends. Except as otherwise provided by the resolution or
resolutions providing for the issue of any series of Preferred Stock
or Preference Stock, the holders of Parent Common Stock shall be
entitled, to the exclusion of the holders of Preferred Stock and
Preference Stock of any and all series, to receive such dividends as
from time to time may be declared by the Board of Directors. As and
when dividends are declared or paid thereon, whether in cash,
property or securities of the Company, the holders of Common Stock
and the holders of Class B Common shall be entitled to participate in
such dividends ratably on a per share basis; provided, that (i) if
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PAGE 37
dividends are declared which are payable in shares of Common Stock or
Class B Common, such dividends shall be payable at the same rate on
both Common Stock and Class B Common and the dividends payable in
shares of Common Stock shall be payable to holders of that class of
stock and the dividends payable in shares of Class B Common shall be
payable to holders of that class of stock, (ii) if the dividends
consist of other voting securities of the Company, the Company shall
declare and pay in respect of each share of Class B Common dividends
consisting of an equal number of non-voting securities of the Company
which are otherwise identical to the voting securities, which shall
entitle the holder thereof to cast the same number of votes upon any
Super-Majority Transaction as such holder would have been entitled to
cast had such holder received voting securities, rather than non-
voting securities, with respect to such dividend and which are
convertible into or exchangeable for such voting securities on the
same terms as the Class B Common is convertible into the Common
Stock, (iii) if the dividends consist of the right to purchase
additional shares of Common Stock or Class B Common, at the Company's
option, either (A) dividends shall be declared which are payable at
the same rate on both classes of stock and the dividends payable in
the right to purchase additional shares of Common Stock shall be
payable to holders of that class of stock and the dividends payable
in the right to purchase additional shares of Class B Common shall be
payable to holders of that class of stock or (B) in the case of a
dividend payable in the right to purchase additional shares of Common
Stock, such dividend shall be payable to holders of that class of
stock and the Class B Common Conversion Ratio (as hereinafter
defined) shall be adjusted as provided in subparagraph 2 of Paragraph
D of this Section III.
C. Rights on Liquidation, Dissolution, Winding Up. In the event of
any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, after payment shall have been made to the
holders of Preferred Stock and Preference Stock of the full amount
for which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of Preferred Stock
or Preference Stock, the holders of the Parent Common Stock shall be
entitled, to the exclusion of the holders of Preferred Stock or
Preference Stock of any and all series, to share, ratably according
to the number of shares of Parent Common Stock held by them, in all
remaining assets of the Company available for distribution to its
stockholders.
D. Conversion Rights.
(1) Conversion of Common Stock. The holders of shares of
Common Stock shall have no conversion rights with respect to
such shares.
(2) Conversion of Class B Common Stock. With respect to
each share of Class B Common, upon the earlier to occur of
(i) any transfer of such share of Class B Common in accordance
with Paragraph E of this Section III (except for transfers
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PAGE 38
permitted by subparagraph 3 of Paragraph E) and (ii) the Event
Date, such share shall convert automatically into shares of
Common Stock at a ratio (the "Class B Common Conversion Ratio")
which initially shall be one share of Common Stock per share of
Class B Common so converted; provided, that if and whenever the
Company shall hereafter issue rights pursuant to clause (iii)(B)
of Paragraph B of this Section III to all holders of its Common
Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the current market
price per share--as determined pursuant to the penultimate
sentence of this subparagraph 2 of this paragraph D--on the
record date for the determination of the stockholders entitled
to receive such rights, the Class B Common Conversion Ratio
shall be adjusted to an amount equal to the product of the Class
B Common Conversion Ratio in effect immediately prior to the
date of issuance of such rights and a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase and
of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares
of Common Stock which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase at
such current market price. Such adjustment shall become
effective at the opening of business on the business day next
following the record date for the determination of stockholders
entitled to receive such rights; and to the extent that shares
of Common Stock are not delivered after the expiration of such
rights, the Class B Common Conversion Ratio shall be readjusted
(but only with respect to shares of the Class B Common converted
after such expiration) to the Class B Common Conversion Ratio
which would then be in effect had the adjustments made upon the
distribution of such rights been made upon the basis of delivery
of only the number of shares of Common Stock actually delivered.
For the purpose of any computation under the immediately
preceding sentence, the current market price per share of Common
Stock on any date shall be deemed to be the average of the daily
Closing Prices for the thirty consecutive Trading Days selected
by the Company commencing not more than fortyfive Trading Days
before the day in question. Notwithstanding anything else
contained in this subparagraph 2 of this Paragraph D, upon the
termination of the Settlement Agreement in accordance with the
provisions of Section 13 thereof, all then outstanding shares of
Class B Common in the aggregate shall convert automatically,
without any further action on the Company's part, into one (1)
share of Common Stock.
(I) Mergers, etc. In case of any consolidation of the Company
with, or merger of the Company with or into, any other
corporation (other than a merger in which the Company is
the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of the
Company into which shares of the Class B Common would have
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PAGE 39
been converted had the automatic conversion of the Class B
Common occurred immediately prior thereto), or in case of
any conveyance or transfer of the property and assets of
the Company substantially as an entirety, lawful provision
shall be made as a part of the terms of such transaction so
that each share of Class B Common (i) shall entitle the
holder thereof to receive, at the same time and on the same
terms as applicable to the shares of the Company into which
the Class B Common shall be convertible, any cash,
securities (other than equity securities of the Company),
rights or other property receivable upon such
consolidation, merger, conveyance or transfer by a holder
of the number and kind of shares of the Company into which
such share of Class B Common would have been converted had
the automatic conversion of the Class B Common occurred
immediately prior to such consolidation, merger, conveyance
or transfer and (ii) shall be converted on the Class B
Common Conversion Date into the number and kind of equity
of the Company, if any, receivable upon such consolidation,
merger, conveyance or transfer by a holder of the number
and kind of shares of the Company into which such share of
Class B Common would have been converted had the automatic
conversion of the Class B Common occurred immediately prior
to such consolidation, merger, conveyance or transfer
subject to subsequent adjustments as nearly equivalent as
practicable to the adjustments provided for in this
subparagraph 2 of paragraph D; provided however, that any
instrument convertible into or exchangeable for equity
securities of the Company shall be deemed for purposes of
this subparagraph 2(I) not to be equity securities of the
Company; and provided, further, that in the event that any
instrument convertible into or exchangeable for shares of
Common Stock or other voting securities of the Company is
paid in any such consolidation, merger, conveyance or
transfer in respect of the shares of the Company into which
the shares of Class B Common shall be convertible or
exchangeable, the corresponding instrument paid in respect
of the Class B Common pursuant to this subparagraph 2(I)
may be convertible into or exchangeable for Class B Common
or non-voting securities of the Company, respectively, in
the manner contemplated by paragraph B of this Section III.
The above provisions of this clause (I) shall similarly
apply to successive consolidations, mergers, conveyances or
transfers.
(II) Reservation of Shares. The Company shall at all times
reserve and keep available, free from preemptive rights,
out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the shares of the
Class B Common on the Class B Common Conversion Date, the
full number of shares of Common Stock which at the time is
deliverable on the Class B Common Conversion Date upon the
conversion of all shares of the Class B Common outstanding
at such time.
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PAGE 40
(III) Taxes. The Company shall pay any and all taxes that may be
payable in respect of the issuance or delivery of shares of
Common Stock on conversion of shares of Class B Common
pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that in which the
shares of Class B Common so converted were registered, and
no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Company
the amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has been paid.
(IV) Common Stock. For the purpose of this subparagraph 2 of
paragraph D the term "Common Stock" shall include any stock
of any class of the Company (other than the Class B Common)
which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involun-
tary liquidation, dissolution or winding up of the Company,
and which is not subject to redemption by the Company.
However, shares issuable on conversion of shares of the
Class B Common shall include only shares of the class
designated as Common Stock of the Company as of the
original date of issue of the Class B Common or shares of
any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which are not subject to
redemption by the Company, provided that if at any time
there shall be more than one such resulting class, the
shares of each such class then so issuable shall be
substantially in the proportion which the total number of
shares of such class resulting from all such reclassifica-
tions bears to the total number of shares of all such
classes resulting from all such reclassifications.
(V) Retirement of Converted Shares, etc. Shares of the Class B
Common which have been converted into Common Stock pursuant
to the provisions of this subparagraph 2 of paragraph D
regarding Class B Common shall have the status of retired
shares of Class B Common and shall not be reissued.
(VI) Rights Prior to Conversion. Notwithstanding anything to
the contrary contained in this Section III, in case of any
adjustment of the Class B Common Conversion Ratio as
provided in this subparagraph 2 of this Paragraph D, the
determination of the rights of the holders of Class B
Common to vote such shares in Super-Majority Transactions,
to receive dividends with respect to such shares, and to
share ratably with the holders of Common Stock in assets of
the Company in the event of any liquidation, dissolution or
winding up of the Company shall be made as if the number of
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PAGE 41
shares of Class B Common held by each such holder of the
Class B Common were equal to the product of the number of
shares of Class B Common actually held by such holder at
the time of such determination and the Class B Common
Conversion Ratio.
(VII) No Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of shares of the
Class B Common, but, instead of any fraction of a share of
Common Stock which would otherwise be issuable in respect
of the aggregate number of shares of the Class B Common
held by the same holder, the Company shall pay a full share
of Common Stock.
(VIII) Conversion Procedure. Following the Class B Common
Conversion Date, each holder of shares of the Class B
Common converted will surrender, at the Company's principal
office or at any other office as the Board of Directors may
designate, the certificate or certificates therefor, duly
endorsed to the Company or in blank. As promptly as
practicable after such surrender, the Company shall issue
and shall deliver at said office a certificate or
certificates for the number of shares of Common Stock
issuable upon such conversion to the person or persons
entitled to receive the same.
E. Transferability of Class B Common. Prior to the Event Date, the
shares of the Class B Common shall be nontransferable by the
Supplemental Benefit Trust or any other holder thereof except:
(1) pursuant to the terms of Article VIII of Exhibit B to
the Settlement Agreement;
(2) pursuant to any transaction which is approved by the
Board of Directors or with respect to which the Board of
Directors consents in writing;
(3) to any financial institution as security for any
indebtedness or obligation of the holders of the shares of
Class B Common; or
(4) pursuant to any tender or exchange offer made by any
person or "group" (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, or any successor
statute thereto), for shares of Parent Common Stock.
Any attempted transfer of shares of the Class B Common in violation
of the provisions hereof shall be void and of no effect. The Company
shall place on the certificates representing shares of the Class B
Common a legend consistent with the provisions hereof.
F. Stock Splits, Recapitalizations, Etc. If the Company in any
manner subdivides or combines the outstanding shares of, or effects
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PAGE 42
any recapitalization or similar transaction with respect to, one
class of Parent Common Stock, the outstanding shares of the other
class of Parent Common Stock shall be proportionately subdivided,
combined, reclassified or the like in a similar manner.
G. Definitions.
(1) Class B Common Conversion Date. The term "Class B
Common Conversion Date," with respect to each share of Class B
Common, shall mean the date on which such share automatically
converts into shares of Common Stock pursuant to the terms and
conditions contained herein.
(2) Closing Price. The term "Closing Price" on any day
shall mean the reported last sales price regular way on such day
or, in case no such sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in each
case on the New York Stock Exchange, or, if the Common Stock is
not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock
is listed or admitted to trading, or, if not listed or admitted
to trading on any national securities exchange, the average of
the closing bid and asked prices as furnished by any New York
Stock Exchange member firm selected from time to time by the
Company for that purpose.
(3) Trading Day. The term "Trading Day" shall mean a day
on which the New York Stock Exchange (or any successor to such
Exchange) is open for the transaction of business.
(4) Event Date. The term "Event Date" shall have the
meaning assigned to such term in the Settlement Agreement.
(5) Navistar International Transportation Corp. The term
"Navistar International Transportation Corp." shall mean
Navistar International Transportation Corp., a Delaware
corporation, or any successor corporation thereto.
(6) Super-Majority Transaction. The term "Super-Majority
Transaction" shall mean (i) a merger or consolidation to which
the Company is a constituent party, if either (A) the stock-
holders of the Company immediately before such merger or
consolidation, do not own, directly or indirectly, more than 50%
of the combined voting power of the then outstanding voting
securities of the corporation surviving or resulting from such
merger or consolidation or (B) equity securities of the Company
or Navistar International Transportation Corp. would be issued
to stockholders of the other constituent corporation(s) to such
merger or consolidation which have a fair market value at the
time of the transaction in excess of $750 million, or (ii) the
sale, transfer, pledge or other disposition of all or
substantially all of the assets of the Company and its
subsidiaries on a consolidated basis or Navistar International
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PAGE 43
Transportation Corp. and its subsidiaries on a consolidated
basis.
Subject to the provisions of this Certificate of Incorporation
and except as otherwise provided by law, the shares of stock of the
Company, regardless of class, may be issued for such consideration
and for such corporate purposes as the Board of Directors may from
time to time determine.
No holder of stock of the Company shall have any preemptive
right with respect to stock of the Company.
Fifth: The Company is to have perpetual existence.
Sixth: Except as otherwise provided herein, any action required or
permitted to be taken by the stockholders of the Company must be taken at
a duly called annual or special meeting of such stockholders of the
Company and may not be effected by any consent in writing by such
stockholders.
The private property of the stockholders of the Company shall not be
subject to the payment of corporate debts to any extent whatsoever.
Seventh: The number of directors which shall constitute the whole
Board of Directors of the Company shall be as specified in the By-laws of
the corporation, subject to the provisions of this Article Seventh.
The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III, which shall be as nearly equal in number
as possible. Each director shall serve for a term ending on the date of
the third annual meeting of stockholders following the annual meeting at
which the director was elected; provided, however, that each initial
director in Class I shall hold office until the annual meeting of
stockholders in 1988; each initial director in Class II shall hold office
until the annual meeting of stockholders in 1989; and each initial
director in Class III shall hold office until the annual meeting of
stockholders in 1990. Notwithstanding the foregoing provisions of this
Article, each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal.
In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to maintain such classes as
nearly equal as possible. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director.
Newly created directorships resulting from any increase in the number
of directors to be elected by the holders of the Common Stock and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the
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affirmative vote of a majority of the remaining directors elected by the
holders of the Common Stock then in office (and not by stockholders), even
though less than a quorum of the Board of Directors. Any director elected
in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
Notwithstanding the foregoing, wherever the holders of any one or
more classes or series of stock issued by this Company having a preference
over the Parent Common Stock as to dividends or upon liquidation shall
have the right, voting separately by class or series, to elect directors
by consent or at an annual or special meeting of stockholders, the number,
election, term of office, filling of vacancies, terms of removal and other
features of such directorships shall be governed by the terms of the
resolution or resolutions establishing such class or series adopted
pursuant thereto and such directors so elected shall not be divided into
classes pursuant to this Article Seventh unless expressly provided by such
terms.
The Board of Directors shall have power to hold its meetings outside
the State of Delaware at such place as from time to time may be designated
by the By-laws or by resolution of the Board of Directors. The By-laws
may prescribe the number of directors necessary to constitute a quorum.
The capital of the Company may be increased from time to time by
resolution of the Board of Directors directing that a portion of the net
assets of the Company in excess of the amount theretofore determined to be
capital be transferred to capital account. Any and all shares of the
Parent Common Stock may be issued by the Company from time to time for
such consideration as may be fixed from time to time by the Board of
Directors.
Eighth: The Board of Directors shall have power, without stockholder
action:
I. To make By-laws for the Company, and to amend, alter or
repeal any By-laws; but any By-laws made by the directors may be
altered, amended or repealed by the stockholders at any meeting,
provided notice of such proposed alteration, amendment or repeal be
included in the notice of such meeting.
II. To remove at any time any officer, agent or employee of the
Company, provided, however, that such power of removal may be
conferred by the By-laws or by the Board of Directors on any
committee or officer.
III. To fix and determine, and to vary the amount of, the
working capital of the Company, and to determine the use or
investment of any assets of the Company; to set apart out of any of
the funds of the Company available for dividends a reserve or
reserves for any proper purpose and to abolish any such reserve or
reserves; and to declare and authorize payment of such dividends as
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it shall determine advisable and proper, subject to such restrictions
as may be imposed by law.
IV. To authorize the purchase or other acquisition of shares of
stock of the Company or any of its bonds, debentures, notes, scrip or
other securities or evidences of indebtedness.
V. To determine whether and to what extent, at what times and
places, and under what conditions and regulations, the accounts,
books and documents of the Company, or any of them, shall be open to
the inspection of the stockholders; and no stockholder shall have any
right to inspect any account, book or document of the Company, except
as conferred by the laws of the State of Delaware or as authorized by
resolution adopted by the Board of Directors or by the stockholders
of the Company entitled to vote in respect thereof.
VI. Except as otherwise provided by law, to determine the
places within or without the State of Delaware where any or all of
the books of the Company shall be kept.
VII. To authorize the sale, lease or other disposition of any
part or parts of the properties of the Company and to cease to
conduct the business connected therewith or again to resume the same,
as it may deem best.
VIII. To authorize the borrowing of money; the issuance of
bonds, notes, debentures and other obligations or evidences of
indebtedness of the Company, secured or unsecured, and the inclusion
of provisions as to redeemability and convertibility into shares of
stock of the Company or otherwise; and the mortgaging or pledging, as
security for money borrowed or bonds, notes, debentures or other
obligations issued by the Company, of any property of the Company,
real or personal, then owned or thereafter acquired by the Company.
The powers and authorities herein conferred upon the Board of
Directors are in furtherance and not in limitation of those conferred by
the laws of the State of Delaware. In addition to the powers and
authorities herein or by statute expressly conferred upon it, the Board of
Directors may exercise all such powers and do all such acts and things as
may be exercised or done by the Company, subject, nevertheless, to the
provisions of the laws of the State of Delaware, of this Certificate of
Incorporation and of the By-laws of the Company.
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee
to consist of two (2) or more of the directors of the Company, which to
the extent provided in said resolution or resolutions or in the By-laws,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Company, and may authorize
the seal of the Company to be affixed to all papers which may require it.
<PAGE>
PAGE 46
Subject to any limitation in the By-laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries or other
compensation for their services, as determined from time to time by the
Board of Directors, and to reimbursement for their expenses as such
members. Nothing herein contained shall preclude any director from
serving the Company or its subsidiaries or affiliates in any other
capacity and receiving compensation therefor.
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as it now exists or may hereafter be amended, no
director of the Company shall be liable to the Company or its stockholders
for monetary damages arising from a breach of fiduciary duty owed to the
Company or its stockholders. Any repeal or modification of this provision
by the stockholders of the Company shall not adversely affect any right or
protection of a director of the Company existing at the time of such
repeal or modification.
Ninth: Indemnification:
I. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she is or was a
director or officer of the Company (which term shall include any
predecessor corporation of this Company) or is or was serving at the
request of the Company as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit
plans ("indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the
Company to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification
rights than said law permitted the Company to provide prior to such
amendment), against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided however,
that, except as provided in paragraph II of this Article Ninth with
respect to proceedings to enforce rights to indemnification, the
Company shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if
such proceeding (or part thereof) was authorized by the Board of
Directors. The right to indemnification conferred in this Article
Ninth shall be a contract right and shall include the right to be
paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition; provided however,
<PAGE>
PAGE 47
that, if the Delaware General Corporation Law requires, the payment
of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it ultimately be
determined by final judicial decision from which there is no further
right to appeal that such indemnitee is not entitled to be
indemnified for such expenses under this Article Ninth or otherwise.
II. If a claim under paragraph I of this Article Ninth is not
paid in full by the Company within sixty (60) days after a written
claim has been received by the Company, except in the case of a claim
for expenses incurred in defending a proceeding in advance of its
final disposition, in which case the applicable period shall be
twenty (20) days, the indemnitee may at any time thereafter bring
suit against the Company to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit or in a suit
brought by the Company to recover payments by the Company of expenses
incurred by an indemnitee in defending in his or her capacity as a
director or officer, a proceeding in advance of its final
disposition, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such claim. In any action
brought by the indemnitee to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered
to the Company) or by the Company to recover payments by the Company
of expenses incurred by an indemnitee in defending, in his or her
capacity as a director or officer, a proceeding in advance of its
final disposition, the burden of proving that the indemnitee is not
entitled to be indemnified under this Article Ninth or otherwise
shall be on the Company. Neither the failure of the Company
(including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement
of such action that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including the Board
of Directors, independent legal counsel or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall be
a presumption that the indemnitee has not met the applicable standard
of conduct, or in the case of such an action brought by the
indemnitee, be a defense to the action.
III. The rights conferred on any person by paragraphs I and II
of this Article Ninth shall not be exclusive of any other right which
such person may have or hereafter acquire under any statute, this
certificate of incorporation by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
<PAGE>
PAGE 48
IV. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Company or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or
not the Company would have the power to indemnify such person against
such expense, liability or loss under the Delaware General
Corporation Law.
V. Persons who are not included as indemnitees under paragraph
I of this Article Ninth but are employees of the Company or any
subsidiary may be indemnified to the extent authorized at any time or
from time to time by the Board of Directors.
Tenth: The Company reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law and this Certificate of
Incorporation; and all rights, preference and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the right
reserved in this Article Tenth.
PAGE 1
EXHIBIT 4
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
The following instruments of Navistar International Corporation and
its principal subsidiary Navistar International Transportation Corp. and
its principal subsidiary Navistar Financial Corporation defining the rights
of security holders are incorporated herein by reference.
4.1 Indenture, dated as of March 1, 1968, between Navistar
International Transportation Corp. and Manufacturers Hanover Trust
Company, as Trustee, and succeeded by FIDATA Trust Company of New
York, as successor Trustee, for 6 1/4% Sinking Fund Debentures due
1998 for $50,000,000. Filed on Registration No. 2-28150.
4.2 Indenture, dated as of September 1, 1970, between Navistar
International Transportation Corp. and Morgan Guaranty Trust
Company, as Trustee, and succeeded by Commerce Union Bank, now
known as Sovran Bank/Central South, as successor Trustee, for 8
5/8% Sinking Fund Debentures due 1995 for $100,000,000. Filed on
Registration No. 2-38164.
4.3 Indenture, dated as of June 15, 1974, between Navistar
International Transportation Corp. and Harris Trust and Savings
Bank, as Trustee, and succeeded by Commerce Union Bank, now known
as Sovran Bank/Central South, as successor Trustee, for 9% Sinking
Fund Debentures due 2004 for $150,000,000. Filed on Registration
No. 2-51111.
4.4 Form of Series A Warrant to purchase Common Stock. Filed on
Registration No. 2-79744.
4.5 Indenture, dated as of January 15, 1973, between Navistar Financial
Corporation and Manufacturers Hanover Trust Company, as Trustee,
succeeded by Commerce Union Bank, now known as Sovran Bank/Central
South, as successor Trustee, for 7 1/2% Debentures due 1994 for
$75,000,000. Filed on Registration No. 2-46636.
4.6 Indenture, dated as of November 1, 1985, between Navistar Financial
Corporation and Continental Bank N.A., as Trustee, for 11.95%
Subordinated Debentures due 1995 for $100,000,000 (including form
of debenture). Filed on Registration No. 33-1259-01.
E-2
<PAGE>
PAGE 2
EXHIBIT 4 (CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
4.7 Indenture, dated September 22, 1989, between Navistar Financial
Corporation, the First National Bank of Chicago, as Trustee,
succeeded by Bank One, Columbus, N.A., as successor Trustee, for
$400,000,000 of debt securities on terms to be determined at time
of sale. Filed on Registration No. 33-31003.
4.8 Indenture, dated as of November 15, 1993 between Navistar Financial
Corporation and Continental Bank, National Association, as Trustee,
for 8 7/8% Senior Subordinated Notes due 1998 for $100,000,000.
Filed on Registration No. 33-50541.
======
Instruments defining the rights of holders of other unregistered long-
term debt of Navistar and its subsidiaries have been omitted from this
exhibit index because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the Registrant and
its consolidated subsidiaries. The Registrant agrees to furnish a copy of
any such instrument to the Commission upon request.
E-3
PAGE 1
EXHIBIT 10
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
MATERIAL CONTRACTS
The following documents of Navistar International Corporation and its
affiliate Navistar Financial Corporation are incorporated herein by
reference.
10.1 Navistar International Corporation 1975 Stock Option Plan
Filed as Exhibit A to Registration No. 2-55544.
10.2 Navistar International Corporation 1984 Stock Option Plan.
Filed as Exhibit A to Proxy Statement dated February 6, 1984,
Commission File No. 1-5236.
10.3 Navistar 1988 Performance Incentive Plan. Filed as Exhibit A
to Proxy Statement dated January 25, 1988, Commission File No.
1-9618.
10.4 Navistar 1988 Non-Employee Director Stock Option Plan. Filed
as Exhibit B to Proxy Statement dated January 25, 1988,
Commission File No. 1-9618.
10.5 Pooling and Servicing Agreement dated as of December 1, 1990,
between Navistar Financial Corporation as Servicer, Navistar
Financial Securities Corporation as Seller and Manufacturers
Hanover Trust Company as Trustee. Filed on Registration No.
33-36767.
10.6 Form of Executive Severance Agreement which is executed with
all executive officers dated September 14, 1992. Commission
File No. 1-9618.
10.7 Amended and Restated Credit Agreement dated as of April 26,
1993 among Navistar Financial Corporation, certain banks, and
Chemical Bank, Continental Bank N.A. and Morgan Guaranty Trust
Company of New York, as Co-Agents. Filed on Form 8-K dated
April 30, 1993. Commission File No. 1-4146-1.
10.8 Security, Pledge and Trust Agreement between Navistar Financial
Corporation and Bankers Trust Company, Trustee, dated as of
April 26, 1993. Filed on Form 8-K dated April 30, 1993.
Commission File No. 1-4146-1.
10.9 Amended and Restated Purchase Agreement among Truck Retail
Instalment Paper Corp., as Seller, Navistar Financial
Corporation, certain purchasers, Chemical Bank and Continental
Bank N.A. as Co-Agents, and J. P. Morgan Delaware as
Administrative Agent, dated as of April 26, 1993. Filed on
Form 8-K dated April 30, 1993. Commission File No. 1-4146-1.
10.11 Administration Agreement dated as of November 10, 1993 between
Navistar Financial Corporation, The Bank of New York, as
Indenture Trustee, and Navistar Financial 1993-A Owner Trust.
Filed on Registration No. 33-50291.
E-4
PAGE 1
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
A. Primary: See the Statement of Income (Loss) and Note 7 to the
Financial Statements contained in the Navistar International Corporation
1993 Annual Report to Shareowners incorporated herein by reference.
B. Full Dilution: Net income (loss) per common share assuming full
dilution is computed by assuming that all options and warrants which are
exercisable below market prices are assumed to be exercised, and the
proceeds applied to reduce Common Stock outstanding. The computations
assume that convertible preferred and preference stock are converted to
Common Stock. Income is divided by the weighted average number of common
shares outstanding and unconditionally issuable at the end of each month
during the period, adjusted for the net effects of the exercise of options
and warrants and the conversion of convertible preferred and preference
stocks.
YEARS ENDED OCTOBER 31
Millions of Dollars 1993 1992 1991
- -------------------------------------- -------- -------- --------
Income (loss)
of continuing operations ........... $ (273) $ (147) $ (165)
Loss of discontinued operations ...... - (65) -
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy .... (273) (212) (165)
Cumulative effect of changes
in accounting policy ............... (228) - -
-------- -------- --------
Net income (loss) .................... $ (501) $ (212) $ (165)
======== ======== ========
Reconciliation of average number of common and dilutive common equivalent
shares per primary computation to amount used for fully diluted
computation:
Average number of Common, Class B
Common and dilutive common equivalent
shares per primary computation ..... 34.9 25.3 25.1
Assuming conversion of Series G ...... .6 .6 .6
Assuming conversion of Series D ...... .1 - .1
Assuming exercise of options and
warrants reduced by the number of
shares which could have been
purchased with the proceeds from
exercise of such options
and warrants ....................... - .1 .1
-------- -------- --------
Average common and dilutive common
equivalent shares as adjusted ...... 35.6 26.0 25.9
======== ======== ========
Income (loss) per common share
assuming full dilution (dollars):
Continuing operations ............ $ (7.64)# $ (5.67)# $ (6.36)#
Discontinued operations .......... - (2.49)# -
Cumulative effect of changes in
accounting policy .............. (6.42)# - -
-------- -------- --------
Net loss ............................. $ (14.06)# $ (8.16)# $ (6.36)#
======== ======== ========
Per share amounts and weighted average number of common shares
outstanding have been adjusted to reflect the July 1, 1993, one-for-ten
reverse stock split described in Note 21 of the Consolidated Financial
Statements in Part I of this Form 10-K.
# This calculation is submitted in accordance with Regulation S-K item
601(b)(11) of the Securities Exchange Act, although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
E-5
EXHIBIT 13
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED OCTOBER 31, 1993
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
<PAGE>
PAGE 1
FINANCIAL SUMMARY
Millions of dollars, except per share data 1993 1992
- ------------------------------------------------------------------------
For the Years Ended October 31
Unit shipments
Trucks ........................................ 87,200 73,200
Engines ....................................... 118,200 97,400
Sales and revenues
Manufacturing
In the United States ........................ $ 4,149 $ 3,392
In Canada ................................... 361 293
-------- --------
Total Manufacturing ....................... 4,510 3,685
Financial Services ............................ 184 186
-------- --------
Total sales and revenues ...................... $ 4,694 $ 3,871
======== ========
Net income (loss):
Income (loss) before Supplemental Trust
contribution and taxes ...................... $ 72 $ (145)
Supplemental Trust contribution ............... (513) -
Income tax benefit (expense) .................. 168 (2)
-------- --------
Income (loss) of continuing operations ........ (273) (147)
Discontinued operations ....................... - (65)
Cumulative effect of accounting changes ....... (228) -
-------- --------
Net income (loss) ............................. $ (501) $ (212)
======== ========
Income (loss) per common share:
Continuing operations ......................... $ (8.63) $ (6.97)
Discontinued operations ....................... - (2.58)
Cumulative effect of accounting changes ....... (6.56) -
-------- --------
Net loss ...................................... $ (15.19) $ (9.55)
======== ========
Average common and dilutive common
equivalent shares outstanding (millions) ...... 34.9 25.3
Capital expenditures ............................ $ 110 $ 55
Research and development expenditures ........... $ 95 $ 90
- ------------------------------------------------------------------------
As of October 31
Consolidated
Assets ........................................ $ 5,060 $ 3,627
Liabilities other than debt ................... $ 2,911 $ 1,884
Debt .......................................... $ 1,374 $ 1,405
Shareowners' equity ........................... $ 775 $ 338
Manufacturing
Assets ........................................ $ 3,645 $ 2,208
Liabilities other than debt ................... $ 2,695 $ 1,683
Short-term debt ............................... $ 25 $ 15
Long-term debt ................................ $ 150 $ 172
Shareowners' equity ........................... $ 775 $ 338
Capitalization (long-term debt
and shareowners' equity) .................... $ 925 $ 510
Long-term debt as a percent
of total capitalization ..................... 16% 34%
Financial Services
Assets ........................................ $ 1,672 $ 1,659
Liabilities other than debt ................... $ 232 $ 201
Debt .......................................... $ 1,199 $ 1,218
Shareowner's equity ........................... $ 241 $ 240
Number of employees worldwide ................... 13,612 13,945
<PAGE>
PAGE 2
FINANCIAL INFORMATION
Financial Summary ........................................... 1
Management's Discussion and Analysis of Results
of Operations and Financial Condition ..................... 3
Statement of Financial Reporting Responsibility ............. 15
Independent Auditors' Report ................................ 16
Financial Statements
Statement of Income (Loss) ................................ 17
Statement of Financial Condition .......................... 19
Statement of Cash Flow .................................... 21
Statement of Non-Redeemable Preferred, Preference and
Common Shareowners' Equity .............................. 23
Notes to Financial Statements
1 Summary of accounting policies ......................... 25
2 Financial statement eliminations ....................... 28
3 Information related to the Statement of Cash Flow ...... 29
4 Postretirement benefits ................................ 30
5 Income taxes ........................................... 35
6 Discontinued operations ................................ 40
7 Earnings applicable to common stock .................... 40
8 Marketable securities .................................. 41
9 Receivables ............................................ 43
10 Inventories ............................................ 44
11 Property ............................................... 45
12 Leases ................................................. 46
13 Accounts payable ....................................... 47
14 Accrued liabilities .................................... 47
15 Debt ................................................... 48
16 Other long-term liabilities ............................ 50
17 Financial instruments .................................. 51
18 Commitments, contingent liabilities
and restrictions on assets ........................... 52
19 Legal proceedings ...................................... 53
20 Preferred and preference stocks ........................ 53
21 Common stock and warrants .............................. 55
22 Stock option plans ..................................... 57
23 Selected quarterly financial data (unaudited) .......... 58
Five-Year Summary of Selected Financial and Statistical Data. 60
<PAGE>
PAGE 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). In this discussion and analysis, "Company" refers
to Navistar International Corporation and its consolidated subsidiaries.
The Company manufactures and markets medium and heavy trucks, including
school bus chassis, mid-range diesel engines and service parts in North
America. These products also are sold to distributors in selected export
markets. The financial services subsidiaries of the Company provide
wholesale, retail and lease financing, and commercial physical damage and
liability insurance, principally to the Company's dealers and retail
customers.
As discussed in Note 1 to the Financial Statements, finance and
insurance operations are materially different from the manufacturing and
marketing of trucks, diesel engines and service parts. Therefore, this
discussion and analysis reviews separately the operating and financial
results of "Manufacturing" and "Financial Services." Manufacturing
includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries included
on a one-line basis under the equity method of accounting. Financial
Services includes the Company's wholly-owned subsidiary, Navistar
Financial Corporation (Navistar Financial), and other wholly-owned foreign
finance and insurance companies.
Management's discussion and analysis of results of operations should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements.
Significant Events
During 1993, the Company negotiated collective bargaining agreements
with the United Automobile, Aerospace and Agricultural Implement Workers
of America (UAW) and most of its other unions, restructured its retiree
health care and life insurance plans and completed a public offering of
common shares. These events are part of a program to reduce the Company's
operating cost structure and enable the Company to compete successfully.
On January 23, 1993, a new labor agreement was ratified by the
members of the UAW. This agreement, which expires on October 1, 1995,
permits greater productivity and efficiency, manufacturing flexibility and
customer responsiveness.
On July 1, 1993, the Company implemented a restructured retiree
health care and life insurance plan (the Plan) which previously had been
approved by the U.S. District Court in Dayton, Ohio on May 27, 1993, and
by the Company's shareowners on June 29, 1993. The Plan provides retirees
with modified health care and life insurance benefits for life. The
Company's shareowners also approved a one-for-ten reverse stock split of
its Common Stock and approved the issuance of 25.6 million shares of Class
B Common Stock. The Class B shares, valued at $513 million, were
contributed to a separate independent retiree Supplemental Benefit Trust
as a part of the Plan.
<PAGE>
PAGE 4
The Plan reduced the Company's liability for retiree health care and
life insurance benefits from approximately $2.6 billion to $1.1 billion
worldwide. On October 21, 1993, the Company completed a public offering
of 23.6 million Common shares, from which the Company realized net
proceeds of $492 million. Of the proceeds, $300 million was used to pre-
fund benefit liabilities under the Plan. The remaining proceeds will be
used for working capital purposes.
Results of Operations
Consolidated
The components of net income (loss) for the three years ended October
31 are as follows:
Millions of dollars 1993 1992 1991
- --------------------------------------------------------------------------
Income (loss) before Supplemental Trust
contribution and income taxes ................ $ 72 $ (145) $ (162)
Supplemental Trust contribution:
- Manufacturing .............................. (509) - -
- Financial Services ......................... (4) - -
Income tax benefit (expense) ................... 168 (2) (3)
------ ------ ------
Income (loss) of continuing operations ......... (273) (147) (165)
Discontinued operations ........................ - (65) -
Cumulative effect of accounting changes ........ (228) - -
------ ------ ------
Net loss ...................................... $ (501) $ (212) $ (165)
======= ====== ======
Reflecting improved operating results in both manufacturing
operations and financial services, the Company reported income of $72
million in 1993 before the Supplemental Trust contribution and income
taxes compared with a pretax loss of $145 million last year and a pretax
loss of $162 million in 1991. The 1993 loss of continuing operations was
$273 million after the one-time charge for the Supplemental Trust
contribution of $513 million and an income tax benefit of $168 million.
The Company incurred a net loss of $501 million for 1993. The net
loss included an after-tax $228 million charge for the cumulative effect
of the changes in accounting policy, consisting of a $729 million charge
from adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106) and a $501 million benefit from adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). See Notes 4, 5 and 23 to the Financial Statements. The net
loss of $212 million for 1992 included a $65 million charge to
discontinued operations for the settlement of suits brought by the Pension
Benefit Guaranty Corporation (PBGC) related to a previously owned
business.
Consolidated sales and revenues of $4,694 million in 1993 were 21%
higher than the $3,871 million reported in 1992 and 36% above the $3,460
million reported in 1991 as a result of a strong cyclical recovery in the
demand for trucks, diesel engines and service parts.
<PAGE>
PAGE 5
Manufacturing
Manufacturing reported income of $7 million before a one-time $509
million charge for the Supplemental Trust contribution and income taxes.
Losses of $197 million and $222 million were recorded in 1992 and 1991,
respectively. The 1992 results included a $47 million one-time charge for
a voluntary product recall.
The components of Manufacturing income (loss), excluding Financial
Services and before taxes are as follows:
Millions of dollars 1993 1992 1991
- --------------------------------------------------------------------------
Pretax income (loss) before Supplemental
Trust contribution and income taxes ......... $ 7 $ (197) $ (222)
Supplemental Trust contribution ............... (509) - -
------ ------ ------
Income (loss) before income taxes ........... $ (502) $ (197) $ (222)
====== ====== ======
The improvement in 1993 operating results is the result of increased
sales volume, higher selling prices and programs implemented to improve
the Company's cost structure. Cost improvement programs included
implementation of the restructured retiree benefit Plan and continued
investment in new products and processes to increase efficiency and lower
manufacturing hours per unit. The reduction in the loss between 1992 and
1991 was primarily the result of increased sales volume, ongoing cost
improvement programs and lower financing charges offset in part by higher
health care costs and reduced interest income.
Sales. Reflecting improvements in the U.S. and Canadian economies,
1993 North American industry retail sales of medium and heavy trucks
totalled 288,900 units, a 19% increase over 1992 and a 26% increase from
the 229,100 units sold in 1991. Compared with 1992 levels, heavy truck
industry sales increased 33% to 166,400 units, led by higher demand from
major leasing companies and large fleet operators. Industry sales of
medium trucks, including school bus chassis, increased 4% to 123,000
units. Medium truck industry shipments were up 4% from 1992 and 11% from
1991. Industry sales of school bus chassis, about 25% of the medium truck
market, increased 3% from 1992 but were 19% below 1991. The demand for
school buses reflects the timing of state and local government funding of
student transportation.
The Company's sales of trucks, diesel engines and service parts
during 1993 totalled $4,510 million, 22% above the $3,685 million reported
for 1992 and 38% higher than the $3,259 million recorded in 1991. The
sales increase principally reflects the improved demand for heavy trucks,
higher shipments of mid-range diesel engines to original equipment
manufacturers and improved sales of service parts. Retail deliveries of
medium and heavy trucks totalled 79,800 units in 1993, an increase of 15%
from 1992 and 19% higher than in 1991. The Company maintained its
position as sales leader in the North American combined medium and heavy
truck market in 1993 with a 27.6% market share.
<PAGE>
PAGE 6
Shipments of mid-range diesel engines to original equipment
manufacturers during 1993 totalled a record 118,200 units, an increase of
21% from 1992 and 58% from 1991. Higher shipments to a major automotive
manufacturer to meet consumer demand for the light trucks and vans which
use this engine was the primary reason for the increase.
Service parts sales of $632 million in 1993 were 11% higher than the
$571 million reported in 1992 and 19% higher than the $530 million in
1991. The increase between 1993 and 1992 was the result of growth in
sales to dealers and national fleets and improved price realization. The
increase between 1992 and 1991 was the result of higher net selling
prices, export business expansion and sales growth in dealer and national
retail accounts.
Operating Costs and Expenses. Manufacturing gross margin, the
relationship of sales to cost of sales, was 13.2% in 1993. Gross margin
in 1992, excluding one-time product recall expenses, was 13.0%, an
increase from 11.5% in 1991. Factors which led to the improvement in
gross margin between 1993 and 1992 included higher sales volume, improved
price realization and programs implemented to improve the Company's cost
structure. These favorable effects were partially offset by increases in
purchased material and labor costs and a higher level of manufacturing
start-up costs for new truck and engine products. The improvement in
gross margin between 1992 and 1991 was primarily the result of higher
sales volume combined with the impact of cost improvement programs.
Postretirement benefits, which include pension expense for employees
and retirees and postretirement health care and life insurance coverage
for employees, retirees, surviving spouses and dependents, totalled $208
million in 1993. Pension expense of $107 million in 1993 was about level
with 1992 and 1991. A 30% reduction in retiree health care and life
insurance expense in 1993 to $101 million was primarily the result of an
$87 million year-over-year decline in expense following implementation in
1993 of the new retiree benefit plan partially offset by a $41 million
increase in expense related to the adoption of SFAS 106. This statement
requires the accrual of the expected cost of providing postretirement
benefits during employees' active service periods. Prior to 1993, the
cost of these benefits was recorded as payments were made. From 1991 to
1992, postretirement benefit expense other than pensions increased from
$138 million to $146 million as cost containment programs only partially
offset health care economic cost increases.
In 1993, the Company continued its commitment to allocate resources
for improvement of existing products and processes and the development of
new truck and diesel engine products. Engineering expense increased to
$94 million in 1993 from $92 million in 1992 and $88 million in 1991
reflecting the completion of the development and introduction of a new
series of diesel engines as well as continuing development of new and
existing truck products.
<PAGE>
PAGE 7
Marketing and administrative expense of $225 million and interest
expense of $12 million in 1993 were about equal to the amounts reported in
1992 and 1991. Finance service charges on sold receivables increased 8%
to $56 million in 1993 reflecting higher truck sales. These charges
decreased 20% between 1992 and 1991 as a result of lower interest rates.
The provision for losses on receivables was reduced to $5 million in 1993
from $18 million in 1992 following improvements in the economy and
improved credit review procedures. Interest income declined over the
three year period to $13 million in 1993 from $28 million in 1991
primarily as a result of a reduction in the amount of marketable
securities held by the Company and lower interest rates.
Discontinued Operations. A provision was recorded in the third
quarter of 1992 as a loss of discontinued operations for the settlement
for $65 million of the litigation commonly referred to as the Wisconsin
Steel Pension Plan Cases.
Financial Services
Income of the subsidiaries comprising Financial Services is as
follows:
Millions of dollars 1993 1992 1991
- -------------------------------------------------------------------------
Income before Supplemental Trust contribution
and income taxes:
Navistar Financial Corporation ............ $ 53 $ 4 $ 53
Foreign Subsidiaries ...................... 12 6 7
----- ----- -----
Total ................................... 65 52 60
Supplemental Trust contribution ............... (4) - -
Income tax expense ............................ (22) (20) (23)
----- ----- -----
Income before cumulative effect
of accounting changes ....................... 39 32 37
Cumulative effect of
accounting changes .......................... (9) - -
----- ----- -----
Net income .................................... $ 30 $ 32 $ 37
===== ===== =====
Navistar Financial's income in 1993 before the one-time charge for
the Supplemental Trust contribution and income taxes was $53 million
compared with $46 million in 1992. The increase was primarily the result
of increased income from sales of retail notes receivable partially offset
by higher loss experience from Navistar Financial's insurance subsidiary.
Earnings from the foreign subsidiaries increased $6 million as a result of
lower loss reserve requirements.
During the third quarter of 1993, Navistar Financial adopted SFAS 106
and SFAS 109 retroactive to November 1, 1992. The cumulative effect of
adopting these changes in accounting policy resulted in an after-tax
charge to income of $9 million.
<PAGE>
PAGE 8
Income before income taxes for Navistar Financial decreased 13%
between 1992 and 1991 as a result of lower margins earned on the finance
receivables portfolio partially offset by a lower provision for credit
losses. Earnings from Navistar Financial's insurance subsidiary were
equal to 1991.
Total Navistar Financial revenue for 1993 was $220 million, unchanged
from 1992 and 3% below 1991. During 1993, increased revenues from higher
average wholesale note and account balances were offset by lower revenues
from the insurance subsidiary. The decline in revenues in 1992 from 1991
reflects a decrease in retail and wholesale notes financed. These
decreases were partially offset by an increase in revenues from Navistar
Financial's insurance subsidiary.
Interest expense for Navistar Financial declined to $75 million in
1993 from $82 million in 1992 and $90 million in 1991. The declines in
1993 and 1992 primarily reflect the effect of lower interest rates.
The provision for losses on receivables decreased to $1 million in
1993 from $3 million in 1992 and $6 million in 1991. The decreases in the
provision reflect lower losses on both retail and wholesale notes.
Liquidity and Capital Resources
Consolidated
Total cash, cash equivalents and marketable securities amounted to
$639 million and $496 million at October 31, 1993 and 1992, respectively.
At October 31, 1993 and 1992, approximately $160 million and $165 million,
respectively, was held by the Company's insurance subsidiaries and not
available for general corporate purposes.
The following discussion has been organized to discuss separately the
cash flows of the Company's Manufacturing and Financial Services
operations.
Manufacturing
Liquidity available to Manufacturing in the form of cash, cash
equivalents and marketable securities totalled $462 million at October 31,
1993, $250 million at October 31, 1992, and $322 million at October 31,
1991.
<PAGE>
PAGE 9
Cash and cash equivalents of Manufacturing totalled $377 million at
October 31, 1993, a 70% increase from the $222 million at October 31,
1992. Summarized below is the cash flow for fiscal 1993.
Millions of dollars 1993
- --------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ................................................ $ 192
Investment programs ....................................... (509)
Financing activities ...................................... 472
-----
Increase in cash and cash equivalents ................... $ 155
=====
Operations. In 1993, operations provided $192 million in cash as
follows:
Millions of dollars 1993
- --------------------------------------------------------------------------
Net loss ..................................... $(501)
Items not affecting cash:
Supplemental Trust contribution ............ 509
Increase in deferred tax asset ............. (174)
Cumulative effect of accounting changes .... 228
Depreciation and other items ............... 66
Change in operating assets and liabilities:
Decrease in receivables .................... $ 7
Increase in inventories .................... (51)
Increase in accounts payable ............... 106
Increase in accrued expenses/other ......... 2 64
----- -----
Cash provided by continuing operations $ 192
=====
The $64 million net change in operating assets and liabilities was
primarily the result of higher production schedules in 1993.
Investment programs. Investment programs used $509 million in cash
during 1993 including pre-funding $300 million of the retiree benefit Plan
liability, capital expenditures of $110 million, a net increase of $56
million in marketable securities and $30 million for the cash
collateralization of a bond related to current legal proceedings.
Financing programs. Financing activities provided $472 million in
cash in 1993 primarily from the sale of Common shares from which the
Company realized proceeds of $492 million. This increase in cash was
offset by an $18 million reduction in long-term debt and $2 million used
for the repurchase of Class B Common stock.
Management's discussion of the future liquidity of manufacturing
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
<PAGE>
PAGE 10
Financial Services
The Financial Services subsidiaries provide product financing and
insurance coverage to Transportation's dealers and retail customers.
Traditionally, funds to finance Transportation's products come from a
combination of commercial paper, short- and long-term bank borrowings,
medium- and long-term debt issues, sales of receivables and equity
capital. The lowering of Navistar Financial's debt ratings in fiscal 1992
restricted its ability to place commercial paper and term debt securities.
Accordingly, Navistar Financial increased its use of bank borrowings
through its revolving credit facility and sales of retail notes as funding
sources. Insurance operations are funded from premiums and income from
investments.
Total cash, cash equivalents and marketable securities of Financial
Services were $177 million at October 31, 1993, $246 million at October
31, 1992 and $189 million at October 31, 1991.
Cash and cash equivalents of Financial Services totalled $44 million
at October 31, 1993, $103 million at October 31, 1992 and $39 million at
October 31, 1991. The cash flow for Financial Services for 1993 is
summarized as follows:
Millions of dollars 1993
- --------------------------------------------------------------------------
Cash and cash equivalents provided by (used in):
Operations ................................................ $ 63
Investment programs ....................................... (65)
Financing activities ...................................... (57)
-----
Decrease in cash and cash equivalents ................... $ (59)
=====
Operations. Operations provided $63 million in cash in 1993
primarily from net income of $30 million, a $19 million decrease in
working capital and non-cash expense of $9 million for the cumulative
effect of the adoption of SFAS 106 and SFAS 109.
Investment Programs. The Financial Services investment programs
used $65 million in 1993 as a result of a net increase of $62 million in
retail and wholesale finance receivables and a $14 million increase in
property and equipment leased to others, partially offset by an $11
million decrease in marketable securities.
Navistar Financial supplied 90% of the wholesale financing of new
trucks to Transportation's dealers compared with 89% in 1992 and 1991.
Navistar Financial's share of retail financing of new trucks sold to
customers in the United States increased to 15.3% in 1993 from 13.7% in
1992 and 13.1% in 1991.
Financing Activities. Financial Services used $57 million in 1993
for financing activities consisting of $99 million for principal payments
on long-term debt and $33 million of dividends paid to Transportation.
Cash from financing activities was increased by $75 million of short-term
borrowings.
<PAGE>
PAGE 11
At October 31, 1993, Navistar Financial had $1,327 million of
committed credit facilities. The facilities consisted of a contractually
committed bank revolving credit facility of $727 million and a
contractually committed retail notes receivable purchase facility of $600
million. Unused commitments under the receivable purchase facility were
$157 million, $75 million of which was used to back the short-term bank
borrowings at October 31, 1993. The remaining $82 million, when combined
with unrestricted cash and cash equivalents, made $105 million available
to fund the general business purposes of Navistar Financial at October 31,
1993. The bank revolving credit facility was fully utilized at October
31, 1993. In addition to the committed credit facilities, Navistar
Financial also utilizes a $300 million revolving wholesale note sales
trust providing for the continuous sale of eligible wholesale notes on a
daily basis. The sales trust is composed of three $100 million pools of
notes maturing serially from 1997 to 1999.
Management's discussion of the future liquidity of financial services
operations is included in the Business Outlook section of Management's
Discussion and Analysis.
Environmental Matters
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 commonly known as the Superfund law. These
cases involve sites which allegedly have received wastes from current or
former Company operations. The Superfund law requires environmental
investigation and/or cleanup where waste products from various
manufacturing processes and operations have been stored, treated or
disposed of.
Based on information available to the Company, which in most cases
includes estimates from PRPs and/or Federal or State regulatory agencies
for the investigation, cleanup costs at these sites, data related to
quantities and characteristics of material generated at or shipped to each
site, a reasonable estimate is calculated of the Company's share, if any,
of the costs. The Company believes that, based on these calculations, its
share of the costs for each site is not material and in total the
anticipated cleanup costs of current PRP actions at October 31, 1993 would
not have a material impact on the Company's financial condition, liquidity
or operating results except with respect to the potential for liability
discussed below. The anticipated costs associated with the current PRP
actions at October 31, 1993, are reflected in the Company's $10 million
accrued liability. The Company reviews its accruals as additional
information becomes available.
The present owner of the Company's former Wisconsin Steel facility in
Chicago, Illinois has been investigating the nature and extent of any
required cleanup activities at this site. In addition, the present owner
of the Company's former Solar Division in San Diego, California is
conducting similar activities with respect to that site. Environmental
protection agencies in each of these states are monitoring these
investigations. Both of the present owners have demanded the Company pay
for these activities. As to both sites, the eventual scope, timing and
cost of such activities as well as the availability of defenses to any
such claims, and possible claims against third parties and insurance
companies are not known and cannot be reasonably estimated; however,
substantial claims could be asserted against the Company.
<PAGE>
PAGE 12
Income Taxes
The Statement of Financial Condition at October 31, 1993, includes a
net deferred tax asset of $1,178 million, related to future tax benefits
which is net of a $305 million valuation allowance since it is more likely
than not that some portion of the deferred tax asset may not be realized
in the future. Realization of the deferred tax asset is dependent on the
generation of approximately $3,100 million of future taxable income.
Extensive analyses were performed to determine the amount of the net
deferred tax asset. Such analyses are based on the fundamental premise
that the Company is and will continue to be a going concern. Management
believes this premise is supported by both historical and current events
including continued significant market share, the current upward cycle of
the Company's business and changes in the Company's cost structure,
including the restructured retiree benefit Plan. As indicated in the
Results of Operations section of Management's Discussion and Analysis and
in the Business Outlook, this premise is further supported by the
increases in North American retail sales of medium and heavy trucks
between 1991 and 1993, signs of continued growth in the economy and the
Company's continued position as market share leader in the North American
combined medium and heavy truck market. Further, shipments of the
Company's mid-range diesel engines to original equipment manufacturers
reached record levels in 1993 and are projected to remain strong.
Other available evidence, both positive and negative, was reviewed by
management. The following are among the factors considered:
- A retrospective analysis, as shown below, giving effect to changes
in the Company's cost structure resulting from the restructured retiree
benefit Plan and renegotiated collective bargaining agreements, indicates
that cumulative taxable income in the period 1990 through 1992 would have
been $109 million, an increase of $281 million over the historical taxable
loss of $172 million.
Millions of dollars 1992 1991 1990
- -------------------------------------------------------------------------
Historical loss before income taxes .......... $(210) $(162) $ (7)
Adjustments to reflect temporary and
permanent differences in tax expense ....... 169 37 1
----- ----- -----
Historical taxable loss
per Federal income tax returns ............. (41) (125) (6)
Pro forma adjustments:
Collective bargaining agreement ............ 19 16 18
Restructured retiree benefit plan .......... 85 79 64
----- ----- -----
Pro forma taxable income (loss) .......... $ 63 $ (30) $ 76
===== ===== =====
<PAGE>
PAGE 13
- An assessment of the long-term earnings potential of the Company
using a number of alternatives to evaluate financial results in economic
cycles of various industry volume conditions.
- A comparison of earnings projections to the availability of net
operating loss carryforwards (NOLs) and reversing temporary differences to
assess the availability of taxable income prior to the expiration of such
benefits. The Company's assessment indicates that although most NOLs will
be utilized, certain NOLs may expire resulting in a valuation allowance of
$305 million.
- The annual savings of approximately $150 million related to the
restructuring of health care and life insurance benefits. The retiree
benefit Plan provisions will reduce costs by approximately $90 million per
year. Additional savings will come from pre-funding $500 million of the
retiree benefit liability, further reducing annual costs by about $45
million. Implementation of managed care programs for active and certain
retired employees are projected to reduce costs by up to $15 million
annually.
- The commitment to achieve annual operating cost reductions of $50
million over the next three years, through the completion of a broad range
of manufacturing and product quality improvements, design and material
cost programs as well as administrative expense reductions.
- The underlying long-term strengths of the Company in the truck and
diesel engine business including a consistent thirteen year leadership in
combined market share for medium and heavy trucks, a long history of
successful competition in markets and customers served and recognition as
a worldwide leading producer of mid-range diesel engines.
Management also considered the negative evidence of its losses in
recent years and the risk and uncertainty inherent in predicting future
taxable income. During the three year period, 1990 through 1992, the
Company's cumulative taxable loss represented an average annual tax loss
of approximately $57 million. In order to realize the benefit of the net
deferred tax asset of $1.2 billion, the Company estimates that it would
need to generate average annual taxable income of approximately $110
million. Management believes that with the implementation of its plan to
reduce the Company's annual cost structure by $200 million and the
maintenance of significant market share, such earnings are achievable and
that only a portion of the loss carryforwards may expire before their
utilization.
Business Outlook
Current economic trends indicate continued moderate growth in the
North American economy, resulting in improved market conditions for the
truck industry. Based on current order backlogs, order receipt trends and
key market indicators, the Company currently projects 1994 North American
medium truck demand, including school bus chassis, to be 136,000 units, an
11% increase from 1993. Heavy truck demand is projected at 160,000 units,
approximately level with 1993. The Company's diesel engine sales to
original equipment manufacturers in 1994 are expected to be about the same
as in 1993. Sales of service parts by the Company are forecast to grow
3%.
<PAGE>
PAGE 14
As the Federal government and private industry consider solutions to
the rising cost of medical care, the Company took decisive action with
implementation of a restructured retiree health care and life insurance
benefit plan on July 1, 1993 and a $300 million pre-funding of this
obligation. The Company intends to further reduce retiree health care
costs by pre-funding an additional $200 million of the retiree health care
and life insurance benefit liability within the next five years.
Additional annual health care savings of up to $15 million are projected
from managed care programs for employees and certain retirees to be
implemented in 1994.
In 1994, the introduction of new truck and engine products, focused
marketing programs and implementation of programs to streamline marketing,
engineering and manufacturing processes are expected to further improve
the Company's competitiveness. It is management's opinion that current
and forecasted cash flow will provide a basis for financing operating
requirements, capital expenditures and anticipated payments of preferred
dividends.
In addition, management believes that collections on the outstanding
receivables portfolios as well as funds available from various funding
sources will permit the Financial Services subsidiaries to meet the
financing requirements of the Company's dealers and customers.
<PAGE>
PAGE 15
STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY
Management of Navistar International Corporation and its subsidiaries
is responsible for the preparation and for the integrity and objectivity
of the accompanying financial statements and other financial information
in this report. The financial statements have been prepared in accordance
with generally accepted accounting principles and include amounts that are
based on management's estimates and judgments.
The accompanying financial statements have been audited by Deloitte &
Touche, independent auditors, whose appointment is ratified by shareowner
vote at the Annual Meeting. Management has made available to Deloitte &
Touche all the Company's financial records and related data, as well as
the minutes of the Board of Directors' meetings. Management believes that
all representations made to Deloitte & Touche during its audit were valid
and appropriate.
Management is responsible for establishing and maintaining a system
of internal controls throughout its operations that provides reasonable
assurance as to the integrity and reliability of the financial statements,
the protection of assets from unauthorized use and the execution and
recording of transactions in accordance with management's authorization.
The system of internal controls which provides for appropriate division of
responsibility is supported by written policies and procedures that are
updated by management as necessary. The system is tested and evaluated
regularly by the Company's internal auditors as well as by the independent
auditors in connection with their annual audit of the financial
statements. The independent auditors conduct their audit in accordance
with generally accepted auditing standards and perform such tests of
transactions and balances as they deem necessary. Management considers
the recommendations of its internal auditors and independent auditors
concerning the Company's system of internal controls and takes the
necessary actions that are cost-effective in the circumstances to respond
appropriately to the recommendations presented. Management believes that
the Company's system of internal controls accomplishes the objectives set
forth in the first sentence of this paragraph.
The Audit Committee of the Board of Directors, composed of six non-
employee Directors, meets periodically with the independent auditors,
management, general counsel and internal auditors to satisfy itself that
such persons are properly discharging their responsibilities regarding
financial reporting and auditing. In carrying out these responsibilities,
the Committee has full access to the independent auditors, internal
auditors, general counsel and financial management in scheduled joint
sessions or private meetings as in the Committee's judgment seem
appropriate. Similarly, the Company's independent auditors, internal
auditors, general counsel and financial management have full access to the
Committee and to the Board of Directors and each is responsible for
bringing before the Committee or its Chairman, in a timely manner, any
matter deemed appropriate to the discharge of the Committee's
responsibility.
James C. Cotting
Chairman and
Chief Executive Officer
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
<PAGE>
PAGE 16
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation,
Its Directors and Shareowners:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1993 and 1992, and the related Statement of Income (Loss), of Cash Flow,
and of Non-Redeemable Preferred, Preference and Common Shareowners' Equity
for each of the three years in the period ended October 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Navistar International Corporation and Consolidated Subsidiaries at
October 31, 1993 and 1992, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1993, in conformity with generally accepted accounting principles.
As discussed in Note 1, in accordance with the provisions of
Statements of Financial Accounting Standards No. 106 and No. 109,
effective November 1, 1992, the Company changed its methods of accounting
for postretirement benefits other than pensions and for income taxes.
Deloitte & Touche
December 15, 1993
Chicago, Illinois
<PAGE>
PAGE 17
<TABLE>
<CAPTION>
STATEMENT OF INCOME (LOSS)
Navistar International Corporation
and Consolidated Subsidiaries
-----------------------------------
For the Years Ended October 31 Note
(Millions of dollars, except per share data) 1993 1992 1991 Reference
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <S>
Sales and Revenues
Manufacturing .............................. $ 4,510 $ 3,685 $ 3,259
Financial Services ......................... 184 186 201
-------- -------- --------
Total sales and revenues ................. 4,694 3,871 3,460
-------- -------- --------
Costs and expenses
Cost of sales .............................. 3,914 3,254 2,885
Postretirement benefits .................... 209 255 239 Note 4
Supplemental Trust contribution ............ 513 - - Note 21
Engineering expense ........................ 94 92 88
Marketing and administrative expense ....... 240 244 245
Interest expense ........................... 91 99 108
Financing charges on sold receivables ...... 14 12 24
Insurance claims and underwriting expense .. 59 62 54
Provision for losses on receivables ........ 6 21 26
Interest (income) .......................... (13) (17) (28)
Other (income) expense, net ................ 8 (6) (19)
-------- -------- --------
Total costs and expenses ................. 5,135 4,016 3,622
-------- -------- --------
Income (loss) before income taxes
Manufacturing ............................ - - -
Financial Services ....................... - - -
-------- -------- --------
Income (loss) before income taxes ...... (441) (145) (162)
Income tax benefit (expense)............ 168 (2) (3) Note 5
-------- -------- --------
Income (loss) of continuing operations ..... (273) (147) (165)
Loss of discontinued operations ............ - (65) - Note 6
-------- -------- --------
Income (loss) before cumulative effect
of changes in accounting policy ........... (273) (212) (165)
Cumulative effect of changes Notes 4,
in accounting policy ..................... (228) - - 5 & 23
-------- -------- --------
Net income (loss) .......................... $ (501) $ (212) $ (165)
======== ======== ========
- ------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ (530) $ (241) $ (194) Note 7
======== ======== ========
Income (loss) per common share:
Continuing operations .................... $ (8.63) $ (6.97) $ (7.71)
Discontinued operations .................. - (2.58) -
Cumulative effect of changes
in accounting policy ................... (6.56) - - Note 23
-------- -------- --------
Net income (loss) per common share ......... $ (15.19) $ (9.55) $ (7.71)
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding (millions) . 34.9 25.3 25.1 Note 7
- ------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
PAGE 18
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
- ------------------------------------ ----------------------------------
1993 1992 1991 1993 1992 1991
- ---------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 4,510 $ 3,685 $ 3,259 $ - $ - $ -
- - - 226 226 242
- -------- -------- -------- -------- ------- --------
4,510 3,685 3,259 226 226 242
- -------- -------- -------- -------- ------- --------
3,914 3,254 2,885 - - -
208 254 238 1 1 1
509 - - 4 - -
94 92 88 - - -
225 226 223 15 18 22
12 12 11 79 87 97
56 52 65 - - -
- - - 59 62 54
5 18 20 1 3 6
(13) (17) (28) - - -
2 (9) (21) 6 3 2
- -------- -------- -------- -------- ------- --------
5,012 3,882 3,481 165 174 182
- -------- -------- -------- -------- ------- --------
(502) (197) (222) - - -
61 52 60 - - -
- -------- -------- -------- -------- ------- --------
(441) (145) (162) 61 52 60
168 (2) (3) (22) (20) (23)
- -------- -------- -------- -------- ------- --------
(273) (147) (165) 39 32 37
- (65) - - - -
- -------- -------- -------- -------- ------- --------
(273) (212) (165) 39 32 37
(228) - - (9) - -
- -------- -------- -------- -------- ------- --------
$ (501) $ (212) $ (165) $ 30 $ 32 $ 37
======== ======== ======== ======== ======= ========
- --------------------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial results of the
Company's manufacturing operations with its wholly-owned financial
services subsidiaries included under the equity method of accounting.
"Financial Services" includes the Company's wholly-owned subsidiary,
Navistar Financial Corporation, and other wholly-owned finance and
insurance subsidiaries. Transactions between Manufacturing and
Financial Services have been eliminated from the "Navistar
International Corporation and Consolidated Subsidiaries" columns
on the preceding page. The basis of consolidation is described
in Note 1 while a summary of eliminations is shown in Note 2.
</TABLE>
<PAGE>
PAGE 19
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
Note
As of October 31 (Millions of dollars) 1993 1992 Reference
- ------------------------------------------------------------------------------------
<S> <C> <C> <S>
ASSETS
Cash and cash equivalents ......................... $ 421 $ 325
Marketable securities ............................. 218 171 Note 8
Receivables, net .................................. 1,540 1,479 Note 9
Inventories ....................................... 411 365 Note 10
Prepaid pension assets ............................ 82 122 Note 4
Property and equipment, net ....................... 636 582 Note 11
Equity in Financial Services subsidiaries ......... - -
Investments and other assets ...................... 234 213
Intangible pension assets ......................... 340 370
Deferred tax asset ................................ 1,178 - Note 5
-------- --------
Total assets ...................................... $ 5,060 $ 3,627
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable .................................. $ 739 $ 637 Note 13
Accrued liabilities ............................... 419 401 Note 14
Short-term debt ................................... 180 114 Note 15
Long-term debt .................................... 1,194 1,291 Note 15
Other long-term liabilities ....................... 276 305 Note 16
Loss reserves and unearned premiums ............... 107 102
Postretirement benefits liability ................. 1,370 439 Note 4
-------- --------
Total liabilities ............................. 4,285 3,289
-------- --------
Shareowners' equity
Series G convertible preferred stock Notes 20
(liquidation preference $240 million) ........... 240 240 & 21
Series D convertible junior preference stock
(liquidation preference $5 million) ............. 5 5
Common stock (49.2 million and 25.6 million shares
issued) and warrants ............................ 1,615 508
Class B Common (25.6 million shares issued in 1993) 513 -
Retained earnings (deficit) - balance accumulated
after the deficit reclassification
as of October 31, 1987 .......................... (1,588) (400)
Accumulated foreign currency translation
adjustments ..................................... (4) (4)
Common stock held in treasury, at cost ............ (6) (11)
-------- --------
Total shareowners' equity ..................... 775 338
-------- --------
Total liabilities and shareowners' equity ......... $ 5,060 $ 3,627
======== ========
- -----------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
PAGE 20
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
- ---------------------- ----------------------
1993 1992 1993 1992
- ------------------------------------------------------------
<C> <C> <C> <C>
$ 377 $ 222 $ 44 $ 103
85 28 133 143
123 131 1,433 1,348
411 365 - -
81 121 1 1
608 563 28 19
241 240 - -
201 168 33 45
340 370 - -
1,178 - - -
-------- -------- -------- --------
$ 3,645 $ 2,208 $ 1,672 $ 1,659
======== ======== ======== ========
$ 670 $ 581 $ 85 $ 56
395 368 24 33
25 15 155 99
150 172 1,044 1,119
267 295 9 10
- - 107 102
1,363 439 7 -
-------- -------- -------- --------
2,870 1,870 1,431 1,419
-------- -------- -------- --------
240 240 - -
5 5 - -
1,615 508 178 178
513 - - -
(1,588) (400) 63 62
(4) (4) - -
(6) (11) - -
-------- -------- -------- --------
775 338 241 240
-------- -------- -------- --------
$ 3,645 $ 2,208 $ 1,672 $ 1,659
======== ======== ======== ========
- ------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial
results of the Company's manufacturing operations
with its wholly-owned financial services subsidiaries
included under the equity method of accounting.
"Financial Services" includes the Company's
wholly-owned subsidiary, Navistar Financial
Corporation and other wholly-owned finance and
insurance subsidiaries. Transactions between
Manufacturing and Financial Services have been
eliminated from the "Navistar International
Corporation and Consolidated Subsidiaries"
columns on the preceding page. The basis of
consolidation is described in Note 1 while a
summary of eliminations is shown in Note 2.
</TABLE>
<PAGE>
PAGE 21
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW
Navistar International Corporation
and Consolidated Subsidiaries
-----------------------------------
For the Years Ended October 31 Note
(Millions of dollars) 1993 1992 1991 Reference
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <S>
Cash flow from operations
Net income (loss) ............................... $ (501) $ (212) $ (165)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization ................. 75 77 73
Supplemental Trust contribution ............... 513 - - Note 21
Equity in earnings of Financial Services,
net of dividends received ................... - - -
Allowance for losses on receivables
and dealer loans ............................ 19 24 27
Increase (decrease) in deferred income tax
(benefit) expense ........................... (170) - -
Provision for loss of discontinued operations . - 65 - Note 6
Cumulative effect of changes
in accounting policy ........................ 228 - - Notes 4 & 5
Other, net .................................... (21) (55) (19)
Change in operating assets and liabilities .... (108) 74 357 Note 3
-------- -------- --------
Cash provided by (used in)
continuing operations ....................... 35 (27) 273
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (770) (659) (619)
Principal collections on retail notes
and lease receivables ......................... 337 409 310
Sale of retail notes receivables ................ 558 249 236 Note 9
Acquisitions (over) under cash collections
of wholesale notes and accounts receivable ... - - - Note 3
Purchase of marketable securities ............... (371) (248) (867)
Sales or maturities of marketable securities .... 326 283 958
Capital expenditures ............................ (110) (55) (77)
Net increase in property and equipment
leased to others .............................. (14) (4) (13)
Base Program Trust pre-funding .................. (300) - - Note 4
Special dividends from Financial Services ....... - - -
PBGC settlement - discontinued operations ....... - (20) - Note 6
Other investment programs, net .................. (43) (26) 21
-------- -------- --------
Cash provided by (used in) investment programs. (387) (71) (51)
-------- -------- --------
Cash flow from financing activities
Principal payments on long-term debt ............ (117) (170) (102)
Net increase (decrease) in short-term debt ...... 75 (184) (413)
Issuance of term debt and notes ................. - 8 118 Note 15
Increase in debt outstanding under
bank revolving credit facility ................ - 507 220
Net proceeds from issuance of Common Stock ...... 492 - - Note 21
Dividends paid .................................. - (29) (29)
Repurchase of Class B Common Stock .............. (2) - -
-------- -------- --------
Cash provided by (used in) financing activities 448 132 (206)
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 96 34 16
At beginning of the year ...................... 325 291 275
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 421 $ 325 $ 291
======== ======== ========
- -------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
PAGE 22
<TABLE>
<CAPTION>
Manufacturing* Financial Services*
- ------------------------------------ -----------------------------------
1993 1992 1991 1993 1992 1991
- ----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ (501) $ (212) $ (165) $ 30 $ 32 $ 37
69 74 71 6 3 2
509 - - 4 - -
(10) (15) 1 - - -
17 19 21 2 5 6
(174) - - 4 3 1
- 65 - - - -
228 - - 9 - -
(10) (41) (10) (11) (15) (11)
64 159 34 19 (17) (3)
-------- -------- -------- -------- -------- --------
192 49 (48) 63 11 32
-------- -------- -------- -------- -------- --------
- - - (770) (659) (619)
- - - 337 409 310
- - - 558 249 236
- - - (187) (66) 330
(296) (120) (549) (75) (128) (318)
240 162 626 86 121 332
(110) (55) (77) - - -
- - - (14) (4) (13)
(300) - - - - -
- - 40 - - -
- (20) - - - -
(43) (14) 20 - (13) 1
-------- -------- -------- -------- -------- --------
(509) (47) 60 (65) (91) 259
-------- -------- -------- -------- -------- --------
(18) (11) (12) (99) (159) (90)
- - - 75 (184) (444)
- 8 - - - 118
- - - - 507 220
492 - - - - -
- (29) (29) (33) (20) (81)
(2) - - - - -
-------- -------- -------- -------- -------- --------
472 (32) (41) (57) 144 (277)
-------- -------- -------- -------- -------- --------
155 (30) (29) (59) 64 14
222 252 281 103 39 25
-------- -------- -------- -------- -------- --------
$ 377 $ 222 $ 252 $ 44 $ 103 $ 39
======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------
<FN>
* "Manufacturing" includes the consolidated financial results of the Company's
manufacturing operations with its wholly-owned financial services
subsidiaries included under the equity method of accounting. "Financial
Services" includes the Company's wholly-owned subsidiary, Navistar
Financial Corporation, and other wholly-owned finance and insurance
subsidiaries. Transactions between Manufacturing and Financial Services
have been eliminated from the "Navistar International Corporation and
Consolidated Subsidiaries" columns on the preceding page. The basis of
consolidation is described in Note 1 while a summary of eliminations is
shown in Note 2.
</TABLE>
<PAGE>
PAGE 23
<TABLE>
<CAPTION>
STATEMENT OF NON-REDEEMABLE PREFERRED,
PREFERENCE AND COMMON SHAREOWNERS' EQUITY
Shares Outstanding (In thousands)
------------------------------------------------------------
Non-Redeemable Convertible
--------------------------
Preferred Preference
For the Years Ended Stock Stock Common Class B
October 31, 1993, 1992 and 1991 Series G Series D Stock Common Warrants
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1990 ................. 4,800 212 25,002 - 22,806
Issuance of Common Stock
Conversion of Series D preference stock ... - (16) 5 - -
Restricted stock .......................... - - 10 - -
Repurchase of common stock .................. - - (5) - -
Net loss .................................... - - - - -
Preferred dividends paid .................... - - - - -
Adjustment for excess additional pension
liability over intangible pension assets .. - - - - -
Expiration of warrants ...................... - - - - (7,972)
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1991 ................. 4,800 196 25,012 - 14,834
Issuance of Common Stock
Conversion of Series D preference stock ... - (17) 5 - -
Restricted stock .......................... - - 13 - -
Exercise of stock options ................. - - 23 - -
PBGC settlement shares .................... - - 357 - -
Net loss .................................... - - - - -
Preferred dividends paid .................... - - - - -
Adjustment for excess additional pension
liability over intangible pension assets . - - - - -
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1992 ................. 4,800 179 25,410 - 14,834
Issuance of Common Stock:
Public stock offering ................... - - 23,600 - -
Conversion of Series D preference stock . - (1) - - -
Restricted stock ........................ - - 10 - -
Exercise of stock options ............... - - 2 - -
Reclassification of NOL (a).............. - - - - -
Class B Common Stock ...................... - - - 25,642 -
Repurchase of common stock .................. - - (3) (96) -
Stock accumulation fund settlement .......... - - 136 - -
Net loss ................................. - - - - -
Preferred dividends declared ................ - - - - -
Adjustment for excess additional pension
liability over intangible pension
assets, net of tax benefit ............... - - - - -
Tax benefit on previously recognized
pension liability ......................... - - - - -
Expiration of warrants ...................... - - - - (4,000)
Translation adjustments ..................... - - - - -
-------- -------- -------- -------- --------
Balance at October 31, 1993 ............ 4,800 178 49,155 25,546 10,834
======== ======== ======== ======== ========
<FN>
See Notes to Financial Statements.
(a) Reclassification required as a result of
the 1987 deficit reclassification and
adoption of SFAS 109 in fiscal 1993.
</TABLE>
<PAGE>
PAGE 24
<TABLE>
<CAPITON>
Equity (Millions of dollars)
------------------------------------------------------------------------------------------------------------
Non-Redeemable Convertible Accumulated
-------------------------- Common Foreign Common
Preferred Preference Stock Currency Stock
Stock Stock and Class B Retained Translation Held In
Series G Series D Warrants Common Earnings Adjustments Treasury Total
------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 240.0 $ 5.3 $ 521.2 $ - $ 80.9 $ (.9) $ (31.6) $ 814.9
- (.4) .4 - - - - -
- - .4 - - - - .4
- - - - - - - -
- - - - (165.0) - - (165.0)
- - - - (28.8) - - (28.8)
- - - - (44.9) - - (44.9)
- - - - - - - -
- - - - - .9 - .9
-------- -------- -------- -------- -------- -------- -------- --------
240.0 4.9 522.0 - (157.8) - (31.6) 577.5
- (.4) .4 - - - - -
- - .3 - - - (.1) .2
- - 1.7 - - - (1.8) (.1)
- - (16.0) - - - 22.9 6.9
- - - - (212.4) - - (212.4)
- - - - (28.8) - - (28.8)
- - - - (.8) - - (.8)
- - - - - (4.2) - (4.2)
-------- -------- -------- -------- -------- -------- -------- --------
240.0 4.5 508.4 - (399.8) (4.2) (10.6) 338.3
- - 492.1 - - - - 492.1
- - - - - - - -
- - .3 - - - - .3
- - - - - - - -
- - 617.6 - (617.6) - - -
- - - 512.8 - - - 512.8
- - - - - - (2.5) (2.5)
- - (3.4) - - - 7.6 4.2
- - - - (501.0) - - (501.0)
- - - - (28.8) - - (28.8)
- - - - (79.4) - - (79.4)
- - - - 38.3 - - 38.3
- - - - - - - -
- - - - - .6 - .6
-------- -------- -------- -------- -------- -------- -------- --------
$ 240.0 $ 4.5 $1,615.0 $ 512.8 $(1,588.3) $ (3.6) $ (5.5) $ 774.9
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
PAGE 25
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1993
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Consolidation
Navistar International Corporation is a holding company, whose
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). Transportation operates in one principal industry
segment, the manufacture and marketing of medium and heavy trucks,
including school bus chassis, mid-range diesel engines and service parts
in North America and selected export markets. As used hereafter,
"Company" refers to Navistar International Corporation and its
consolidated subsidiaries.
In addition to the consolidated financial statements, the Company has
elected to provide financial information in a format that presents the
operating results, financial condition and cash flow from operations
designated as "Manufacturing" and "Financial Services." Manufacturing
includes the consolidated financial results of the Company's manufacturing
operations with its wholly-owned financial services subsidiaries included
on a one-line basis under the equity method of accounting. Financial
Services includes the Company's wholly-owned subsidiary, Navistar
Financial Corporation (Navistar Financial), and other wholly-owned foreign
finance and insurance companies. Through the first two quarters of 1992,
Financial Services included the results of Harbour Assurance Company
(U.K.) Ltd. This subsidiary was sold in July 1992. Navistar Financial's
primary business is the retail and wholesale financing of products sold by
Transportation and its dealers within the United States and the providing
of commercial physical damage and liability insurance to Transportation's
dealers and retail customers and to the general public through an
independent insurance agency system. Harbour Bermuda's primary business
is the insuring of general and product liability risks of Transportation.
The effects of transactions between Manufacturing and Financial
Services have been eliminated to arrive at the consolidated totals. See
Note 2 to the Financial Statements. The distinction between current and
long-term assets and liabilities in the Statement of Financial Condition
is not meaningful when finance, insurance and manufacturing subsidiaries
are combined; therefore, the Company has adopted an unclassified
presentation. Certain 1992 and 1991 amounts have been reclassified to
conform with the presentation used in the 1993 financial statements.
Cash and Cash Equivalents
All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of bankers'
acceptances, commercial paper and U.S. government securities, are
classified as cash equivalents in the Statement of Financial Condition and
Statement of Cash Flow.
Marketable Securities
Marketable securities are carried at cost or amortized cost which
approximates market value.
<PAGE>
PAGE 26
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Inventory
Inventory is valued at the lower of average cost or market.
Property
Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally computed on the straight-line
basis; gains and losses on property disposal are included in other income
and expense.
Research and Development
Activities related to new product development and major improvements
to existing products and processes are expensed as incurred and were $95
million, $90 million and $87 million in 1993, 1992 and 1991, respectively.
Engineering expense, as shown in the Statement of Income (Loss), includes
certain research and development expenses and routine ongoing costs
associated with improving existing products and processes.
Income Taxes
Under SFAS 109, "Accounting for Income Taxes," recognition of a net
deferred tax asset is allowed if future realization is more likely than
not. A valuation allowance has been provided for those net operating loss
carryforwards which are estimated to expire before they are utilized.
The tax effect of each item of revenue or expense reported in the
Statement of Income (Loss) is recognized in the current period regardless
of when the related tax is paid. Because the benefit of net operating
loss carryforwards is recognized as a deferred tax asset in the Statement
of Financial Condition, the Statement of Income (Loss) includes income
taxes calculated at the statutory rate. The amount reported does not
represent cash payment of income taxes except for certain state income and
federal withholding taxes which are not material. On the Statement of
Financial Condition, the deferred tax asset is reduced by the amount of
deferred tax expense or increased by a deferred tax benefit recorded
during the year.
The Company files a consolidated federal income tax return which
includes all its U.S. subsidiaries. Federal income tax for each U.S.
subsidiary is computed separately and is payable to the Company. See Note
5 to the Financial Statements and the Income Tax section of Management's
Discussion and Analysis.
<PAGE>
PAGE 27
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue on Receivables
Finance charges on retail notes and finance leases are recognized as
income by Navistar Financial over the term of the receivables on the
accrual basis utilizing the actuarial method. Interest from interest-
bearing notes and accounts is recognized on the accrual basis. Gains or
losses on sales of receivables are credited or charged to revenue in the
period in which the sale occurs.
Losses on Receivables
The allowance for losses on receivables is maintained at an amount
management considers appropriate in relation to the outstanding
receivables portfolio. Receivables are charged to the allowance for
losses when they are determined to be uncollectible.
Receivable Sales
Navistar Financial sells and securitizes receivables to public and
private investors with limited recourse and continues to service the
receivables, for which a servicing fee is received from the investors.
Insurance Premiums and Loss Reserves
Premiums and underwriting costs of insurance operations are
recognized on a pro-rata basis over the terms of the policies.
Underwriting losses and outstanding loss reserve balances are based
on individual case estimates of the ultimate cost of settlement, including
actual losses, and determinations of amounts required for losses incurred
but not reported.
Changes in Accounting Policy
In the third quarter of fiscal 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109) retroactive to November 1, 1992. As required, previously
reported first and second quarter results for 1993 and earnings per share
have been restated for the effects of the changes in accounting policy.
See Notes 4, 5 and 23 to the Financial Statements.
<PAGE>
PAGE 28
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. FINANCIAL STATEMENT ELIMINATIONS
The consolidated columns of the financial statements represent the
summation of Manufacturing and Financial Services after intercompany
transactions between Manufacturing and Financial Services have been
eliminated. The following are the intercompany amounts which have been
eliminated to arrive at the consolidated financial statements. The
presence or absence of brackets indicates reductions or additions,
respectively, necessary to compute the consolidated amounts.
STATEMENT OF INCOME (LOSS)
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Sales and revenues, Financial Services .... $ (42) $ (40) $ (41)
====== ====== ======
Costs and expenses
Financing charges on sold receivables ... $ (42) $ (40) $ (41)
====== ====== ======
Income before income taxes,
Financial Services ...................... $ (61) $ (52) $ (60)
====== ====== ======
STATEMENT OF FINANCIAL CONDITION
Millions of dollars 1993 1992
- --------------------------------------------------------------
Receivables, net .......................... $ (16) $ -
Equity in Financial Services subsidiaries . (241) (240)
------ ------
Total assets .............................. $ (257) $ (240)
====== ======
Accounts payable .......................... $ (16) $ -
Shareowner's equity, Financial Services ... (241) (240)
------ ------
Total liabilities and shareowners' equity . $ (257) $ (240)
====== ======
STATEMENT OF CASH FLOW
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
Operations ............................ $ (220) $ (87) $ 289
Investment programs ................... 187 67 (370)
Financing activities .................. 33 20 112
------ ------- ------
Increase during the year
in cash and cash equivalents ............ $ - $ - $ 31
====== ====== ======
<PAGE>
PAGE 29
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. INFORMATION RELATED TO THE STATEMENT OF CASH FLOW
The following provides information related to the change in operating
assets and liabilities included in cash and cash equivalents provided by
(used in) operations:
Millions of dollars 1993 1992 1991
- -----------------------------------------------------------------------
MANUFACTURING
(Increase) decrease in receivables ..... $ 7 $ (111) $ 45
(Increase) decrease in inventories ..... (51) (37) 13
(Increase) in prepaid
and other current assets ............. (10) (9) -
Increase (decrease) in accounts payable. 106 190 (100)
Increase in accrued liabilities ........ 12 126 76
------ ------ ------
Manufacturing change in operating
assets and liabilities ............... 64 159 34
------ ------ ------
FINANCIAL SERVICES
(Increase) decrease in receivables ..... 2 8 (3)
Increase (decrease) in accounts payable
and accrued liabilities .............. 17 (25) -
------ ------ ------
Financial Services change
in operating assets and liabilities .. 19 (17) (3)
------ ------ ------
Eliminations/reclassifications (a) ....... (191) (68) 326
------ ------ ------
Change in operating assets and liabilities $ (108) $ 74 $ 357
====== ====== ======
(a) Eliminations and reclassifications to the Statement of Cash Flow
primarily consist of "Acquisitions (over) under cash collections"
relating to Navistar Financial's wholesale notes and accounts. These
amounts are included on a consolidated basis as a change in operating
assets and liabilities under cash flow from operations which differs
from the Financial Services classification in which net changes in
wholesale notes and accounts are classified as cash flow from
investment programs. In 1991, this amount included $300 million of
proceeds from Navistar Financial's initial offering of pass-through
certificates backed by certain wholesale notes receivable.
<PAGE>
PAGE 30
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to substantially all of
its employees. Expenses associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses, and
postretirement health care and life insurance coverage for employees,
retirees, surviving spouses and dependents. These costs are segregated as
a separate component in the Statement of Income (Loss) and are as follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Pension expense ........................... $ 107 $ 109 $ 101
Health/life insurance ..................... 102 146 138
------ ------ ------
Total postretirement benefits expense ..... $ 209 $ 255 $ 239
====== ====== ======
On the Statement of Financial Condition the postretirement benefits
liability of $1,370 million includes $600 million for pension and $770
million of liabilities for postretirement health care and life insurance
benefits.
Generally, the pension plans are non-contributory with benefits
related to an employee's length of service and compensation rate. The
Company's policy is to fund its pension plans in accordance with
applicable government regulations and to make additional payments as funds
are available to achieve full funding of the vested accumulated benefit
obligation. The pension plans vary in the extent to which they are
funded, but for plan years which ended during the current fiscal year, all
legal funding requirements have been met. Plan assets are invested
primarily in dedicated portfolios of long-term fixed income securities.
In addition to providing pension benefits, the Company provides
health care and life insurance for a majority of its retired employees in
the United States (U.S.) and Canada. For most retirees in the U.S., these
benefits are defined by the terms of an agreement between the Company and
its employees, retirees and collective bargaining organizations (the
Settlement Agreement) which provides such benefits (the Plan). The Plan,
which was implemented on July 1, 1993, provides for cost sharing between
the Company and retirees in the form of premiums, co-payments and
deductibles. A Base Program Trust has been established to provide a
vehicle for funding of the health care liability through Company
contributions and retiree premiums. A separate independent Retiree
Supplemental Benefit Program was also established, which included a
Company contribution of Class B Common Stock valued at $513 million, to
potentially reduce retiree premiums, co-payments and deductibles and
provide additional benefits in the future.
<PAGE>
PAGE 31
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Expense
Net pension expense included in the Statement of Income (Loss) is
composed of the following:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Service cost-benefits
earned during the period ................ $ 27 $ 25 $ 20
Interest on projected benefit obligation .. 220 219 221
Other pension costs ....................... 43 54 54
Less expected return on assets ............ (183) (189) (194)
------ ------ ------
Net pension expense ....................... $ 107 $ 109 $ 101
====== ====== ======
Actual return on assets ................... $ 427 $ 218 $ 329
"Other pension costs" in the above table include principally the
amortization of the net transition obligation and amortization of the cost
of plan amendments. The net transition obligation of $467 million is
being amortized on a straight-line basis over 15 years through the year
2002. The costs of plan amendments resulting from negotiated contracts
are amortized principally over the average remaining service life of
active employees.
The determination of the projected benefit obligation is based on
actuarial assumptions and discount rates that reflect the current level of
interest rates. The return on assets is based on long-term expectations.
Annual differences between such expectations and actual experience are
deferred unless the cumulative amount exceeds a specified level. As of
October 31, 1993, the cumulative actual returns on plan assets exceeded
cumulative expected returns by $434 million. As a result of accumulated
reductions in the discount rate and net actuarial losses, the actual
projected benefit obligation exceeds the expected liability by $720
million.
Pension Assets and Liabilities
Included in the Statement of Financial Condition is an additional
pension liability based on the excess of accumulated benefit obligations
over the fair value of assets of the Company's underfunded pension plans
and an intangible asset representing previously incurred pension costs not
yet expensed. The difference between the additional liability and the
intangible asset represents net accumulated gains and losses from
actuarial valuations, investment experience and changes in assumptions.
This difference resulted in accumulated charges to equity of $142 million,
net of deferred income tax benefits of $87 million, and $101 million as of
October 31, 1993 and 1992, respectively. The charge to equity in fiscal
1993 is reflected net of taxes following the adoption of SFAS 109,
"Accounting for Income Taxes." See Note 5 to the Financial Statements.
<PAGE>
PAGE 32
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
The funded status of the Company's plans as of October 31, 1993 and
1992, and a reconciliation with amounts recognized in the Statement of
Financial Condition are provided below.
Plans in Which Plans in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
--------------------- --------------------
Millions of dollars 1993 1992 1993 1992
- --------------------------------------------------------------------------
Actuarial present value of:
Vested benefits ........... $ (87) $ (71) $ (2,618) $ (2,235)
Non-vested benefits ....... (4) (6) (213) (204)
-------- -------- -------- --------
Accumulated benefit
obligation ............ (91) (77) (2,831) (2,439)
Effect of projected future
compensation levels ..... (6) (6) (40) (58)
-------- -------- -------- --------
Projected benefit obligation. (97) (83) (2,871) (2,497)
Plan assets at fair value ... 122 98 2,262 2,070
-------- -------- -------- --------
Funded status at October 31 . 25 15 (609) (427)
Unamortized pension costs:
Net losses .............. 26 38 260 151
Prior service costs ..... 1 1 49 54
(Asset) liability at
date of transition .... (1) (2) 301 324
Adjustment for the
minimum liability ......... - - (570) (471)
-------- -------- -------- --------
Net asset (liability) ....... $ 51 $ 52 $ (569) $ (369)
======== ======== ======== ========
As shown above, for all plans, the sum of the $51 million net asset
and the $569 million net liability was $518 million and is the amount
recognized in the Statement of Financial Condition at October 31, 1993.
This total includes $82 million of prepaid pension assets representing
advance contributions to certain plans, and $600 million of net pension
liabilities included in the $1,370 million postretirement benefits
liability on the Statement of Financial Condition.
<PAGE>
PAGE 33
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Pension Assets and Liabilities (continued)
The weighted average actuarial assumptions used in determining
pension costs and the projected benefit obligation were:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Discount rate used to determine
present value of projected benefit
obligation ............................... 7.3% 8.8% 9.1%
Expected long-term rate of return
on plan assets ........................... 8.8% 9.2% 10.1%
Expected rate of increase
in future compensation levels ............ 3.5% 5.5% 5.5%
The Company uses a weighted average discount rate based on the
internal rate of return on its dedicated portfolio of high-quality bonds
and an estimated yield available on high-quality fixed income securities
which could be purchased to effectively settle the remaining portion of
the obligation. The decrease in the discount rate to 7.3% in 1993 from
8.8% in 1992 reflects the decline in long-term interest rates during the
past year. The Company also reduced the assumption for future salary
increases from 5.5% to 3.5% to reflect current expectations.
Other Postretirement Benefits
The Company adopted SFAS 106 for its U.S. and Canadian plans in the
third quarter of fiscal 1993, retroactive to November 1, 1992. The
Company elected to recognize the SFAS 106 transition obligation as a one-
time non-cash charge to earnings. The cumulative effect of this change in
accounting policy, as of November 1, 1992, was $729 million, net of a
deferred income tax benefit of $420 million. Prior years have not been
restated. The $228 million cumulative charge for the changes in
accounting policy reported on the Statement of Income (Loss) includes the
$729 million charge from the adoption of SFAS 106 which was partially
offset by the $501 million benefit from the adoption of SFAS 109, as
discussed in Note 5 to the Financial Statements.
The Company's previous practice was to expense other postretirement
benefits on a pay-as-you-go basis. The effect of adopting SFAS 106 in
1993 was an increase in annual expense of $41 million, or $25 million net
of tax. The adoption of SFAS 106 does not affect cash flow, but it does
change the timing of the recognition of costs. SFAS 106 requires the
accrual of the expected cost of providing postretirement benefits during
employees' active service periods.
<PAGE>
PAGE 34
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The components of expense under SFAS 106 for postretirement benefits
other than pensions that are included in the Statement of Income (Loss)
for 1993 include the following:
Millions of dollars 1993
- ---------------------------------------------------------------------
Service cost - benefits earned during the year .... $ 12
Interest cost on the accumulated benefit obligation 91
Expected return on assets ......................... (1)
------
Total postretirement benefits other than pensions . $ 102
======
The funded status of postretirement benefits other than pensions as
of October 31, 1993, is as follows:
Millions of dollars 1993
- ---------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees and their dependents .................... $ (765)
Active employees eligible to retire ............... (163)
Other active participants ......................... (176)
-------
Total APBO ........................................ (1,104)
Plan assets at fair value ......................... 302
-------
APBO in excess of plan assets ..................... (802)
Unrecognized net (gain)/loss ...................... 32
-------
Net liability ..................................... $ (770)
=======
During fiscal 1993, the Company pre-funded $300 million of this
liability from the partial proceeds of a public offering of Common Stock.
According to the terms of the Settlement Agreement, the Company was
required to fund at least $100 million of this liability prior to January
1, 1994. Further, the Company will be required to make additional pre-
funding contributions to the liability on or prior to July 1, 1998, such
that the total of all pre-funding contributions will equal the total net
proceeds from all sales of Common Stock through such date, but not to
exceed $500 million. Additionally, the Company is required to annually
pre-fund an amount equal to annual service cost. Under the terms of the
Settlement Agreement, these funds will be used to pay a portion of current
benefits; the remainder to be invested primarily in equities with an
expected return of 9%.
<PAGE>
PAGE 35
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. POSTRETIREMENT BENEFITS (continued)
Other Postretirement Benefits (continued)
The discount rate used to determine the accumulated postretirement
benefit obligation at October 31, 1993, was 7.5%, based on estimated
income on high-quality fixed income securities which could be purchased to
effectively settle the obligation. As interest rates have declined,
inflation rates and their effect on future health care cost trend rates
have been contained and are experiencing a downward trend. Combined with
internal containment programs and the government program on national
health care, the period to reach an ultimate ongoing inflation rate may
also shorten. For 1994, the weighted average rate of increase in the per
capita cost of covered medical benefits is projected to be 10.5% for
participants under the age of 65 and 8.5% for participants age 65 or over.
The rate of increase for drugs is projected to be 11.5% for all
participants. The rates are projected to decrease on an annual basis to
5% in the year 2003 and remain at that level each year thereafter. If the
cost trend rate assumptions were increased by one percentage point for
each year, the accumulated postretirement benefit obligation would
increase by approximately $120 million and the associated expense
recognized for the year ended October 31, 1993 would increase by an
estimated $13 million. Conversely, a decrease in the cost trend rate
would lower the accumulated postretirement benefit obligation and the
associated expense.
5. INCOME TAXES
During the third quarter of 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes," with retroactive application to November 1,
1992. The cumulative effect of SFAS 109 was an increase in net income of
$501 million. The impact on the current year operations was a benefit of
$170 million. Under provisions of SFAS 109, prior years have not been
restated. The $228 million cumulative charge for the changes in
accounting policy reported on the Statement of Income (Loss) includes the
$501 million benefit from the adoption of SFAS 109, offset by the $729
million charge from the adoption of SFAS 106, as discussed in Note 4 to
the Financial Statements. Under SFAS 109, deferred tax assets and
liabilities are generally determined based on the differences between the
amounts included in the financial statements and the valuation of those
assets and liabilities under tax laws. Recognition of a deferred tax
asset is allowed if future realization is more likely than not.
The Income Tax section of Management's Discussion and Analysis
includes disclosures related to the determination of the amount of the net
deferred tax asset included on the Statement of Financial Condition.
<PAGE>
PAGE 36
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
The income tax benefit (expense) for the years ended October 31 is as
follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Tax benefit (expense) on income (loss)
of continuing operations:
Manufacturing .......................... $ 190 $ 18 $ 20
Financial Services ..................... (22) (20) (23)
------ ------ ------
Total income tax benefit (expense)
of continuing operations ................. $ 168 $ (2) $ (3)
====== ====== ======
Taxes on income (loss) of continuing operations are analyzed by
categories, as follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Current state and local .................... $ (2) $ (2) $ (3)
------ ------ ------
Deferred:
Federal .................................. 149 - -
State and local .......................... 21 - -
------ ------ ------
Total deferred ......................... 170 - -
------ ------- ------
Total income tax benefit (expense) ......... $ 168 $ (2) $ (3)
====== ====== ======
The relationship of tax benefit to the loss of continuing operations
for 1993 differs from the U.S. statutory rate (35%) because of state
income taxes. The effective income tax rate for 1992 and 1991 differs
from the U.S. statutory rate because of the benefit of net operating loss
carryforwards (NOLs) in the United States and foreign countries.
Undistributed earnings of foreign subsidiaries were $15 million at
October 31, 1993. Taxes have not been provided on these earnings because
no withholding taxes are applicable upon repatriation, and U.S. tax would
be substantially offset by utilization of NOL carryforwards.
<PAGE>
PAGE 37
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
The components of the deferred tax asset (liability), in millions of
dollars, are as follows:
October 31,1993
---------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards ............ $ 916
Accrued liabilities:
Product liability .......................... 71
Warranty ................................... 37
Employee related costs ..................... 38
Other ...................................... 96 242
----
Postretirement benefits:
Health care and life insurance ............. 271
Pensions ................................... 87 358
---- ------
Total deferred tax assets ................ 1,516
------
Deferred tax liabilities:
Prepaid pension assets ....................... (19)
Depreciation - property, plant and equipment . (41)
------
Total deferred tax liabilities ........... (60)
-------
Total .................................... 1,456
Less valuation allowance ....................... (278)
-------
Net deferred tax asset ................... $ 1,178
=======
<PAGE>
PAGE 38
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
October 31,1993
---------------
Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards ............ $ 11
Postretirement benefits ..................... 16
-------
Total deferred tax assets ............... 27
-------
Deferred tax liabilities:
Prepaid pension assets ...................... (16)
-------
Total deferred tax liabilities .......... (16)
-------
Total ................................... 11
Less valuation allowance ...................... (27)
-------
Net deferred tax liabilities ............ $ (16)
=======
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which are estimated to expire
before they are utilized. Because the foreign tax carryforward period is
relatively short, a full allowance has been provided against the total
deferred tax assets. The valuation allowance decreased $6 million during
1993 resulting from recognizing tax benefits from the utilization of NOL
carryforwards attributable to 1993 foreign operating income and
fluctuations in foreign exchange rates.
SFAS 109 requires that individual tax paying entities of the Company
offset all deferred tax assets and liabilities within each tax
jurisdiction and present them in a single amount in the Statement of
Financial Condition. Amounts in different tax jurisdictions cannot be
offset against each other. Accordingly, the U.S. deferred tax asset is
shown on the Statement of Financial Condition as a deferred tax asset,
whereas the foreign deferred tax liability is included in the amount shown
for other long-term liabilities.
<PAGE>
PAGE 39
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (continued)
At October 31, 1993, the Company had $2,410 million of domestic and
$27 million of foreign NOL carryforwards available to offset future
taxable income. Such carryforwards reflect deductions taken in previously
filed income tax returns and will expire as follows, in millions of
dollars:
1997 .............................. $ 312
1998 .............................. 391
1999 .............................. 42
2000 .............................. 300
2001 .............................. 143
2002 .............................. 47
2004 .............................. 234
2005 .............................. 7
2006 .............................. 126
2007 .............................. 41
2008 .............................. 794
------
Total ......................... $2,437
======
Additionally, the estimated reversal of net temporary differences of
$1,465 million as of October 31, 1993, will create net tax deductions
which, if not utilized previously, will expire subsequent to 2008, as
indicated, in millions of dollars:
Estimated Year Estimated Year
of Reversal Amount of Expiration
-------------- ------ --------------
United States:
1994 ........................ $ 316 2009
1995 ........................ 4 2010
1996 ........................ 33 2011
1997-2001 ................... 241 2012 - 2016
2002 and thereafter ......... 828 2017 and thereafter
------
Total U.S. ................ 1,422
------
Canada
2000 and thereafter ......... 43 2008 and thereafter
------
Total Canada .............. 43
------
$1,465
======
<PAGE>
PAGE 40
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. DISCONTINUED OPERATIONS
A provision of $65 million was recorded in the third quarter of 1992
as a loss of discontinued operations for the settlement of litigation
commonly referred to as the Wisconsin Steel Pension Plan Cases. The court
held Transportation liable for pension liabilities to former employees of
the Wisconsin Steel Division prior to its sale to EDC Holding Company in
1977. Under the terms of the settlement, the Company paid the Pension
Benefit Guaranty Corporation (PBGC) $20 million, issued to the PBGC
357,000 shares of Navistar International Corporation Common Stock and
delivered to the PBGC an eight percent ten-year note with a face amount of
$36.6 million and maturing August 15, 2002.
7. EARNINGS APPLICABLE TO COMMON STOCK
For computation of earnings per share, income (loss) applicable to
common stock is determined as follows:
Millions of dollars 1993 1992 1991
- ----------------------------------------------------------------------
Income (loss) of continuing operations ... $ (273) $ (147) $ (165)
Preferred dividend requirements
on Series G preferred stock ............ (29) (29) (29)
------ ------ ------
Income (loss) of continuing operations
applicable to common stock ............. (302) (176) (194)
Loss of discontinued operations .......... - (65) -
------ ------ ------
Income (loss) before cumulative effect
of changes in accounting policy
applicable to common stock ............. (302) (241) (194)
Cumulative effect of changes
in accounting policy ................... (228) - -
------ ------ ------
Net income (loss)
applicable to common stock ............. $ (530) $ (241) $ (194)
====== ====== ======
Earnings per share are calculated based on the weighted average
number of Common and Class B Common shares outstanding of 34.9, 25.3 and
25.1 million for the years ended October 31, 1993, 1992 and 1991,
respectively.
In December 1992, the Company suspended dividends on its Series G
preferred stock. In October 1993, subsequent to the implementation of the
Plan and completion of the public offering of Common shares, the Company
announced that payment of these dividends would be resumed. Dividends in
arrears will be paid on December 15, 1993 to shareowners of record as of
December 5, 1993.
<PAGE>
PAGE 41
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. EARNINGS APPLICABLE TO COMMON STOCK (continued)
Income (loss) per common share assuming full dilution has not been
presented because the Series G Preferred Stock did not have a dilutive
effect for the years presented.
All references to the number of shares of Common and Class B Common
stock have been adjusted to reflect the one-for-ten reverse stock split on
a retroactive basis which occurred on July 1, 1993.
8. MARKETABLE SECURITIES
Marketable securities at October 31 are as follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Corporate and other securities ................... $ 9 $ 9
U.S. government securities ....................... 76 19
------ ------
Manufacturing marketable securities ............ 85 28
------ ------
FINANCIAL SERVICES
Corporate securities ............................. 18 29
U.S. government and federal agency securities .... 70 61
Mortgage and asset-backed securities ............. 36 39
Foreign government securities .................... 9 14
------ ------
Financial Services marketable securities ....... 133 143
------ ------
Total marketable securities ........................ $ 218 $ 171
====== ======
Additional information related to the Financial Services' marketable
securities carried at amortized cost at October 31, all of which are held
by insurance affiliates, is as follows:
1993
-------------------------------------------------
Gross
Amortized Unrealized Fair
Cost Gains Value
Millions of dollars
- -------------------------------------------------------------------------
Corporate securities ................... $ 18 $ 1 $ 19
U.S. government
and federal agency securities ........ 70 5 75
Mortgage and asset-backed securities ... 36 1 37
Foreign government securities .......... 9 - 9
------ ------ ------
Total Financial Services
marketable securities ................ $ 133 $ 7 $ 140
====== ====== ======
<PAGE>
PAGE 42
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. MARKETABLE SECURITIES (Continued)
1992
-------------------------------------------------
Gross
Amortized Unrealized Fair
Cost Gains Value
Millions of dollars
- --------------------------------------------------------------------------
Corporate securities ................... $ 29 $ 1 $ 30
U.S. government
and federal agency securities ......... 61 2 63
Mortgage and asset-backed securities ... 39 1 40
Foreign government securities .......... 14 - 14
------ ------ ------
Total Financial Services
marketable securities ................ $ 143 $ 4 $ 147
====== ====== ======
Contractual maturities of Financial Services' marketable debt
securities at October 31, 1993 are as follows:
Amortized Fair
Millions of dollars Cost Value
- --------------------------------------------------------------------------
Due in one year or less ................ $ 6 $ 6
Due after one year through five years .. 62 65
Due after five years through ten years . 26 28
Due after ten years .................... 3 3
------- -------
97 102
Mortgage and asset-backed securities . 36 38
------- -------
Total debt securities .............. $ 133 $ 140
======= =======
Proceeds from sales or maturities of investments in debt securities
were $86 million during 1993 and $121 million during 1992. Gross gains of
$6 million and $4 million were realized on such sales or maturities in
1993 and 1992, respectively. There were gross losses of $2 million in
1993 and 1992.
At October 31, 1993 and 1992, Financial Services had $27 million and
$20 million, respectively, of marketable securities on deposit with
various state departments of insurance or otherwise restricted as to use.
These securities are included in total marketable securities balances at
October 31, 1993 and 1992.
<PAGE>
PAGE 43
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES
Receivables at October 31 are summarized by major classification as
follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Customers ........................................ $ 147 $ 151
Allowance for losses ............................. (24) (20)
------ ------
Manufacturing receivables, net ................. 123 131
------ ------
FINANCIAL SERVICES
Retail notes and lease financing ................. 831 971
Wholesale notes .................................. 259 128
Accounts receivable .............................. 275 216
Amounts due from sales of receivables ............ 76 41
Reinsurance balance receivables .................. 5 6
------ ------
Total accounts and notes receivables ............. 1,446 1,362
Allowance for losses ............................. (13) (14)
------ ------
Financial Services receivables, net ............ 1,433 1,348
------ ------
Eliminations ................................... (16) -
------ ------
Total receivables, net ............................. $1,540 $1,479
====== ======
The allowance for losses of Manufacturing includes amounts associated
with receivables financed by the Financial Services' subsidiaries and
receivables on products sold to distributors in export markets.
Financial Services
Navistar Financial purchases the majority of the wholesale notes
receivable and some retail notes and accounts receivable arising from
Transportation's operations in the United States.
A portion of Navistar Financial's funding for retail and wholesale
notes comes from sales of those receivables by Navistar Financial to third
parties with limited recourse. Proceeds from sales of receivables were
$1,741 million in 1993, $1,285 million in 1992 and $1,470 million in 1991.
Uncollected sold receivable balances totalled $839 million and $533
million as of October 31, 1993 and 1992, respectively. A portion of the
receivables is sold by Navistar Financial to third parties with recourse.
Navistar Financial's maximum exposure under all receivable sale recourse
provisions at October 31, 1993 is $130 million which includes holdback
reserves of $69 million, subordinated retained interest in securitized
receivable sales of $54 million and $6 million of certain cash deposits
established as a result of the securitized receivables recourse
provisions.
<PAGE>
PAGE 44
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. RECEIVABLES (continued)
Contractual maturities of notes and lease financing outstanding at
October 31, 1993, are summarized as follows. Prepayments may cause the
average actual life to be shorter.
Retail Notes and Wholesale Accounts
Millions of dollars Lease Financing Notes Receivable
- ----------------------------------------------------------------------
Gross finance
receivables due in:
1994 ................ $ 337 $ 145 $ 275
1995 ................ 249 114 -
1996 ................ 173 - -
1997 and thereafter . 165 - -
------- ------- -------
Gross finance
receivables ..... 924 259 275
Unearned finance charges. 93 - -
------- ------- -------
Total finance receivables $ 831 $ 259 $ 275
======= ======= =======
10. INVENTORIES
Inventories at October 31 are as follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
Finished products .................................. $ 196 $ 180
Work in process .................................... 73 67
Raw materials and supplies ......................... 142 118
------ ------
Total inventories .................................. $ 411 $ 365
====== ======
<PAGE>
PAGE 45
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. PROPERTY
At October 31, property includes the following:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Land ............................................ $ 8 $ 8
------ ------
Buildings, machinery and equipment at cost:
Plants ........................................ 1,087 995
Distribution .................................. 72 72
Other ......................................... 82 76
------ ------
Subtotal .................................... 1,241 1,143
------ ------
Total property ............................... 1,249 1,151
Less accumulated depreciation
and amortization ............................ (641) (588)
------ ------
Manufacturing property, net ................. 608 563
------ ------
FINANCIAL SERVICES
Total property .................................. 34 24
Less accumulated depreciation
and amortization .............................. (6) (5)
------ ------
Financial Services property, net .............. 28 19
------ ------
Total property and equipment, net ................. $ 636 $ 582
====== ======
Included in the gross property of Manufacturing is property under
capitalized lease obligations of $28 million at October 31, 1993, and $54
million at October 31, 1992.
<PAGE>
PAGE 46
NOTES TO FINANCIAL STATEMENTS
(Continued)
12. LEASES
The Company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for 5 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. Total
operating lease expense was $35 million in 1993, 1992 and 1991. Income
received from sublease rentals was $6 million in 1993, 1992 and 1991.
At October 31, 1993, consolidated future minimum lease payments
required under capital and noncancellable operating leases having lease
terms in excess of one year are as follows:
Capital Operating
Millions of dollars Leases Leases
- ----------------------------------------------------------------------
1994 ..................................... $ 4 $ 23
1995 ..................................... 4 24
1996 ..................................... 3 25
1997 ..................................... 3 23
Thereafter ............................... 13 126
------ ------
Total minimum payments ................... $ 27 $ 221
======
Less imputed interest .................... (8)
------
Present value of minimum lease payments. $ 19
======
Future income from subleases ........... $ 39
======
<PAGE>
PAGE 47
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. ACCOUNTS PAYABLE
Major classifications of accounts payable at October 31 are as
follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Trade ............................................ $ 669 $ 577
Other ............................................ 1 4
------ ------
Manufacturing accounts payable ................. 670 581
------ ------
FINANCIAL SERVICES
Other ............................................ 63 56
Manufacturing .................................... 22 -
------ ------
Financial Services accounts payable ............ 85 56
------ ------
Eliminations ....................................... (16) -
------ ------
Total accounts payable ............................. $ 739 $ 637
====== ======
14. ACCRUED LIABILITIES
Major classifications of accrued liabilities at October 31 are as
follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Employee related benefits ........................ $ 35 $ 51
Product liability and warranty ................... 108 94
Payroll and commissions .......................... 59 67
Taxes ............................................ 27 25
Dividends declared ............................... 29 -
Interest ........................................ 4 4
Other ............................................ 133 127
------ ------
Manufacturing accrued liabilities .............. 395 368
------ ------
FINANCIAL SERVICES
Interest ......................................... 14 20
Taxes ............................................ 5 5
Product liability ................................ 2 2
Other ............................................ 3 6
------ ------
Financial Services accrued liabilities ......... 24 33
------ ------
Total accrued liabilities .......................... $ 419 $ 401
====== ======
<PAGE>
PAGE 48
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT
Short-Term Debt
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Notes payable
and current maturities of long-term debt....... $ 25 $ 15
------ ------
FINANCIAL SERVICES
Bank borrowings ................................. 75 -
Current maturities of long-term debt ............ 80 99
------ ------
Financial Services short-term debt ............ 155 99
------ ------
Total short-term debt ............................. $ 180 $ 114
====== ======
Long-Term Debt
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
8 5/8% Sinking Fund Debentures, due 1995 ......... $ 9 $ 15
6 1/4% Sinking Fund Debentures, due 1998 ........ 11 14
9% Sinking Fund Debentures, due 2004 ............. 75 83
8% Secured Note, due 2002 ........................ 37 37
Capitalized leases ............................... 15 19
Other ............................................ 3 4
------ ------
Manufacturing long-term debt ................... 150 172
------ ------
FINANCIAL SERVICES
Senior Debentures and Notes
7 1/2%, due 1994 ............................... - 75
9.35% to 9.75%, medium-term, due 1994 to 1996 .. 217 222
Bank revolver, variable rate, due November 1995 727 727
------ ------
Total senior debt ............................ 944 1,024
Subordinated Debentures, 11.95%, due December 1995 100 100
Unamortized discount ............................. - (5)
------ ------
Financial Services long-term debt .............. 1,044 1,119
------ ------
Total long-term debt ............................... $1,194 $1,291
====== ======
<PAGE>
PAGE 49
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
The aggregate annual maturities and sinking fund requirements for
long-term debt for the years ended October 31 are as follows:
Financial
Millions of dollars Manufacturing Services Total
- ------------------------------------------------------------------------
1995 ................................ $ 23 $100 $123
1996 ................................ 18 944 962
1997 ................................ 17 - 17
1998 ................................ 17 - 17
Thereafter .......................... 75 - 75
Weighted average interest rate on
total debt including short-term debt
and the effect of discounts and
related amortization ............... 8.7% 6.6% 6.9%
Manufacturing's eight percent secured note, due 2002, is secured by
certain plant assets.
At October 31, 1993, Navistar Financial had contractually committed
facilities of $1,327 million consisting of a bank revolving credit
facility of $727 million and a retail notes receivable purchase facility
of $600 million. In April 1993, Navistar Financial amended and restated
the credit and purchase facility agreements extending the maturity date of
these facilities to November 15, 1995. The amended and restated credit
facility granted security interests in substantially all of Navistar
Financial's assets, provided for a reduction in the credit facility
commitment in the amount of 50% of any new senior debt issued after April
30, 1993 with a term of three years or longer and permitted Navistar
Financial to declare a special dividend to Transportation not to exceed
$20 million upon implementation of the Plan.
Unused commitments under the credit and purchase facilities were $157
million, $75 million of which was used to back short-term bank borrowings
at October 31, 1993. The remaining $82 million, when combined with
unrestricted cash and cash equivalents, made $105 million available for
the general business purposes of Navistar Financial at October 31, 1993.
Compensating cash balances are not required under the revolving credit
facility, but commitment fees are paid on the unused portions of the bank
revolving credit and retail notes receivable purchase facilities.
Navistar Financial also pays a facility fee on the $600 million retail
notes receivable purchase facility.
<PAGE>
PAGE 50
NOTES TO FINANCIAL STATEMENTS
(Continued)
15. DEBT (continued)
Long-Term Debt (continued)
Navistar Financial has two wholly-owned subsidiaries, Navistar
Financial Retail Receivables Corporation (NFRRC) and Navistar Financial
Securities Corporation (NFSC), which have a limited purpose of purchasing
retail and wholesale receivables, respectively, and transferring an
undivided ownership interest in such notes to investors in exchange for
pass-through notes and certificates. These subsidiaries have limited
recourse on the sold receivables and their assets are available to satisfy
the claims of their creditors prior to such assets becoming available to
Navistar Financial or affiliated companies.
At October 31, 1993, NFSC had in place a $300 million revolving
wholesale note sales trust providing for the continuous sale of wholesale
notes on a daily basis. The sales trust is comprised of three $100
million pools of notes maturing serially from 1997 to 1999.
On September 16, 1993, NFRRC filed a shelf registration with the
Securities and Exchange Commission providing for the issuance from time to
time of $1 billion of asset-backed securities. On November 10, 1993,
Navistar Financial sold $335 million of retail notes to NFRRC which, in
turn, sold to investors $323 million of notes and $12 million of
certificates issued by an owner trust. The net proceeds of $334 million
were used by Navistar Financial for general working capital purposes and
to establish a $25 million reserve account with the trust.
On November 16, 1993, Navistar Financial sold $100 million of 8 7/8%
Senior Subordinated Notes due 1998 and used the proceeds to redeem its
11.95% Subordinated Debentures due December 1995. Navistar Financial will
also redeem its 7 1/2% Senior Debentures due January 1994 on December 15,
1993.
Consolidated interest payments were $91 million, $92 million and $97
million in 1993, 1992 and 1991, respectively.
16. OTHER LONG-TERM LIABILITIES
Major classifications of other long-term liabilities at October 31
are as follows:
Millions of dollars 1993 1992
- ----------------------------------------------------------------------
MANUFACTURING
Product liability and warranty .................. $ 170 $ 183
Restructuring costs ............................. 8 16
Other ........................................... 89 96
------ ------
Manufacturing other long-term liabilities ..... 267 295
FINANCIAL SERVICES
Product liability ............................... 9 10
------ ------
Total other long-term liabilities ................. $ 276 $ 305
====== ======
<PAGE>
PAGE 51
NOTES TO FINANCIAL STATEMENTS
(Continued)
17. FINANCIAL INSTRUMENTS
During fiscal 1993, the Company adopted SFAS 107, "Disclosures about
Fair Value of Financial Instruments." This statement requires disclosure
of the fair value of financial instruments and a description of the
methods and assumptions used to estimate fair value.
The carrying amounts of financial instruments on a consolidated
basis, as reported on the Statement of Financial Condition and described
in the various footnotes to the financial statements and their fair values
at October 31, 1993, are as follows:
Carrying Fair
Millions of dollars Amount Value
- ------------------------------------------------------------------------
Marketable securities .................... $ 218 $ 225
Receivables, net ......................... 1,540 1,556
Investments and other assets ............. 234 279
Long-term debt ........................... 1,194 1,208
The carrying amounts of cash and cash equivalents approximate fair
value.
The fair value of marketable securities is estimated based on quoted
market prices, when available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar financial
instruments. The fair value of Financial Services' marketable securities
held by insurance affiliates at October 31, 1993 is disclosed, as
required, in Note 8 to the Financial Statements, and included above.
The carrying amounts of Manufacturing's customer receivables and
Navistar Financial's wholesale notes and retail and wholesale accounts and
other variable-rate retail notes approximate fair value because of the
short-term maturities of the financial instruments. The fair value of
Navistar Financial's truck retail notes is estimated based on quoted
market prices of similar sold receivables. The fair value of amounts due
from sales of receivables is estimated using cash flow analyses based on
interest rates currently offered by Navistar Financial's finance
operations.
The carrying amounts of short-term debt and variable-rate borrowings
under Navistar Financial's bank revolving credit agreement, which is
repriced frequently, approximate fair value. The fair value of long-term
debt is estimated based on quoted market prices, when available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar financial instruments or discounting future cash
flows.
The fair value of investments and other assets is estimated based on
quoted market prices or by discounting future cash flows.
<PAGE>
PAGE 52
NOTES TO FINANCIAL STATEMENTS
(Continued)
18. COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS ON ASSETS
At October 31, 1993, commitments for capital expenditures in progress
were approximately $17 million.
Transportation was contingently liable at October 31, 1993, for
approximately $4 million for guarantees of debt and for bid and
performance bonds. As of October 31, 1993, Harbour Bermuda was
contingently liable for claims in the amount of $5 million.
At October 31, 1993, the Canadian operating subsidiary was
contingently liable for retail customers' contracts and leases financed by
a third party. The Company is subject to maximum recourse of $94 million
on retail contracts and $9 million on retail leases. Based on historical
loss trends however, the Company's exposure to loss is not considered
material.
The Canadian operating subsidiary and certain subsidiaries included
in Financial Services are parties to agreements which restrict the amounts
which can be distributed to Transportation in the form of dividends or
loans and advances which can be made. As of October 31, 1993, these
subsidiaries had $313 million of net assets, of which $238 million was
restricted as to distribution.
The Company and Transportation are obligated under certain agreements
with public and private lenders of Navistar Financial 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, 1993.
The Company has been named as a potentially responsible party (PRP),
in conjunction with other parties, in a number of cases arising under an
environmental protection law commonly known as the Superfund law. The
anticipated known costs associated with the current PRP actions on October
31, 1993, are reflected in the Company's $10 million accrued liability.
Investigations into the nature and extent of cleanup activities under
the Superfund law are being conducted at two sites formerly owned by the
Company. The eventual scope, timing and cost of such activities as well
as the availability of defense to any such claims, and possible claims
against third parties and insurance companies are not known and cannot be
reasonably estimated; however, substantial claims could be asserted
against the Company.
<PAGE>
PAGE 53
NOTES TO FINANCIAL STATEMENTS
(Continued)
19. LEGAL PROCEEDINGS
In July 1992, the Company announced its decision to change its
retiree health care benefit plans and concurrently filed a declaratory
judgment class action lawsuit in the U.S. District Court for the Northern
District of Illinois (Illinois Court) to confirm its right to change these
benefits. A countersuit was filed against the Company by its unions in
the U.S. District Court for the Southern District of Ohio (Ohio Court).
On October 16, 1992, the Company withdrew its declaratory judgment action
in the Illinois Court and began negotiations with the United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW) to resolve
issues affecting both retirees and employees. On December 17, 1992, the
Company announced that a tentative agreement had been reached with the UAW
on restructuring retiree health care and life insurance benefits (the
Settlement Agreement). During the third quarter of 1993, all court,
regulatory agency and shareowner approvals required to implement the
Settlement Agreement concerning retiree health care benefit plans were
obtained. The Settlement Agreement became effective and the restructured
retiree health care and life insurance plan was implemented on July 1,
1993.
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation in the amount of $10.8 million
in compensatory damages and $15 million in punitive damages. In order to
appeal the verdict in the case, the Company was required to post a bond
collateralized with $30 million in cash. This amount has been recorded as
restricted cash on the Statement of Financial Condition. The amount of
any potential liability is uncertain and Transportation believes that
there are meritorious arguments for overturning or diminishing the
verdict.
The Company and its subsidiaries are subject to various other 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 are material
to the business or the financial condition of the Company.
20. PREFERRED AND PREFERENCE STOCKS
On June 29, 1993, the Company's shareowners approved an agreement
among the Company and a class of employees, retirees and collective
bargaining organizations as discussed in Note 19 to the Financial
Statements. In conjunction with shareowner approval of the Settlement
Agreement, the Company's Certificate of Incorporation was amended and
restated and two new series of preference stock were created with a par
value of $1.00 per share. These stocks have been designated as
Nonconvertible Junior Preference Stock, Series A and Nonconvertible Junior
Preference Stock, Series B. The Series A Preference Stock is held by the
Supplemental Trust which is currently entitled to elect two members to the
Company's Board of Directors. The UAW holds the Series B Preference Stock
and is currently entitled to elect one member of the Company's Board of
Directors. At October 31, 1993, there was one share each of Series A and
Series B Preference stock authorized and outstanding. The value of the
preference shares is minimal.
<PAGE>
PAGE 54
NOTES TO FINANCIAL STATEMENTS
(Continued)
20. PREFERRED AND PREFERENCE STOCKS (continued)
Other information pertaining to preferred and preference stocks
outstanding is summarized as follows:
Series G, $6.00 Series D Convertible
Cumulative Preferred Junior Preference
- --------------------------------------------------------------------------
Number authorized ............ 4,800,000 3,000,000
Number issued ................ 4,799,979 3,000,000
Number outstanding
at October 31
1993 ..................... 4,799,979 178,129
1992 ..................... 4,799,979 179,129
Optional redemption price
and liquidation preference $50 per share plus $25 per share plus
accrued dividends accrued dividends
Conversion rate per share
into Common Stock
(subject to adjustment
in certain circumstances) .. 0.133 shares 0.3125 shares
Ranking as to dividends
and upon liquidation ....... Senior to all other Senior to Common;
equity securities junior to Series G
Dividend rate Annual rate of 120% of the cash
$6.00 per share, dividends on Common
payable quarterly Stock as declared
on a common
equivalent basis
Dividends may be paid out of surplus as
defined under Delaware corporation law.
At October 31, 1993, the Company had such
defined surplus of $762 million.
- --------------------------------------------------------------------------
<PAGE>
PAGE 55
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS
On June 29, 1993, the Company's shareowners approved a Settlement
Agreement among the Company and a class of employees, retirees and
collective bargaining organizations as discussed in Note 19 to the
Financial Statements. In conjunction with shareowner approval of the
Settlement Agreement, the Company's Certificate of Incorporation
(Certificate) was amended and restated and the Company effected a one-for-
ten reverse split of its common stock. The consolidated financial
statements, including all references to the number of shares of common
stock and all per share information, have been adjusted to reflect the
reverse split on a retroactive basis.
Common Stock
The amended and restated Certificate increases the number of
authorized shares of Common Stock to 110,000,000 shares with a par value
of $.10 per share.
On October 21, 1993, the Company completed an offering of 23,600,000
Common shares, from which the Company realized gross proceeds of
approximately $516 million. Net proceeds to the Company were $492 million
after deducting the underwriting discount and other expense payable by the
Company.
At October 31, 1993 and 1992, there were 49,154,621 and 25,409,831
shares of Common Stock outstanding, respectively. Common shares
outstanding exclude common stock held in treasury in the amount of 56,457
and 189,547 shares at October 31, 1993 and 1992, respectively. In fiscal
1992, 357,000 treasury shares were issued to the PBGC as discussed in Note
5 to the Financial Statements. Included in the shares of Common Stock
outstanding are 24,001 shares of restricted stock which have been issued
in accordance with the provisions of the 1988 Performance Incentive Plan.
Class B Common Stock
The Certificate authorizes 26,000,000 shares of a new Class B Common
Stock of which 25,641,545 shares, valued at $513 million, were contributed
to a separate independent retiree Supplemental Trust. The Class B Stock
has a par value of $.10 per share and also has restricted voting rights
and transfer provisions.
The per share value for the contribution of the Class B Common Stock
was determined by the closing price of the Common Stock on the New York
Stock Exchange on June 30, 1993, the settlement day, less a discount
factor of 20%. The discount factor was determined by the Company,
following consultation with investment bankers, and gives effect to
restrictions on voting and transfer rights imposed by the terms of the
Settlement Agreement and for a control premium to give effect for the
number of shares contributed to the Supplemental Trust. The Settlement
Agreement limits the circumstances under which the Supplemental Trust can
transfer or sell Class B Common Stock but also provides that any Class B
Common Stock transferred or sold will convert automatically into Common
Stock. Any remaining Class B Common Stock will convert into Common Stock
no later than the fifth anniversary of the Settlement Agreement
implementation, or fiscal 1998.
<PAGE>
PAGE 56
NOTES TO FINANCIAL STATEMENTS
(Continued)
21. COMMON STOCK AND WARRANTS (continued)
Class B Common Stock (continued)
At October 31, 1993, there were 25,546,034 shares of Class B Common
Stock outstanding.
Dividends on common stock
All shares of Common Stock and Class B Common Stock share equally in
dividends except that stock dividends are payable in shares of Common
Stock to holders of that class and in Class B Common Stock to holders of
that class. Upon liquidation, all shares of Common Stock and Class B
Common Stock are entitled to share equally in the assets of the Company
available for distribution to the holders of such shares. Dividends may
be paid out of surplus as defined under Delaware corporation law. At
October 31, 1993, the Company had such defined surplus of $762 million.
Warrants
Warrants were not exercised during 1993 and 1992. Other information
regarding the warrants is as follows:
Series A Series C
-------- --------
Number authorized .................. 11,200,000 4,000,000
Number issued ...................... 10,846,480 4,000,000
Number outstanding at October 31
1993 ............................... 10,833,890 -
1992 ............................... 10,833,890 4,000,000
Cash exercise price (subject to
adjustment in certain events),
with exercise of 10 warrants ..... $50 $70
Alternate to cash in payment of
exercise price ................... None Navistar
Financial
11.95%
Subordinated
Debentures
at face value
plus accrued
interest
Expiration date ................... December 15, December 4,
1993 1992
<PAGE>
PAGE 57
NOTES TO FINANCIAL STATEMENTS
(Continued)
22. STOCK OPTION PLANS
The Navistar 1988 Performance Incentive Plan (Incentive Plan)
provides for the granting of stock options and restricted stock to key
employees as determined by the Committee on Organization of the Board of
Directors (Committee). Under the Incentive Plan, ten million shares of
Common Stock are authorized for use. Shares to be used under the
Incentive Plan will be either shares authorized, but previously unissued,
or shares reacquired by the Company.
The Incentive Plan includes the granting of three types of stock
option awards--deferred award options, non-qualified options and incentive
options. Deferred award options, none of which have been granted as of
October 31, 1993, enable a participant to defer all or a portion of an
annual incentive award and are exercisable at the greater of $1.00 per
share or 10% of the market value per share. These options are exercisable
thirty days after the date of grant for a period of ten years and two days
from the date of grant. Non-qualified and incentive options, which may be
granted by the Committee in amounts and at times as it may determine, have
a term of not more than ten years and one day and ten years, respectively,
and are exercisable at a price equal to the fair market value of the stock
on the day after the grant. Generally, these options are not exercisable
during the first year. There were 346,839, 344,045 and 350,498 shares
available for grant and 500,084, 528,534 and 434,487 options exercisable
at October 31, 1993, 1992 and 1991, respectively. Payment for the
exercise of any of the options may be made by delivering, at fair market
value, shares of Common Stock already owned by the option-owner.
Holders of stock options with stock appreciation rights granted under
prior stock option plans are entitled to receive cash or cash and shares
of Common Stock equal in value to the difference between the option price
and the current market value of the Common Stock at the date the option is
surrendered. Stock appreciation rights outstanding at October 31, 1993,
1992 and 1991 were 23,700, respectively.
The following table summarizes changes in common stock under option
for the year ended October 31, 1993:
Number of Option Price
Shares Per Share
--------- ----------------
Outstanding options at beginning of year 675,269 $21.88 to $91.25
Options - granted ...................... 2,500 25.25
- exercised .................... (13,340) 21.88
- terminated ................... (24,945) 21.88 to 91.25
-------
Outstanding options at end of year ..... 639,484 $21.88 to $91.25
=======
Options becoming exercisable
during the year -
=======
<PAGE>
PAGE 58
NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
------------- -------------- -------------- --------------
(Millions of dollars, Restated Restated
except per share data) 1993 1992 1993 1992 1993 1992 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Operations
Sales and revenues ....... $1,300 $1,139 $1,123 $ 917 $1,238 $ 913 $1,033 $ 902
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss):
Income (loss)
before Supplemental
Trust contribution ..... $ 31 $ (30) $ 11 $ (49) $ 26 $ (35) $ 4 $ (31)
Supplemental Trust
contribution ......... - - (513) - - - - -
Income tax
benefit (expense) .... (9) - 190 (1) (11) - (2) (1)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
Continuing
operations ........... 22 (30) (312) (50) 15 (35) 2 (32)
Discontinued
operations ........... - - - (65) - - - -
Cumulative
effect of changes
in accounting
policy (a):
SFAS 106,
net of income
taxes of
$420 million ..... - - - - - - (729) -
SFAS 109 ........... - - - - - - 501 -
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ........ $ 22 $ (30) $ (312) $ (115) $ 15 $ (35) $ (226) $ (32)
====== ====== ====== ====== ====== ====== ====== ======
Income (loss)
per common share:
Continuing
operations ........ $ .28 $(1.46) $(9.99) $(2.29) $ .32 $(1.68) $(.19) $(1.55)
Discontinued
operations ........ - - - (2.58) - - - -
Cumulative effect
of changes
in accounting
policy (a):
SFAS 106,
net of income
taxes of
$420 million - - - - - - (28.54) -
SFAS 109 .......... - - - - - - 19.59 -
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
per common share (b) .. $ .28 $(1.46) $(9.99) $(4.87) $ .32 $(1.68) $(9.14) $(1.55)
====== ====== ====== ====== ====== ====== ====== ======
Supplemental Data
Manufacturing Sales ..... $1,258 $1,096 $1,080 $ 870 $1,189 $ 871 $ 983 $ 848
Gross margin .......... 180 129 133 90 155 106 128 106
Income (loss)
before taxes and
Financial Services .. 16 (41) (517) (60) 10 (47) (11) (49)
Financial Services
Revenues .............. 54 52 53 57 59 53 60 64
Interest expense ...... 19 22 19 23 19 21 22 21
Income before taxes ... 15 11 15 11 15 12 16 18
<FN>
Transactions between Manufacturing and Financial Services operations have been eliminated
from Consolidated operations. See Notes 1 and 2.
- --------------------------------------------------------------------------------------------
(a) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109 retroactive
to November 1, 1992. As required, the previously reported results for the first
and second quarters of 1993 have been restated. Periods prior to November 1, 1992
are not required to be restated for the accounting changes.
(b) Earnings per share are calculated based on the weighted average number of Common
and Class B Common shares outstanding at the end of each quarter. See Notes 7 and
21 to the Financial Statements.
</TABLE>
<PAGE>
PAGE 59
NOTES TO FINANCIAL STATEMENTS
(Continued)
23. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (continued)
FOURTH QUARTER 1993 RESULTS
Fourth quarter consolidated sales and revenues of $1,300 million were
14% higher than the same period a year ago. Company medium and heavy
truck shipments increased 13% from the prior year's quarter. The higher
shipments reflect improvement in North American industry retail sales of
medium and heavy trucks which totalled 77,200 units, an increase of 13%,
from the same quarter last year. For the fourth quarter, the Company
maintained its leadership in the North American combined medium and heavy
truck market with a market share of 27.9%. Shipments of 32,700 mid-range
diesel engines to original equipment manufacturers were 18% higher than
the same quarter of 1992 reflecting consumer demand for the diesel-powered
light trucks and vans which use this engine. Service parts sales
increased 11% from the fourth quarter of 1992.
Net income for the fourth quarter of 1993 was $22 million, an
increase from the $30 million loss for the same period in 1992. The 1992
loss included $23 million of expense related to a voluntary vehicle
recall.
Manufacturing gross margin for the period was 14.3% up from 13.9% in
the fourth quarter of 1992 prior to a one-time charge for vehicle recalls.
The increase in margin can be attributed primarily to increased sales
volume, higher net selling prices and savings from the restructured
retiree benefit Plan implemented July 1, 1993. Partially offsetting these
favorable factors was an increase in start-up costs associated with new
truck and engine product introductions.
Financial Services income before taxes increased to $15 million in
the fourth quarter of 1993 from $11 million in 1992. The increase in
income is primarily from higher earnings from wholesale financing and a
lower provision for credit losses.
<PAGE>
PAGE 60
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- ------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Manufacturing sales
by geographic area
United States ......................... $4,149 $3,392 $2,984 $3,300 $3,602
Canada ................................ 361 293 275 343 421
------ ------ ------ ------ ------
Total ............................. 4,510 3,685 3,259 3,643 4,023
Revenues of Financial
Services companies .................. 226 226 242 250 264
Eliminations .......................... (42) (40) (41) (39) (46)
------ ------ ------ ------ ------
Total sales and revenues .......... $4,694 $3,871 $3,460 $3,854 $4,241
====== ====== ====== ====== ======
Net income (loss)
Income (loss) before
Supplemental Trust
contribution and taxes ............ $ 72 $ (145) $ (162) $ (7) $ 94
Supplemental Trust
contribution (a) .................. (513) - - - -
Income tax benefit (expense) (b) ...... 168 (2) (3) (4) (7)
------ ------ ------ ------ ------
Income (loss)
Continuing operations .............. (273) (147) (165) (11) 87
Discontinued operations (c) ........ - (65) - - -
Cumulative effect of
accounting changes (d) ........... (228) - - - -
------ ------ ------ ------ ------
Net income (loss) .................... $ (501) $ (212) $ (165) $ (11) $ 87
====== ====== ====== ====== ======
Income (loss) per common share
Continuing operations .............. $(8.63) $(6.97) $(7.71) $(1.56) $ 2.28
Discontinued operations (c) ........ - (2.58) - - -
Cumulative effect of
accounting changes (d) ........... (6.56) - - - -
------- ------ ------ ------ ------
Net income (loss) (g) ............... $(15.19) $(9.55) $(7.71) $(1.56) $ 2.28
======= ====== ====== ====== ======
- ------------------------------------------------------------------------------------------
FINANCIAL DATA
Assets
Manufacturing ....................... $3,645 $2,208 $2,149 $2,339 $2,187
Financial Services .................. 1,672 1,659 1,540 1,774 1,752
Eliminations ........................ (257) (240) (246) (318) (330)
------ ------ ------ ------ ------
Total ............................. $5,060 $3,627 $3,443 $3,795 $3,609
====== ====== ====== ====== ======
Debt
Manufacturing ....................... $ 175 $ 187 $ 154 $ 164 $ 176
Financial Services .................. 1,199 1,218 1,052 1,248 1,237
Eliminations ........................ - - - (31) (38)
------ ------ ------ ------ ------
Total ............................. $1,374 $1,405 $1,206 $1,381 $1,375
====== ====== ====== ====== ======
Consolidated shareowners' equity ...... $ 775 $ 338 $ 577 $ 815 $ 914
Financial Services
shareowner's equity ................. $ 241 $ 240 $ 237 $ 279 $ 273
Manufacturing long-term debt
as a percent of long-term debt
and shareowners' equity ............. 16% 34% 20% 16% 15%
</TABLE>
<PAGE>
PAGE 61
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- ------------------------------------------------------------------------------------------
For the Years Ended October 31
(Millions of dollars,
except per share data) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
SHAREOWNER DATA
<S> <C> <C> <C> <C> <C>
Market price range (by fiscal year)
High ................................. $31 3/4 $41 1/4 $41 1/4 $48 3/4 $70
Low .................................. 18 3/4 17 1/2 20 21 1/4 37 1/2
Average number of Common,
Class B Common and dilutive
common equivalent shares
outstanding (millions) ............... 34.9 25.3 25.1 25.2 25.6
Number of Common and Class B Common
shares outstanding at October 31
(millions) (e) ....................... 74.7 25.4 25.0 25.0 25.1
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Capital expenditures ................... $ 110 $ 55 $ 77 $ 182 $ 118
Research and development
expenditures ......................... $ 95 $ 90 $ 87 $ 84 $ 91
Depreciation and amortization .......... $ 75 $ 77 $ 73 $ 67 $ 60
Number of employees
Worldwide ............................ 13,612 13,945 13,472 14,071 14,118
United States ........................ 11,934 12,390 12,336 12,899 12,819
- -----------------------------------------------------------------------------------------
OPERATING DATA
North American market share (f) ........ 27.6% 28.4% 29.3% 27.2% 27.1%
Unit shipments
Trucks ............................... 87,200 73,200 70,200 80,200 90,200
OEM Engines .......................... 118,200 97,400 74,800 100,900 106,700
Service parts sales .................... $ 632 $ 571 $ 530 $ 558 $ 543
<FN>
(a) In July 1993, the Company issued approximately 25.6 million shares of Class B Common
Stock to the Supplemental Trust. See Note 21 to the Financial Statements.
(b) Taxes for the year ended October 31, 1993 reflect the adoption of SFAS 109. See
Note 5 to the Financial Statements.
(c) The 1992 loss on discontinued operations resulted from a $65 million, or $2.58
per common share, charge on the settlement of litigation with the Pension Benefit
Guaranty Corporation. See Note 6 to the Financial Statements.
(d) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109 retroactive
to November 1, 1992. See Note 1 to the Financial Statements.
(e) The common shares outstanding at October 31, 1993 include 25.6 million Class B Common
shares issued to the Supplemental Trust in July 1993 and 23.6 million Common shares
sold through a public offering completed on October 21, 1993.
(f) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including school
bus chassis, and heavy trucks (Class 8) in the United States and Canada.
(g) Earnings per share are calculated based on the weighted average number of Common and
Class B Common shares outstanding at the end of each fiscal year. See Notes 7 and 21
to the Financial Statements.
</TABLE>
<PAGE>
PAGE 62
About Your Stock
Navistar International Corporation Common Stock is listed on the New
York, Chicago and Pacific stock exchanges and is quoted as "Navistar" in
stock table listings in daily newspapers. The abbreviated stock symbol is
"NAV".
The stock transfer agent who can answer inquiries about your Navistar
International Corporation Common Stock is: Harris Trust and Savings Bank,
311 W. Monroe, 11th Floor, Chicago, Illinois 60606; Telephone:(312) 461-
3932.
There were approximately 75,448 owners of Common Stock at October 31,
1993.
Dividend and Price Range
The accompanying table shows the range of a composite of Common Stock
prices at close of trade for the past two fiscal years.
Price Range
-------------------------------------------
1993 1992
Fiscal Quarter High Low High Low
- ------------------------------------------------------------------
1st .............. $31 3/4 $18 3/4 $38 3/4 $23 3/4
2nd .............. 30 25 41 1/4 30
3rd .............. 30 21 1/4 32 1/2 25
4th .............. 27 7/8 19 3/4 26 1/4 17 1/2
As described in Note 7 to the Financial Statements, the Company has
resumed payment of the annual dividend of $6.00 per share on its Series G
Cumulative Preferred Stock. Dividends in arrears were paid on December
15, 1993 to shareowners of record as of December 5, 1993. Dividends
currently are not paid on its Common Stock.
Commitment to Equal Employment Opportunity
Navistar International Corporation has a long standing commitment to
equal employment opportunity dating back to 1919 when the Company issued
its first written statement against discrimination in the workplace.
Today, Navistar continues to provide equal opportunity to all
employees and applicants for employment and prohibits discrimination in
all employment practices because of age, race, color, sex, marital status,
religion, ancestry, national origin, disability, medical condition,
political affiliation or veteran status.
<PAGE>
PAGE 63
INFORMATION FOR OUR INVESTORS
Trademarks
Navistar logotype and Navistar are registered trademarks of Navistar
International Corporation. The Diamond Road symbol and International are
registered trademarks of Navistar International Transportation Corp.
Reports and Publications
This Annual Report includes a substantial portion of the financial
information and certain other data required to be filed with the
Securities and Exchange Commission.
A copy of the Company's 1993 Annual Report on Form 10-K to the
Securities and Exchange Commission will be provided, without charge, to
shareowners upon written request to the Corporate Secretary, Corporate
Headquarters, after January 31, 1994.
Quarterly reports containing financial information and other Company
news are mailed as soon as available after quarter end. A summary of the
annual meeting of shareowners is also available in the second fiscal
quarterly report.
Other publications, including news releases, are available by writing
Corporate Communications, Corporate Headquarters.
Annual Meeting
The 1994 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 16, 1994, at the Art Institute of Chicago in the
Arthur Rubloff Auditorium.
Shareowners are invited to attend this meeting, take part in
discussions of Company affairs and meet personally with the directors and
officers responsible for the operations of Navistar.
A Proxy Statement and Form of Proxy will be mailed to each shareowner
on or about January 27, 1994.
Corporate Headquarters
The corporate offices of Navistar International Corporation and its
principal subsidiary, Navistar International Transportation Corp., are
located at 455 N. Cityfront Plaza Drive, Chicago, Illinois 60611;
Telephone: (312) 836-2000.
<PAGE>
PAGE 64
<TABLE>
<CAPTION>
Directors and Officers
- --------------------------------------------------------------------------------------------------------------------------------
NAVISTAR INTERNATIONAL
NAVISTAR INTERNATIONAL CORPORATION TRANSPORTATION CORP.
- --------------------------------------------------------------------------------------------------------------------------------
Board of Directors Principal Officers Principal Officers
- ---------------------------------------------------------------- ------------------ -----------------------------
<S> <S> <S> <S>
Jack R. Anderson William C. Craig James C. Cotting James C. Cotting
President Former Executive Vice President Chairman and Chairman and
Calver Corporation Mack Trucks Chief Executive Officer Chief Executive Officer
Health Care Consulting Manufacturer of Trucks John R. Horne John R. Horne
and Investments Jerry E. Dempsey President and President and
William F. Andrews Chairman and Chief Operating Officer Chief Operating Officer
Advisor and Consultant Chief Executive Officer Robert C. Lannert Robert C. Lannert
Investor International PPG Industries Inc. Executive Vice President and Executive Vice President and
(U.S.), Inc. Diversified Global Manufacturer Chief Financial Officer Chief Financial Officer
Investment Firm of Glass, Protective Coatings
Chairman and and Chemicals Robert A. Boardman
Chief Executive Officer Mary Garst Senior Vice President and Group Vice Presidents*
Amdura Corp. Manager, Cattle Division General Counsel
Manufacturer of Waste Garst Company John J. Bongiorno
Management Equipment Agri-Business Company Thomas M. Hough General Manager
Chairman of Utica Corp. Dr. Arthur G. Hansen Vice President and Financial Services
Manufacturer of Aircraft Educational Consultant Treasurer David J. Johanneson
Turbine Blades President Emeritus Truck Businesses
Wallace W. Booth Purdue University Robert I. Morrison James T. O'Dare, Jr.
Retired Chairman and John R. Horne Vice President and Sales and Distribution
Chief Executive Officer President and Controller Daniel C. Ustian
Ducommun Incorporated Chief Operating Officer General Manager
Manufacturer of Navistar International Steven K. Covey Engine and Foundry
Components and Assemblies Corporation Corporate Secretary Dennis W. Webb
for the Aerospace Industry Robert C. Lannert International Operations
Dr. Andrew F. Brimmer Executive Vice President and and Business Development
President Chief Financial Officer
Brimmer & Company, Inc. Navistar International Senior Vice Presidents
Economic and Financial Corporation
Consulting Donald D. Lennox Robert A. Boardman
Bill Casstevens Chairman of the Board General Counsel
Secretary - Treasurer of the UAW International Imaging John M. Sheahin
Richard F. Celeste Materials Inc. Employee Relations
Principal Manufacturer of Thermal and Administration
Celeste & Sabety, Ltd. Transfer Ribbons
Public Policy Consulting Firm Retired Chairman of the Board Vice Presidents
Chairman and Chief Executive Officer
Democratic National Committee's Navistar International Kirk A. Gutmann
National Health Care Campaign Corporation Engineering
James C. Cotting Elmo R. Zumwalt, Jr. Thomas M. Hough
Chairman and President Treasurer
Chief Executive Officer Admiral Zumwalt, & Robert I. Morrison
Navistar International Consultants, Inc. Controller
Corporation Management Consultants James L. Simonton
Materials Management
Dale E. Snyder
Committees of the Board Truck Manufacturing
- ----------------------- Dean P. Stanley
Quality Management
Executive Committee Audit Committee and Technology
James C. Cotting, Chairman Andrew F. Brimmer, Chairman Brian B. Whalen
William F. Andrews Jack R. Anderson Public Affairs
Bill Casstevens Richard F. Celeste
Jerry E. Dempsey Mary Garst Secretary
Arthur G. Hansen Arthur G. Hansen
John R. Horne Donald D. Lennox Gregory Lennes
Donald D. Lennox
Public Policy Committee
Committee on Organization Mary Garst, Chairwoman
Wallace W. Booth, Chairman Jack R. Anderson
William F. Andrews William F. Andrews
William C. Craig Andrew F. Brimmer
Jerry E. Dempsey Bill Casstevens
Arthur G. Hansen Richard F. Celeste
Elmo R. Zumwalt, Jr. Elmo R. Zumwalt, Jr.
Finance Committee
Donald D. Lennox, Chairman
Wallace W. Booth
Andrew F. Brimmer
Bill Casstevens
James C. Cotting
William C. Craig
Jerry E. Dempsey *At December 31, 1993
</TABLE>
PAGE 1
EXHIBIT 22
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
SUBSIDIARIES OF THE REGISTRANT
AS OF OCTOBER 31, 1993
STATE OR
COUNTRY IN
WHICH
SUBSIDIARY
ORGANIZED
------------
Subsidiary included in the financial
Statements, which is 100% owned:
Navistar International Transportation Corp. ........ Delaware
Subsidiaries that are 100% owned by Navistar
International Transportation Corp.:
Navistar International Corporation Canada ........ Canada
Navistar Financial Corporation ................... Delaware
Harbour Assurance Company of Bermuda Limited ..... Bermuda
Subsidiaries and corporate joint ventures not shown by name in the
above listing, if considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary. Financial information for the
domestic and foreign finance and insurance subsidiaries appears as
supplemental information on the Statement of Income (Loss), Statement of
Financial Condition and Statement of Cash Flow in the 1993 Annual Report to
Shareowners.
E-6
<PAGE>
EXHIBIT 28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-4146-1
NAVISTAR FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2472404
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
2850 WEST GOLF ROAD 60008
ROLLING MEADOWS, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 708-734-4275
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
7 1/2% Debentures, due 1994 New York Stock Exchange
11.95% Subordinated Debentures, due 1995 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
AS OF DECEMBER 31, 1993, THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S
COMMON STOCK WAS 1,600,000.
DOCUMENTS INCORPORATED BY REFERENCE
1993 ANNUAL REPORT TO SHAREOWNER (PARTS II AND IV)
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF NAVISTAR INTERNATIONAL
TRANSPORTATION CORP. AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1) (A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-K
YEAR ENDED OCTOBER 31, 1993
Navistar Financial Corporation's 1993 Annual Report to Shareowner contains
much of the financial information required in this Form 10-K. Such information
is incorporated in this Form 10-K by reference to applicable pages of the 1993
Annual Report to Shareowner, a complete copy of which is provided herein.
Except for those pages specifically referred to herein as incorporated by
reference, the 1993 Annual Report to Shareowner shall not be deemed to be filed
with the Commission.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
PART I Item 1. Business (A).......................................... 1
Item 2. Properties (A)........................................ 1
Item 3. Legal Proceedings..................................... 1
Submission of Matters to a Vote of Security Holders
Item 4. (A).................................................. 1
PART II Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................... 2
Item 6. Selected Financial Data (A)........................... 2
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations (A)............................. 2
Item 8. Financial Statements and Supplementary Data........... 2
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 2
Directors and Executive Officers of the Registrant
PART III Item 10. (A).................................................. 2
Item 11. Executive Compensation (A)............................ 2
Security Ownership of Certain Beneficial Owners and
Item 12. Management (A)....................................... 2
Item 13. Certain Relationships and Related Transactions (A).... 2
Exhibits, Financial Statement Schedules and Reports on
PART IV Item 14. Form 8-K............................................. 2
INDEPENDENT AUDITORS' REPORT............................................. 4
SIGNATURES--Principal Accounting Officer................................. 4
--Directors.............................................................. 5
POWER OF ATTORNEY........................................................ 5
SCHEDULES................................................................ S-1
EXHIBITS................................................................. E-1
</TABLE>
- --------
(A) Omitted or amended as the registrant is a wholly-owned subsidiary of
Navistar International Transportation Corp. and meets the conditions set
forth in General Instructions J(1) (a) and (b) of Form 10-K and is,
therefore, filing this Form with reduced disclosure format.
i
<PAGE>
PART I
ITEM 1. BUSINESS
The registrant, Navistar Financial Corporation ("NFC"), was incorporated in
Delaware in 1949 and is a wholly-owned subsidiary of Navistar International
Transportation Corp. ("Transportation"), which is wholly-owned by Navistar
International Corporation ("Navistar"). As used herein, the "Corporation"
refers to Navistar Financial Corporation and its wholly-owned subsidiaries
unless the context otherwise requires.
The Corporation provides wholesale, retail, and to a lesser extent, lease
financing in the United States for sales of new and used trucks sold by
Transportation and Transportation's dealers. The Corporation also finances
wholesale accounts and selected retail accounts receivable of Transportation.
To a minor extent, sales of new products (including trailers) of other
manufacturers are also financed regardless of whether designed or customarily
sold for use with Transportation truck products. Harco National Insurance
Company, NFC's wholly-owned insurance subsidiary, provides commercial physical
damage and liability insurance coverage to Transportation's dealers and retail
customers, and to the general public through the independent insurance agency
system.
ITEM 2. PROPERTIES
The Corporation uses leased facilities to carry out most of the
administrative and finance sales activities.
ITEM 3. LEGAL PROCEEDINGS
In July 1992, Navistar announced its decision to change its retiree health
care benefit plans, including those of the Corporation. Navistar concurrently
filed a declaratory judgment class action lawsuit to confirm its right to
change these benefits in the U.S. District Court for the Northern District of
Illinois ("Illinois Court"). A countersuit was subsequently filed against
Navistar by its unions in the U.S. District Court for the Southern District of
Ohio. On October 16, 1992, Navistar withdrew its declaratory judgment action in
the Illinois Court and began negotiations with the United Automobile, Aerospace
and Agricultural Implement Workers of America ("UAW") to resolve issues
affecting both retirees and employees. On December 17, 1992, Navistar announced
that a tentative agreement had been reached with the UAW on restructuring
retiree health care and life insurance benefits ("the Settlement Agreement").
During the third quarter of 1993, all court, regulatory agency and shareowner
approvals required to implement the Settlement Agreement concerning retiree
health care benefit plans were obtained. The Settlement Agreement became
effective and the restructured retiree health care and life insurance plan was
implemented on July 1, 1993.
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck &
Equipment, Inc. and against Transportation and the Corporation in the amount of
$10.8 million in compensatory damages and $15 million in punitive damages. The
amount of any potential liability is uncertain and Transportation and the
Corporation believe that there are meritorious arguments for overturning or
diminishing the verdict on appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Intentionally omitted. See the index page of this Report for explanation.
1
<PAGE>
PART II
The information required by Items 5, 7 and 8 is incorporated by reference
from the 1993 Annual Report to Shareowner on the pages indicated:
<TABLE>
<CAPTION>
1993 ANNUAL
REPORT PAGE
-----------
<S> <C>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 16
ITEM 6. SELECTED FINANCIAL DATA
Intentionally omitted. See the index page of this Report for
explanation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .................................. 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Navistar Financial Corporation and Subsidiaries:
Statement of Consolidated Income and Retained Earnings for the
years ended October 31, 1993, 1992 and 1991..................... 5
Statement of Consolidated Financial Condition as of October 31,
1993 and 1992................................................... 6
Statement of Consolidated Cash Flow for the years ended October
31, 1993, 1992 and 1991......................................... 7
Notes to Consolidated Financial Statements....................... 8
Independent Auditors' Report..................................... 20
</TABLE>
----------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12 AND 13
Intentionally omitted. See the index page of this Report for explanation.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
See Index to Financial Statements in Item 8.
Financial Statement Schedules
<TABLE>
<CAPTION>
FORM 10-K
PAGE
---------
<S> <C>
I--Marketable Securities--Other Investments...................... S-1
IX--Short-Term Borrowings.......................................... S-2
</TABLE>
2
<PAGE>
All schedules other than Schedules I and IX indicated above are omitted
because of the absence of the conditions under which they are required or
because information called for is shown in the financial statements and notes
thereto in the 1993 Annual Report to Shareowner.
EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
EXHIBIT FORM 10-K
NUMBER DESCRIPTION PAGE
------- ----------- ---------
<C> <S> <C>
(3) Articles of Incorporation and By-Laws of the Registrant.. E-1
(4) Instruments Defining the Rights of Security Holders...... E-2
(10) Material Contracts....................................... E-3
Navistar Financial Corporation 1993 Annual Report to
(13) Shareowner............................................... N/A
(25) Power of Attorney........................................ 5
</TABLE>
Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended October 31,
1993.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
Navistar Financial Corporation:
We have audited the statement of consolidated financial condition of Navistar
Financial Corporation and its subsidiaries as of October 31, 1993 and 1992 and
the related statements of consolidated income and retained earnings and of
consolidated cash flow for each of the three years in the period ended October
31, 1993, and have issued our report thereon dated December 1, 1993 (which
includes an explanatory paragraph relating to the change in methods of
accounting for postretirement benefits other than pensions and for income taxes
as required by Statements of Financial Accounting Standards No. 106 and No.
109); such consolidated financial statements and report are included in your
1993 Annual Report to Shareowner and are incorporated herein by reference. Our
audits also included the financial statement schedules of Navistar Financial
Corporation and its subsidiaries, listed in Item 14. These financial statement
schedules are the responsibility of Navistar Financial Corporation's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Deloitte & Touche
Chicago, Illinois
December 1, 1993
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)
January 27, 1994
/s/ Andrew C. Hill
By: _________________________________
Andrew C. Hill
Vice President and Controller
(Principal Accounting Officer)
4
<PAGE>
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
EXHIBIT 25
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute and
appoint John J. Bongiorno, Andrew C. Hill and William W. Jones and each of them
acting individually, true and lawful attorneys-in-fact and agents with power to
act without the other and with full power of substitution, to execute, deliver
and file, for and on such person's behalf, and in such person's name and
capacity or capacities as stated below, any amendment, exhibit or supplement to
the Form 10-K Report making such changes in the report as such attorney-in-fact
deems appropriate.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John J. Bongiorno January 27, 1994
- ------------------------------------
John J. Bongiorno President and Chief
Executive Officer; Director
(Principal Executive
Officer)
/s/ R. Wayne Cain January 27, 1994
- ------------------------------------
R. Wayne Cain Vice President and
Treasurer; Director
(Principal Financial
Officer)
/s/ James C. Cotting
- ------------------------------------
James C. Cotting Director January 27, 1994
/s/ Andrew C. Hill January 27, 1994
- ------------------------------------
Andrew C. Hill Vice President and
Controller; Director
(Principal Accounting
Officer)
/s/ Thomas M. Hough
- ------------------------------------
Thomas M. Hough Director January 27, 1994
/s/ John R. Horne
- ------------------------------------
John R. Horne Director January 27, 1994
/s/ Robert C. Lannert
- ------------------------------------
Robert C. Lannert Director January 27, 1994
/s/ Robert I. Morrison
- ------------------------------------
Robert I. Morrison Director January 27, 1994
/s/ Thomas D. Silver
- ------------------------------------
Thomas D. Silver Director January 27, 1994
</TABLE>
5
<PAGE>
SCHEDULE I
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MARKETABLE SECURITIES--OTHER INVESTMENTS
AS OF OCTOBER 31, 1993
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ---------- ---------- -----------
NUMBER OF
SHARES OR
UNITS-- MARKET AMOUNT AT
PRINCIPAL VALUE OF WHICH
AMOUNT OF EACH ISSUE CARRIED IN
NAME OF ISSUER AND TITLE OF EACH BONDS AND COST OF AT BALANCE THE BALANCE
ISSUE NOTES EACH ISSUE SHEET DATE SHEET
-------------------------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
MARKETABLE SECURITIES
U.S. Government Obligations........ $74.8 $ 69.6 $ 74.5 $ 70.1
Foreign Government Obligations..... 1.6 1.7 1.6
Corporate Obligations.............. 17.9 18.4 17.8
Asset-backed Obligations........... 12.5 13.0 12.5
Mortgage-backed Obligations........ 23.6 24.4 23.6
------ ------ ------
Total............................ $125.2 $132.0 $125.6
====== ====== ======
</TABLE>
S-1
<PAGE>
SCHEDULE IX
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED OCTOBER 31, 1993, 1992 AND 1991
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- --------- ------------- ----------- ------------- -------------
WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE AMOUNT AMOUNT AVERAGE
BALANCE INTEREST RATE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE AT END AT END DURING DURING DURING
SHORT-TERM BORROWINGS OF PERIOD OF PERIOD THE PERIOD THE PERIOD(1) THE PERIOD(2)
--------------------- --------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1993
Borrowings from banks... $ 75.0 6.50% $ 75.0 $ .6 6.50%
Commercial paper
borrowings............. -- -- $ -- -- --
------ ------
Total............... $ 75.0 6.50% $ 75.0 $ .6 6.50%
====== ======
1992
Borrowings from banks... $ -- -- $ 40.0 $ 11.9 5.60%
Commercial paper
borrowings............. -- -- $163.3 44.3 5.47%
------ ------
Total............... $ -- -- $203.3 $ 56.2 5.50%
====== ======
1991
Borrowings from banks... $ 40.0 5.81% $170.0 $ 60.6 7.19%
Commercial paper
borrowings............. 143.8 6.03% $393.2 315.7 7.12%
------ ------
Total............... $183.8 5.98% $563.2 $376.3 7.13%
====== ======
</TABLE>
- --------
Notes:
(1)The amount outstanding is calculated based on average daily borrowings
outstanding.
(2)Calculated by dividing the actual interest for the year by the average daily
balance outstanding.
S-2
<PAGE>
EXHIBIT 3
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
ARTICLES OF INCORPORATION AND BY-LAWS
The following documents of Navistar Financial Corporation are incorporated
herein by reference:
3.1 Restated Certificate of Incorporation of Navistar Financial
Corporation (as amended and in effect on December 15, 1987).
Filed on Form 8-K dated December 17, 1987. Commission File No.
1-4146-1.
3.2 The By-Laws of Navistar Financial Corporation (as amended
February 29, 1988). Filed on Form 10-K dated January 19, 1989.
Commission File No. 1-4146-1.
E-1
<PAGE>
EXHIBIT 4
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
The following instruments of Navistar Financial Corporation defining the
rights of security holders, including indentures, are incorporated herein by
reference:
4.1 Indenture, dated as of January 15, 1973, between the Corporation
and Manufacturers Hanover Trust Company, as Trustee, succeeded
by Commerce Union Bank, now known as Sovran Bank/Central South,
as successor Trustee, for 7 1/2% Debentures due 1994 for
$75,000,000. Filed on Registration No. 2-46636.
4.2 Indenture, dated November 1, 1985 between the Corporation and
Continental Bank N. A., as Trustee, succeeded by State Street
Bank and Trust Company, as successor Trustee, for 11.95%
Subordinated Debentures due 1995 for $100,000,000. Filed on
Registration No. 33-1259; 33-1259-01.
4.3 Indenture, dated September 22, 1989 between the Corporation and
The First National Bank of Chicago, as Trustee, succeeded by
Bank One, Columbus, NA, as successor Trustee, for $400,000,000
of debt securities on terms determined at time of sale. Filed on
Registration No. 33-31003.
4.4 Indenture, dated as of November 15, 1993 between the Corporation
and Continental Bank, National Association, as Trustee, for 8
7/8% Senior Subordinated Notes due 1998 for $100,000,000. Filed
on Registration No. 33-50541.
E-2
<PAGE>
EXHIBIT 10
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
The following material contracts of Navistar Financial Corporation and
Navistar International Transportation Corp. are incorporated herein by
reference:
<TABLE>
<C> <S>
10.1 Pooling and Servicing Agreement dated as of December 1, 1990
between the Corporation, as Servicer, Navistar Financial
Securities Corporation, as Seller, and Manufacturers Hanover
Trust Company, as Trustee. Filed on Registration No.
33-36767.
10.2 Purchase Agreement dated as of December 1, 1990 between the
Corporation and Navistar Financial Securities Corporation, as
Purchaser, with respect to the Dealer Note Trust 1990. Filed
on Registration No. 33-36767.
10.3 Pooling and Servicing Agreement dated as of December 1, 1991
between the Corporation, as Servicer, Navistar Financial
Retail Receivables Corporation, as Seller, and The Bank of
New York, as Trustee, with respect to Navistar Financial
1991-1 Grantor Trust. Commission File No. 1-4146-1.
10.4 Navistar Financial Grantor Trusts Standard Terms and
Conditions of Agreement Effective December 1, 1991 between
the Corporation, as Servicer, and Navistar Financial Retail
Receivables Corporation, as Seller, with respect to Navistar
Financial Grantor Trusts formed on or subsequent to December
1, 1991. Commission File No. 1-4146-1.
10.5 Purchase Agreement dated as of December 16, 1991 between the
Corporation and Navistar Financial Retail Receivables
Corporation, as Purchaser, with respect to Navistar Financial
1991-1 Grantor Trust. Commission File No. 1-4146-1.
10.6 Amended and Restated Credit Agreement dated as of April 26,
1993 among the Corporation, certain banks, and Chemical Bank,
Continental Bank N.A. and Morgan Guaranty Trust Company of
New York, as Co-Agents. Filed on Form 8-K dated April 30,
1993. Commission File No. 1-4146-1.
10.7 Security, Pledge and Trust Agreement between the Corporation
and Bankers Trust Company, Trustee, dated as of April 26,
1993. Filed on Form 8-K dated April 30, 1993. Commission File
No. 1-4146-1.
10.8 Amended and Restated Purchase Agreement among Truck Retail
Instalment Paper Corp., as Seller, the Corporation, certain
purchasers, Chemical Bank and Continental Bank N.A. as Co-
Agents, and J.P. Morgan Delaware as Administrative Agent,
dated as of April 26, 1993. Filed on Form 8-K dated April 30,
1993. Commission File No.
1-4146-1.
10.9 Master Intercompany Agreement dated as of April 26, 1993
between the Corporation and Transportation. Filed on Form 8-K
dated April 30, 1993. Commission File No.
1-4146-1.
10.10 Intercompany Purchase Agreement dated as of April 26, 1993
between the Corporation and Truck Retail Instalment Paper
Corp. Filed on Form 8-K dated April 30, 1993. Commission File
No. 1-4146-1.
10.11 Pooling and Servicing Agreement dated as of November 10, 1993
between the Corporation, as Servicer, and Navistar Financial
Retail Receivables Corporation, as Seller, and Navistar
Financial 1993-A Owner Trust. Filed on Registration No.
33-50291.
</TABLE>
E-3
<PAGE>
EXHIBIT 10 (CONTINUED)
NAVISTAR FINANCIAL CORPORATION
AND SUBSIDIARIES
MATERIAL CONTRACTS
10.12 Purchase Agreement dated as of November 10, 1993 between the
Corporation and Navistar Financial Retail Receivables
Corporation, as Purchaser, with respect to Navistar Financial
1993-A Owner Trust. Filed on Registration No. 33-50291.
10.13 Administration Agreement dated as of November 10, 1993 between
the Corporation, The Bank of New York, as Indenture Trustee, and
Navistar Financial 1993-A Owner Trust. Filed on Registration No.
33-50291.
E-4
<PAGE>
NAVISTAR FINANCIAL LOGO
NAVISTAR FINANCIAL LOGO
1993
ANNUAL
REPORT
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Business of Navistar Financial Corporation
- --------------------------------------------------------------------------------
Financial Highlights.......................................................... 1
President's Letter............................................................ 2
Statement of Consolidated Income and Retained Earnings........................ 5
Statement of Consolidated Financial Condition................................. 6
Statement of Consolidated Cash Flow........................................... 7
Notes to Consolidated Financial Statements.................................... 8
Statement of Financial Reporting Responsibility...............................19
Independent Auditors' Report..................................................20
Management's Discussion and Analysis..........................................21
Five Year Summary of Financial and Operating Data.............................25
Directors and Officers........................................................29
Information for Investors.....................................................30
Office Locations..............................................................31
Navistar Financial Corporation ("NFC") and subsidiaries (the "Corporation")
provide wholesale, retail, and to a lesser extent, lease financing in the
United States for sales of new and used trucks sold by its parent Company,
Navistar International Transportation Corp. ("Transportation"), and Transporta-
tion's dealers. The Corporation also finances wholesale accounts and selected
retail accounts receivable of Transportation. To a minor extent, sales of new
products (including trailers) of other manufacturers are also financed regard-
less of whether designed or customarily sold for use with Transportation truck
products. Harco National Insurance Company, NFC's wholly-owned insurance sub-
sidiary, provides commercial physical damage and liability insurance coverage
to Transportation's dealers and retail customers, and to the general public
through the independent insurance agency system.
- --------------------------------------------------------------------------------
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Dollar amounts in millions
<TABLE>
<CAPTION>
1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEARS ENDED OCTOBER 31
NET INCOME
Income before taxes on income and cumulative effect of
changes in accounting policy:
Finance operations....................................... $ 47.9 $ 36.6
Insurance operations..................................... 1.1 9.8
-------- --------
Total................................................... 49.0 46.4
Taxes on income........................................... 17.7 16.9
Cumulative effect of changes in accounting policy, net of
income taxes............................................. 8.8 --
-------- --------
Total................................................... $ 22.5 $ 29.5
======== ========
DIVIDENDS PAID............................................. $ 22.6 $ 16.0
GROSS FINANCE RECEIVABLES AND LEASES ACQUIRED
Retail notes and leases................................... $ 898.4 $ 777.7
Wholesale notes........................................... 1,977.6 1,547.7
-------- --------
Total................................................... $2,876.0 $2,325.4
======== ========
GROSS INSURANCE PREMIUMS WRITTEN........................... $ 65.8 $ 69.2
CREDIT LOSS EXPERIENCE (includes sold notes)
Net losses charged off on receivables..................... $ .7 $ 3.2
Percent net losses to liquidations........................ .03% .13%
AS OF OCTOBER 31
FINANCE RECEIVABLES
Retail notes and lease financing.......................... $ 810.8 $ 951.7
Wholesale notes........................................... 259.0 128.0
Accounts.................................................. 245.1 204.3
Other notes............................................... 20.6 19.2
-------- --------
Total................................................... $1,335.5 $1,303.2
======== ========
CAPITALIZATION
Short-term bank borrowings................................ $ 75.0 $ --
Medium-term notes and debentures.......................... 297.2 396.1
Bank revolving credit..................................... 727.0 727.0
Subordinated debt......................................... 100.0 94.9
Shareowner's equity....................................... 219.4 219.5
-------- --------
Total................................................... $1,418.6 $1,437.5
======== ========
Debt to equity ratio...................................... 5.5:1 5.5:1
Senior debt to capital funds ratio........................ 3.4:1 3.6:1
NUMBER OF EMPLOYEES........................................ 339 364
</TABLE>
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1
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
President's Letter
- --------------------------------------------------------------------------------
An improving economy in 1993
supported by historically low in-
terest rates helped to strengthen
the customers that Navistar Finan-
cial Corporation ("NFC")
serves and to improve the quality measures of its receivables portfolio.
Industry demand for truck products improved significantly over recent years
increasing Navistar International Transportation Corporation's
("Transportation's") retail unit deliveries by 15% over 1992 and growing NFC's
serviced receivables portfolio to its highest level since 1985.
Net income for the year and return on average equity fell below recent lev-
els as NFC recorded one time charges recognizing liabilities for various
postretirement benefits, principally health care, and for a trust to partially
fund these benefits in the future. Without these charges NFC's return on equity
would have exceeded 15%, the highest in NFC's 44 year history.
During the year, major initiatives were undertaken to renew existing sources
of funding as well as to access new sources to meet the growing financing needs
of Transportation's dealers and customers. Some of the more significant funding
accomplishments and some of the more important operating accomplishments are
briefly described below.
. NFC extended the contractual commitment from its banks to November 15, 1995
for both its $727 million revolving credit facility and its $600 million
retail notes receivable purchase facility.
. In September, the Corporation positioned itself to complete its first sale of
retail notes receivable in the public market by registering $1 billion of
retail note asset-backed securities with the Securities and Exchange
Commission. On November 10, the Corporation used part of this Registration to
sell $335 million of retail notes. The asset-backed notes received the
highest credit rating from Moody's Investors Service ("Moody's") and Standard
and Poor's Corporation ("Standard and Poor's").
. In December 1993, NFC redeemed its $100 million of 11.95% subordinated debt
due December 1995 using the proceeds from a new 8 7/8% subordinated issue due
November 1998. Standard and Poor's raised its rating for the Corporation's
subordinated debt to B+ from CCC, and Moody's and Duff and Phelps confirmed
their ratings of B2 and BB, respectively.
. In October, Standard and Poor's raised its rating for the Corporation's
senior debt from B- to BB and Moody's confirmed its previous rating of Ba3.
In November, Duff and Phelps confirmed a BB+ rating.
. NFC acquired the highest dollar volume of retail financing and leases since
1984 and increased its unit share of financing and leasing of new
Transportation truck products to 15.3% from 13.7% in 1992. This share was
also the highest achieved since 1984.
. 52 of Transportation's dealerships participated with NFC in developing joint
marketing plans. The plans, which are customized to meet each dealer's needs,
are designed to increase dealer profitability through increased retail
financing business. Of the participating dealership locations, 65% increased
the percentage of units financed with NFC, increasing the number of new
trucks financed at these locations by 39% during the plan period. This
activity was initiated in 1992. The number of participants increased
significantly in 1993. We expect the number of participating dealers to
ultimately reach 100 to 150.
. Guided by its retail information strategic plan, NFC continued the re-
engineering of its retail customer information systems and processes.
Implementation of the new systems and processes, which integrate with the re-
engineered credit approval processes completed last year, will occur in the
first quarter of 1994.
. For the seventh consecutive year, the A.M. Best Company affirmed their A+
rating for Harco National Insurance Company ("Harco"), the Corporation's
wholly-owned insurance subsidiary.
1993 RESULTS
The Corporation's net income for 1993 excluding special charges increased $4
million or 13% over 1992 as a result of a higher volume of retail receivables
sold, a reduction in administrative expense caused by the increase in sold re-
tail note balances and lower credit losses. Harco's results suffered from a se-
vere deterioration in the loss experience of its
- --------------------------------------------------------------------------------
2
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
President's Letter
- --------------------------------------------------------------------------------
truck liability program. Special charges for 1993 included a $9 million net of
tax charge for the adoption of new accounting standards for retiree benefits
and income taxes and a $2 million net of tax charge representing NFC's share of
a trust and of Navistar common stock established to help pay for retiree health
care benefits in the future.
RECEIVABLES
Serviced (owned and sold) truck receivable balances totaled $2.3 billion at
October 31, 1993, up 15% from the $2 billion level of 1992 and 1991.
Gross acqui-
sitions of re-
tail notes and
leases increased
15% to $898 mil-
lion, the high-
est level in al-
most ten years.
While some of
this increase is
attributable to TRUCK RECEIVABLES
NFC's success in SERVICED
expanding its CHART APPEARS HERE
share of new In-
ternational
truck financing,
a strong U.S.
industry coupled
with Transporta-
tion's continued
leadership in
the class 5 to 8
truck markets
was the
most significant contributing factor. NFC financed or leased 15.3% of the 1993
retail unit sales of new trucks manufactured by Transportation, up from 13.7%
in 1992 and the highest penetration in almost ten years. Significant progress
was made in providing medium truck financing as Transportation dealers sup-
ported NFC's effort to provide a finance quote to each retail customer as an
alternative to their traditional sources.
Serviced wholesale note balances increased to $559 million at October 31,
1993 from $402 million a year ago as Transportation and its dealers adjusted
their respective production and wholegoods inventory to meet a strong industry
demand. NFC's wholesale note acquisitions grew to $2 billion in 1993 up from
$1.5 billion in 1992 and 1991, with turnover increasing to 3.8 times in 1993
compared to 3.5 times in 1992 and 1991. NFC continued in its role as a major
provider of wholegoods financing to Transportation's dealers by financing 90%
of new International trucks sold to dealers during 1993 and 89% in both 1992
and 1991.
With a strengthened economy and improved credit and collection processes,
credit losses in 1993, including losses on sold notes, dropped to $.7 million
which is the lowest level ever and represent only .03% of average outstanding
balances. Total losses in 1992 were a more normal $3.2 million or .16% of aver-
age outstanding balances. Year-end delinquencies of retail notes were also down
from 1992 with balances having installments past due over 60 days at .08% of
serviced retail note balances compared to .19% at October 31, 1992. These sta-
tistics underscore the financial stability of the International dealers and the
retail customers that NFC serves.
FUNDING ACTIONS
In 1993, the Corporation positioned itself to utilize a strong, reliable and
inexpensive source of funding by securing access to the public asset-backed se-
curities market. In September, a $1 billion shelf registration of securities
backed by retail notes was completed allowing NFC to sell quickly into the pub-
lic market, which it did in November 1993. In 1992, the Corporation demon-
strated its ability to access the private retail asset-backed securities market
with a $209 million sale which received the highest credit rating from Moody's
and Standard and Poor's. The Corporation also has in place a $300 million re-
volving wholesale note sales trust which provides for the continuous sale of
all eligible wholesale notes on a daily basis. The wholesale note-backed secu-
rities mature annually in $100 million tranches beginning in 1997. Access to
this variety of asset-backed markets helps to assure that NFC will be able to
provide receivable financing support for Transportation's dealers and custom-
ers.
In April, the Corporation extended its $727 million committed revolving
credit line with 21 banks to November 1995 in return for granting a security
interest to debtholders in substantially all of the Corporation's assets. The
revolving credit facility was primarily used in 1993 to finance receivables
that earn interest that varies with the prime rate. NFC's $600 million retail
receivables purchase facility with 14 of the 21 revolver banks was also ex-
tended to November 1995. With the extensions of the bank facilities and NFC's
demonstrated ability to sell asset-backed securities in both public and private
markets, we are confident that funding is available to adequately support the
marketing efforts of Transportation and its dealers.
- --------------------------------------------------------------------------------
3
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
President's Letter
- --------------------------------------------------------------------------------
Over the years, NFC has followed a dividend policy designed to maintain a
reasonable debt to equity ratio that is acceptable to its lenders. During 1993,
regular dividends of $13 million and special dividends of $10 million were paid
to Transportation, resulting in a year-end debt to equity ratio of 5.5:1, iden-
tical to year-end 1992.
INSURANCE OPERATIONS
Written and earned premiums of Harco Na-
tional Insur-
ance Company
both de-
creased 4% in
1993 from
1992. The de-
creases re-
flect manage-
ment's deci-
sions to
limit writ- INSURANCE
ings in sev- PREMIUMS
eral states WRITTEN AND
in response EARNED
to recent CHART APPEARS HERE
loss experi-
ence and in-
creased com-
petition.
Several
large, well
capitalized
insurance
companies
have recently
entered the
truck physi-
cal damage
and liability
marketplace
creating ex-
cess capacity for these product lines and thereby limiting Harco's opportunity
to adjust pricing to experience.
Incurred losses for 1993 as a percent of earned premiums increased 9 per-
centage points over 1992 as a result of increased claim activity in Harco's
truck physical damage and liability insurance lines. Loss experience in 1993
was particularly bad in several states and action has been taken to be more se-
lective in writing truck liability in these jurisdictions.
Investment income decreased from lower gains on sales of marketable securi-
ties, lower investment yields and a lower average investment balance. The in-
vestment portfolio at October 31, 1993 was $126 million, down 3% from 1992.
Harco's investment portfolio had an estimated market value of $132 million.
Pretax income for Harco was $1.1 million for 1993 compared to $9.8 million
for the prior two years. Although competition and low interest rates will con-
tinue to pressure Harco's earnings in 1994, pretax income should increase as
actions taken in 1993 to improve operating results begin to take effect.
Gradual growth of the U.S. economy is likely in 1994, which will continue to
improve market conditions for the truck industry. Retail acquisitions should
again be strong, as NFC further develops its dealer sales and fleet finance
programs. Retail portfolio yield will decrease in 1994 as the portfolio contin-
ues to reprice to current interest rates. The lower retail yield will impact
retail margin and gains on sales of retail notes compared to 1993.
As we move into 1994, we will pursue strategies to increase our share of new
International truck retail financing, to maintain sound credit and underwriting
standards and to improve the quality and efficiency of the customer service
that we provide.
NFC values its relationships with its employees, its customers and its lend-
ers. The successes we realized in 1993 could not have been accomplished without
their dedication, support and loyalty. We look forward to 1994 and the chal-
lenges of better serving our customers.
/s/ John J. Bongiorno
- ---------------------
John J. Bongiorno
President and Chief Executive Officer
(PHOTO OF JOHN J. BONGIORNO APPEARS HERE)
- --------------------------------------------------------------------------------
4
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Statement of Consolidated Income and Retained Earnings
- --------------------------------------------------------------------------------
Millions of dollars
<TABLE>
<CAPTION>
Note
For the years ended October 31 1993 1992 1991 Reference
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Retail notes and lease financing............... $101.9 $100.7 $109.6
Wholesale notes................................ 32.0 28.3 36.6
Accounts....................................... 17.5 14.8 19.2
Insurance premiums earned...................... 57.4 59.9 51.7
Marketable securities.......................... 11.4 16.0 10.3
------ ------ ------
Total........................................ 220.2 219.7 227.4
------ ------ ------
EXPENSES
Cost of borrowing:
Interest expense.............................. 74.6 82.2 90.3 Note 8
Other......................................... 4.7 4.5 5.9
------ ------ ------
Total........................................ 79.3 86.7 96.2
Supplemental Trust expense..................... 3.7 -- -- Note 9
Credit, collection and administrative.......... 15.5 18.2 19.2
Provision for losses on receivables............ 1.5 3.6 5.8 Note 6
Insurance claims and underwriting.............. 65.2 61.7 50.6
Other expense, net............................. 6.0 3.1 2.4
------ ------ ------
Total........................................ 171.2 173.3 174.2
------ ------ ------
INCOME BEFORE TAXES ON INCOME AND CUMULATIVE EF-
FECT OF CHANGES IN ACCOUNTING POLICY........... 49.0 46.4 53.2
TAXES ON INCOME................................. 17.7 16.9 20.2 Note 7
------ ------ ------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING POLICY.............................. 31.3 29.5 33.0
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING POLI-
CY............................................. 8.8 -- -- Note 9
------ ------ ------
NET INCOME...................................... 22.5 29.5 33.0
RETAINED EARNINGS
Beginning of year.............................. 48.5 35.0 76.0
Dividends paid................................. (22.6) (16.0) (74.0)
------ ------ ------
End of year.................................... $ 48.4 $ 48.5 $ 35.0 Note 11
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
5
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Statement of Consolidated Financial Condition
- --------------------------------------------------------------------------------
Millions of dollars
<TABLE>
<CAPTION>
Note
As of October 31 1993 1992 Reference
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS........................ $ 33.9 $ 79.2
MARKETABLE SECURITIES............................ 125.6 130.5 Note 4
RECEIVABLES
Finance receivables............................. 1,335.5 1,303.2 Note 5
Allowance for losses............................ (12.0) (12.4) Note 6
-------- --------
Receivables, net............................... 1,323.5 1,290.8
AMOUNTS DUE FROM SALES OF RECEIVABLES............ 75.5 40.7 Note 5
EQUIPMENT ON OPERATING LEASES, NET............... 25.1 16.0
REPOSSESSIONS.................................... 1.8 5.5
OTHER ASSETS..................................... 39.8 46.0
-------- --------
TOTAL ASSETS .................................... $1,625.2 $1,608.7
======== ========
LIABILITIES AND SHAREOWNER'S EQUITY
SHORT-TERM BANK BORROWINGS....................... $ 75.0 $ -- Note 8
ACCOUNTS PAYABLE................................. 77.3 46.7
ACCRUED INCOME TAXES............................. 3.1 3.2
ACCRUED INTEREST................................. 14.4 20.5
SENIOR AND SUBORDINATED DEBT..................... 1,124.2 1,218.0 Note 8
DEALERS' RESERVES................................ 17.3 17.0
UNPAID INSURANCE CLAIMS AND UNEARNED PREMIUMS.... 94.5 83.8
SHAREOWNER'S EQUITY Note 11
Capital stock (Par value $1.00, 1,600,000 shares
issued and outstanding) and paid-in capital.... 171.0 171.0
Retained earnings............................... 48.4 48.5
-------- --------
Total.......................................... 219.4 219.5
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S EQUITY........ $1,625.2 $1,608.7
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
6
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Statement of Consolidated Cash Flow
- --------------------------------------------------------------------------------
Millions of dollars
<TABLE>
<CAPTION>
Note
For the years ended October 31 1993 1992 1991 Reference
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATIONS
Net income..................................... $ 22.5 $ 29.5 $ 33.0
Adjustments to reconcile net income to cash
provided from operations:
Gains on sales of receivables................. (14.6) (6.0) (5.4) Note 5
Depreciation and amortization................. 9.7 8.1 5.3
Provision for losses on receivables........... 1.5 3.6 5.8 Note 6
Cumulative effect of changes in accounting
policy....................................... 8.8 -- --
Supplemental Trust expense.................... 3.7 -- --
Increase (decrease) in accounts payable and
accrued liabilities.......................... (1.8) (22.6) .8
Increase in deferred income taxes............. 3.7 2.8 1.0
Increase (decrease) in accounts payable to af-
filiated companies........................... 14.3 5.9 (12.3)
Increase in unpaid insurance claims and un-
earned premiums.............................. 10.7 3.6 9.5
Other......................................... (3.2) (12.4) (15.6)
------ ------ ------
Total........................................ 55.3 12.5 22.1
------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of retail notes and lease receiv-
ables........................................ (770.2) (658.6) (619.2)
Principal collections on retail notes and
lease receivables............................ 337.4 409.3 309.6
Proceeds from sold retail notes............... 558.2 249.2 236.3
Acquisitions under (over) cash collections of
wholesale notes and
accounts receivable.......................... (171.9) (85.2) 355.7
Purchase of marketable securities............. (58.1) (85.7) (63.0)
Proceeds from sales of marketable securities.. 64.8 76.9 47.0
Increase in property and equipment leased to
others....................................... (14.2) (3.9) (12.8)
------ ------ ------
Total........................................ (54.0) (98.0) 253.6
------ ------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in bank revolving credit facili-
ty........................................... -- 507.0 220.0
Principal payments on term debt............... (99.0) (158.5) (90.0)
Net decrease in commercial paper.............. -- (143.8) (414.3)
Net increase (decrease) in short-term bank
borrowings................................... 75.0 (40.0) (30.0)
Dividends paid to Transportation.............. (22.6) (16.0) (74.0)
Proceeds from issuance of term debt........... -- -- 117.5
------ ------ ------
Total........................................ (46.6) 148.7 (270.8)
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS.......................................... (45.3) 63.2 4.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.. 79.2 16.0 11.1
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR........ $ 33.9 $ 79.2 $ 16.0
====== ====== ======
Supplementary disclosure of cash flow informa-
tion:
Interest paid................................. $ 79.3 $ 79.9 $ 85.7
Income taxes paid............................. 13.5 18.9 20.0
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
7
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
For the Three Years Ended October 31, 1993
Millions of dollars
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Navistar Fi-
nancial Corporation ("NFC") and its wholly-owned subsidiaries ("Corporation").
All significant intercompany accounts and transactions have been eliminated.
All of the Corporation's capital stock is owned by Navistar International
Transportation Corp. ("Transportation"), which is wholly-owned by Navistar In-
ternational Corporation ("Navistar").
Revenue on Receivables
Finance charges on retail notes and finance leases are recognized as income
over the term of the receivables on the accrual basis utilizing the actuarial
method. Interest from interest-bearing notes and accounts is taken into income
on the accrual basis.
Allowance for Losses on Receivables
The Corporation's allowance for losses on receivables is maintained at an
amount management considers appropriate in relation to the outstanding receiv-
ables portfolio. Receivables are charged off to the allowance for losses as
soon as they are determined to be uncollectible based on a note-by-note review,
after all prelitigation collection efforts have been exhausted.
Repossessions are carried at the lower of the unpaid net receivable balance
or estimated realizable value of the equipment.
Receivable Sales
The Corporation sells and securitizes receivables to public and private in-
vestors with limited recourse. The Corporation continues to service the receiv-
ables, for which a servicing fee is received. Gains or losses on sales of re-
ceivables are credited or charged to financing revenue in the period in which
the sale occurs.
Insurance Operations
Insurance premiums are earned on a pro rata basis over the terms of the pol-
icies. Commission costs and premium taxes incurred in acquiring business are
deferred and amortized on the same basis as such premiums are earned. The lia-
bility for unpaid insurance claims includes provisions for reported claims and
an estimate of unreported claims based on past experience. Such provisions in-
clude an estimate of loss adjustment expense.
Income Taxes
The tax effect of each item of revenue or expense reported in the Statement
of Consolidated Income and Retained Earnings is recognized in the current pe-
riod regardless of when the related tax is paid. Navistar and its subsidiaries
file a consolidated Federal income tax return which includes Transportation and
the Corporation. Federal income taxes for the Corporation are computed on a
separate consolidated return basis and are payable to Transportation.
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and marketable securi-
ties with original maturities of three months or less, except for such securi-
ties held by the insurance operations which are included in marketable securi-
ties.
Reclassification
Certain 1992 and 1991 amounts have been reclassified to conform with the
presentation used in the 1993 financial statements.
Changes in Accounting Policy
In the third quarter of fiscal 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") and Statement of Financial Accounting Standards No. 106, "Employers' Ac-
counting for Postretirement Benefits Other Than Pensions" ("SFAS 106") retroac-
tive to November 1, 1992. Disclosures relating to SFAS 109 and SFAS 106 are
provided in notes 7 and 9, respectively. The cumulative effect of adopting
these changes in accounting policy retroactive to November 1, 1992 resulted in
an after tax charge to income of $8.8 in the first quarter of fiscal 1993. The
effect of adopting these changes was not material to the financial results of
the second quarter of fiscal 1993. Periods prior to November 1, 1992 are not
required to be restated for the changes in accounting policy. See note 14 for
the restated quarterly financial information.
- --------------------------------------------------------------------------------
8
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
New Accounting Pronouncements
In December 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113"),
which is applicable to the Corporation's wholly-owned insurance subsidiary,
Harco National Insurance Company. This statement eliminates the practice of re-
porting liabilities relating to reinsured contracts net of the effects of rein-
surance. It requires reinsurance receivables (including amounts related to un-
paid insurance claims) and prepaid reinsurance premiums to be reported as as-
sets. This statement will be adopted in fiscal year 1994. The Corporation has
not yet determined the impact of SFAS 113 on the financial statements.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). This statement establishes financial accounting and reporting standards
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Upon adoption of SFAS 115, the Cor-
poration's Statement of Consolidated Financial Condition classification of cash
equivalents and marketable securities will not change and the requirements of
SFAS 115 will be met through revised footnote disclosure. The effective date
for this new standard is for fiscal years beginning after December 15, 1993, or
fiscal 1995 for the Corporation. The Corporation has not yet determined the im-
pact on the financial statements nor when it will adopt SFAS 115.
2. TRANSACTIONS WITH AFFILIATED COMPANIES
The Corporation's primary business is the retail, wholesale, and to a lesser
extent, lease financing of products sold by Transportation and its dealers
within the United States.
Wholesale Notes, Wholesale Accounts and Retail Accounts Revenue
In accordance with the agreements between the Corporation and Transportation
relating to financing of wholesale notes, wholesale accounts and retail ac-
counts, the Corporation receives interest income from Transportation at agreed
upon interest rates applied to the average outstanding balances less interest
amounts paid by dealers on wholesale notes and wholesale accounts.
The Corporation purchases wholesale notes and accounts of dealers from
Transportation at the principal amount of the receivables. An acquisition fee
applicable to purchases of wholesale notes secured by new equipment is charged
to Transportation. The retail accounts are accounts of Transportation custom-
ers. Revenue collected from Transportation for wholesale notes, wholesale and
retail accounts and leases was $41.2 in 1993, $38.6 in 1992 and $41.4 in 1991.
Support Agreements
Under provisions of certain public and private financing arrangements,
agreements with Transportation and Navistar provide that the Corporation's con-
solidated income before interest expense and income taxes will be maintained at
not less than 125% of its consolidated interest expense. Since 1984, no mainte-
nance payments have been required under these agreements.
Administrative Expenses
The Corporation pays a fee to Transportation for data processing and other
services. The amount of the fee was $2.3 in 1993, $2.6 in 1992 and $2.4 in
1991.
Accounts Payable/Receivable
Accounts payable at October 31, 1993 include $19.5 payable to Transporta-
tion. Other assets at October 31, 1992 include $.8 due from Transportation.
3. INDUSTRY SEGMENTS
The Corporation is engaged in two industry segments in the United States:
finance and insurance. The Corporation provides wholesale, retail and lease fi-
nancing for the sales of new and used trucks and related equipment by Transpor-
tation and its dealers. To a lesser extent, the Corporation also finances other
commercial vehicles, primarily trailers, sold by independent dealers. Harco Na-
tional Insurance Company, NFC's wholly-owned insurance subsidiary, provides
commercial physical damage and liability insurance coverage to Transportation's
dealers and retail customers, and to the general public through the independent
insurance agency system.
- --------------------------------------------------------------------------------
9
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
Information by industry segment is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Finance operations................................. $ 152.5 $ 146.9 $ 166.3
Insurance operations............................... 67.7 72.8 61.1
-------- -------- --------
Total revenue..................................... $ 220.2 $ 219.7 $ 227.4
======== ======== ========
Income before taxes on income and cumulative effect
of changes in accounting policy:
Finance operations................................. $ 47.9 $ 36.6 $ 43.5
Insurance operations............................... 1.1 9.8 9.7
-------- -------- --------
Total income before taxes on income and cumulative
effect of changes in accounting policy........... $ 49.0 $ 46.4 $ 53.2
======== ======== ========
Assets at end of year:
Finance operations................................. $1,473.5 $1,459.2 $1,310.3
Insurance operations............................... 151.7 149.5 137.8
-------- -------- --------
Total assets at end of year....................... $1,625.2 $1,608.7 $1,448.1
======== ======== ========
</TABLE>
4. MARKETABLE SECURITIES
Marketable securities at October 31, 1993 and 1992 consist of investments in
debt securities and are carried at amortized cost. The following table sets
forth, by type of security issuer, the amortized cost and estimated market val-
ues at October 31, 1993 and 1992:
<TABLE>
<CAPTION>
GROSS GROSS
UNREAL- UNREAL- ESTIMATED
AMORTIZED IZED IZED MARKET
OCTOBER 31, 1993 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and federal agency securi-
ties...................................... $ 70.1 $4.4 $-- $ 74.5
Foreign governments........................ 1.6 .1 -- 1.7
Corporate securities....................... 17.8 .6 -- 18.4
Mortgage- and asset-backed securities...... 36.1 1.3 -- 37.4
------ ---- --- ------
Total.................................... $125.6 $6.4 $-- $132.0
====== ==== === ======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unreal- Unreal- Estimated
Amortized ized ized Market
October 31, 1992 Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and federal agency securi-
ties...................................... $ 61.1 $2.5 $.1 $ 63.5
Foreign governments........................ 1.6 .1 -- 1.7
Corporate securities....................... 29.1 .7 -- 29.8
Mortgage- and asset-backed securities...... 38.7 .9 .1 39.5
------ ---- --- ------
Total.................................... $130.5 $4.2 $.2 $134.5
====== ==== === ======
</TABLE>
The gross unrealized gains at October 31, 1993 are not expected to be real-
ized as a significant portion of the marketable securities are intended to
- --------------------------------------------------------------------------------
10
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
be held to maturity. The amortized cost and estimated market values at October
31, 1993, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................... $ 4.7 $ 4.7
Due after one year through five years...................... 61.6 64.9
Due after five years through ten years..................... 23.0 24.8
Due after ten years........................................ .2 .2
------ ------
89.5 94.6
Mortgage- and asset-backed securities...................... 36.1 37.4
------ ------
Total.................................................... $125.6 $132.0
====== ======
</TABLE>
Proceeds from sales or maturities of debt securities were $64.8 during 1993
and $76.9 during 1992. Gross gains of $1.3 and $3.1 and gross losses of $.2 and
$.1 were realized on those sales or maturities in 1993 and 1992, respectively.
All marketable securities at October 31, 1993 and 1992 were held by Harco
National Insurance Company, of which $26.5 and $19.7, respectively, were on de-
posit with various state departments of insurance or otherwise restricted as to
use.
5. FINANCE RECEIVABLES
Finance receivable balances, net of unearned finance income, at October 31
are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
Retail notes and lease financing:
Truck....................................................... $ 810.8 $ 951.7
Other....................................................... 20.6 19.2
-------- --------
Total...................................................... 831.4 970.9
-------- --------
Wholesale notes.............................................. 259.0 128.0
-------- --------
Accounts:
Retail...................................................... 200.9 163.1
Wholesale................................................... 44.2 41.2
-------- --------
Total...................................................... 245.1 204.3
-------- --------
Total finance receivables................................. $1,335.5 $1,303.2
======== ========
</TABLE>
Contractual maturities of finance receivables including unearned finance in-
come at October 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
Retail Wholesale Accounts
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Due in:
1994................................................ $337.1 $144.6 $245.1
1995................................................ 248.6 114.2 --
1996................................................ 173.2 .2 --
Due after 1996....................................... 165.6 -- --
------ ------ ------
Gross finance receivables........................... 924.5 259.0 245.1
Unearned finance income.............................. 93.1 -- --
------ ------ ------
Total finance receivables.......................... $831.4 $259.0 $245.1
====== ====== ======
</TABLE>
The actual cash collections from finance receivables will vary from the con-
tractual cash flows because of sales, prepayments, extensions and renewals. The
contractual maturities, therefore, should not be regarded as a forecast of fu-
ture collections.
The Corporation sells finance receivables to public and private investors
with limited recourse provisions. Uncollected sold receivable net balances at
October 31 are as follows:
<TABLE>
<CAPTION>
1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail notes...................................................... $539.4 $259.1
Wholesale notes................................................... 300.0 274.3
------ ------
Total........................................................... $839.4 $533.4
====== ======
</TABLE>
Gains on sales of finance receivables are summarized below:
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail notes.................................................... $14.2 $5.5 $4.5
Wholesale notes................................................. .4 .5 .9
----- ---- ----
Total......................................................... $14.6 $6.0 $5.4
===== ==== ====
</TABLE>
The "Amounts Due From Sales of Receivables" primarily represents holdback
reserves established pursuant to the limited recourse provisions of certain re-
tail note sales. The Corporation's maximum exposure under all receivable sale
recourse provisions at October 31, 1993 is $129.7 which includes holdback re-
serves of $69.4, subordinated retained interest in
- --------------------------------------------------------------------------------
11
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
securitized receivable sales of $54.4 and certain cash deposits established
pursuant to securitized receivables recourse provisions of $5.9. The Corpora-
tion has included an allowance for estimated losses on sold receivables of $2.8
and $1.6 in 1993 and 1992, respectively. The allowance is determined on a basis
consistent with owned receivables and is included in "Amounts Due From Sales of
Receivables" in the Statement of Consolidated Financial Condition.
The securitized sales structures also require the Corporation to maintain
funds for payment of principal and/or interest to the investors in the event
that collections on the securitized notes are less than required. The Corpora-
tion's other assets at October 31, 1993 and 1992 include $9.6 of deposits held
by the sales trusts and are restricted for use by the securitized sales agree-
ments.
6. ALLOWANCE FOR LOSSES
The allowance for losses on receivables is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total allowance for losses at beginning of year............ $14.0 $13.6 $13.6
Provision for losses....................................... 1.5 3.6 5.8
Net losses charged to
allowance................................................. (.7) (3.2) (5.8)
----- ----- -----
Total allowance for losses at end of year................ $14.8 $14.0 $13.6
===== ===== =====
Allowance pertaining to:
Owned notes............................................... $12.0 $12.4 $11.7
Sold notes................................................ 2.8 1.6 1.9
----- ----- -----
Total.................................................... $14.8 $14.0 $13.6
===== ===== =====
</TABLE>
7. TAXES ON INCOME
During fiscal 1993, the Corporation adopted SFAS 109 "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are generally de-
termined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. SFAS 109 generally allows recog-
nition of deferred tax assets if future realization is more likely than not.
Taxes on income are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal..................................................... $12.0 $12.7 $17.4
State and local............................................. 2.0 1.4 1.8
----- ----- -----
Total current.............................................. 14.0 14.1 19.2
Deferred (primarily Federal)................................. 3.7 2.8 1.0
----- ----- -----
Total...................................................... $17.7 $16.9 $20.2
===== ===== =====
</TABLE>
The effective tax rate of 36% in 1993 and 1992 and 38% in 1991 differs from
the statutory United States Federal tax rate of 35% in 1993 and 34% in 1992 and
1991 primarily because of state and local income taxes. Deferred tax assets and
liabilities at October 31, 1993 and 1992 are comprised of the following:
<TABLE>
<CAPTION>
1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other postretirement benefits....................................... $2.7 $ --
Deferred tax liabilities:
Depreciation and other.............................................. 2.7 1.7
---- ----
Net deferred tax liabilities....................................... $ -- $1.7
==== ====
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
8. DEBT
Debt outstanding at October 31 is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
Short-term bank borrowings................................. $ 75.0 $ --
Bank revolving credit, at variable rates, due November
1995...................................................... 727.0 727.0
Senior term debt:
Debentures:
7 5/8%, due February 1993................................ -- 60.0
7 1/2%, due January 1994................................. 75.0 75.0
Notes, medium-term, 9.35% to 9.75%, due 1994 to 1996...... 222.5 261.5
Unamortized discount...................................... (.3) (.4)
-------- --------
Total senior term debt.................................. 297.2 396.1
-------- --------
Subordinated term debt:
Debentures, 11.95%, due December 1995..................... 100.0 100.0
Unamortized discount...................................... -- (5.1)
-------- --------
Total subordinated term debt............................ 100.0 94.9
-------- --------
Total debt............................................. $1,199.2 $1,218.0
======== ========
</TABLE>
Information regarding commercial paper and short-term bank borrowings is as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate obligations outstanding:
Daily average........................................... $ .6 $ 56.2 $376.3
Maximum month-end balance............................... $75.0 $203.3 $563.2
Weighted average interest rate:
On average daily borrowing.............................. 6.5% 5.5% 7.1%
At October 31........................................... 6.5% -- 6.0%
</TABLE>
The weighted average interest rate on total debt was 6.6%, 7.6% and 8.7% in
1993, 1992 and 1991, respectively. At October 31, 1992, all of the Corpora-
tion's term debt was at a fixed rate of interest. The aggregate annual maturi-
ties and required payments of debt are as follows: 1994, $80; 1995, $100; and
1996, $945.
At October 31, 1993, the Corporation had $1,327 of committed credit facili-
ties. These facilities consisted of a contractually committed bank revolving
credit facility of $727 and a contractually committed retail notes receivable
purchase facility of $600. In April 1993, the Corporation amended and restated
the credit and purchase facility agreements extending the maturity date of both
facilities to November 15, 1995, and the restated credit facility granted secu-
rity interests in substantially all of the Corporation's assets to the Corpora-
tion's debtholders.
Unused commitments under the credit and purchase facilities were $157, $75
of which was used as funding backup for the $75 short-term bank borrowings at
October 31, 1993. The remaining $82 when combined with unrestricted cash and
cash equivalents made $105 available to fund the general business purposes of
the Corporation at October 31, 1993. Compensating cash balances are not re-
quired under the revolving credit facility, but commitment fees are paid on the
unused portions of the bank revolving credit and retail notes receivable pur-
chase facilities. The Corporation also pays a facility fee on the $600 retail
notes receivable purchase facility.
The Corporation has two wholly-owned subsidiaries, Navistar Financial Retail
Receivables Corporation ("NFRRC") and Navistar Financial Securities Corporation
("NFSC"), which have a limited purpose of purchasing retail and wholesale re-
ceivables, respectively, and transferring an undivided ownership interest in
such notes to investors in exchange for pass-through notes and certificates.
These subsidiaries have limited recourse on the sold receivables and their as-
sets are available to satisfy the claims of their creditors prior to such as-
sets becoming available to the Corporation or affiliated companies. At October
31, 1993, NFSC had in place a $300 revolving wholesale note sales trust provid-
ing for the continuous sale of eligible wholesale notes on a daily basis. The
sales trust is comprised of three $100 pools of notes maturing serially from
1997 to 1999. On September 16, 1993, NFRRC filed a shelf registration with the
Securities and Exchange Commission providing for the issuance from time to time
of $1,000 of asset-backed securities. On November 10, 1993, the Corporation
sold $335 of retail notes through NFRRC to an owner
- --------------------------------------------------------------------------------
13
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
trust which, in turn, sold to investors $323 of notes and $12 of certificates.
The net proceeds of $334 were used by the Corporation for general working capi-
tal purposes and to establish a $25 reserve account with the trust.
On November 16, 1993, the Corporation sold $100 of 8 7/8% Senior Subordi-
nated Notes due 1998 and used the proceeds to redeem its 11.95% Subordinated
Debentures due December 1995 on December 16, 1993. The Corporation also re-
deemed its 7 1/2% Senior Debentures due January 1994 on December 15, 1993.
9. RETIREMENT BENEFITS
The Corporation has a pension plan covering substantially all of its employ-
ees. The plan is non-contributory and benefits are related to an employee's
length of service and compensation rate.
Funding of the plan is in compliance with the Employee Retirement Income Se-
curity Act. For the plan year which ended during the current fiscal year, the
funding obligation of the plan has been fulfilled. Plan assets are primarily
invested in a dedicated portfolio of long-term fixed-income securities.
In addition to providing pension benefits, the Corporation provides health
care and life insurance for a majority of its retired employees. For most re-
tirees, these benefits are defined by the terms of an agreement between
Navistar and its employees, retirees and collective bargaining organizations
which provides for postretirement health care and life insurance benefits ("the
Plan"). The Plan, which was implemented on July 1, 1993, provides for cost
sharing between Navistar and retirees in the form of premiums, co-payments and
deductibles. A Base Program Trust was established to provide a vehicle for
funding of the health care liability through Navistar contributions and retiree
premiums. A separate independent Retiree Supplemental Benefit Program was also
established to potentially reduce retiree premiums, co-payments and deductibles
and provide additional benefits in the future. During 1993, the Corporation
agreed to contribute $3.7 to the Supplemental Benefit Trust as its portion of
the Navistar liability.
Pension Expense
Net pension cost includes the following:
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period............... $ .6 $ .6 $ .7
Interest cost on projected benefit obligation................ 2.8 2.7 2.5
Return on assets--actual gain................................ (8.4) (2.8) (6.4)
--deferred gain (loss)................................ 5.2 (.3) 3.8
Other costs (including
amortization of transition amount).......................... .1 .3 .4
---- ---- ----
Net pension cost........................................... $ .3 $ .5 $1.0
==== ==== ====
</TABLE>
The unrecognized net obligation as of the transition date is being amortized
on a straight-line basis over 15 years. The effect of plan amendments is amor-
tized over the remaining average service life of active employees.
- --------------------------------------------------------------------------------
14
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
Pension Assets and Liabilities
The plan's funded status and reconciliation to the Statement of Consolidated
Financial Condition as of October 31 were as follows:
<TABLE>
<CAPTION>
1993 1992
------------------ --------
PLAN ACCUMU- Plan
ASSETS LATED Assets
EXCEED BENEFITS Exceed
ACCUMU- EXCEED Accumu-
LATED PLAN lated
BENEFITS ASSETS Benefits
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefits................................. $(32.8) $(1.9) $(27.8)
Non-vested benefits............................. (2.4) (.1) (2.9)
------ ----- ------
Accumulated benefit obligation................. (35.2) (2.0) (30.7)
Effect of projected future compensation levels.. (3.5) -- (3.0)
------ ----- ------
Total projected benefit obligation............ (38.7) (2.0) (33.7)
Plan assets at fair value........................ 39.8 -- 33.3
------ ----- ------
Funded status at October 31..................... 1.1 (2.0) (.4)
Unrecognized net losses (gains).................. (.8) .2 .8
Unrecognized plan amendments..................... .6 -- .7
Unrecognized net obligation as of transition
date............................................ .2 -- .2
------ ----- ------
Net prepaid pension cost ..................... $ 1.1 $(1.8) $ 1.3
====== ===== ======
</TABLE>
For 1993 and 1992, the projected benefit obligation was determined using a
discount rate of 6.7% and 8.1%, respectively, a projected long-term rate of
compensation increase of 3.5% and 5.5%, respectively, and an assumed long-term
rate of return on plan assets of 10.0%.
Postretirement Benefits Other Than Pensions
During 1993, the Corporation adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", retroactive to November 1, 1992.
SFAS 106 requires the accrual of the expected cost of providing postretirement
benefits during employees' active service periods. The Corporation's previous
practice was to charge the cost of these benefits against operations on a pay-
as-you-go basis. The adoption of SFAS 106 does not affect cash flow, but it
does change the timing of the recognition of costs. Under provisions of SFAS
106, prior years have not been restated.
The Corporation elected to recognize the SFAS 106 transition obligation as a
one-time non-cash charge to earnings. The cumulative effect of this change in
accounting policy, as of November 1, 1992, was $8.8, net of income taxes of
$5.4.
The components of expense under SFAS 106 for postretirement benefits other
than pensions that are included in the Statement of Consolidated Income and Re-
tained Earnings for 1993 include the following:
<TABLE>
<CAPTION>
Postretirement Benefits Other Than Pensions: 1993
- --------------------------------------------------------------------------------
<S> <C>
Service cost--benefits earned during the year.............................. $.3
Interest cost on the accumulated benefit obligation........................ .6
---
Total cost of postretirement benefits other than pensions................ $.9
===
</TABLE>
Postretirement benefit cost charged to expense in the comparable periods in
prior years was accounted for under the previous accounting policy and has not
been restated.
The components of the liability for postretirement benefits other than pen-
sions as of October 31, 1993, were as follows:
<TABLE>
<CAPTION>
Accumulated Postretirement Benefit Obligation: 1993
- ---------------------------------------------------------------------------------
<S> <C>
Retirees and their dependents............................................... $4.6
Active employees eligible to retire......................................... 1.3
Other active participants................................................... 2.7
----
Accumulated postretirement benefit obligation (APBO)........................ 8.6
Plan assets at fair value................................................... 2.4
----
APBO in excess of plan assets............................................... 6.2
Unrecognized net loss....................................................... .8
----
Net liability recognized on the Statement of Consolidated Financial Condi-
tion..................................................................... $5.4
====
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
The discount rate used to determine the accumulated postretirement benefit
obligation at October 31, 1993, was 7.5%, based on an estimated yield available
on high-quality fixed income securities which could be purchased to effectively
settle the obligation. As interest rates have declined, inflation rates and
their effect on future health care cost trend rates have been contained and are
experiencing a downward trend. Combined with internal containment programs and
the government program on national health care, the period to reach an ultimate
ongoing rate of increase may also shorten. For 1994, the weighted average rate
of increase in the per capita cost of covered medical benefits is projected to
be 10.5% for participants under the age of 65 and 8.5% for participants age 65
or over. The rate of increase for drugs is projected to be 11.5% for all par-
ticipants. The rates decrease on an annual basis to 5.0% in the year 2002 and
remain at that level each year thereafter. If the cost trend rate assumptions
were increased by one percentage point for each year, the accumulated
postretirement benefit obligation would increase by approximately $1.1 and the
associated expense recognized for the year ended October 31, 1993 would in-
crease by an estimated $.1.
10. LEASES
The Corporation is obligated under noncancelable operating leases for the
majority of its office facilities and equipment. These leases are generally re-
newable and provide that property taxes and maintenance costs are to be paid by
the lessee. At October 31, 1993, future minimum lease commitments under noncan-
celable operating leases with remaining terms in excess of one year are as fol-
lows:
<TABLE>
<CAPTION>
Year Ended October 31,
- --------------------------------------------------------------------------------
<S> <C>
1994....................................................................... $1.7
1995....................................................................... 1.5
1996....................................................................... 1.4
1997....................................................................... 1.3
1998....................................................................... 1.3
Thereafter................................................................. 2.6
----
Total..................................................................... $9.8
====
</TABLE>
11. SHAREOWNER'S EQUITY
The number of authorized shares of capital stock as of October 31, 1993 and
1992 was 2,000,000 of which 1,600,000 shares were issued and outstanding. All
of the issued and outstanding capital stock is owned by Transportation and no
shares are reserved for officers and employees, or for options, warrants, con-
versions and other rights. Effective with the decline in the Corporation's debt
ratings in February 1992, ordinary dividends to Transportation are limited by
the bank revolving credit agreement to 50% of cumulative net income measured
quarterly beginning February 1, 1992. Under this provision at October 31, 1993,
$2.0 was available for ordinary dividends to Transportation in the first quar-
ter of fiscal 1994 or thereafter.
As discussed in note 8, the Corporation amended and restated its credit fa-
cility in April 1993. The restated credit facility permitted the Corporation to
declare special dividends to Transportation in an aggregate amount not to ex-
ceed $20 upon the effectiveness of a final settlement in the retiree health
care litigation. The implementation of a settlement agreement on July 1, 1993
which restructured postretirement health care and life insurance benefits, as
discussed in note 13, resulted in a $5 special dividend payment on July 31,
1993 and on September 24, 1993. At October 31, 1993, $10 was available for spe-
cial dividends to Transportation.
12. FINANCIAL INSTRUMENTS
During fiscal 1993, the Corporation adopted Statement of Financial Account-
ing Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS 107"). This statement requires disclosure of the fair value of financial
instruments, whether recognized or not recognized in the Statement of Consoli-
dated Financial Condition, for which it is practicable to estimate that value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value.
Marketable Securities
Fair value is estimated based on quoted market price, if available. If a
quoted market price is not available, fair value is estimated using quoted mar-
ket prices for similar financial instruments. The fair value of marketable se-
curities held by insurance affiliates at
- --------------------------------------------------------------------------------
16
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
October 31, 1993 is disclosed, as required, in note 4 and included below.
Finance Receivables
The fair value of truck retail notes is estimated based on quoted market
prices of similar receivables sold in conjunction with securitization transac-
tions or in the principal-to-principal market, adjusted for differences in mar-
ket conditions. For other retail notes, primarily variable-rate notes that
reprice frequently, and for wholesale notes and retail and wholesale accounts,
the carrying amounts approximate fair value.
Amounts Due from Sales of Receivables
Fair values for holdbacks due from purchasers of retail notes and for excess
servicing fees receivable are estimated by discounting the expected future cash
flows at the Corporation's incremental borrowing rate.
Senior and Subordinated Debt
For variable-rate borrowings under the bank revolving credit agreement that
reprice frequently, the carrying amount approximates fair value. The fair val-
ues of notes and debentures are estimated based on quoted market prices where
available and, where not available, on quoted market prices of debt with simi-
lar characteristics.
The carrying amounts of financial instruments as reported in the Statement
of Financial Condition and described in the various notes to the financial
statements and their fair values at October 31, 1993 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents................................... $ 33.9 $ 33.9
Marketable securities....................................... 125.6 132.0
Finance receivables:
Truck retail notes......................................... 752.9 764.5
Wholesale notes............................................ 259.0 259.0
Accounts................................................... 245.1 245.1
Amounts due from sales of receivables....................... 75.5 81.1
Financing liabilities
Senior and subordinated debt................................ $1,124.2 $1,138.0
</TABLE>
13. LEGAL PROCEEDINGS
Retiree Health Care Litigation
In July 1992, Navistar announced its decision to change its retiree health
care benefit plans and concurrently filed a declaratory judgment class action
lawsuit to confirm its right to change these benefits in the U.S. District
Court for the Northern District of Illinois ("Illinois Court"). A countersuit
was subsequently filed against Navistar by its unions in the U.S. District
Court for the Southern District of Ohio. On October 16, 1992, Navistar withdrew
its declaratory judgment action in the Illinois Court and began negotiations
with the United Automobile, Aerospace and Agricultural Implement Workers of
America ("UAW") to resolve issues affecting both retirees and employees. On De-
cember 17, 1992, Navistar announced that a tentative agreement had been reached
with the UAW on restructuring retiree health care and life insurance benefits
("the Settlement Agreement"). During the third quarter of fiscal 1993, all
court, regulatory agency and shareowner approvals required to implement the
Settlement Agreement concerning retiree health care benefit plans were ob-
tained. The Settlement Agreement became effective and the restructured retiree
health care and life insurance plan was implemented on July 1, 1993.
Vernon Klein Case
In May 1993, a jury issued a verdict in favor of Vernon Klein Truck & Equip-
ment, Inc. and against Transportation and the Corporation in the amount of
$10.8 in compensatory damages and $15 in punitive damages. The amount of any
potential liability is uncertain and Transportation and the Corporation believe
that there are meritorious arguments for overturning or diminishing the verdict
on appeal.
14. QUARTERLY FINANCIAL INFORMATION (unaudited)
As discussed in note 1, during the third quarter of 1993, the Corporation
adopted SFAS 106 and SFAS 109 retroactive to November 1, 1992. As required, the
previously reported results for the first quarter of 1993 have been restated.
The effect of adopting these changes was not material to the financial results
of the second quarter of 1993. Periods prior to November 1, 1992 are not re-
quired to be restated for the accounting changes.
- --------------------------------------------------------------------------------
17
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Millions of dollars
<TABLE>
<CAPTION>
1993
----------------------------------------
RESTATED
1ST 2ND 3RD 4TH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $58.8 $56.6 $53.4 $51.4 $220.2
Interest expense....................... 20.8 18.8 17.6 17.4 74.6
Provision for losses on receivables.... .9 1.1 .3 (.8) 1.5
Net income............................. .9 8.8 5.2 7.6 22.5
<CAPTION>
1992
----------------------------------------
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $61.7 $50.2 $55.9 $51.9 $219.7
Interest expense....................... 20.1 19.3 21.4 21.4 82.2
Provision for losses on receivables.... 1.6 .8 .9 .3 3.6
Net income............................. 10.7 6.4 6.0 6.4 29.5
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Statement of Financial Reporting Responsibility
- --------------------------------------------------------------------------------
Management of Navistar Financial Corporation and its subsidiaries is respon-
sible for the preparation and for the integrity and objectivity of the accompa-
nying financial statements and other financial information in this report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and include amounts that are based on management's esti-
mates and judgments.
The accompanying financial statements have been audited by Deloitte & Tou-
che, independent auditors. Management has made available to Deloitte & Touche
all the Corporation's financial records and related data, as well as the min-
utes of Directors' meetings. Management believes that all representations made
to Deloitte & Touche during its audit were valid and appropriate.
Management is responsible for establishing and maintaining a system of in-
ternal controls throughout its operations that provides reasonable assurance as
to the integrity and reliability of the financial statements, the protection of
assets from unauthorized use and the execution and recording of transactions in
accordance with management's authorization. The system of internal controls
which provides for appropriate division of responsibility is supported by writ-
ten policies and procedures that are updated by management as necessary. The
system is tested and evaluated regularly by the parent Company's internal audi-
tors as well as by the independent auditors in connection with their annual au-
dit of the financial statements. The independent auditors conduct their audit
in accordance with generally accepted auditing standards and perform such tests
of transactions and balances as they deem necessary. Management considers the
recommendations of its internal auditors and independent auditors concerning
the Corporation's system of internal controls and takes the necessary actions
that are cost-effective in the circumstances to respond appropriately to the
recommendations presented. Management believes that the Corporation's system of
internal controls accomplishes the objectives set forth in the first sentence
of this paragraph.
/s/ John J. Bongiorno
- ---------------------
John J. Bongiorno
President and Chief Executive Officer
/s/ Andrew C. Hill
- ------------------
Andrew C. Hill
Vice President and Controller
- --------------------------------------------------------------------------------
19
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Navistar Financial Corporation,
Its Directors and Shareowner:
We have audited the accompanying statement of consolidated financial condi-
tion of Navistar Financial Corporation and its subsidiaries as of October 31,
1993 and 1992, and the related statements of consolidated income and retained
earnings and of consolidated cash flow for each of the three years in the pe-
riod ended October 31, 1993. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Navistar Financial
Corporation and its subsidiaries at October 31, 1993 and 1992, and the results
of their operations and their cash flow for each of the three years in the pe-
riod ended October 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 1, in accordance with the provisions of Statements of
Financial Accounting Standards No. 106 and No. 109, effective November 1, 1992,
the Corporation changed its methods of accounting for postretirement benefits
other than pensions and for income taxes.
/s/ Deloitte & Touche
- ---------------------
Deloitte & Touche
December 1, 1993
Chicago, Illinois
- --------------------------------------------------------------------------------
20
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net income for 1993 was $23 million compared with $30 million and $33 mil-
lion in 1992 and 1991, respectively. The 1993 results included an after tax
charge of $8.8 million for the cumulative effect of adopting new accounting
standards for income taxes and postretirement benefits, as discussed in notes 7
and 9, respectively, to the Consolidated Financial Statements, and a $3.7 mil-
lion pretax charge for the Corporation's portion of a contribution by Navistar
which established a Supplemental Benefit Trust for retirees, as discussed in
note 9 to the Consolidated Financial Statements. Excluding these special
charges, the Corporation's pretax income for 1993 increased 14% over 1992 from
the gains and the associated favorable impact on servicing expenses related to
increased financing through sales of retail notes receivable and from lower
losses on receivables. Earnings from the Corporation's insurance subsidiary,
Harco National Insurance Company ("Harco"), were considerably lower in 1993 as
a result of higher losses in Harco's physical damage and liability insurance
lines and lower earnings from investments. The Corporation's pretax income for
1992 decreased 13% from 1991 as a result of lower interest margins earned on
the Corporation's finance receivables portfolio, partially offset by a lower
provision for credit losses. Earnings for Harco in 1992 were equivalent to 1991
as higher earned premium revenue and increased investment income were offset by
increased losses on liability insurance and higher sales commissions to general
agents. The more significant elements of revenue and expense impacting net in-
come for these years are discussed in the following paragraphs.
Total revenues for 1993 were unchanged from 1992 and slightly less than
1991. Although revenue from retail note and lease financing was consistent with
this trend, a greater portion of 1993 revenue came from gains on retail note
sales which increased to $15 million from $6 million in 1992 and $5 million in
1991. Revenue from owned retail notes decreased a similar amount in 1993 as a
result of lower average balances, related to the higher volume of note sales,
and a decline in average portfolio yield. Portfolio yield dropped during 1993
as liquidations of older higher yielding notes were replaced with acquisitions
at lower current interest rates. Retail note and lease financing revenue de-
creased in 1992 from 1991 as a result of a decline in average portfolio yield.
Wholesale note revenue increased 14% in 1993 to $32 million as a result of
higher average note balances in support of increased demand for Transportation
truck products. Average wholesale note balances in 1992 were equivalent to
1991. In December 1990, the Corporation sold $300 million of wholesale notes to
a revolving sales trust. This revolving wholesale arrangement provides for the
continuous sale of notes by the Corporation on a daily basis. Gains on whole-
sale notes sold to the trust do not vary significantly from year to year.
Revenue from accounts increased 20% in 1993 to $18 million slightly below
the 1991 level. The increase in 1993 from 1992 resulted from higher average
balances, which increased to $251 million in 1993 compared to $193 million in
both 1992 and 1991. The decrease in account revenue in 1992 from 1991 resulted
from a decline in average yield related to decreases in the prime rate.
Insurance premiums earned by Harco decreased 5% to $57 million in 1993 after
a 15% increase in 1992 over 1991. The decrease in 1993 reflects a reduction in
written premiums in response to recent loss experience and increased competi-
tion. The increase in 1992 was the result of increased coverage written through
Harco's independent insurance agency network which includes over 1,000 agents
nationwide. Harco's investment income decreased to $9 million in 1993 compared
with $13 million in 1992 and $10 million in 1991. The decrease in 1993 resulted
from lower realized gains on sales of marketable securities caused by the sta-
bilization of interest rates during 1993 and a decline in the yield on invest-
ments resulting from the lower market interest rates available on new invest-
ments. The increase in 1992 resulted from realized gains on sales of invest-
ments.
- --------------------------------------------------------------------------------
21
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Interest expense decreased 9% in 1993 to $75 million after a similar per-
centage decrease in 1992 from a level of $90 million in 1991. The decreases in
interest expense in 1993 and 1992 primarily reflect the effect of lower inter-
est rates. In 1993, average debt balances returned to their 1991 level after a
decline in 1992 coincident with finance receivable balances. The ratio of debt
to equity was 5.5:1 at October 31, 1993 and 1992 and 5.1:1 at October 31, 1991.
On July 1, 1993, Navistar implemented a restructured retiree health care and
life insurance plan ("the Plan"), as discussed in notes 9 and 13 to the Consol-
idated Financial Statements. As part of the Plan, Navistar contributed $300
million to pre-fund Plan benefit liabilities and common stock valued at $513
million to a Supplemental Benefit Trust to help pay for Plan benefits in the
future. The Corporation recognized $3.7 million of expense as its portion of
the Supplemental Benefit Trust contribution.
The provision for losses on receivables decreased to $1.5 million in 1993
from $3.6 million in 1992 and $5.8 million in 1991, reflecting lower losses on
retail and wholesale notes. Finance receivables are written off against the al-
lowance for losses as soon as they are determined to be uncollectible based on
a review of each problem obligor. Truck note write-offs, including those on
sold notes, totaled $.7 million in 1993, $3.2 million in 1992, and $5.8 million
in 1991. At October 31, 1993, the Corporation's allowance for losses equaled
.69% of net financing receivables, including sold receivables, compared with
.77% and .75% as of October 31, 1992 and 1991, respectively. The allowance is
maintained at a level which management considers appropriate in relation to the
outstanding receivables balance, taking into consideration loss experience,
current economic conditions and other factors.
Insurance claims and underwriting expense increased to $65 million in 1993
from $62 million and $51 million in 1992 and 1991, respectively. The increased
expenses in 1993 resulted from increased losses sustained in Harco's truck
physical damage and liability insurance lines. The increase in 1992 resulted
from the higher level of activity associated with the higher premium volume as
well as adverse truck liability loss experience. Insurance underwriting expense
increased $.3 million and $2.2 million in 1993 and 1992, respectively, primar-
ily as a result of increased commission costs associated with higher volumes of
premiums written through general agents in 1992.
LIQUIDITY AND FUNDS MANAGEMENT
The Corporation's operations are substantially dependent upon the production
and sale of Transportation's truck products. Navistar Financial has tradition-
ally obtained the cash to provide financing to Transportation and its customers
from commercial paper, short- and long-term bank borrowings, medium- and long-
term debt issues, sales of receivables and equity capital. Recently, the debt
ratings of the Corporation, detailed below, have made bank borrowings and sales
of finance receivables the most economical sources of cash. The Corporation's
insurance operations generate their funds through internal operations and have
no external borrowings.
During 1993, the Corporation supplied 90% of the wholesale financing of new
trucks sold to Transportation's dealers, compared with 89% for 1992 and 1991.
Gross acquisitions of retail notes and leases increased 15% to $898 million in
1993 after a 4% increase to $778 million in 1992 from $747 million in 1991. The
higher levels of acquisitions reflect increased sales by Transportation, espe-
cially of heavy trucks, and an increase in the Corporation's share of the re-
tail financing of new trucks manufactured by Transportation and sold in the
United States to 15.3% in 1993 from 13.7% in 1992 and 13.1% in 1991. Net fi-
nance receivables increased to $1,324 million at October 31, 1993 from $1,291
million and $1,163 million at October 31, 1992 and 1991, respectively. The Cor-
poration sold $576 million of retail notes in 1993 compared with $209 million
in 1992, and $220 million in 1991. Since December 1990, the Corporation has
utilized a $300 million revolving wholesale note sales trust providing for the
continuous sale of eligible wholesale notes on a daily basis. The sales trust
sold three $100 million tranches of floating rate pass-through certificates,
maturing serially from 1997 to 1999, to the public. No significant change from
the current level of financing support for Transportation truck product sales
is anticipated by the Corporation.
- --------------------------------------------------------------------------------
22
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
At October 31, 1993, the Corporation had a contractually committed bank re-
volving credit facility of $727 million and a contractually committed retail
notes receivable purchase facility of $600 million. In April 1993, the Corpora-
tion amended and restated the credit and purchase facility agreements extending
the maturity date of both facilities to November 15, 1995. The restated credit
facility granted security interests in substantially all of the Corporation's
assets to the Corporation's debtholders and permitted special dividends of $20
million upon the effectiveness of a final settlement in Navistar's retiree
health care litigation. The implementation of the Settlement Agreement on July
1, 1993, as discussed in note 13 to the Consolidated Financial Statements, re-
sulted in special dividend payments of $5 million on July 31, 1993 and on Sep-
tember 24, 1993. At October 31, 1993, $10 million was available for special
dividends to Transportation.
At October 31, 1993, the unused commitment under the receivable purchase fa-
cility was $157 million, $75 million of which provided funding backup for the
$75 million short-term bank borrowings at October 31, 1993. The remaining $82
million when combined with unrestricted cash and cash equivalents made $105
million available to fund the general business purposes of the Corporation. The
bank revolving credit facility was fully utilized at October 31, 1993.
In October 1993, ratings on the Corporation's debt were reviewed by Standard
and Poor's Corporation ("Standard and Poor's") and Moody's Investors Service,
Inc. ("Moody's"). Standard and Poor's raised its ratings for the Corporation's
debt from B- to BB for senior debt and from CCC to B+ for subordinated debt.
Moody's confirmed their previous ratings of Ba3 for senior debt and B2 for sub-
ordinated debt. In November 1993, Duff & Phelps confirmed their debt ratings of
BB+ for senior debt and BB for subordinated debt. The Corporation's commercial
paper is rated "not prime" by Moody's.
During 1992, ratings on the Corporation's debt were lowered by Moody's,
Standard and Poor's and Duff & Phelps. After the reduction in credit ratings,
the Corporation's commercial paper and uncommitted bank borrowings were refi-
nanced at maturity with borrowings from the Corporation's revolving bank line
of credit. At October 31, 1993 there were $75 million of short-term bank
borrowings outstanding compared with no outstanding commercial paper or short-
term bank borrowings at October 31, 1992. The changes in credit ratings did not
impact the Corporation's ability to sell retail notes through its receivables
purchase facility or through asset-backed transactions in the public and pri-
vate markets.
On November 10, 1993, the Corporation sold $335 million of retail notes re-
ceivable through its special purpose subsidiary, Navistar Financial Retail Re-
ceivables Corporation, to an owner trust which, in turn, sold interests in the
notes to investors in exchange for fixed rate notes and certificates. This sale
of retail notes, pursuant to a $1 billion shelf registration filed with the Se-
curities and Exchange Commission in September 1993, netted the Corporation pro-
ceeds of $334 million, of which $25 million was used to establish a cash re-
serve account for the trust and the remainder reduced bank revolver draw downs.
On November 16, 1993, the Corporation sold $100 million of 8 7/8% Senior Subor-
dinated Notes due 1998 to the public. On December 16, 1993, the net proceeds
from the 8 7/8% subordinated issue were used to redeem the Corporation's 11.95%
Subordinated Debentures due December 1995.
The Corporation manages sensitivity to interest rate changes by funding
floating rate assets with floating rate debt, primarily borrowings under the
bank revolving credit agreement, and fixed rate assets with fixed rate debt,
equity and floating rate debt. Management has limited the amount of fixed rate
assets funded with floating rate debt by selling retail receivables on a fixed
rate basis.
Management believes that collections on the outstanding receivables portfo-
lio plus cash available from the Corporation's various funding sources will
permit Navistar Financial to meet the financing requirements of Transporta-
tion's dealers and retail customers through 1994 and beyond.
- --------------------------------------------------------------------------------
23
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
In addition to the $10 million special dividend paid by the Corporation to
Transportation during 1993, the Corporation paid ordinary cash dividends to
Transportation of $13 million, compared with $16 million and $74 million in
1992 and 1991, respectively. Effective with the decline in the Corporation's
debt ratings in 1992, ordinary dividends to Transportation are limited by the
bank revolving credit agreement to 50% of cumulative net income measured quar-
terly from February 1, 1992. At October 31, 1993, $2 million was available for
regular dividend to Transportation in the first quarter of fiscal 1994 or
thereafter. Dividends in 1991 included a special dividend of $40 million paid
in January 1991 with proceeds received from the sale of wholesale notes re-
flecting the lower funding level required to support a lower average owned fi-
nance receivables balance. The Corporation's debt to equity ratio was 5.5:1, at
October 31, 1993 and 1992 and 5.1:1 at October 31, 1991.
ACCOUNTING STANDARDS
In December 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS 113"),
which is applicable to the Corporation's wholly-owned insurance subsidiary,
Harco National Insurance Company. This statement eliminates the practice of re-
porting liabilities relating to reinsured contracts net of the effects of rein-
surance. It requires reinsurance receivables (including amounts related to un-
paid insurance claims) and prepaid reinsurance premiums to be reported as as-
sets. This statement will be adopted in fiscal year
1994. The Corporation has not yet determined the impact of SFAS 113 on the fi-
nancial statements.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). This statement establishes financial accounting and reporting standards
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Upon adoption of SFAS 115, the Cor-
poration's Statement of Financial Condition classification of cash equivalents
and marketable securities will not change and the requirements of SFAS 115 will
be met through revised footnote disclosure. The effective date for this new
standard is for fiscal years beginning after December 15, 1993, or fiscal 1995
for the Corporation. The Corporation has not yet determined the impact on the
financial statements nor when it will adopt SFAS 115.
- --------------------------------------------------------------------------------
24
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Five Year Summary of Financial and Operating Data
- --------------------------------------------------------------------------------
Dollar amounts in millions
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES AND NET INCOME RE-
TAINED
Revenues.................... $ 220.2 $ 219.7 $ 227.4 $ 240.7 $ 248.1
-------- -------- -------- -------- --------
Provision for losses on re-
ceivables.................. 1.5 3.6 5.8 3.5 4.1
Interest expense............ 74.6 82.2 90.3 110.1 115.2
Other charges, net.......... 95.1 87.5 78.1 71.7 72.2
Taxes on income............. 17.7 16.9 20.2 20.4 20.4
Cumulative effect of changes
in accounting policy, net
of income taxes............ 8.8 -- -- -- --
-------- -------- -------- -------- --------
Net income.................. 22.5 29.5 33.0 35.0 36.2
Dividends paid.............. 22.6 16.0 74.0 33.0 80.0
-------- -------- -------- -------- --------
Net income retained......... $ (.1) $ 13.5 $ (41.0) $ 2.0 $ (43.8)
======== ======== ======== ======== ========
Percent of net income to av-
erage
shareowner's equity........ 10.3% 13.8% 15.0% 13.6% 11.9%
ASSETS AT END OF YEAR
Cash and cash equivalents... $ 33.9 $ 79.2 $ 16.0 $ 11.1 $ 15.6
Marketable securities....... 125.6 130.5 119.1 103.3 90.3
Finance receivables:
Retail notes and lease fi-
nancing................... 810.8 951.7 902.8 817.5 830.0
Wholesale notes............ 259.0 128.0 84.3 401.4 411.1
Accounts................... 245.1 204.3 162.9 202.7 179.5
Other notes................ 20.6 19.2 25.2 24.5 29.2
-------- -------- -------- -------- --------
Total..................... 1,335.5 1,303.2 1,175.2 1,446.1 1,449.8
Allowance for losses....... (12.0) (12.4) (11.7) (11.7) (10.4)
-------- -------- -------- -------- --------
Finance receivables, net.. 1,323.5 1,290.8 1,163.5 1,434.4 1,439.4
Other assets................ 142.2 108.2 149.5 131.6 113.8
-------- -------- -------- -------- --------
Total assets.............. $1,625.2 $1,608.7 $1,448.1 $1,680.4 $1,659.1
======== ======== ======== ======== ========
LIABILITIES AND SHAREOWNER'S
EQUITY AT END OF YEAR
Commercial paper............ $ -- $ -- $ 143.8 $ 558.1 $ 720.0
Short-term bank borrowings.. 75.0 -- 40.0 70.0 185.1
Bank revolving credit....... 727.0 727.0 220.0 -- --
Medium-term notes........... 222.2 261.1 419.4 342.3 55.0
Long-term notes and deben-
tures...................... 75.0 135.0 135.0 184.9 184.9
Subordinated debt........... 100.0 94.9 93.7 92.6 91.7
-------- -------- -------- -------- --------
Total debt................ 1,199.2 1,218.0 1,051.9 1,247.9 1,236.7
Other liabilities........... 206.6 171.2 190.2 185.5 177.4
Shareowner's equity......... 219.4 219.5 206.0 247.0 245.0
-------- -------- -------- -------- --------
Total liabilities and
shareowner's equity...... $1,625.2 $1,608.7 $1,448.1 $1,680.4 $1,659.1
======== ======== ======== ======== ========
Debt to equity ratio........ 5.5:1 5.5:1 5.1:1 5.1:1 5.0:1
Senior debt to capital funds
ratio...................... 3.4:1 3.6:1 3.2:1 3.4:1 3.4:1
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Five Year Summary of Financial and Operating Data
- --------------------------------------------------------------------------------
GROSS FINANCE RECEIVABLES AND LEASES ACQUIRED
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Dollar amounts in millions 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wholesale notes.................... $1,977.6 $1,547.7 $1,461.0 $1,601.4 $1,689.6
Retail notes and leases:
New............................... 730.0 591.8 554.4 512.6 599.0
Used.............................. 168.4 185.9 192.8 189.7 191.3
-------- -------- -------- -------- --------
Total............................ 898.4 777.7 747.2 702.3 790.3
-------- -------- -------- -------- --------
Total............................. $2,876.0 $2,325.4 $2,208.2 $2,303.7 $2,479.9
======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCE RETAIL NOTES ACQUIRED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Down
Payment
as a
Percent
Average of
Contractual Retail Average
Term in Sales Monthly
Months Price Installment
------------ --------- -----------
Number of
Year Units New Used New Used New Used
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993............................ 15,879 53 34 6.2% 17.0% $1,248 $786
1992............................ 14,227 52 35 6.6 14.1 1,239 845
1991............................ 13,768 52 37 7.2 13.5 1,286 875
1990............................ 13,950 53 37 8.8 16.5 1,327 766
1989............................ 15,380 53 37 8.2 17.9 1,264 777
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Five Year Summary of Financial and Operating Data
- --------------------------------------------------------------------------------
Dollar amounts in millions
ANALYSIS OF GROSS RETAIL NOTES AND LEASE FINANCING WITH INSTALLMENTS PAST DUE
OVER 60 DAYS
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
At October 31 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Original amount of notes and leases............... $2.6 $4.3 $3.9 $6.1 $4.8
Balance of notes and leases....................... .7 2.1 1.9 3.9 3.1
Balance as a percent of total outstanding........ .08% .19% .18% .40% .32%
</TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF REPOSSESSIONS
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance beginning of year............... $ 5.5 $ 11.6 $ 12.2 $ 10.1 $ 6.1
Acquisitions............................ 21.5 32.7 43.1 53.1 25.7
Dispositions............................ (25.2) (38.8) (43.7) (51.0) (21.7)
------ ------ ------ ------ ------
Balance end of year.................... $ 1.8 $ 5.5 $ 11.6 $ 12.2 $ 10.1
====== ====== ====== ====== ======
</TABLE>
Repossessions are recorded at the lower of book value or the realizable
value of the equipment. Costs of reconditioning are charged to individual re-
possessions.
- --------------------------------------------------------------------------------
27
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Five Year Summary of Financial and Operating Data
- --------------------------------------------------------------------------------
Dollar amounts in millions
ANALYSIS OF LOSS EXPERIENCE
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net losses (recoveries):
Retail notes and leases....................... $(.1) $2.4 $3.0 $2.0 $2.3
Wholesale notes............................... .8 .8 2.8 .4 .3
---- ---- ---- ---- ----
Total........................................ $ .7 $3.2 $5.8 $2.4 $2.6
==== ==== ==== ==== ====
Percent net losses (recoveries) to liquida-
tions:
Retail notes and leases....................... (.01)% .27% .41% .26% .34%
Wholesale notes............................... .04 .06 .19 .03 .02
Total........................................ .03% .13% .26% .10% .11%
Percent net losses to related average gross re-
ceivables outstanding:
Retail notes and leases....................... --% .17% .21% .13% .16%
Wholesale notes............................... .16 .20 .66 .10 .07
Total........................................ .03% .16% .29% .11% .13%
</TABLE>
Includes loss experience on sold notes.
- --------------------------------------------------------------------------------
28
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Directors and Officers
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN J. BONGIORNO
President and Chief Executive
Officer
Navistar Financial Corporation
and
Group Vice President--General
Manager,
Financial Services
Navistar International Trans-
portation Corp.
R. WAYNE CAIN
Vice President and Treasurer
Navistar Financial Corporation
JAMES C. COTTING
Chairman of the Board and
Chief Executive Officer
Navistar International Corpora-
tion and
Navistar International Trans-
portation Corp.
ANDREW C. HILL
Vice President and Controller
Navistar Financial Corporation
JOHN R. HORNE
President and Chief Operating
Officer
Navistar International Corpora-
tion and
Navistar International Trans-
portation Corp.
THOMAS M. HOUGH
Vice President and Treasurer
Navistar International Corpora-
tion and
Navistar International Trans-
portation Corp.
ROBERT C. LANNERT
Executive Vice President and
Chief Financial Officer
Navistar International Corpora-
tion and
Navistar International Trans-
portation Corp.
ROBERT I. MORRISON
Vice President and Controller
Navistar International Corpora-
tion and
Navistar International Trans-
portation Corp.
THOMAS D. SILVER
Executive Vice President, Oper-
ations
Harco National Insurance Com-
pany
OFFICERS
JOHN J. BONGIORNO
President and Chief Executive
Officer
R. WAYNE CAIN
Vice President and Treasurer
ANDREW C. HILL
Vice President and Controller
LOREN C. BUNTROCK
Vice President, Field Opera-
tions
RONALD E. DIETZ
Vice President, Credit
DELBERT E. HARRISON
Vice President, Human Resources
WILLIAM W. JONES
General Counsel
GREGORY LENNES
Secretary
- --------------------------------------------------------------------------------
29
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Information for Investors
- --------------------------------------------------------------------------------
Navistar Financial Corporation's publicly held debentures are traded on the
New York Stock Exchange and quoted as "NavFin" in bond table listings in daily
newspapers.
A copy of the Corporation's 1993 Annual Report to the Securities and Ex-
change Commission on Form 10-K is available, without charge, upon written re-
quest to the Corporate Treasurer, 2850 West Golf Road, Rolling Meadows, IL
60008.
- --------------------------------------------------------------------------------
30
<PAGE>
NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Office Locations
- --------------------------------------------------------------------------------
ATLANTA, GEORGIA
3350 Northlake Parkway
Atlanta, GA 30345
Telephone: (404) 621-2700
COLUMBUS, OHIO
2500 Corporate Exchange Drive, Suite 340
Columbus, OH 43231-0325
Telephone: (614) 890-8000
PLANO, TEXAS
500 North Central Expressway
Suite 450
Plano, TX 75074
Telephone: (214) 881-3400
MT. LAUREL, NEW JERSEY
1000 Atrium Way, Suite 300
Mt. Laurel, NJ 08054
Telephone: (609) 778-3456
ROLLING MEADOWS, ILLINOIS
2850 West Golf Road
Rolling Meadows, IL 60008
Telephone: (708) 734-4500
SAN RAMON, CALIFORNIA
2682 Bishop Drive, Suite 121
San Ramon, CA 94583
Telephone: (510) 830-2241
- --------------------------------------------------------------------------------
31
<PAGE>
Navistar Financial Corporation
2850 West Golf Road
Rolling Meadows, Illinois 60008 FH-1001 Litho in U.S.A.
<PAGE>
GRAPHICS APPENDIX LIST
A bar graph comparing Truck Receivables Serviced for Years 1991, 1992 and 1993
appears on Page 3.
A bar graph comparing Insurance Premiums Written and Earned for Years 1991, 1992
and 1993 appears on Page 4.
A photo of John J. Bongiorno, President and Chief Executive Officer, appears
below his name on Page 4.
