<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NAVISTAR INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3711 36-3359573
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
455 NORTH CITYFRONT PLAZA
CHICAGO, ILLINOIS 60611
TELEPHONE: (312) 836-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL OFFICES)
ROBERT A. BOARDMAN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
455 NORTH CITYFRONT PLAZA
CHICAGO, ILLINOIS 60611
TELEPHONE: (312) 836-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
DENNIS M. MYERS, ESQ.
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
(312) 861-2000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE AGGREGATE AMOUNT OF
REGISTERED REGISTERED OFFERING PRICE REGISTRATION FEE(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series B 7% Senior Notes
due 2003............... $100,000,000 100% $29,500
- -------------------------------------------------------------------------------------
Series B 8% Senior
Subordinated Notes due
2008................... $250,000,000 100% $73,750
=====================================================================================
</TABLE>
(1) Calculated in accordance with Rule 457 under the Securities Act of 1933,
as amended.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION; DATED FEBRUARY 27, 1998
PRELIMINARY PROSPECTUS
NAVISTAR INTERNATIONAL CORPORATION
OFFER TO EXCHANGE ITS SERIES B 7% SENIOR NOTES DUE 2003 FOR ANY AND ALL OF ITS
OUTSTANDING 7% SENIOR NOTES DUE 2003 AND TO EXCHANGE ITS SERIES B 8% SENIOR
SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING 8% SENIOR
SUBORDINATED NOTES DUE 2008.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH ,
1998, UNLESS EXTENDED.
Navistar International Corporation, a Delaware corporation ( the "NIC"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange: (i) $1,000 principal
amount of its Series B 7% Senior Notes due 2003 (the "Senior Exchange Notes"),
which will have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 7%
Senior Notes due 2003 (the "Old Senior Notes"), of which $100,000,000 principal
amount is outstanding; and (ii) $1,000 principal amount of its Series B 8%
Senior Subordinated Notes due 2008 (the "Senior Subordinated Exchange Notes"
and, together with the Senior Exchange Notes, the "Exchange Notes"), which will
have been registered under the Securities Act pursuant to a Registration
Statement of which this Prospectus is a part, for each $1,000 principal amount
of its outstanding 8% Senior Subordinated Notes due 2008 (the "Old Senior
Subordinated Notes" and, together with the Old Senior Notes, the "Old Notes"),
of which $250,000,000 principal amount is outstanding. The form and terms of
the Exchange Notes are the same as the form and term of the Old Notes (which
they replace) except that (i) the Exchange Notes will bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) will have
been registered under the Securities Act and, therefore, will not bear legends
restricting its transfer thereof, and (iii) will not contain certain provisions
relating to an increase in the interest rate which were included in the terms
of the Old Notes in certain circumstances relating to the timing of the
Exchange Offer. The Senior Exchange Notes will evidence the same debt as the
Old Senior Notes (which they replace) and will be issued under and be entitled
to the benefits of the Indenture governing the Old Senior Notes dated February
4, 1998 (the "Senior Notes Indenture") among NIC and Harris Trust and Savings
Bank, as trustee (the "Senior Notes Trustee"). The Senior Subordinated Exchange
Notes will evidence the same debt as the Old Senior Subordinated Notes (which
they replace) and will be issued under and entitled to the benefits of the
Indenture governing the Old Senior Subordinated Notes dated February 4, 1998
(the "Senior Subordinated Notes Indenture" and, together with the Senior Notes
Indenture, the "Indentures") among NIC and the Harris Trust and Savings Bank,
as trustee (the "Senior Subordinated Notes Trustee" and together with the
Senior Notes Trustee, the "Trustees" and individually each a "Trustee"). See
"The Exchange Offer" and "Description of the Notes."
The Old Senior Notes and Senior Exchange Notes are sometimes collectively
referred to herein as the "Senior Notes," the Old Senior Subordinated Notes and
the Senior Subordinated Exchange Notes are sometimes collectively referred to
herein as the "Senior Subordinated Notes" and the Senior Notes and Senior
Subordinated Notes are sometimes collectively referred to herein as the
"Notes."
NIC will accept for exchange any and all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time on , 1998, unless
extended by NIC in its sole discretion (the "Expiration Date"). In order to
extend the Exchange Offer, NIC will notify the Exchange Agent of any extension
by oral or written notice and will mail to the registered holders, including
the holders who previously tendered their Old
(Cover page continued on following page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(Continued from cover page)
Notes, an announcement thereof, each prior to 9:00 a.m. New York City time, on
the next business day after the previously scheduled Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration
Date. The Exchange Offer is subject to certain customary conditions. See "The
Exchange Offer."
The Old Notes were sold by NIC on February 4, 1998 to the respective Initial
Purchasers (as defined) in transactions not registered under the Securities
Act in reliance upon an exemption under the Securities Act (the "Initial
Offerings"). The Initial Purchasers subsequently placed the Old Notes with (i)
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act and (ii) qualified buyers outside the United States in reliance upon
Regulation S under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of NIC
under the Registration Rights Agreements entered into by NIC and the
respective Initial Purchasers in connection with the Initial Offerings (the
"Registration Rights Agreements"). See "The Exchange Offer."
The Senior Notes are not redeemable at the option of NIC prior to maturity.
The Senior Subordinated Notes are redeemable, in whole or in part, at the
option of NIC at any time on or after February 1, 2003 at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, prior to February 1, 2001, NIC may, at
its option, redeem up to 35% of the original principal amount of the Senior
Subordinated Notes at 108.0% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the applicable redemption date, with the net cash
proceeds of one or more Public Equity Offerings (as defined). Upon the
occurrence of a Change of Control (as defined), each holder of Notes may
require NIC to purchase all or a portion of such holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase.
The Senior Notes are unsecured senior obligations of NIC, ranking pari passu
in right of payment with all existing and future unsubordinated Indebtedness
of NIC, and rank senior in right of payment to all existing and future
subordinated Indebtedness (as defined) of NIC, including the Senior
Subordinated Notes. The Senior Subordinated Notes are unsecured senior
subordinated obligations of NIC, ranking subordinate in right of payment to
all existing and future Senior Indebtedness (as defined) of NIC, including the
Senior Notes, and ranking pari passu in right of payment with all existing and
future senior subordinated Indebtedness of NIC and senior in right of payment
in all existing and future subordinated Indebtedness of NIC. As of October 31,
1997, after giving pro forma effect to the Initial Offerings and the
application of the net proceeds therefrom, NIC would have had $350 million of
total Indebtedness outstanding, of which $250 million would have been
subordinated Indebtedness and $100 million would have ranked senior in right
of payment of the Senior Subordinated Notes. In addition, the Senior Notes and
Senior Subordinated Notes are effectively subordinated to all existing and
future liabilities of the subsidiaries of NIC. As of October 31, 1997, after
giving pro forma effect to the Initial Offerings and the application of the
net proceeds therefrom, the amount of liabilities of such subsidiaries
(including trade payables) would have been approximately $4,431 million. See
"Description of the Notes."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, NIC believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of NIC within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes." Holders of Old Notes wishing to accept the Exchange Offer
must represent to NIC, as required by the Registration Rights Agreements, that
such conditions have been met. Each broker-dealer (a "Participating Broker-
Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
2
<PAGE>
(Continued from cover page)
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. NIC has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale (provided that the
Company receive notice from such Participating Broker-Dealer within 30 days
after the consummation of the Exchange Offer of his status as a Participating
Broker-Dealer). See "Plan of Distribution."
NIC will not receive any proceeds from the Exchange Offer. NIC has agreed to
bear the expenses of the Exchange Offer which are estimated to be
approximately $300,000. No underwriter is being used in connection with the
Exchange Offer.
There has not previously been any public market for the Old Notes or the
Exchange Notes. NIC does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
The Exchange Notes will be available initially only in book-entry form.
Except as described under "Description of the Notes--Book-Entry; Delivery and
Form," NIC expects that the Exchange Notes issued pursuant to the Exchange
Offer will be represented by a Global Note (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depository") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depository and its participants. After the initial
issuance of the Global Note, Notes in certificated form will be issued in
exchange for the Global Note only under limited circumstances as set forth in
the Indenture. See "Description of the Notes--Book-Entry; Delivery and Form."
(End of cover page)
3
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" AND "BUSINESS" AS WELL AS WITHIN THIS PROSPECTUS GENERALLY. IN
ADDITION, WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATES," "EXPECTS,"
"ESTIMATES," "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS
AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM
THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK
FACTORS SET FORTH HEREIN AND THE OTHER MATTERS SET FORTH IN THIS PROSPECTUS.
NIC UNDERTAKES NO OBLIGATION TO RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
STATISTICAL AND MARKET DATA
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
ESTIMATES AND INDUSTRY PUBLICATIONS, INCLUDING THOSE GENERATED BY THE AMERICAN
AUTOMOBILE MANUFACTURERS ASSOCIATIONS IN THE UNITED STATES AND CANADA, THE
UNITED STATES MOTOR VEHICLE MANUFACTURERS ASSOCIATION, R. L. POLK & COMPANY
AND POWER SYSTEMS RESEARCH OF MINNEAPOLIS, MINNESOTA AS WELL AS OTHER SOURCES.
THESE SOURCES GENERALLY STATE THAT THE INFORMATION CONTAINED THEREIN HAS BEEN
OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND
COMPLETENESS OF SUCH INFORMATION IS NOT GUARANTEED. NIC HAS NOT INDEPENDENTLY
VERIFIED SUCH MARKET DATA OR OBTAINED THE CONSENT OF ANY OF THE INDUSTRY
PUBLICATIONS REFERENCED HEREIN.
AVAILABLE INFORMATION
NIC has filed with the Commission a Registration Statement on Form S-4 (the
"Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Offer contemplated hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to NIC and the Exchange Offer, reference is
made to the Exchange Offer Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. NIC files periodic
reporting and other information requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Exchange Offer Registration
Statement, including the exhibits thereto, and periodic reports and other
information filed by NIC with the Commission can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and inspected at the Commission's
regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60601. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements
4
<PAGE>
and other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. NIC's Common Stock
is listed on the New York, Chicago and Pacific Stock Exchanges. Reports and
other information can be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005; the Chicago Stock
Exchange at One Financial Plaza, 440 South LaSalle Street, Chicago, Illinois
60605; and the Pacific Stock Exchange at 301 Pine Street, San Francisco,
California 94104.
In addition, NIC has agreed that, whether or not it is required to do so by
the rules and regulations of the Commission, for so long as any Old Notes or
Exchange Notes remain outstanding, it will furnish to the registered holders
of the Old Notes or the Exchange Notes and, to the extent permitted by
applicable law or regulation, file with the Commission (i) all quarterly and
annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if NIC was required to file
such Forms, including for each a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereof by NIC's independent certified public
accountants and (ii) all reports that would be required to be filed on Form 8-
K if it were required to file such reports. In addition, for so long as any of
the Old Notes remain outstanding, NIC has agreed to make available to any
prospective purchaser of the Old Notes or beneficial owner of the Old Notes,
in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT
CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED,
UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE
DOCUMENTS INCORPORATED BY REFERENCE. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM CORPORATE TREASURER, NAVISTAR INTERNATIONAL CORPORATION, 455
NORTH CITYFRONT PLAZA, CHICAGO, ILLINOIS 60611, TELEPHONE: (312) 836-2000. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY , 1998 (FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE).
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by NIC with the Commission pursuant to the
Exchange Act (File No. 1-9618) are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended October 31, 1997.
2. Proxy Statement, dated February 2, 1998.
All reports and other documents filed by NIC pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, that indicate on the cover page
thereof that they are to be incorporated by reference, after the date of this
Prospectus and prior to the Expiration Date, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Exchange Offer Registration Statement.
5
<PAGE>
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
appearing elsewhere in this Prospectus, including the documents incorporated by
reference in this Prospectus. Unless the context otherwise requires or as
otherwise specified herein, all references herein to "Navistar" or the
"Company" refer to Navistar International Corporation and its subsidiaries,
including its principal operating subsidiary, Navistar International
Transportation Corp. ("Transportation"). The fiscal years of the Company end on
October 31. Fiscal years are identified herein according to the calendar year
in which they end. For example, the fiscal year ended October 31, 1997 is
referred to as "fiscal 1997."
THE COMPANY
Navistar manufactures and markets medium and heavy duty trucks, including
school buses, mid-range diesel engines and service parts primarily in the
United States and Canada as well as in selected export markets. The Company
offers a full line of diesel-powered products under the "International" brand
name in the common carrier, private carrier, government/service, leasing,
construction, energy/petroleum and student transportation markets. In addition,
Navistar builds a family of mid-range diesel engines for use in its medium
trucks, school buses and selected heavy truck models and for sale to original
equipment manufacturers ("OEMs") in the United States and Canada. The Company
offers a full line of mid-range diesel engines and is the leading supplier of
such engines in the 160-300 horsepower range. In fiscal 1997, the Company's
manufacturing operations had revenues of $6,147 million and EBITDA (as defined)
of $268 million.
Navistar markets its truck products and service parts through the largest
retail organization in North America specializing in medium and heavy trucks,
which at October 31, 1997, included 992 dealers and retail outlets. Service and
customer support are also supplied at these locations. In the United States and
Canada, Navistar operates seven regional parts distribution centers which allow
24-hour availability and same day shipment of parts most frequently requested
by dealers and customers. To better serve the growing Mexican market, the
Company established a Mexican distribution network in 1996 and began
construction of a new truck assembly facility located near Monterrey, Mexico in
1997. Through Navistar Financial Corporation ("NFC"), the Company provides
wholesale, retail and, to a lesser extent, lease financing in the United States
for sales of new and used trucks sold by the Company and Navistar's dealers.
NFC also finances wholesale accounts and selected retail accounts receivable of
the Company.
COMPETITIVE STRENGTHS
The Company believes its key competitive strengths include the following:
Leading Market Position. The Company has been the leader in the combined
market share for Class 5 through 8 trucks, including school buses, in the
United States and Canada in each of its last 17 fiscal years. In fiscal 1997,
the Company's combined market share of the Class 5 through 8 truck market was
28.6%, a 1.1 percentage point increase in market share from the previous year.
For each of the last five fiscal years, the Company has been the leader in the
medium truck and school bus markets. In addition, the Company believes that it
is the largest supplier of replacement parts to the heavy and medium truck and
bus aftermarkets.
Commitment to Customer Satisfaction. In order to achieve high customer
satisfaction, the Company maintains the largest retail organization in North
America specializing in medium and heavy trucks. In addition, the Company
operates seven regional parts distribution centers in the United States and
Canada, enabling it to offer 24-hour availability and same day shipment of the
parts most frequently requested by customers. In 1997,
- --------------------------------------------------------------------------------
6
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- --------------------------------------------------------------------------------
Navistar was ranked number one for the third consecutive year by the annual
American Truck Dealers ("ATD") Attitude Survey, which evaluates OEMs on quality
and performance issues related to products, parts, policies and service.
Largest Supplier of Mid-Range Diesel Engines. The Company is the leading
supplier of mid-range diesel engines in the 160-300 horsepower range and is
currently the exclusive supplier of diesel engines to The Ford Motor Company
("Ford") for use in its diesel-powered light trucks and vans. On October 29,
1997, the Company finalized its agreement with Ford to supply newly-designed,
advanced technology engines through the year 2012 for use in Ford's F-series
pickup trucks and Econoline vans. This 10-year agreement is scheduled to become
effective beginning with model year 2003 and will replace the Company's current
agreement with Ford, which will expire after model year 2002. The Company has
been supplying diesel engines to Ford since 1982.
TRUCK STRATEGY
In fiscal 1997, the Company continued to implement its five-point truck
strategy, which the Company adopted in fiscal 1996 in order to improve
operating performance and increase profitability. Specifically, this strategy
is designed to enable Transportation's truck division to achieve its part in
Navistar's goal of generating an average 17.5% after tax return on equity over
a business cycle. The principal components of this strategy as well as recent
achievements in its implementation include:
. Reduce Product Complexity. The Company believes that it can increase
manufacturing efficiency and improve product quality by reducing the
complexity of its product offerings. Historically, thousands of options
and a separate chassis design were offered for each truck model
manufactured by Transportation, which led to significant manufacturing
inefficiencies. In 1996, Transportation introduced a new ordering program
known as Diamond Spec(TM) for its premium conventional heavy duty trucks.
Under this program, Transportation rationalized the number of possible
option combinations by developing pre-packaged option groups which are
arranged under 11 categories (i.e., engine, chassis, electrical system)
based upon the most popular preferences of its customers. Transportation
also combined the chassis for three models offered in this premium
conventional product category into one chassis. In 1997, Transportation
expanded its Diamond Spec(TM) ordering system and completed a successful
pilot program in 11 key markets for its medium trucks. This
standardization of option and chassis groups is expected to lead to
significant operating cost savings from increased manufacturing
efficiency and to better pricing for purchased components. In addition,
Transportation believes that this program will result in an overall
improvement in product quality and shorter and more reliable delivery
times.
. Focus Manufacturing Facilities. The Company believes that it can achieve
significant improvements in manufacturing efficiency by focusing each of
its principal truck manufacturing facilities on producing a single type
of truck model. In order to sharpen the Company's focus on serving its
customers and markets, the Company recently announced a reorganization of
its truck group into six distinct businesses. The new organization will
consist of four vehicle centers--heavy truck, severe service truck,
medium truck and school bus, and two business centers--parts and
international. In fiscal 1996, Transportation transferred the production
of its stripped chassis from its Springfield, Ohio facility to its
Conway, Arkansas facility, in order to achieve efficiencies in the
production of medium duty trucks. Similarly, the Company established a
joint venture, SST Truck Company, which will focus on the production of
the highly-complex Paystar(R) severe service trucks, thereby permitting
Transportation's Chatham, Ontario facility to concentrate on
manufacturing premium conventional heavy duty trucks.
. Emphasize Product Development. The Company believes that each of its
current truck models equals or exceeds those of its competitors in terms
of satisfying its customers' needs. Nevertheless, the Company intends to
continue to enhance and expand its current product offerings in an effort
to provide trucks that better satisfy its customers' changing demands. In
fiscal 1997, Navistar's Board of Directors approved funding for its next
generation truck program (the "NGT Program"). Pursuant to the NGT
Program, the
- --------------------------------------------------------------------------------
7
<PAGE>
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Company expects to make $350 million in capital expenditures and spend
$300 million in development costs over the next six years to develop and
manufacture a full line of world-class medium trucks, school buses and
regular conventional heavy trucks. These new models will offer enhanced
driver comfort, operating efficiency, overall appearance, quality and
performance. The design and development phases of the NGT Program are
currently underway and the Company expects the first new vehicles to be
available in mid-2001, with additional new vehicles to follow
approximately every six months through 2003. In 1997, Transportation also
introduced the International(R) 9100 conventional truck to replace the
International(R) 8200 conventional truck and made significant improvements
to its premium conventional models. Further model improvements are
expected to be introduced for Transportation's premium conventional heavy
duty truck models in fiscal 1998.
. Expand International Operations. The Company believes that there are
significant opportunities to increase sales of both trucks and engines in
Mexico and in other selected export markets. In 1997, the Company
captured approximately 11.5% of the Mexican truck market after
establishing a dealer network and a parts distribution center and
arranging for production at a contract manufacturer in 1996. The
Company's dealer network in Mexico was expanded from 23 to 38 locations
in 1997. The Company is currently constructing an assembly facility
located near Monterrey, Mexico. This medium duty and heavy duty truck
facility is anticipated to cost approximately $167 million and to begin
production by late 1998. Its capacity will be 65 units per shift. The
Company believes that its Mexican operations will enable it to expand
into other Latin American countries, particularly as a result of the
favorable and cost effective trade agreements between Mexico and other
Latin American countries. The Company has also recently established a
presence in Brazil by forming a Brazilian subsidiary and signing an
agreement with a Brazilian equipment manufacturer to assemble commercial
trucks. The Company expects that production of its trucks in Brazil will
begin in late 1998.
. Establish Competitive Wage, Benefit and Productivity Levels.
Transportation expects to achieve significant productivity gains as a
result of favorable changes in job classifications, work rules and
training. In August 1997, Transportation's collective bargaining
agreement with the United Automobile, Aerospace & Agricultural Implement
Workers of America (the "UAW") was extended through October 1, 2002. This
contract contains significant changes from the prior agreement, enabling
the Company to better focus its assembly plants, simplify current product
lines, invest in new product development and
achieve more competitive wage, benefit and productivity levels. This new
agreement enabled the Company to reinstate its NGT Program and continue to
implement its five-point truck strategy. In 1996, Transportation signed a
new three-year collective bargaining agreement with the Canadian Auto
Workers (the "CAW").
The Company's principal executive office is located at 455 North Cityfront
Plaza Drive, Chicago, Illinois 60611, and its telephone number is (312) 836-
2000.
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8
<PAGE>
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THE INITIAL OFFERINGS
Senior Notes.................... The Old Senior Notes were sold by the
Company on February 4, 1998 to J.P.
Morgan Securities Inc., Credit Suisse
First Boston Corporation and Chase
Securities Inc. (the "Senior Notes
Initial Purchasers"), pursuant to a
Purchase Agreement dated January 30, 1998
(the "Senior Notes Purchase Agreement").
The Senior Notes Initial Purchasers
subsequently resold the Old Senior Notes
to qualified institutional buyers
pursuant to Rule 144A under the
Securities Act.
Senior Subordinated Notes....... The Old Senior Subordinated Notes were
sold by the Company on February 4, 1998
to J.P. Morgan Securities Inc., Credit
Suisse First Boston Corporation, Chase
Securities Inc., BancAmerica Robertson
Stephens and NationsBanc Montgomery
Securities L.L.C. (the "Senior
Subordinated Notes Initial Purchasers"
and together with the Senior Notes
Initial Purchasers, the "Initial
Purchasers") pursuant to a Purchase
Agreement dated January 30, 1998 (the
"Senior Subordinated Notes Purchase
Agreement" and together with the Senior
Notes Purchase Agreement, the "Purchase
Agreements"). The Senior Subordinated
Notes Initial Purchasers subsequently
resold the Old Senior Subordinated Notes
to (i) qualified institutional buyers
pursuant to Rule 144A under the
Securities Act and (ii) qualified buyers
outside the United States in reliance
upon Regulation S under the Securities
Act.
Registration Rights Agreements.. Pursuant to the Purchase Agreements, the
Company and each of the respective
Initial Purchasers entered into the
Registration Rights Agreements, each
dated as of February 4, 1998, each of
which grants the holder of the Old Notes
certain exchange and registration rights.
The Exchange Offer is intended to satisfy
such exchange rights which terminate upon
the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered:
Senior Notes.................. $100,000,000 aggregate principal amount
of Series B 7% Senior Notes due 2003.
Senior Subordinated Notes..... $250,000,000 aggregate principal amount
of Series B 8% Senior Subordinated Notes
due 2008.
The Exchange Offer.............. $1,000 principal amount of the Senior
Exchange Notes in exchange for each
$1,000 principal amount of Old Senior
Notes. As of the date hereof,
$100,000,000 aggregate principal amount
of Old Senior Notes are outstanding.
$1,000 principal amount of the Senior
Subordinated Exchange Notes in
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9
<PAGE>
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exchange for each $1,000 principal amount
of Old Senior Subordinated Notes. As of
the date hereof, $250,000,000 aggregate
principal amount of Old Senior
Subordinated Notes are outstanding. The
Company will issue the Exchange Notes to
holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff
of the Commission set forth in no action
letters issued to third parties, the
Company believes that Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred
by any holder thereof (other than any
such holder which is an "affiliate" of
the Company within the meaning of Rule
405 under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such
Exchange Notes are acquired in the
ordinary course of such holder's business
and that such holder does not intend to
participate and has no arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes.
Any Participating Broker-Dealer that
acquired Old Notes for its own account as
a result of market-making activities or
other trading activities may be a
statutory underwriter. Each Participating
Broker-Dealer that receives Exchange
Notes for its own account pursuant to the
Exchange Offer must acknowledge that it
will deliver a prospectus in connection
with any resale of such Exchange Notes.
The Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer in connection with resales
of Exchange Notes received in exchange
for Old Notes where such Old Notes were
acquired by such Participating Broker-
Dealer as a result of market-making
activities or other trading activities.
The Company has agreed that, for a period
of 180 days after the Expiration Date, it
will make this Prospectus available to
any Participating Broker-Dealer for use
in connection with any such resale
(provided that the Company receive notice
from such Participating Broker-Dealer
within 30 days after the consummation of
the Exchange Offer of his status as a
Participating Broker-Dealer). See "Plan
of Distribution."
Any holder who tenders in the Exchange
Offer with the intention to participate,
or for the purpose of participating, in a
distribution of the Exchange Notes could
not rely on the position of the staff of
the Commission enunciated in no-action
letters and, in the absence of an
exemption therefrom, must
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10
<PAGE>
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comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
resale transaction. Failure to comply
with such requirements in such instance
may result in such holder incurring
liability under the Securities Act for
which the holder is not indemnified by
the Company.
Expiration Date................. 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in
which case the term "Expiration Date"
means the latest date and time to which
the Exchange Offer is extended. In order
to extend the Exchange Offer, the Company
will notify the Exchange Agent of any
extension by oral or written notice and
will mail to the registered holders,
including the holders who previously
tendered their Old Notes, an announcement
thereof, each prior to 9:00 a.m. New York
City time, on the next business day after
the previously scheduled expiration date.
Accrued Interest on the
Exchange Notes and the Old
Notes.......................... Each Exchange Note will bear interest
from its issuance date. Holders of Old
Notes that are accepted for exchange will
receive, in cash, accrued interest
thereon to, but not including, the
issuance date of the Exchange Notes. Such
interest will be paid with the first
interest payment on the Exchange Notes.
Interest on the Old Notes accepted for
exchange will cease to accrue upon
issuance of the Exchange Notes.
Conditions to the Exchange
Offer.......................... The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company in its reasonable
discretion. See "The Exchange Offer--
Conditions."
Procedures for Tendering Old
Notes.......................... Each holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof or
transmit an Agent's Message (as defined
herein) in connection with a book-entry
transfer, in accordance with the
instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, or such Agent's Message,
together with the Old Notes and any other
required documentation to the Exchange
Agent (as defined) at the address set
forth herein. By executing the Letter of
Transmittal or Agent's Message, each
holder will represent to the Company
that, among other things, the Exchange
Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary
course of business of the person
receiving such Exchange Notes, whether or
not such person is the holder, that
neither the holder nor any such other
person has any arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the
holder nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. See
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11
<PAGE>
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"The Exchange Offer--Purpose and Effect
of the Exchange Offer" and "--Procedures
for Tendering."
Untendered Old Notes............ Following the consummation of the
Exchange Offer, holders of Old Notes
eligible to participate but who do not
tender their Old Notes will not have any
further exchange rights and such Old
Notes will continue to be subject to
certain restrictions on transfer.
Accordingly, the liquidity of the market
for such Old Notes could be adversely
affected.
Consequences of Failure to
Exchange....................... The Old Notes that are not exchanged
pursuant to the Exchange Offer will
remain restricted securities.
Accordingly, such Old Notes may be resold
only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the
Securities Act or pursuant to some other
exemption under the Securities Act, (iii)
outside the United States to a foreign
person pursuant to the requirements of
Rule 904 under the Securities Act or (iv)
pursuant to an effective registration
statement under the Securities Act. See
"The Exchange Offer--Consequences of
Failure to Exchange."
Shelf Registration Statement.... If any holder of the Old Notes (other
than any such holder which is an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act) is not eligible under applicable
securities laws to participate in the
Exchange Offer, and such holder has
satisfied certain conditions relating to
the provision of information to the
Company for use therein, the Company has
agreed to register the Old Notes on a
shelf registration statement (the "Shelf
Registration Statement") and use its best
efforts to cause it to be declared
effective by the Commission as promptly
as practical on or after the consummation
of the Exchange Offer. The Company has
agreed to maintain the effectiveness of
the Shelf Registration Statement for,
under certain circumstances, a maximum of
two years, to cover resales of the Old
Notes held by any such holders.
Special Procedures for
Beneficial Owners.............. Any beneficial owner whose Old Notes are
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial
owner's behalf. If such beneficial owner
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in
such owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered
ownership may take considerable time. The
Company will keep the Exchange Offer open
for not less than 20 business days in
order to provide for the transfer of
registered ownership.
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12
<PAGE>
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Guaranteed Delivery Procedures.. Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent (or comply with the
procedures for book-entry transfer) prior
to the Expiration Date must tender their
Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............... Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time,
on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange Notes..... The Company will accept for exchange any
and all Old Notes which are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Use of Proceeds................. There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
Exchange Agent.................. Harris Trust and Savings Bank.
THE EXCHANGE NOTES
General......................... The form and terms of the Exchange Notes
are the same as the form and terms of the
Old Notes (which they replace) except
that (i) the Exchange Notes bear a Series
B designation and a different CUSIP
Number from the Old Notes, (ii) the
Exchange Notes have been registered under
the Securities Act and, therefore, will
not bear legends restricting the transfer
thereof, and (iii) the holders of
Exchange Notes will not be entitled to
certain rights under the Registration
Rights Agreements, including the
provisions providing for an increase in
the interest rate on the Old Notes in
certain circumstances relating to the
timing of the Exchange Offer, which
rights will terminate when the Exchange
Offer is consummated. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer." The Exchange Notes will evidence
the same debt as the Old Notes and will
be entitled to the benefits of the
respective Indentures. See "Description
of the Notes."
Maturity Dates:
Senior Notes.................. February 1, 2003.
Senior Subordinated Notes..... February 1, 2008.
Interest Payment Dates.......... February 1 and August 1 of each year,
commencing August 1, 1998.
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13
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Optional Redemption:
Senior Notes.................. The Senior Notes are not redeemable at
the option of NIC prior to maturity.
Senior Subordinated Notes..... The Senior Subordinated Notes are
redeemable, in whole or in part, at the
option of NIC at any time on or after
February 1, 2003 at the redemption prices
set forth herein, together with accrued
and unpaid interest, if any, to the date
of redemption. In addition, prior to
February 1, 2001, NIC may, at its option,
redeem up to 35% of the original
principal amount the Senior Subordinated
Notes at 108.0% of the principal amount
thereof, plus accrued and unpaid
interest, if any, to the applicable
redemption date, with the net cash
proceeds of one or more Public Equity
Offerings. See "Description of the
Notes--Optional Redemption."
Ranking:
Senior Notes.................. The Senior Notes are unsecured senior
obligations of NIC, ranking pari passu in
right of payment with all existing and
future unsubordinated Indebtedness of
NIC, and rank senior in right of payment
to all existing and future subordinated
Indebtedness of NIC, including the Senior
Subordinated Notes. As of October 31,
1997, after giving pro forma effect to
the Initial Offerings and the application
of the net proceeds therefrom, NIC would
have had $350 million of total
Indebtedness outstanding, of which $250
million would have been subordinated
Indebtedness.
Senior Subordinated Notes..... The Senior Subordinated Notes are
unsecured senior subordinated obligations
of NIC, ranking subordinate in right of
payment to all existing and future Senior
Indebtedness of NIC, including the Senior
Notes, and ranking pari passu in right of
payment to all existing and future senior
subordinated Indebtedness of NIC and
senior in right of payment to all
existing and future subordinated
Indebtedness of NIC. As of October 31,
1997, on a pro forma basis after giving
effect to the Initial Offerings and the
application of the net proceeds
therefrom, NIC would have had $350
million of total Indebtedness
outstanding, of which $100 million would
have ranked senior in right of payment to
the Senior Subordinated Notes.
In addition, the Senior Notes and Senior
Subordinated Notes are effectively
subordinated to all existing and future
liabilities of the subsidiaries of NIC.
As of October 31, 1997, after giving pro
forma effect to the Initial Offerings and
the application of the net proceeds
therefrom, the amount of liabilities of
such subsidiaries (including trade
payables) would have been approximately
$4,431 million. See "Description of the
Notes--Subordination of the Senior
Subordinated Notes; Ranking."
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14
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Change of Control............... Upon the occurrence of a Change of
Control, each holder of Senior Notes and
the Senior Subordinated Notes may require
NIC to purchase all or a portion of such
holder's Senior Notes or Senior
Subordinated Notes, as the case may be, at
a purchase price equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to
the date of purchase. See "Description of
the Notes--Change of Control."
Certain Covenants............... The Indentures contain certain covenants
that, among other things, limit the
ability of NIC and its Restricted
Subsidiaries (as defined) to incur
additional indebtedness, pay dividends or
make certain other restricted payments,
engage in transactions with affiliates,
incur liens and engage in asset sales. The
Indentures also restrict the ability of
NIC and its Restricted Subsidiaries to
consolidate or merge with, or transfer all
or substantially all of their assets to,
another person. However, these limitations
are subject to a number of important
qualifications and exceptions. See
"Description of the Notes--Certain
Covenants."
After the Senior Notes have been assigned
an Investment Grade (as defined) rating,
NIC and its Restricted Subsidiaries will
no longer be subject to the provisions of
certain of the covenants listed above. See
"Description of the Notes--Certain
Covenants--Relating Only to the Senior
Notes--Application of Fall Away
Covenants."
Use of Proceeds:
Senior Notes.................. The net proceeds from the sale of the
Senior Notes were used to repay certain
outstanding indebtedness of Transportation
and for general corporate purposes.
Senior Subordinated Notes..... The net proceeds from the sale of the
Senior Subordinated Notes were used to
redeem all of NIC's Series G Convertible
Cumulative Preferred Stock. See "Use of
Proceeds."
RISK FACTORS
Holders of the Old Notes should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included
in this Prospectus before participating in the Exchange Offer.
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15
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data of the Company and its consolidated subsidiaries for the periods
indicated. The Company's summary consolidated financial data was derived from
Navistar's consolidated financial statements and notes thereto. The summary
consolidated financial data set forth below is qualified in its entirety by and
should be read in conjunction with "Selected Consolidated Financial and
Operating Data," "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the Company's Consolidated Financial Statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales and revenues:
Sales of manufactured products. $6,147 $5,508 $6,125 $5,153 $ 4,510
Finance and insurance revenue
(1)........................... 174 197 167 152 181
Other income................... 50 49 50 32 30
------ ------ ------ ------ -------
Total sales and revenues..... 6,371 5,754 6,342 5,337 4,721
------ ------ ------ ------ -------
Costs and expenses:
Costs of products and services
sold.......................... 5,292 4,827 5,288 4,496 3,925
Other expenses (2)............. 763 739 705 608 1,146
Interest expense............... 74 83 87 75 91
------ ------ ------ ------ -------
Total costs and expenses..... 6,129 5,649 6,080 5,179 5,162
------ ------ ------ ------ -------
Income (loss) before income
taxes......................... 242 105 262 158 (441)
Income tax expense (benefit)... 92 40 98 56 (168)
------ ------ ------ ------ -------
Income (loss) of continuing
operations.................... 150 65 164 102 (273)
Loss of discontinued operations
(3)........................... -- -- -- (20) --
Cumulative effect of changes in
accounting policy (4)......... -- -- -- -- (228)
------ ------ ------ ------ -------
Net income (loss).............. $ 150 $ 65 $ 164 $ 82 $ (501)
====== ====== ====== ====== =======
Income (loss) of continuing
operations per common share (6)
Basic.......................... $ 1.66 $ .49 $ 1.83 $ .99 $ (8.63)
Diluted........................ $ 1.65 $ .49 $ 1.83 $ .99 $ (8.63)
Net income (loss) per common
share (6)
Basic.......................... $ 1.66 $ .49 $ 1.83 $ .72 $(15.19)
Diluted........................ $ 1.65 $ .49 $ 1.83 $ .72 $(15.19)
<CAPTION>
AT OCTOBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Assets:
Manufacturing operations....... $4,111 $3,815 $4,018 $3,724 $ 3,645
Financial services operations.. 1,857 1,843 1,922 1,582 1,672
Eliminations................... (452) (332) (374) (259) (257)
------ ------ ------ ------ -------
Total assets................. $5,516 $5,326 $5,566 $5,047 $ 5,060
====== ====== ====== ====== =======
Debt:
Manufacturing operations....... $ 92 $ 115 $ 127 $ 127 $ 175
Financial services operations.. 1,224 1,305 1,330 1,091 1,199
------ ------ ------ ------ -------
Total debt................... $1,316 $1,420 $1,457 $1,218 $ 1,374
====== ====== ====== ====== =======
Preferred stock.................. $ 244 $ 244 $ 244 $ 244 $ 245
====== ====== ====== ====== =======
Total shareowners' equity........ $1,020 $ 916 $ 870 $ 817 $ 775
====== ====== ====== ====== =======
</TABLE>
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16
<PAGE>
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT MARKET SHARE
AND UNIT DATA)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND OPERATING
DATA:
Capital expenditures.......... $ 172 $ 117 $ 139 $ 87 $ 110
Depreciation and amortization. 120 105 86 72 75
United States and Canadian
retail deliveries of trucks
and school buses............. 99,500 94,000 101,700 91,600 79,800
United States and Canadian
market share (5)............. 28.6% 27.5% 26.7% 27.0% 27.6%
Unit shipments:
Trucks and school buses..... 104,400 95,200 112,200 95,000 87,200
OEM engines................. 184,000 163,200 154,200 130,600 118,200
</TABLE>
- --------
(1) Includes revenues of NFC as well as the Company's other financial services
subsidiaries.
(2) The Company contributed approximately 25.6 million shares of its Class B
Common Stock valued at $513 million to the Supplemental Trust (as defined)
in 1993.
(3) The 1994 loss of discontinued operations resulted from a $20 million after
tax charge for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc.
(4) In the third quarter of 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions" ("SFAS 106") and SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"), retroactive to November 1,
1992.
(5) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including
school buses, and heavy trucks (Class 8) in the United States and Canada by
Transportation and its dealers, compared to the industry total in the
United States and Canada of retail deliveries.
(6) The net income (loss) per common share information for all periods
presented have been restated to reflect the new earnings per share
calculation required by Statement of Financial Accounting Standard No. 128
"Earnings Per Share." Income (loss) of continuing operations per common
share was computed as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
----------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income (loss) of continuing operations........ $150 $ 65 $164 $102 $(273)
Less dividends on Series G Preferred Stock.... 29 29 29 29 29
---- ---- ---- ---- -----
Income (loss) of continuing operations
applicable to common stock (Basic and
Diluted)..................................... $121 $ 36 $135 $ 73 $(302)
==== ==== ==== ==== =====
Average shares outstanding (millions)
Basic........................................ 73.1 73.7 74.2 74.5 34.9
Dilutive effect of options outstanding..... .4 -- -- -- --
Conversion of Series D Preferred Stock..... .1 .1 .1 .1 --
---- ---- ---- ---- -----
Diluted...................................... 73.6 73.8 74.3 74.6 34.9
==== ==== ==== ==== =====
</TABLE>
Unexercised employee stock options to purchase shares of Navistar Common
Stock were not included in the diluted shares outstanding when the options'
exercise prices were greater than the average market price of Navistar
Common Stock during the respective periods. Additionally, the diluted
calculation excludes the effects of the conversion of the Series G
Preferred Stock as such conversion would produce anti-dilutive results. The
dilutive effect of options outstanding and the conversion of Series D
Preferred Stock were not included in 1993 diluted shares as such inclusion
would produce anti-dilutive results. Basic and diluted loss of discontinued
operations per common share in 1994 was $0.27. Basic and diluted loss from
the cumulative effect of changes in accounting policy per common share in
1993 was $6.56. In January of 1998, the Company repurchased approximately
3.2 million shares of its Class B Common Stock from the Supplemental Trust.
For the fiscal year ended October 31, 1997, after giving pro forma effect
to the Initial Offerings and the application of the net proceeds therefrom,
as if each had occurred as of the beginning of fiscal 1997 basic and
diluted income of continuing operations per common share and basic and
diluted net income per common share would have each been $1.93 and $1.92,
respectively.
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17
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SUPPLEMENTAL UNAUDITED FINANCIAL INFORMATION
The following table sets forth certain unaudited supplemental financial
information of the Company (with the Company's financial services operations
set forth on an equity basis of accounting). The Company has included this
supplemental information to assist prospective investors in evaluating an
investment in the Notes. This information should not be considered in isolation
or as a substitute for the Company's financial data that has been prepared in
accordance with generally accepted accounting principles. The information set
forth herein should be read in conjunction with "Selected Consolidated
Financial and Operating Data," "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the Company's Consolidated Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------ ------ ------ ------
PRO FORMA(1) ACTUAL
------------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONDENSED STATEMENT
OF INCOME:
Sales of manufactured
products.................... $6,147 $6,147 $5,508 $6,125 $5,153 $4,510
Other income................. 44 44 42 43 25 16
------ ------ ------ ------ ------ ------
Total sales and
revenues.............. 6,191 6,191 5,550 6,168 5,178 4,526
------ ------ ------ ------ ------ ------
Cost of products sold........ 5,270 5,274 4,818 5,280 4,494 3,919
Other expenses (2)........... 744 746 704 679 576 1,097
Interest expense............. 27 7 6 9 10 12
------ ------ ------ ------ ------ ------
Total costs and
expenses.............. 6,041 6,027 5,528 5,968 5,080 5,028
------ ------ ------ ------ ------ ------
Income (loss) before income
taxes
Manufacturing operations... 150 164 22 200 98 (502)
Financial services
operations................ 78 78 83 62 60 61
------ ------ ------ ------ ------ ------
Income (loss) before
income taxes.......... 228 242 105 262 158 (441)
Income tax expense (benefit). 87 92 40 98 56 (168)
------ ------ ------ ------ ------ ------
Income (loss) of continuing
operations.................. 141 150 65 164 102 (273)
Loss of discontinued
operations (3).............. -- -- -- -- (20) --
Cumulative effect of changes
in
accounting policy (4)....... -- -- -- -- -- (228)
------ ------ ------ ------ ------ ------
Net income (loss)............ 141 150 65 164 82 (501)
Less dividends on Series G
preferred stock............. -- 29 29 29 29 29
------ ------ ------ ------ ------ ------
Net income (loss) applicable
to common stock............. $ 141 $ 121 $ 36 $ 135 $ 53 $ (530)
====== ====== ====== ====== ====== ======
<CAPTION>
AT OCTOBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------ ------ ------ ------
AS
ADJUSTED(5) ACTUAL
------------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONDENSED BALANCE
SHEET DATA:
Cash, cash equivalents and
marketable securities....... $ 829 $ 802 $ 707 $ 876 $ 665 $ 462
Property and equipment, net.. 706 706 666 642 549 608
Total assets................. 4,145 4,111 3,815 4,018 3,724 3,645
Postretirement benefits
liabilities................. 1,178 1,178 1,344 1,334 1,292 1,345
Total debt................... 371 92 115 127 127 175
Total shareowners' equity.... 780 1,020 916 870 817 775
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
---------------------------------------
1997 1996 1995 1994 1993
--------------- ---- ---- ---- -----
PRO
FORMA(1) ACTUAL
-------- ------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA (6)............................. $274 $268 $118 $284 $176 $(421)
Dividends received from NFC............ 40 40 26 9 26 23
Cash provided by (used in):
Operations........................... NA 438 -- 400 280 192
Investment programs.................. NA (241) 39 (378) (46) (509)
Financing activities................. NA (76) (48) (60) (112) 472
Ratio of EBITDA to interest expense.... 10.1x 38.3x 19.7x 31.6x 17.6x
Ratio of total debt to EBITDA (7)...... 1.4x 0.3x 1.0x 0.4x 0.7x
</TABLE>
- --------
(1) Gives pro forma effect to the Initial Offerings and the application of the
net proceeds therefrom as if each had occurred as of the beginning of
fiscal 1997. Pro forma adjustments include: (i) a net increase in interest
expense of $20 million; (ii) a corresponding reduction in cost of products
sold and other expense of an aggregate $6 million due to lower profit-
sharing expense; (iii) a corresponding decrease in income tax expense of $5
million; and (iv) the elimination of dividends paid on the Series G
Convertible Cumulative Preferred Stock of $29 million. The pro forma
information does not purport to represent what the Company's results of
operations actually would have been if the Initial Offerings had actually
occurred as of such dates or what such results will be for any future
periods.
(2) The Company contributed approximately 25.6 million of shares of its Class B
Common Stock valued at $509 million to the Supplemental Trust in 1993.
(3) The 1994 loss of discontinued operations resulted from a $20 million after
tax charge for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc.
(4) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109,
retroactive to November 1, 1992.
(5) Gives effect to the sale of the Old Notes in the Initial Offerings and the
application of the net proceeds therefrom as if each had occurred on
October 31, 1997. See "Capitalization."
(6) EBITDA represents income from manufacturing operations before the
cumulative effect of changes in accounting policy, interest expense, taxes
on income and depreciation and amortization expense. The Company believes
EBITDA provides additional information for measuring its ability to
generate funds for liquidity and capital requirements. This information is
presented as a supplement to the other data provided because it provides
information which the Company believes is useful for additional analysis.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows from operating activities and other consolidated
operations or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of the Company's
profitability or liquidity.
(7) For the purpose of this ratio, total debt was calculated in the pro forma
column by giving effect to the sale of the Old Notes in the Initial
Offerings and the application of the net proceeds therefrom as if each had
occurred on October 31, 1997.
- --------------------------------------------------------------------------------
19
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following factors in
addition to the other information contained in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below as well as those discussed
elsewhere in this Prospectus.
MARKET AND GENERAL ECONOMIC CONDITIONS
Navistar's ability to be profitable depends in part on the varying
conditions in the medium and heavy truck, mid-range diesel engine and service
parts markets. See "Business." The truck markets in which the Company competes
are subject to considerable volatility. Such markets move in response to
cycles in the overall business environment and are particularly sensitive to
the industrial sector, which generates a significant portion of the freight
tonnage hauled. Truck and engine demand also depend on general economic
conditions, interest rate levels and fuel costs.
COMPETITION
The North American truck market, in which Navistar competes, is highly
competitive. Navistar's major domestic competitors include PACCAR, Ford and
General Motors, as well as foreign-controlled domestic manufacturers, such as
Freightliner, Mack and Volvo GM. In addition, well-capitalized manufacturers
from Japan (Hino, Isuzu, Nissan, Mitsubishi) are attempting to increase their
North American sales levels. The intensity of this competition, which is
expected to continue, results in price discounting and margin pressures
throughout the industry and adversely affects Navistar's ability to increase
or maintain vehicle prices. Many of Navistar's competitors have greater
financial resources, which may place Navistar at a competitive disadvantage in
responding to substantial industry changes, such as changes in governmental
regulations that require major additional capital expenditures. In addition,
certain of Navistar's competitors may have lower overall labor costs.
FUTURE CAPITAL REQUIREMENTS
Navistar has announced plans for approximately $350 million in capital
spending over the next six years for the NGT Program. Capital expenditures for
fiscal 1998 are expected to be approximately $370 million, of which $25
million is to be spent for the NGT Program. Additional capital expenditures
are planned for the completion of the truck assembly facility in Mexico,
increased manufacturing capacity at the Indianapolis engine plant,
commencement of truck operations in Brazil and improvements to existing
facilities and products. Navistar's investment in the NGT Program will also
include $300 million in development expense over the next six years, of which
approximately $50 million is planned for 1998.
The Company will be required to make substantial cash expenditures over the
next several years to implement its NGT Program and to meet its other capital
expenditure and development objectives. Historically, Navistar has relied on
cash balances and cash provided by operations to meet its funding
requirements. The amount of cash generated by Navistar's business varies with
industry volumes in the medium and heavy truck markets. No assurance can be
given that Navistar will have the cash balances necessary to implement its NGT
Program and to meet its other capital requirements or that financing will be
available or, if available, that it will be available on satisfactory terms.
The future availability of financing will depend on many factors, including
Navistar's earnings, credit ratings, the outlook for truck industry demand and
the capital resources of financial institutions. If adequate funds are not
available, the Company may be required to cut back or discontinue the NGT
Program or other product development or capital improvement programs. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources" and
"--Business Environment."
From and after July 1, 1998, the Settlement Agreement in respect of
Navistar's postretirement healthcare and life insurance benefits (the
"Settlement Agreement") gives the Supplemental Trust established thereunder
20
<PAGE>
the exclusive right, subject to certain limited exceptions, to conduct public
offerings of Common Stock for a period of 5 years (the "Window Period"),
subject to earlier termination at such time as the Supplemental Trust has
received net proceeds of $500 million from qualifying sales of Common Stock.
During this period, Navistar will be prohibited from conducting public
offerings of equity securities for working capital or other purposes unless
the Supplemental Committee (as defined) under the Supplemental Trust otherwise
consents. To date, the Company believes that the Supplemental Trust has
received approximately $78 million in net proceeds from qualifying sales of
Common Stock. See "--Potential Influence of Supplemental Trust."
RELIANCE ON MAJOR CUSTOMER
Ford accounted for approximately 14% of the Company's revenues during fiscal
1997 and fiscal 1996 and approximately 12% for fiscal 1995. Although the
Company has contracts with Ford that continue through 2012, such contracts
provide for supplying Ford's requirements for particular models, rather than
for manufacturing a specific quantity of products. The loss of Ford as a
customer or a significant decrease in demand for the models or a group of
related models that utilize the Company's products could have a material
adverse effect on the Company.
HOLDING COMPANY STRUCTURE
NIC, the issuer of the Notes, is a holding company with no significant
business operations other than (i) holding the capital stock of Transportation
and Navistar International Corporation Mexico S.A. de C.V. ("Navimex"), other
subsidiaries and joint venture interests and (ii) advancing funds to, and
receiving funds from, its direct and indirect subsidiaries. In repaying its
indebtedness, including the Notes, NIC must rely on dividends and other
payments made to it by Transportation and its other direct and indirect
subsidiaries. In addition, the Indentures governing the Notes will allow the
Company the ability to make substantial investments (including, without
limitation, contributions of assets) in joint ventures.
The holders of the Notes have no direct claims against the assets of NIC's
subsidiaries. The ability of NIC's subsidiaries to make payments to NIC will
be affected by the obligations of such subsidiaries to their creditors. Claims
of holders of indebtedness of NIC, including the Notes, against the cash flow
and assets of NIC's subsidiaries will be effectively subordinated to claims of
such creditors. In addition, the rights of the holders of the Notes to
participate in the assets of any subsidiary of NIC upon such subsidiary's
liquidation or recapitalization will be subject to the prior claims of such
subsidiary's creditors. As of October 31, 1997, after giving pro forma effect
to the Initial Offerings and the application of the net proceeds therefrom,
the direct and indirect subsidiaries of NIC would have had approximately
$4,431 million of liabilities (including trade payables). The ability of NIC's
subsidiaries to make payments to NIC will also be subject to, among other
things, applicable state corporate laws and contractual restrictions. State
corporate laws applicable to NIC's subsidiaries generally prohibit the payment
of dividends by any given subsidiary unless such subsidiary has capital
surplus or net profits in the current or immediately preceding year. In
addition, the payment of dividends by NFC is limited by the terms of several
of its financings. See "Description of Other Financing Arrangements."
SUBORDINATION OF THE SENIOR SUBORDINATED NOTES
The payment on the principal of, premium, if any, and interest on the Senior
Subordinated Notes will be subordinate in right of payment to the prior
payment in full of all Senior Indebtedness of NIC, including the Senior Notes,
whether outstanding at the date of the indenture in respect of the Senior
Subordinated Notes or thereafter incurred. As of October 31, 1997, after
giving pro forma effect to the Initial Offerings and the application of the
net proceeds therefrom, NIC would have had $100 million in Senior Indebtedness
outstanding, all of which would rank senior to the Senior Subordinated Notes,
and no indebtedness which would be subordinated to the Senior Subordinated
Notes. Additional Senior Indebtedness can be incurred by NIC from time to
time, subject to certain restrictions. In the event of a default in the
payment or prepayment of the principal of, premium, if any, or interest on any
Senior Indebtedness of NIC, NIC is prohibited from making any payment with
respect to the principal of, premium, if any, or interest on the Senior
Subordinated Notes unless and until
21
<PAGE>
such default has been cured or waived or all Senior Indebtedness of NIC has
been discharged or paid in full. In addition, the Senior Subordinated Notes
will be effectively subordinated to all existing and future liabilities of the
subsidiaries of NIC. As of October 31, 1997, after giving pro forma effect to
the Initial Offerings and the application of the net proceeds therefrom, the
amount of such liabilities (including trade payables) would have been
approximately $4,431 million. See "--Holding Company Structure."
In addition, upon any payment or distribution of NIC's assets to its
creditors upon any dissolution, winding-up, liquidation, reorganization,
bankruptcy, insolvency, receivership or other proceedings relating to NIC,
whether voluntary or involuntary, the holders of Senior Indebtedness of NIC
will be entitled to receive payment in full of all amounts due thereon before
the holders of the Senior Subordinated Notes will be entitled to receive any
payment with respect to the principal of, premium, if any, or interest on the
Senior Subordinated Notes. By reason of such subordination, in the event of
the insolvency of NIC, holders of the Senior Subordinated Notes may receive
less, ratably, than holders of Senior Indebtedness of NIC and other creditors
of NIC, or may recover nothing. See "Description of the Notes--Subordination
of Senior Subordinated Notes; Ranking."
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers continue to face increasing governmental
regulation of their products, especially in the areas of environment and
safety. As a diesel engine manufacturer, Navistar has incurred research and
tooling costs to redesign its engine product lines to meet the United States
Environmental Protection Agency ("U.S. EPA") and California Air Resources
Board ("CARB") emission standards effective for the 1998 model year. In
addition, Navistar expects to continue to incur research, design and tooling
costs to: (i) achieve further reductions in ozone-causing exhaust emissions by
2004 in accordance with the voluntary agreement entered into by Navistar,
along with other engine manufacturers, with the U.S. EPA and CARB and (ii)
satisfy the 1998 Clean Fuel Fleet Vehicle requirements and California's
emission standards in 2002 for engines used in medium-size vehicles. Navistar
expects that its diesel engines will be able to meet all of these standards
within the required time frames.
Truck manufacturers are also subject to various noise standards imposed by
federal, state and local regulations, and to the National Traffic and Motor
Vehicle Safety Act and Federal Motor Vehicle Safety Standards promulgated by
the National Highway Traffic Safety Administration. Navistar believes it is in
compliance with such standards.
Complying with such laws and regulations has added and will continue to add
to the cost of Navistar's products, and increases the capital-intensive nature
of Navistar's business. If the present level of price competition continues,
it may become increasingly difficult for manufacturers of engines and trucks
to recover these costs and, accordingly, lower margins may result. See
"Business--Impact of Government Regulation."
PENSION AND POSTRETIREMENT HEALTH CARE OBLIGATIONS
Navistar has significant underfunded pension obligations. At October 31,
1997, the accumulated benefit obligation of Navistar's underfunded pension
plans was approximately $445 million, compared to $607 million at October 31,
1996. In November 1997, Navistar contributed $100 million to the hourly
pension plan. Navistar's long-term objective is to fund its entire accumulated
pension benefit obligation over the next 5 to 8 years with funds that are
principally generated by operations.
In the event Navistar's pension plans were terminated for any reason and
plan assets were insufficient to meet guaranteed liabilities, the Pension
Benefit Guaranty Corporation ("PBGC") may have a right to take over these
plans as their administrator and trustee. In this event, the actual present
value of guaranteed pension liabilities may be determined in a manner
different from that used by Navistar to determine its unfunded vested pension
liability. Subject to certain limitations, the PBGC would have a claim against
Navistar to the extent that plan assets were not sufficient to meet the
actuarial present value of guaranteed liabilities.
In addition to providing pension benefits, Navistar provides health care and
life insurance for a majority of its retired employees and their spouses and
certain dependents and will provide retiree health care and life
22
<PAGE>
insurance benefits for most of its existing employees hired before July 1,
1993. In 1993, a trust was established to partially fund this post-retirement
health care liability (the "Base Trust"). In November 1997, Navistar
contributed $200 million to the Base Trust satisfying the balance of its $500
million prefunding obligation, although Navistar will remain obligated to make
future contributions to the Base Trust on a pay-as-you-go basis. These
benefits are provided as part of the Settlement Agreement.
POTENTIAL INFLUENCE OF SUPPLEMENTAL TRUST
In July 1993, Navistar restructured its postretirement health care and life
insurance benefits pursuant to the Settlement Agreement that resolved
litigation between Navistar and a class of its employees, retirees and
collective bargaining organizations, including the UAW, as lead class
plaintiff. The Settlement Agreement provides, among other things, that
Navistar establish a Supplemental Benefit Trust (the "Supplemental Trust") for
the purpose of funding certain retiree and health benefits under a
Supplemental Benefit Program. The Supplemental Trust currently holds
approximately 19.9 million shares of Navistar's non-voting Class B Common
Stock. On July 1, 1998, the non-voting Class B Common Stock held by the
Supplemental Trust will convert into voting Common Stock, which is the same
class of stock held by Navistar's other shareowners. Based upon the 49.2
million shares of Common Stock currently outstanding, the Supplemental Trust
would hold approximately 29% of Navistar's voting stock upon conversion. As a
result of such stock ownership, it is likely that the Supplemental Trust will
be able to have a significant influence over those matters submitted to a vote
of Navistar's shareowners, including the election of directors and approval of
certain significant corporate transactions, following such conversion. A
committee of five members acts as administrator of the Supplemental Benefit
Program (the "Supplemental Committee") and as such has the power to direct the
voting of the Common Stock held by the Supplemental Trust. Two of the members
of the Supplemental Committee are designees of the UAW, one is a retired
management employee and two are independent from either Navistar or the UAW.
In addition, the Settlement Agreement provides for the addition of three seats
to Navistar's Board of Directors, one of which is elected by the UAW and two
of which are elected by the Supplemental Committee on behalf of the
Supplemental Trust. Navistar's Board of Directors is currently comprised of 14
persons.
RISK OF LOSS OF TAX BENEFITS
If, as a result of any transaction involving Navistar's equity securities,
an "ownership change" occurs for federal income tax purposes, the Company's
ability to use its substantial net operating losses (the "NOLs") to offset
taxable income, and thereby reduce Navistar's tax liability, would be severely
limited, requiring an adjustment to Navistar's deferred tax asset reflected in
its Statement of Financial Condition. The Settlement Agreement requires that
Navistar not sell or acquire Common Stock or other securities or take other
actions if to do so would put Navistar at risk of an "ownership change" or
would limit the ability of the Supplemental Trust to sell on or after July 1,
1998 Common Stock up to an amount equal to $500 million less proceeds from
prior sales of Common Stock (which amount is currently approximately $372
million) without putting Navistar's NOLs at risk. The Company believes, based
on the information currently available to it, that the redemption of the
Series G Convertible Cumulative Preferred Stock should not, by itself, put the
Company at risk of an "ownership change" or restrict the ability of the
Supplemental Trust to sell up to an additional $372 million of stock. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Income Taxes" for a discussion of the Company's NOLs.
As part of the Settlement Agreement, a provision (the "Prohibited Transfer
Provision") was added to NIC's Certificate of Incorporation to protect against
certain transfers of equity securities which could cause an "ownership
change." Although the Prohibited Transfer Provision is intended to prevent
transfers which could cause an "ownership change," Navistar may not be able to
prevent every transaction that could cause an "ownership change." By its
terms, the Prohibited Transfer Provision will expire on June 30, 2001.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The
23
<PAGE>
Old Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. The holders of Old Notes (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. The Exchange
Notes will constitute a new issue of securities with no established trading
market. The Company does not intend to list the Exchange Notes on any national
securities exchange or seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a
market in the Exchange Notes, but they are not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Notes or as to
the liquidity of the trading market for the Exchange Notes. If a trading
market does not develop or is not maintained, holders of the Exchange Notes
may experience difficulty in reselling the Exchange Notes or may be unable to
sell them at all. If a market for the Exchange Notes develops, any such market
may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal or
Agent's Message and all other required documents. Therefore, holders of the
Old Notes desiring to tender such Old Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under
no duty to give notification of defects or irregularities with respect to the
tenders of Old Notes for exchange. Old Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof, and, upon consummation of the Exchange Offer certain registration
rights under the Registration Rights Agreement will terminate. In addition,
any holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution." To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
24
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreements and the Registration Rights
Agreements. The Company will not receive any cash proceeds from the issuance
of the Exchange Notes offered hereby. In consideration for issuing the
Exchange Notes contemplated in this Prospectus, the Company will receive Old
Notes in like principal amount, the form and terms of which are the same as
the form and terms of the Exchange Notes (which replace the Old Notes), except
as otherwise described herein.
The net proceeds from the sale of the Old Senior Notes (after deducting the
discounts to the Initial Purchasers and the expenses in connection with such
offering) were approximately $98 million. The Company has used or expects to
use such net proceeds as follows: (i) approximately $47 million will be used
to repay the 9% Sinking Fund Debentures due June 15, 2004 of Transportation
(the "9% Debentures"), including all accrued and unpaid interest thereon; and
(ii) approximately $27 million has been used to repay the 8% Secured Note due
August 15, 2002 of Transportation (the "8% Note"), including all accrued and
unpaid interest thereon. Any remaining proceeds will be for general corporate
purposes, including working capital.
The net proceeds from the sale of the Old Senior Subordinated Notes (after
deducting discounts to the Initial Purchasers and the expenses in connection
with such offering) were approximately $244 million, which will be used to
redeem NIC's Series G Convertible Cumulative Preferred Stock (the "Series G
Preferred") and to pay accumulated and unpaid dividends thereon.
The Company intends to repay the 9% Debentures and redeem the Series G
Preferred as soon as practical after completion of the Initial Offerings.
Pending such uses outlined above, the Company will invest such net proceeds
from the Initial Offerings in short-term, investment grade, interest-bearing
securities.
25
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of October 31, 1997 and as adjusted to give effect to the sale of the Old
Notes in the Initial Offerings and the application of the net proceeds
therefrom. The Old Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
following capitalization table. See "Use of Proceeds."
<TABLE>
<CAPTION>
AT OCTOBER 31, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents and marketable securities (1)(2)... $ 965 $ 992
======= =======
TOTAL DEBT (INCLUDING CURRENT PORTION):
Manufacturing operations:
6 1/4% Sinking Fund Debentures, due 1998................ $ 3 $ 3
9% Sinking Fund Debentures, due 2004.................... 45 --
8% Secured Note, due 2002............................... 26 --
Capitalized leases and other obligations................ 18 18
Mexican credit facility (3)............................. -- --
7% Senior Notes, due 2003............................... -- 100
8% Senior Subordinated Notes, due 2008.................. -- 250
------- -------
Total manufacturing operations debt................... 92 371
Financial services operations:
Asset-backed commercial paper program................... 541 541
Bank credit facility.................................... 393 393
8 7/8% Senior Subordinated Notes due 1998............... 94 94
9% Senior Subordinated Notes due 2002................... 100 100
Capitalized leases...................................... 96 96
------- -------
Total financial services debt......................... 1,224 1,224
------- -------
Total debt............................................ 1,316 1,595
SHAREOWNERS' EQUITY:
Series G convertible cumulative preferred stock
(liquidation
preference $240 million)............................... 240 --
Series D convertible junior preference stock
(liquidation
preference $4 million)................................. 4 4
Common Stock............................................ 1,659 1,659
Class B Common Stock (2)................................ 471 471
Retained earnings (deficit)............................. (1,301) (1,301)
Treasury stock, at cost................................. (53) (53)
------- -------
Total shareowners' equity............................. 1,020 780
------- -------
Total capitalization.................................. $ 2,336 $ 2,375
======= =======
</TABLE>
- --------
(1) In November 1997, Navistar contributed $100 million to the hourly pension
plan and $200 million to the Base Trust. These contributions were funded
from existing cash balances.
(2) In January 1998, the Company repurchased approximately 3.2 million shares
of its Class B Common Stock from the Supplemental Trust. The purchase
price of approximately $83 million was funded from existing cash balances.
(3) In November 1997, the Company's Mexican subsidiary established a $125
million credit facility to be used to fund the development of the
Company's Mexican operations. As of December 31, 1997, an aggregate of $35
million of borrowings was outstanding under such facility. All of such
subsidiary's indebtedness under such facility is guaranteed on a senior
basis by NIC.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data for Navistar for the five year
period ended October 31, 1997 was derived from Navistar's audited consolidated
financial statements and notes thereto. The selected consolidated financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Company's Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales and revenues:
Sales of manufactured products. $6,147 $5,508 $6,125 $5,153 $ 4,510
Finance and insurance revenue
(1)........................... 174 197 167 152 181
Other income................... 50 49 50 32 30
------ ------ ------ ------ -------
Total sales and revenues..... 6,371 5,754 6,342 5,337 4,721
------ ------ ------ ------ -------
Costs and expenses:
Costs of products and services
sold.......................... 5,292 4,827 5,288 4,496 3,925
Other expenses (2)............. 763 739 705 608 1,146
Interest expense............... 74 83 87 75 91
------ ------ ------ ------ -------
Total costs and expenses..... 6,129 5,649 6,080 5,179 5,162
------ ------ ------ ------ -------
Income (loss) before income
taxes........................... 242 105 262 158 (441)
Income tax expense (benefit)..... 92 40 98 56 (168)
------ ------ ------ ------ -------
Income (loss) of continuing
operations...................... 150 65 164 102 (273)
Loss of discontinued operations
(3)............................. -- -- -- (20) --
Cumulative effect of changes in
accounting policy (4)........... -- -- -- -- (228)
------ ------ ------ ------ -------
Net income (loss)................ $ 150 $ 65 $ 164 $ 82 $ (501)
====== ====== ====== ====== =======
Income (loss) of continuing
operations per common share (7)
Basic.......................... $ 1.66 $ .49 $ 1.83 $ .99 $ (8.63)
Diluted........................ $ 1.65 $ .49 $ 1.83 $ .99 $ (8.63)
Net income (loss) per common
share (7)
Basic.......................... $ 1.66 $ .49 $ 1.83 $ .72 $(15.19)
Diluted........................ $ 1.65 $ .49 $ 1.83 $ .72 $(15.19)
<CAPTION>
AT OCTOBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Assets:
Manufacturing operations....... $4,111 $3,815 $4,018 $3,724 $ 3,645
Financial services operations.. 1,857 1,843 1,922 1,582 1,672
Eliminations................... (452) (332) (374) (259) (257)
------ ------ ------ ------ -------
Total assets................. $5,516 $5,326 $5,566 $5,047 $ 5,060
====== ====== ====== ====== =======
Debt:
Manufacturing operations....... $ 92 $ 115 $ 127 $ 127 $ 175
Financial services operations.. 1,224 1,305 1,330 1,091 1,199
------ ------ ------ ------ -------
Total debt................... $1,316 $1,420 $1,457 $1,218 $ 1,374
====== ====== ====== ====== =======
Preferred stock.................. $ 244 $ 244 $ 244 $ 244 $ 245
====== ====== ====== ====== =======
Total shareowners' equity........ $1,020 $ 916 $ 870 $ 817 $ 775
====== ====== ====== ====== =======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIO, EMPLOYEES,
MARKET SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Dividends paid, Series G
Preferred Stock......... $ 29 $ 29 $ 29 $ 58 $ --
Capital expenditures..... 172 117 139 87 110
Engineering and research
expense................. 124 129 113 97 94
Depreciation and
amortization............ 120 105 86 72 75
Average number of Common,
Class B Common and
dilutive common
equivalent shares
outstanding............. 73.6 73.8 74.3 74.6 34.9
Ratio of earnings to
fixed charges (5)....... 3.7x 2.1x 3.5x 2.7x --
OPERATING DATA:
Number of employees:
Worldwide.............. 16,168 14,187 16,079 14,910 13,612
United States.......... 13,493 12,445 13,852 12,792 11,934
United States and
Canadian retail
deliveries of trucks and
school buses............ 99,500 94,000 101,700 91,600 79,800
United States and
Canadian market share
(6)..................... 28.6% 27.5% 26.7% 27.0% 27.6%
Unit shipments:
Trucks and school
buses................. 104,400 95,200 112,200 95,000 87,200
OEM engines............ 184,000 163,200 154,200 130,600 118,200
</TABLE>
- --------
(1) Includes revenues of NFC as well as Navistar's other financial service
subsidiaries.
(2) The Company contributed approximately 25.6 million shares of its Class B
Common Stock valued at $513 million to the Supplemental Trust in 1993.
(3) The 1994 loss of discontinued operations resulted from a $20 million after
tax charge for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc.
(4) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109,
retroactive to November 1, 1992.
(5) The ratio of earnings to fixed charges is determined by dividing pretax
income from continuing operations, adjusted for interest expense, debt
expense amortization and the portion of rental expense deemed
representative of an interest factor by the sum of interest expense, debt
expense amortization and the portion of rental expense deemed
representative of the interest factor. Earnings were insufficient to cover
fixed charges by approximately $441 million in fiscal 1993. For the fiscal
year ended October 31, 1997, after giving pro forma effect to the Initial
Offerings and the application of the net proceeds therefrom, as if each
had occurred as of the beginning of fiscal 1997, the Company's ratio of
earnings to fixed charges would have been 3.0x.
(6) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school buses, and heavy trucks (Class 8) in the United States
and Canada by Transportation and its dealers, compared to the industry
total in the United States and Canada of retail deliveries.
(7) The net income (loss) per common share information for all periods
presented have been restated to reflect the new earnings per share
calculation required by Statement of Financial Accounting Standard No. 128
"Earnings Per Share." Income (loss) of continuing operations per common
share was computed as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
----------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income (loss) of continuing operations........ $150 $ 65 $164 $102 $(273)
Less dividends on Series G Preferred Stock.... 29 29 29 29 29
---- ---- ---- ---- -----
Income (loss) of continuing operations
applicable to common stock (Basic and
Diluted)..................................... $121 $ 36 $135 $ 73 $(302)
==== ==== ==== ==== =====
Average shares outstanding (millions)
Basic........................................ 73.1 73.7 74.2 74.5 34.9
Dilutive effect of options outstanding..... .4 -- -- -- --
Conversion of Series D Preferred Stock..... .1 .1 .1 .1 --
---- ---- ---- ---- -----
Diluted...................................... 73.6 73.8 74.3 74.6 34.9
==== ==== ==== ==== =====
</TABLE>
Unexercised employee stock options to purchase shares of Navistar Common
Stock were not included in the diluted shares outstanding when the options'
exercise prices were greater than the average market price of Navistar
Common Stock during the respective periods. Additionally, the diluted
calculation excludes the effects of the conversion of the Series G
Preferred Stock as such conversion would produce anti-dilutive results. The
dilutive effect of options outstanding and the conversion of Series D
Preferred Stock were not included in 1993 diluted shares as such inclusion
would produce anti-dilutive results. Basic and diluted loss of discontinued
operations per common share in 1994 was $0.27. Basic and diluted loss from
the cumulative effect of changes in accounting policy per common share in
1993 was $6.56. In January of 1998, the Company repurchased approximately
3.2 million shares of its Class B Common Stock from the Supplemental Trust.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and notes thereto included elsewhere in this
Prospectus. Certain statements under this caption constitute "forward-looking
statements" under Section 27A of the Securities Act and involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under the
captions "Risk Factors" and "Business Environment."
GENERAL
NIC is a holding company and its principal operating subsidiary is
Transportation. The Company's manufacturing operations are engaged in the
manufacture and marketing of Class 5 through 8 trucks, including school buses,
mid-range diesel engines and service parts primarily in the United States and
Canada. These products are also sold to distributors in selected export
markets. The financial services operations of the Company provide wholesale,
retail and lease financing, and commercial physical damage and liability
insurance coverage to the Company's dealers and retail customers and to the
general public through an independent insurance agency system.
The discussion and analysis reviews the operating and financial results, and
liquidity and capital resources of manufacturing operations and financial
services operations. Manufacturing operations include the financial results of
the financial services operations included on a one-line basis under the
equity method of accounting. Financial services operations include NFC, its
domestic insurance subsidiary as well as the Company's foreign finance and
insurance companies. See Note 1 to the Financial Statements.
BUSINESS ENVIRONMENT
Sales of Class 5 through 8 trucks are cyclical, with demand affected by such
economic factors as industrial production, construction, demand for consumer
durable goods, interest rates and the earnings and cash flow of dealers and
customers. Reflecting the stability of the general economy, demand for new
trucks remained strong during 1997. An improvement in the number of new truck
orders has increased the Company's order backlog to 45,300 units at October
31, 1997 from 20,900 units at October 31, 1996. Retail deliveries in 1998
continue to be highly dependent on the rate at which new truck orders are
received. The Company will evaluate order receipts and backlog throughout the
year and will balance production with demand as appropriate.
The Company currently projects 1998 United States and Canadian Class 8 heavy
truck demand to be 195,000 units, a slight decrease from 1997. Class 5, 6 and
7 medium truck demand, excluding school buses, is forecast at 116,000 units,
slightly lower than in 1997. Demand for school buses is expected to decrease
8% in 1998 to 30,500 units. Mid-range diesel engine shipments by the Company
to original equipment manufacturers in 1998 are expected to be 215,700 units,
17% higher than in 1997. The Company's service parts sales are projected to
grow 9% to approximately $875 million.
The Supplemental Trust, which was created in 1993 for the benefit of the
Company's current and future retirees and administered by a five person trust
committee, owned all of the outstanding Class B Common Stock at October 31,
1997, which represented approximately one-third of the Company's outstanding
Common Stock. The Class B Common Stock has restricted voting rights and
transfer provisions but, on July 1, 1998, will convert into Common Stock with
full voting rights and no transfer restrictions.
During August 1997, the Company's current master contract with the UAW was
extended through October 1, 2002. This contract allows the Company to focus
its assembly plants, simplify current product lines, invest in new product
development, and achieve more competitive wage, benefit and productivity
levels.
29
<PAGE>
During 1997, the Company entered into a ten-year agreement, effective with
model year 2003, to supply newly designed, advanced technology engines through
the year 2012 to Ford for use in its diesel-powered light trucks and vans. The
Company's current engine agreement with Ford was extended through model year
2002.
The Company is currently considering an internal corporate reorganization,
whereby, among other things, Transportation's engine and service parts
operations and NFC would become direct subsidiaries of NIC.
RESULTS OF OPERATIONS
The Company reported net income of $150 million for 1997, or $1.65 per
common share, reflecting higher sales of manufactured products. Net income was
$65 million, or $0.49 per common share, in 1996 and $164 million, or $1.83 per
common share, in 1995. Net income in 1996 included a one-time $35 million
pretax charge for costs related to the termination of the NGT Program. In
August 1997, the Company and the UAW reached agreement on a master contract
extension that enabled the Company to reinstate this program. The remaining
accrual for the 1996 charge at the time of the announcement was not material.
The Company's manufacturing operations reported income before income taxes
of $164 million in 1997 compared with pretax income of $22 million in 1996 and
$200 million in 1995. The increase in 1997 reflects higher sales of trucks and
diesel engines as well as the effects of improved pricing and various cost
improvement initiatives. The decrease in 1996 from 1995 reflects a decline in
demand for trucks as well as the charge for termination of the Company's NGT
Program.
The Company's financial services operations had income before income taxes
of $78 million, $83 million and $62 million in 1997, 1996 and 1995,
respectively.
NFC's pretax income in 1997 was $75 million, a 7% decrease from $81 million
in 1996. The change is primarily a result of lower income on sales of retail
receivables and a decline in wholesale financing activity. The reduced gains
on sales resulted from lower margins on retail notes reflecting higher market
interest rates prior to the date of sale. NFC's pretax income increased $22
million in 1996 from the $59 million reported in 1995 primarily due to higher
income on sales of retail notes and an increased volume of wholesale
financing.
Earnings from the foreign finance and insurance subsidiaries were $3
million, $2 million and $3 million in 1997, 1996 and 1995, respectively.
SALES AND REVENUES. Industry retail sales of Class 5 through 8 trucks
totaled 347,400 units in 1997, a 2% increase from the 341,200 units sold in
1996, but 9% lower than the 380,600 units sold in 1995. Class 8 heavy truck
sales totaled 196,800 units, comparable to the 195,400 units sold in 1996 but
a decrease of 14% from the 228,800 units sold in 1995. Industry sales of Class
5, 6 and 7 medium trucks, including school buses, totaled 150,600 units in
1997, a 3% increase from 1996 when 145,800 units were sold, and comparable to
the 151,800 units sold in 1995. Industry sales of school buses, which
accounted for 22% of the medium truck market, increased slightly from 1996 to
33,200 units.
Sales and revenues of $6,371 million in 1997 were 11% higher than the $5,754
million reported in 1996 and comparable to the $6,342 million reported in
1995. Sales of trucks, mid-range diesel engines and service parts totaled
$6,147 million in 1997, 12% above the $5,508 million reported for 1996 and
comparable to the $6,125 million reported in 1995.
The Company maintained its position as sales leader in the combined United
States and Canadian Class 5 through 8 truck market in 1997 with a 28.6% market
share, an increase from the 27.5% share in 1996 and the 26.7% share in 1995.
(Sources: American Automobile Manufacturer's Association, the United States
Motor Vehicle Manufacturer's Association and R. L. Polk & Company.) In 1997,
the Company's share of the Class 8 heavy truck market increased to 18.6% from
17.1% in 1996 and 18.4% in 1995.
Shipments of mid-range diesel engines by the Company to other OEMs during
1997 were a record 184,000 units, a 13% increase from 1996 and a 19%
improvement over 1995. Higher shipments to Ford to meet consumer demand for
the light trucks and vans which use this engine was the primary reason for the
increase.
30
<PAGE>
Service parts sales of $806 million in 1997 increased from the $760 million
reported in 1996 and were 10% higher than the $730 million reported in 1995 as
a result of dealer and national account volume growth.
Finance and insurance revenue for 1997 was $174 million, 12% lower than the
$197 million reported in 1996 primarily as a result of a decline in wholesale
financing activity. Revenues from financial services operations increased 18%
between 1996 and 1995 primarily as a result of higher income on sales of
retail notes.
COSTS AND EXPENSES. Manufacturing gross margin was 14.2% of sales in 1997,
compared with 12.5% in 1996 and 13.8% in 1995. The increase in gross margin is
primarily due to lower production costs and improved pricing offset by a
provision for employee profit sharing. Factors which contributed to the change
in gross margin between 1996 and 1995 included lower sales volumes, more
competitive pricing and the costs of terminating the NGT Program.
Engineering and research expense was $124 million in 1997, $129 million in
1996 and $113 million in 1995, reflecting continuing investment in new truck
and engine products as well as improvements to existing products.
Marketing and administrative expense was $365 million in 1997 compared with
$319 million in 1996 and $307 million in 1995. The change between 1997 and
1996 is the result of higher sales and distribution costs, and an increase in
the provision for payment to employees as provided by the Company's
performance incentive programs. The $12 million increase in the expense
between 1996 and 1995 reflects investment in the implementation of the
Company's strategy to reduce costs and complexity in its manufacturing
processes.
Interest expense decreased to $74 million in 1997 from $83 million in 1996
and $87 million in 1995. The decreases in 1997 and 1996 were the result of
lower wholesale note funding requirements and declining interest rates.
Finance service charges on sold receivables were $23 million in 1997, 4%
lower than in 1996 and 21% lower than in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow is generated from the manufacture and sale of trucks, mid-range
diesel engines and service parts as well as product financing and insurance
coverage provided to Transportation's dealers and retail customers by the
financial services operations.
Historically, funds to finance Transportation's products are obtained from a
combination of commercial paper, short- and long-term bank borrowings, medium-
and long-term debt issues, sales of finance receivables and equity capital.
NFC's current debt ratings have made bank borrowings and sales of finance
receivables the most economic sources of cash. Insurance operations are funded
through internal operations.
Total cash, cash equivalents and marketable securities of the Company
amounted to $965 million at October 31, 1997, $881 million at October 31, 1996
and $1,040 million at October 31, 1995.
Cash provided by operations during 1997 totaled $380 million, primarily from
net income of $150 million, $82 million of noncash deferred income taxes, $59
million of other noncash items, principally depreciation, and a net change in
operating assets and liabilities of $89 million. Income tax expense for 1997
was $92 million, of which $10 million was cash payments to federal and certain
state and local governments, while the remaining $82 million of federal and
other taxes reduced the deferred tax asset.
The net change in operating assets and liabilities of $89 million includes a
$195 million increase in receivables, reflecting continued strong demand for
the Company's products, offset by a $288 million increase in accounts payable
as a result of increased production in the fourth quarter.
31
<PAGE>
Investment programs included a net decrease in marketable securities, as
sales of securities exceeded purchases by $45 million. During 1997, the
purchase of $970 million of retail notes and lease receivables was funded with
$958 million in proceeds from the sale of receivables and principal
collections of $94 million. Other investment activities used $42 million for
an increase in property and equipment leased to others and $172 million to
fund capital expenditures. Capital expenditures included $82 million for
construction of a truck assembly facility in Mexico, $42 million to increase
mid-range diesel engine capacity and additional funds for truck product
improvements.
Financing activities used cash to pay $29 million in dividends on the Series
G Preferred shares, $46 million for principal payments on long-term debt, and
$285 million to reduce notes and debt outstanding under the bank revolving
credit facility and asset-backed and other commercial paper programs offset by
an increase of $209 million in long-term debt.
During 1997 and 1996, NFC supplied 94% of the wholesale financing of new
trucks sold to Transportation's dealers compared with 93% in 1995. NFC's share
of the retail financing of new trucks sold in the United States decreased to
13% in 1997 from 16% in 1996 and 14% in 1995 due to the highly competitive
commercial financing market.
The sale of finance receivables is a significant source of funding for the
financial services operations. During 1997, 1996 and 1995, NFC sold $987
million, $985 million and $740 million, respectively, of retail notes through
Navistar Financial Retail Receivables Corporation ("NFRRC"), a wholly owned
subsidiary. The net proceeds from these sales were used for general working
capital purposes. In November 1997, NFC sold an additional $500 million of
retail notes through NFRRC.
NFRRC has filed registration statements with the SEC which provide for the
issuance of up to $5,000 million of asset-backed securities. At October 31,
1997, the remaining shelf registration available to NFRRC for issuance of
asset-backed securities was $1,473 million. See Note 8 to the Financial
Statements.
NFC has a $925 million contractually committed bank revolving credit
facility and a $400 million asset-backed commercial paper program supported by
a bank liquidity facility which mature in March 2001. NFC also utilizes a $600
million revolving wholesale note trust that provides for the continuous sale
of eligible wholesale notes on a daily basis. The trust is comprised of two
$100 million tranches of investor certificates maturing serially from 1998 to
1999, and two $200 million tranches maturing in 2003 and 2004. At October 31,
1997, the remaining shelf registration available for issuance of investor
certificates was $200 million.
At October 31, 1997, available funding under NFC's amended and restated
credit facility (the "Credit Agreement") and the asset-backed commercial paper
facility (the "ABCP Program") was $532 million and $14 million, respectively,
of which $141 million was used to back short-term debt at October 31, 1997.
The Company finances capital expenditures principally through internally
generated cash. Capital leasing is used to fund selected projects based on
economic and operating factors. The Company had outstanding capital
commitments of $137 million at October 31, 1997 primarily for increased
manufacturing capacity at the Indianapolis engine plant and construction of a
truck assembly facility in Mexico.
The Company has announced plans for approximately $350 million in capital
spending over the next six years for the NGT Program. Capital expenditures for
1998 are expected to be approximately double the current year's level.
Approximately $25 million is to be spent in 1998 for the NGT Program.
Additional capital expenditures are planned for the completion of the truck
assembly facility in Mexico, increased manufacturing capacity at the
Indianapolis engine plant, commencement of truck operations in Brazil and
improvements to existing facilities and products. The Company's investment in
the NGT Program will also include $300 million in development expense over the
next six years, of which approximately $50 million is planned for 1998.
In November 1997, the Company contributed $200 million to the Retiree Health
Care Base Plan Trust and contributed $100 million to the hourly pension plan.
32
<PAGE>
NFC's maximum exposure under all receivable sale recourse provisions at
October 31, 1997 was $246 million; however, management believes that the
allowance for credit losses on sold receivables is adequate.
At October 31, 1997, 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 $261 million on retail contracts
and $13 million on retail leases. In addition, as of October 31, 1997, the
Company is contingently liable for approximately $49 million for various
guarantees and buyback programs; however, based on historical loss trends, the
Company's exposure is not considered material.
The Canadian operating subsidiary, NFC and certain other subsidiaries
included in financial services operations are parties to agreements which
result in the restriction of amounts which can be distributed to
Transportation in the form of dividends, loans or advances. At October 31,
1997, the maximum amount of dividends which were available for distribution
under the most restrictive covenants was $62 million.
The Company and Transportation are obligated under certain agreements with
public and private lenders of NFC to maintain the subsidiary's income before
interest expense and income taxes at not less than 125% of its total interest
expense. No income maintenance payments were required for the three years
ended October 31, 1997. See "Business--Certain Arrangements with NFC."
During November 1997, the Company arranged financing for $125 million of
funds denominated in U.S. dollars and Mexican pesos to be used for development
of the Company's Mexican operations.
Management continues to evaluate current and forecasted cash flow as a basis
for financing operating requirements, capital expenditures and anticipated
payments of preferred dividends. Management believes that collections on the
outstanding receivables portfolios as well as funds available from various
funding sources will permit the financial services operations to meet the
financing requirements of the Company's dealers and customers.
ENVIRONMENTAL MATTERS
In the fourth quarter of 1994, Transportation recorded a $20 million charge,
net of $13 million of income taxes, as a loss of discontinued operations
related to environmental liabilities at production facilities of two formerly
owned businesses, Wisconsin Steel and Solar Turbine, Inc. Included in the
charge was an anticipated $11 million payment to the Economic Development
Administration, a division of the U.S. Department of Commerce, in settlement
of commercial and environmental disputes related to the Wisconsin Steel
property. In 1997, the U.S. Department of Justice and Transportation approved
the final consent decree related to the Wisconsin Steel property and the
Company paid $11 million to the Economic Development Administration.
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 known as the Superfund law. These cases involve
sites which allegedly have received wastes from current or former Company
locations. Based on information available to the Company, which in most cases
consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRPs
and/or federal or state regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the Company's share, if any, of the
probable costs and is provided for in the financial statements. These
obligations generally are recognized no later than completion of the remedial
feasibility study and are not discounted to their present value. The Company
reviews its accruals on a regular basis and believes that, based on these
calculations, its share of the potential additional costs for the cleanup of
each site will not have a material effect on the Company's financial results.
DERIVATIVE FINANCIAL INSTRUMENTS
As disclosed in Notes 1 and 10 to the Financial Statements, the Company uses
derivative financial instruments to transfer or reduce the risks of foreign
exchange and interest rate volatility, and potentially increase the return on
invested funds. Company policy does not allow the use of derivatives for
speculative purposes.
33
<PAGE>
The Company's manufacturing operations, as conditions warrant, hedge foreign
exchange exposure on the purchase of parts and materials from foreign
countries and its exposure from sales of manufactured products in other
countries. Contracted purchases of commodities for manufacturing may be hedged
up to one year. The manufacturing operations had no foreign exchange exposure
at October 31, 1997.
NFC uses interest rate caps, interest rate swaps and forward interest rate
contracts when needed to convert floating rate funds to fixed and vice versa
to match its asset portfolio. NFC also uses forward interest rate contracts to
manage its exposure to fluctuations in funding costs from the anticipated
securitization and sale of retail notes. During 1997, NFC entered into $500
million of interest rate hedge agreements in anticipation of the November 1997
sale of retail receivables. These hedge agreements were closed in conjunction
with the pricing of the sale, and the loss at October 31, 1997, which was not
material, was deferred and reduced the gain recognized on the sale of
receivables in November 1997.
Both manufacturing operations and NFC purchase collateralized mortgage
obligations that have relatively stable cash flow patterns in relation to
interest rate changes.
YEAR 2000
The Company has made and will make certain investments in its software
systems and applications to ensure that the Company is Year 2000 compliant.
The financial impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This
statement specifies the computation, presentation and disclosure requirements
for earnings per share and is effective for financial statements issued for
periods ending after December 15, 1997. The standard is not expected to have a
material effect on the Company's net income per common share computation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS 131 establishes standards for
reporting information about operating segments, and related disclosures about
products and services, geographic areas and major customers. These statements
are effective for fiscal years beginning after December 15, 1997. These
standards expand or modify disclosures and, accordingly, will have no impact
on the Company's reported financial position, results of operations and cash
flows. The Company is assessing the impact of SFAS 131 on its reported
segments.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement revises standards
for disclosures about pension and other postretirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. This standard
expands or modifies disclosure and, accordingly will have no impact on the
Company's reported financial position, results of operations and cash flows.
INCOME TAXES
The Statement of Financial Condition at October 31, 1997 and 1996 includes a
deferred tax asset of $934 million and $1,030 million, respectively, net of
valuation allowances of $309 million related to future tax benefits. The
deferred tax assets are net of valuation allowances since it is more likely
than not that some portion of the deferred tax asset may not be realized in
the future.
The deferred tax asset includes the tax benefits associated with cumulative
tax losses of $1,808 million and temporary differences, which represent the
cumulative expense of $1,413 million recorded in the Statement of Income that
has not been deducted on the Company's tax returns. The valuation allowance at
October 31, 1997 assumes that it is more likely than not that approximately
$815 million of cumulative tax losses will not be realized before their
expiration date. Realization of the net deferred tax asset is dependent on the
generation of approximately $2,500 million of future taxable income, of which
an average of approximately $75 million would
34
<PAGE>
need to be generated annually for the 14-year period 1998 through 2011. The
remaining taxable income, which represents the realization of tax benefits
associated with temporary differences, does not need to be generated until
subsequent to 2011. Until the Company has utilized its significant NOL
carryforwards, the cash payment of federal income taxes will be minimal. See
Note 3 to the Financial Statements.
Extensive analysis is performed to determine the amount of the deferred tax
asset. Such analysis is based on the premise that the Company is and will
continue to be a going concern and that it is more likely than not that
deferred tax benefits will be realized through the generation of future
taxable income. Management reviews all available evidence, both positive and
negative, to assess the long-term earnings potential of the Company using a
number of alternatives to evaluate financial results in economic cycles at
various industry volume conditions based upon the Company's current operating
structure. Other factors considered are the Company's 17-consecutive-year
leadership in the combined market share of Class 5 through 8 trucks and
recognition as a worldwide leading producer of mid-range diesel engines. The
projected availability of taxable income to realize the tax benefit from net
operating loss carryforwards and the reversal of temporary differences before
expiration of these benefits are also considered. The valuation allowance may
be adjusted in the future as a result of changes in business and industry
conditions, operating structure, Company strategies or other significant
transactions. Management believes that, with the combination of available tax
planning strategies and the maintenance of significant market share, earnings
are achievable in order to realize the net deferred tax asset of $934 million.
Reconciliation of the Company's income before income taxes for financial
statement purposes to United States taxable income for the years ended October
31 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Income before income taxes........................... $ 242 $ 105 $ 262
Exclusion of (income) loss of foreign subsidiaries... (3) 3 (11)
State income taxes................................... (2) (2) (2)
Temporary differences................................ 151 (284) 69
Other................................................ 6 -- (4)
------- ------- -------
Taxable income (loss)............................ $ 394 $ (178) $ 314
======= ======= =======
</TABLE>
The Company contributed approximately $215 million to its hourly and
salaried pension plans in fiscal 1997. The timing of these contributions
allowed for their deduction on the Company's 1996 tax return, which resulted
in a tax loss of $178 million as compared to the $37 million of taxable income
previously reported.
35
<PAGE>
BUSINESS
Navistar, through its wholly owned subsidiary Transportation, operates in
two principal industry segments: manufacturing and financial services.
Manufacturing operations are responsible for the manufacture and marketing of
medium and heavy trucks, including school buses, mid-range diesel engines and
service parts primarily in the United States and Canada as well as in selected
export markets. Based on assets and revenues, manufacturing operations
represent the majority of the Company's business activities. The financial
services operations consist of NFC, its domestic insurance subsidiary and the
Company's foreign finance and insurance subsidiaries. NFC's primary business
is the retail and wholesale financing of products sold by the manufacturing
operations and its dealers within the United States and the providing of
commercial physical damage and liability insurance to the manufacturing
operations' dealers and retail customers and to the general public through an
independent insurance agency system. Industry segment data for 1997, 1996 and
1995 is summarized in Note 14 to the Financial Statements, which is included
elsewhere in this Prospectus.
THE MEDIUM AND HEAVY TRUCK INDUSTRY
The market in which Navistar competes 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 industry retail deliveries in the combined United
States and Canadian markets for the five years ended October 31, in thousands
of units:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Class 5, 6 and 7 medium trucks and school buses... 150.6 145.8 151.8 134.2 122.5
Class 8 heavy trucks.............................. 196.8 195.4 228.8 205.4 166.4
----- ----- ----- ----- -----
Total............................................. 347.4 341.2 380.6 339.6 288.9
===== ===== ===== ===== =====
</TABLE>
Source: Monthly data derived from materials produced by the American
Automobile Manufacturers Associations ("AAMA") in the United States and
Canada, and other sources.
The Class 5 through 8 truck market in the United States and Canada is highly
competitive. Major domestic competitors include PACCAR, Ford and General
Motors, as well as foreign-controlled domestic manufacturers, such as
Freightliner, Mack and Volvo GM. In addition, manufacturers from Japan (Hino,
Isuzu, Nissan and Mitsubishi) are competing in the United States and Canadian
markets. The intensity of this competition 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,
utility and distribution.
TRANSPORTATION MARKET SHARE
Transportation delivered 99,500 Class 5 through 8 trucks, including school
buses, in the United States and Canada in fiscal 1997, a 6% increase from the
94,000 units delivered in 1996. Navistar's combined share of the Class 5
through 8 truck market was 28.6% in 1997 and 27.5% in 1996. Transportation has
been the leader in combined market share for Class 5 through 8 trucks,
including school buses, in the United States and Canada in each of its last 17
fiscal years based on data obtained from the AAMA, the United States Motor
Vehicle Manufacturers Association and R.L. Polk & Company.
36
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that its key competitive strengths include the
following:
Leading Market Position. The Company has been the leader in the combined
market share for Class 5 through 8 trucks, including school buses, in the
United States and Canada in each of its last 17 fiscal years. In fiscal 1997,
the Company's combined market share of the Class 5 through 8 truck market was
28.6%, a 1.1 percentage point increase in market share from the previous year.
For each of the last five fiscal years, the Company has been the leader in the
medium truck and school bus markets. In addition, the Company believes that it
is the largest supplier of replacement parts to the heavy and medium truck and
bus aftermarkets.
Commitment to Customer Satisfaction. In order to achieve high customer
satisfaction, the Company maintains the largest retail organization in North
America specializing in medium and heavy trucks. In addition, the Company
operates seven regional parts distribution centers in the United States and
Canada, enabling it to offer 24-hour availability and same day shipment of the
parts most frequently requested by customers. In 1997, Navistar was ranked
number one for the third consecutive year by the annual ATD Attitude Survey,
which evaluates OEMs on quality and performance issues related to products,
parts, policies and service.
Largest Supplier of Mid-Range Diesel Engines. The Company is the leading
supplier of mid-range diesel engines in the 160-300 horsepower range and is
currently the exclusive supplier of diesel engines to Ford for use in its
diesel-powered light trucks and vans. On October 29, 1997, the Company
finalized its agreement with Ford to supply newly-designed, advanced
technology engines through the year 2012 for use in Ford's F-series pickup
trucks and Econoline vans. This 10-year agreement is scheduled to become
effective beginning with model year 2003 and will replace the Company's
current agreement with Ford, which will expire after model year 2002. The
Company has been supplying diesel engines to Ford since 1982.
TRUCK STRATEGY
In fiscal 1997, the Company continued to implement its five-point truck
strategy, which the Company adopted in fiscal 1996 in order to improve
operating performance and increase profitability. Specifically, this strategy
is designed to enable Transportation's truck division to achieve its part in
Navistar's goal of generating an average 17.5% after tax return on equity over
a business cycle. The principal components of this strategy as well as recent
achievements in its implementation include:
. Reduce Product Complexity. The Company believes that it can increase
manufacturing efficiency and improve product quality by reducing the
complexity of its product offerings. Historically, thousands of options
and a separate chassis design were offered for each truck model
manufactured by Transportation, which led to significant manufacturing
inefficiencies. In 1996, Transportation introduced a new ordering program
known as Diamond Spec(TM) for its premium conventional heavy duty trucks.
Under this program, Transportation rationalized the number of possible
option combinations by developing pre-packaged option groups which are
arranged under 11 categories (i.e., engine, chassis, electrical system)
based upon the most popular preferences of its customers. Transportation
also combined the chassis for three models offered in this premium
conventional product category into one chassis. In 1997, Transportation
expanded its Diamond Spec(TM) ordering system and completed a successful
pilot program in 11 key markets for its medium trucks. This
standardization of option and chassis groups is expected to lead to
significant operating cost savings from increased manufacturing
efficiency and to better pricing for purchased components. In addition,
Transportation believes that this program will result in an overall
improvement in product quality and shorter and more reliable delivery
times.
. Focus Manufacturing Facilities. The Company believes that it can achieve
significant improvements in manufacturing efficiency by focusing each of
its principal truck manufacturing facilities on producing a single type
of truck model. In order to sharpen the Company's focus on serving its
customers and markets, the Company recently announced a reorganization of
its truck group into six distinct businesses. The new organization will
consist of four vehicle centers--heavy truck, severe service truck,
medium truck and school bus, and two business centers--parts and
international. In fiscal 1996, Transportation transferred the production
of its stripped chassis from its Springfield, Ohio facility to its
Conway, Arkansas facility, in order to achieve efficiencies in the
production of medium duty trucks. Similarly, the Company established a
joint venture, SST Truck Company, which will focus on the production of
the
37
<PAGE>
highly-complex Paystar(R) severe service trucks, thereby permitting
Transportation's Chatham, Ontario facility to concentrate on
manufacturing premium conventional heavy duty trucks.
. Emphasize Product Development. The Company believes that each of its
current truck models equals or exceeds those of its competitors in terms
of satisfying its customers' needs. Nevertheless, the Company intends to
continue to enhance and expand its current product offerings in an effort
to provide trucks that better satisfy its customers' changing demands. In
fiscal 1997, Navistar's Board of Directors approved funding for the NGT
Program. Pursuant to the NGT Program, the Company expects to invest $350
million in capital and spend $300 million in development costs over the
next six years to develop and manufacture a full line of world-class
medium trucks, school buses and regular conventional heavy trucks, which
will offer enhanced driver comfort, operating efficiency, overall
appearance, quality and performance. The design and development phases of
the NGT Program are currently underway and the Company expects the first
new vehicles to be available in mid-2001, with additional new vehicles to
follow approximately every six months through 2003. In 1997,
Transportation also introduced the International 9100 conventional truck
to replace its 8200 heavy duty regular conventional truck and made
significant improvements to its premium conventional models. Further
model improvements are expected to be introduced for Transportation's
premium conventional heavy duty truck models in fiscal 1998.
. Expand International Operations. The Company believes that there are
significant opportunities to increase sales of both trucks and engines in
Mexico and in other selected export markets. In 1997, the Company
captured approximately 11.5% of the Mexican truck market after
establishing a dealer network and a parts distribution center and
arranging for production at a contract manufacturer in 1996. The
Company's dealer network in Mexico was expanded from 23 to 38 locations
in 1997. The Company is currently constructing an assembly facility
located near Monterrey, Mexico. This medium duty and heavy duty truck
facility is anticipated to cost approximately $167 million and to begin
production by late-1998. Its capacity will be 65 units per shift. The
Company believes that its Mexican operations will enable it to expand
into other Latin American countries, particularly as a result of the
favorable and cost effective trade agreements between Mexico and other
Latin American countries. The Company has also recently established a
presence in Brazil by forming a Brazilian subsidiary and signing an
agreement with a Brazilian equipment manufacturer to assemble commercial
trucks. The Company expects that production of its trucks in Brazil will
begin in late 1998.
. Establish Competitive Wage, Benefit and Productivity Levels.
Transportation expects to achieve significant productivity gains as a
result of favorable changes in job classifications, work rules and
training. In August 1997, Transportation's collective bargaining
agreement with the UAW was extended through October 1, 2002. This
contract contains significant changes from the prior agreement, enabling
the Company to better focus its assembly plants, simplify current product
lines, invest in new product development and achieve more competitive
wage, benefit and productivity levels. This new agreement enabled the
Company to reinstate its NGT Program and continue to implement its five-
point truck strategy. In 1996, Transportation signed a new three-year
collective bargaining agreement with the CAW.
PRODUCTS
The following table illustrates the percentage of the Company's
manufacturing sales by class of product based on dollar amount:
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
----------------
PRODUCT CLASS 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C>
Class 5, 6 and 7 medium trucks and school buses............ 34% 35% 32%
Class 8 heavy trucks....................................... 37 35 42
Service parts.............................................. 13 14 12
Engines.................................................... 16 16 14
--- --- ---
Total.................................................. 100% 100% 100%
=== === ===
</TABLE>
38
<PAGE>
Transportation manufactures a full line of products in the common carrier,
private carrier, government/service, leasing, construction, energy/petroleum
and student transportation markets. Transportation offers diesel-powered
trucks and buses because of their improved fuel economy, ease of
serviceability and greater durability over gasoline-powered vehicles.
Transportation's Class 8 heavy trucks generally use diesel engines purchased
from outside suppliers while Class 5, 6 and 7 medium trucks are powered by a
proprietary line of mid-range diesel engines manufactured by Transportation.
Based upon information published by R.L. Polk & Company, diesel-powered Class
5, 6 and 7 medium truck shipments represented 87% of all medium truck
shipments for fiscal year 1997 in the United States and Canada.
Transportation's truck and bus manufacturing operations in the United States
and Canada consist principally of the assembly of components manufactured by
its suppliers, although Transportation produces its own mid-range diesel truck
engines, sheet metal components (including cabs) and miscellaneous other
parts. During 1997, the Company announced plans for approximately $350 million
in capital spending and $300 million in development expense over the next six
years for development of its next generation truck.
ENGINE AND FOUNDRY
Transportation builds diesel engines for use in its Class 5, 6 and 7 medium
trucks, school buses, selected Class 8 heavy truck models and for sale to
original equipment manufacturers in the United States and Canada.
Transportation also sells engines for industrial, agricultural and marine
applications. Transportation is the leading supplier of mid-range diesel
engines in the 160-300 horsepower range according to data supplied by Power
Systems Research of Minneapolis, Minnesota.
Transportation has an agreement to supply its 7.3 liter (7.3L)
electronically controlled diesel engine to Ford through the year 2002 for use
in all of Ford's diesel-powered light trucks and vans. Sales of this engine to
Ford currently account for approximately 87% of Transportation's 7.3L sales.
Shipments of engines to all original equipment manufacturers totaled a record
184,000 units in 1997, an increase of 13% from the 163,200 units shipped in
1996. During 1997, Transportation entered into a ten-year agreement, effective
with model year 2003, to supply Ford with a 7.3L replacement product for use
in its diesel-powered light trucks and vans.
SERVICE PARTS
In the United States and Canada, 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. The
Company also operates a parts distribution center in Mexico.
Transportation's service parts program is vital to the maintenance of the
relationship with its customers and dealers. The sale of replacement parts
does not represent a separate and distinct business of Transportation.
Transportation's truck group makes decisions about the pricing of trucks and
replacement parts based upon a variety of factors which integrally link the
pricing and sale of replacement parts with the sale of medium and heavy
trucks, including school buses. The acceptable price for dealers and fleet
truck sales is determined by not only looking at the market price of the
individual trucks themselves, but also by analyzing the amount of future
replacement parts that will be purchased from Transportation over the truck's
life cycle and the total expected profit contribution, including future
replacement parts, expected to be realized on each sale. Accordingly, the
pricing of trucks and replacement parts is not independently determined.
MARKETING AND DISTRIBUTION
Transportation's truck products are distributed in virtually all key markets
in the United States and Canada. Transportation's truck distribution and
service network in these countries was composed of 954, 957 and 958 dealers
and retail outlets at October 31, 1997, 1996 and 1995, respectively. Included
in these totals were 514, 504 and 490 secondary and associate locations at
October 31, 1997, 1996 and 1995, respectively. The Company also has a dealer
network in Mexico composed of 38 and 23 dealer locations at October 31, 1997
and 1996, respectively.
39
<PAGE>
Retail dealer activity is supported by five regional operations in the
United States and general offices in Canada and Mexico. Transportation has a
national account sales group, responsible for 99 major national account
customers. Transportation's network of 16 Used Truck Centers in the United
States provides trade-in support to the Company's dealers and national
accounts group, and markets all makes and models of reconditioned used trucks
to owner-operators and fleet buyers. Trucks, components and service parts are
exported for wholesale and retail sale to more than 70 countries around the
world.
FINANCIAL SERVICES
NFC is a financial services organization that provides wholesale, retail and
lease financing of new and used trucks sold by Transportation and its dealers
in the United States. NFC also finances wholesale accounts and selected retail
accounts receivable of Transportation. 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 1997 and 1996, NFC provided wholesale financing for 94% of the new
truck units sold by Transportation to its dealers and distributors in the
United States and retail and lease financing for 13% and 16%, respectively, of
all new truck units sold or leased by Transportation to retail customers.
NFC's wholly owned domestic 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.
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.
IMPORTANT SUPPORTING OPERATIONS
Navistar International Corporation Canada has an agreement with a subsidiary
of General Electric Capital Canada, Inc. to provide financing for Canadian
dealers and customers.
RESEARCH AND DEVELOPMENT
Research and development activities, which are directed toward the
introduction of new products and improvements of existing products and
processes used in their manufacture, totaled $92 million, $101 million, and
$91 million for 1997, 1996 and 1995, respectively.
BACKLOG
The backlog of unfilled truck orders (subject to cancellation or return in
certain events) at October 31, 1997, 1996 and 1995 was $2,360 million, $1,254
million and $2,581 million, respectively.
Although the backlog of unfilled orders is one of many indicators of market
demand, other factors such as changes in production rates, available capacity,
new product introductions and competitive pricing actions may affect point-in-
time comparisons.
EMPLOYEES
The Company employed 16,168, 14,187 and 16,079 individuals at October 31,
1997, 1996 and 1995, respectively.
LABOR RELATIONS
At October 31, 1997, the UAW represented 8,079 of the Company's active
employees in the United States, and the CAW represented 2,142 of the Company's
active employees in Canada. Other unions represented 955 of
40
<PAGE>
the Company's active employees in the United States and Canada. The Company
entered into a collective bargaining agreement with the UAW in 1995, which
would have expired on October 1, 1998. During August 1997, the Company's
collective bargaining agreement with the UAW was extended through October 1,
2002. This contract allows the Company to focus its assembly plants, simplify
current product lines, invest in new product development, and achieve more
competitive wage, benefit and productivity levels. In addition, the Company
entered into a collective bargaining agreement with the CAW in 1996, which
expires on October 24, 1999.
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
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 are an important part of its worldwide
sales and marketing efforts, and provide instant identification of its
products and services in the marketplace. 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 and engine products. A majority 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 for storms, fire and
water damage.
While the Company believes that it has adequate assurances of continued
supply, the inability of a supplier to deliver could have an adverse effect on
production at certain of the Company's manufacturing locations.
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers continue to face increasing governmental
regulation of their products, especially in the areas of environment and
safety. The Company believes its products comply with all applicable
environmental and safety regulations.
As a diesel engine manufacturer, the Company has incurred research and
tooling costs to redesign its engine product lines to meet the U.S. EPA and
CARB emission standards effective for the 1998 model year. In addition to the
1998 standards, the Company, along with other engine manufacturers, has signed
a voluntary agreement with U.S. EPA and CARB to achieve new reductions in
ozone-causing exhaust emissions by 2004 (the "Statement of Principles"). In
October 1997, as a result of the Statement of Principles, the U.S. EPA issued
a final rule defining heavy-duty emission requirements for the 2004 model
year. The Company will also provide engines that satisfy 1998 Clean Fuel Fleet
Vehicle requirements and must also satisfy California's emission standards in
2002 for engines used in medium-size vehicles (which includes vehicles up to
14,000 lbs. Gross Vehicle Weight Rating). The Company expects that its diesel
engines will be able to meet all of these standards within the required time
frame. For model year 1998, the U.S. EPA has issued conditional certification
of conformance for all electronically-controlled diesel engines while it
investigates whether these engines fully
41
<PAGE>
comply with regulations concerning nitrogen oxide emissions. In particular,
the U.S. EPA is focusing on whether certain electronics strategies used to
maintain fuel economy have an adverse impact on nitrogen oxide emissions.
Navistar believes the diesel engines manufactured by it are in compliance with
all applicable U.S. EPA standards and is cooperating with the U.S. EPA's
investigation. It is possible that the U.S. EPA investigation could result in
some buyers deferring their purchases of trucks pending the outcome of the
investigation, and that future U.S. EPA action could impact the fuel economy
of trucks.
Effective with the 1998 model year, Canada's emission standards mirror those
of the U.S. EPA and require the sale of low-sulfur diesel fuel effective
October 1, 1997. Mexico has adopted the U.S. heavy diesel engine emission
standards as of the 1994 model year but has conditioned compliance on the
availability of low-sulfur diesel fuel.
Truck manufacturers are also 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 except for two sites formerly owned by the Company, Wisconsin
Steel in Chicago, Illinois, and Solar Turbine in San Diego, California. In
1994, Transportation recorded a $20 million after-tax charge as a loss of
discontinued operations for environmental liabilities and cleanup cost at
these two sites. It is not expected that the costs of compliance with
foreseeable environmental requirements will have a material effect on the
Company's financial position or operating results.
PROPERTIES
In the United States and Canada, Transportation owns and operates eight
manufacturing and assembly operations, which contain approximately nine
million square feet of floor space. Four facilities manufacture and assemble
trucks, two plants manufacture diesel engines and two locations produce gray
iron castings. The Company also manufactures trucks at a facility owned and
operated through a joint venture in the U.S. and is constructing a truck
assembly facility in Mexico. In addition, Transportation owns or leases other
significant properties in the United States and Canada including vehicle and
parts distribution centers, sales offices, an engineering center and its
headquarters in Chicago.
Transportation's principal research and engineering facilities are located
in Fort Wayne, Indiana, and Melrose Park, Illinois. In addition, certain
research is conducted at its manufacturing plants.
All of Transportation's plants are being utilized and have been maintained
adequately, are in good operating condition and are suitable for its current
needs through productive utilization of the facilities. These facilities,
together with planned capital expenditures, are expected to meet
Transportation's manufacturing needs in the foreseeable future.
A majority of the activity of the financial services operations is conducted
from its leased headquarters in Rolling Meadows, Illinois. The financial
services operations also lease six other office locations in the United
States.
LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims arising in
the ordinary course of business, and are parties to various legal proceedings
which constitute ordinary routine litigation incidental to the business of the
Company and its subsidiaries. In the opinion of the Company's management, none
of these proceedings or claims are material to the business or the financial
condition of the Company.
42
<PAGE>
CERTAIN ARRANGEMENTS WITH NFC
Master Intercompany Agreement
The operating relationship between Transportation and NFC is governed by the
terms of a master intercompany agreement dated as of April 26, 1993 and as
amended on September 30, 1996 (the "Master Intercompany Agreement"). The
Master Intercompany Agreement requires, among other things, that
Transportation, with limited exceptions, offer NFC all wholesale and retail
notes and installment sales contracts which Transportation acquires in the
regular course of its business from sales of trucks and related equipment to
Transportation's dealers and customers. Such offers must be on terms which
will (together with charges made to others for financing services) afford
reasonable compensation for the financing services rendered by NFC to
Transportation and Transportation's dealers with respect to the sale of
Transportation's products and used goods. NFC in turn has agreed, to the
extent that it is able to finance such purchases, that it will purchase all
such receivables without recourse.
Pursuant to the Master Intercompany Agreement, NFC also purchases
Transportation's wholesale accounts receivable from Transportation's dealers
arising out of Transportation's sales of goods (primarily parts) and services
to such dealers. NFC receives compensation from Transportation in the form of
a floating rate service charge for financing these accounts.
The Master Intercompany Agreement also provides that NFC will purchase
retail accounts receivable from Transportation that arise out of
Transportation's sales to retail customers. NFC receives a floating rate
service charge from Transportation for financing these accounts.
Tax Allocation Agreement
Pursuant to the tax allocation agreement effective October 1, 1981, as
subsequently amended and supplemented (the "Tax Allocation Agreement"), NFC is
required to pay to Transportation an amount equal to the amount NFC and its
subsidiaries would pay with respect to federal corporate income taxes if NFC
and its subsidiaries filed federal tax returns on a consolidated basis as an
affiliated group of corporations, notwithstanding the fact that the affiliated
group of corporations including Navistar and its subsidiaries may not have any
federal tax liability. The Tax Allocation Agreement contains similar
provisions regarding state income taxes for states that permit the filing of
consolidated returns.
Side Agreement
The Amended and Restated Parent's Side Agreement dated as of November 8,
1994, between NIC and Transportation (the "Side Agreement") requires either
Transportation or NIC to hold and own 100% of the outstanding voting stock of
NFC (other than shares held by directors of NFC as qualifying shares). The
Side Agreement also requires Transportation not to permit NFC's consolidated
income before income taxes, interest expense and dividends on preferred stock
to be less than 125% of NFC's consolidated interest expense and dividends on
preferred stock for any period of four fiscal quarters immediately preceding
the date of measurement.
43
<PAGE>
MANAGEMENT
The following table lists the names, ages and all positions held by the
executive officers of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
John R. Horne........ 59 Chairman, President and Chief Executive
Officer
Donald DeFosset, Jr.. 49 Executive Vice President and President, Truck
Group
Robert C. Lannert.... 57 Executive Vice President and Chief Financial
Officer
Robert A. Boardman... 50 Senior Vice President and General Counsel
Thomas M. Hough...... 52 Vice President and Treasurer
J. Steven Keate...... 41 Vice President and Controller
Steven K. Covey...... 46 Corporate Secretary
</TABLE>
John R. Horne has served as Chairman, President and Chief Executive Officer
of NIC since 1996 and a Director of NIC since 1990. Mr. Horne has also served
as Chairman, President and Chief Executive Officer of Transportation since
1995 and a Director of Transportation since 1987. Prior to this, Mr. Horne
served as President and Chief Executive Officer, 1995-1996, President and
Chief Operating Officer, 1990-1995, Group Vice President and General Manager,
Engine and Foundry, 1990, and Vice President and General Manager, Engine and
Foundry, 1983-1990.
Donald DeFosset, Jr. has served as Executive Vice President of NIC and
President, Truck Group, since 1996. Mr. DeFosset has also served as Executive
Vice President and President, Truck Group of Transportation since 1996. Prior
to this, Mr. DeFosset served as President, Allied Signal Safety Restraints
Systems of Allied Signal Inc., 1993-1996, Group Executive and General Manager,
Allied Signal Turbocharging and Truck Brake Systems, 1992-1993, and Vice
President, Planning and Business Development in 1992 and served as Executive
Vice President, Operations for Mack Trucks, 1989-1992.
Robert C. Lannert has served as Executive Vice President and Chief Financial
Officer of NIC and a Director of NIC since 1990. Mr. Lannert has also served
as Executive Vice President and Chief Financial Officer of Transportation
since 1990 and a Director of Transportation 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 has served as Senior Vice President and General Counsel
of NIC since 1990. Mr. Boardman has also served as 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 has served as Vice President and Treasurer of NIC since
1992. Mr. Hough has also served as Vice President and Treasurer of
Transportation since 1992. Prior to this, Mr. Hough served as Assistant
Treasurer of NIC, 1987-1992, and Assistant Treasurer of Transportation, 1987-
1992. Mr. Hough also served as Assistant Controller, Accounting and Financial
Systems, 1987, and Controller of NFC, 1982-1987.
J. Steven Keate has served as Vice President and Controller of NIC since
1995. Mr. Keate has also served as Vice President and Controller of
Transportation since 1995. Prior to this, Mr. Keate served as Vice President
and Controller of General Dynamics Corporation, 1991-1995, and Corporate
Manager, Financial Planning and Analysis, 1989-1991.
Steven K. Covey has served as Corporate Secretary of NIC since 1990. Mr.
Covey has also served as Associate General Counsel of Transportation since
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.
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DESCRIPTION OF OTHER FINANCING ARRANGEMENTS
MEXICO CREDIT AGREEMENT
In November 1997, NIC and Navimex entered into a credit agreement (the
"Mexico Credit Agreement") with a group of banks. The commitment of the Mexico
Credit Agreement is $125 million, including $65 million in a U.S. dollar
tranche and the equivalent of $60 million in Mexican pesos for a peso tranche.
The facility is a multiple drawdown term credit facility, the proceeds of
which are to be used for the construction of the Company's new assembly
facility near Monterrey, Mexico. The maturity date of the Mexico Credit
Agreement is December 2002. Borrowings under the Mexico Credit Agreement are
secured by all of the assets of Navimex and are guaranteed by NIC.
All amounts borrowed under the commitment are to be drawn pro-rata between
the U.S. dollar tranche and the peso tranche. With respect to all U.S. dollar
loans, Navimex has elected a fixed interest rate of 6 1/8% plus a margin based
on NIC's long-term credit rating. The interest rate on peso loans is based on
the Interbank Interest Equilibrium Rate calculated by the Banco de Mexico,
plus a margin based on NIC's long-term credit rating.
The Mexico Credit Agreement includes a number of restrictive covenants,
which require NIC to maintain (i) a consolidated net worth (which includes
certain amounts of subordinated indebtedness) of at least $850 million plus
50% of positive net earnings for each fiscal year commencing with fiscal year
1997 plus 50% of the net cash proceeds to NIC of any primary sales of capital
stock, (ii) a cash flow coverage ratio of at least 1.25 to 1, and (iii) a
minimum cash reserve equal to 75% at fiscal year end and 50% at any other time
of the aggregate outstanding amount of all loans under the Mexico Credit
Agreement. In addition, NIC's total consolidated debt to the sum of its total
consolidated debt plus its consolidated net worth may not exceed certain
prescribed ratios.
The Mexico Credit Agreement also limits the amount of investments that NIC
and Navimex can make and the amount of debt each can incur, subject to certain
limited exceptions, and contains a negative pledge which prevents NIC and
Navimex from incurring or suffering to exist liens on its assets, except in
certain limited circumstances. The Mexico Credit Agreement also contains
covenants regarding reporting, insurance, conduct of business, maintenance of
existence and compliance with laws and customary events of default.
NFC BANK CREDIT AGREEMENT
NFC has a $925 million Credit Agreement which matures in March 2001. Under
the terms of the Credit Agreement, NFC may (i) lend up to $100 million to
Transportation, secured by Transportation's service parts and new and used
truck inventories; and (ii) receive up to $50 million of credit in its asset
base calculation for Mexican retail and wholesale receivables funded by NFC.
Amounts outstanding under the Credit Agreement are secured by all the assets
of NFC, including a pledge of all of the stock of each of NFC's subsidiaries.
Three interest rate options are available for borrowings under the Credit
Agreement: (i) Base Rate Loans, tied to the higher of the prime rate or the
sum of 1/2 of 1% plus the Federal Funds rate; (ii) CD Loans, based on the
prevailing Certificate of Deposit rate; and (iii) Euro-Dollar Loans, based on
the London interbank offered rate ("LIBOR"), in each case plus a margin based
on NFC's long-term credit rating.
The Credit Agreement includes a number of restrictive covenants. For
example, NFC is required to maintain (i) a consolidated tangible net worth of
at least $175 million and (ii) consolidated interest expense, preferred stock
dividends and consolidated income before income taxes that is at least 125% of
its fixed charges (consisting of consolidated interest expense and preferred
stock dividends). In addition, NFC's total consolidated debt to consolidated
tangible net worth may not exceed 7 to 1. NFC may not transfer its accounts
receivable or prepay subordinated debt below $100 million, except in
accordance with the terms contained in the Credit Agreement.
In addition, the Credit Agreement requires NFC to hold all of the
outstanding stock of each of its subsidiaries. The Credit Agreement requires
that NFC perform all of its obligations under the Master Intercompany
Agreement, not consent to amendments or modifications thereof which would be
materially
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adverse to NFC (except in certain limited circumstances) and enforce the
Master Intercompany Agreement against Transportation in accordance with its
terms. NFC is prohibited from engaging in transactions with affiliates (except
in certain limited circumstances) that are not in the ordinary course of
business and on an arm's-length basis. The Credit Agreement also requires that
NFC maintain adequate loan loss reserves and its current dealer guideline
program. The Credit Agreement also contains additional covenants and events of
default that are customary to this type of financing.
SECURITIZATION PROGRAMS
NFC presently utilizes securitizations to fund a substantial portion of its
acquisitions of wholesale notes and retail notes (together with lease
receivables, the "receivables"). NFC relies upon the securitization market,
which provides it with funding at rates offered to companies with investment
grade ratings. NFC anticipates continuing to utilize securitizations to fund
its acquisitions of wholesale notes and retail notes.
Wholesale Notes Securitizations
Since 1990, NFC has securitized its wholesale notes. On a daily basis, NFC
sells all newly arising wholesale notes, except those which are ineligible and
those which exceed a dealer concentration level which is set by NFC (subject
to a contractual maximum), to Navistar Financial Securities Corporation
("NFSC"), a wholly owned special purpose subsidiary of NFC. NFSC in turn sells
the wholesale notes to a trust, which effectively reinvests collections on
outstanding trust receivables in such newly originated wholesale notes. NFSC
retains an interest in the trust, a portion of which is subordinated to the
investor certificates. At October 31, 1997, NFSC's retained interest in the
trust constituted $120 million, of which $100 million was subordinated to
claims of investor certificateholders.
Retail Notes Securitizations
Since 1993, NFC has securitized a significant portion of its retail loans.
Approximately twice a year, NFC sells a pool of retail loans, certain monies
due or received thereunder, security interests in the vehicles and equipment
financed thereby and certain other property (collectively, the "Property") to
NFRRC, a wholly owned special purpose subsidiary of NFC. Immediately
thereafter, NFRRC transfers such Property to a trust formed specifically for
such transactions in exchange for either asset-backed notes or certificates
issued by such trust. NFC retains the option under certain circumstances to
repurchase the remaining pool of retail loans of any trust once monies due and
payable thereunder constitute 10% or less of aggregate amount due and payable
under such retail loans when initially purchased by the trust. NFRRC retains a
residual interest in each trust.
As of October 31, 1997, trusts formed by NFRRC have issued an aggregate
principal amount of approximately $3,776 million of asset-backed securities.
Each class of asset-backed securities may have a different interest rate. At
October 31, 1997, asset-backed securities from seven securitized transactions
originated by NFRRC remained outstanding and had a remaining aggregate
principal balance of approximately $1,367 million.
Asset-Backed Commercial Paper Program
NFC and Truck Retail Instalment Paper Corp. ("TRIP"), a wholly owned
subsidiary of NFC, established NFC Asset Trust (the "ABCP Trust") in late 1994
for the purpose of issuing asset-backed commercial paper. As a condition to
issuance, all commercial paper must be rated at least "A-1" by Standard &
Poor's Ratings Group and "P-1" by Moody's. NFC currently may issue up to $400
million in face amount of commercial paper under the ABCP Program. The ABCP
Trust has also issued approximately $14 million of subordinated certificates.
At October 31, 1997, the ABCP Trust had outstanding commercial paper of $388
million.
NFC currently uses the ABCP Program to warehouse its retail loans pending a
permanent securitization of such loans as described above. To support the
commercial paper program, NFC has arranged a liquidity facility
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with a syndicate of banks. Loans under the liquidity facility are available
either to repay maturing commercial paper if sufficient funds are not
otherwise available or to fund loans to TRIP. The lenders provide liquidity,
not credit support, for the ABCP Trust. The lenders' commitments under the
liquidity facility terminate in March 2001.
SALE-LEASEBACKS
During 1997, NFC entered into sale-leaseback agreements involving vehicles
subject to retail finance and operating leases with end users. The agreements
grant to the purchasers a security interest in the underlying end user leases.
The aggregate value of the leased vehicles was approximately $105 million. NFC
may effect additional sale-leasebacks in the future.
1998 AND 2002 NOTES
NFC's 8 7/8% Senior Subordinated Notes due 1998 (the "1998 Notes") were
issued pursuant to an indenture, dated as of November 15, 1993, between NFC
and First Trust, N.A. (as successor to Continental Bank, National
Association), as Trustee (the "1998 Notes Indenture"). NFC's 9.0% Senior
Subordinated Notes due 2002 (the "2002 Notes" and together with the 1998
Notes, the "NFC Notes") were issued pursuant to an indenture, dated as of May
30, 1997, between NFC and The Fuji Bank & Trust Company, as Trustee (the "2002
Notes Indenture"). The 1998 Notes and the 2002 Notes are each limited to $100
million aggregate principal amount and mature on November 15, 1998 and June 1,
2002, respectively. The NFC Notes are not redeemable by NFC prior to maturity
and are not subject to any mandatory sinking fund payments.
The 1998 Notes Indenture and the 2002 Notes Indenture contain certain
covenants that, among other things, limit the ability of NFC or any of its
subsidiaries to maintain or incur indebtedness, create liens, enter into
certain transactions with affiliates, or consummate certain merger,
consolidation or asset sale transactions. In addition, NFC is required to
maintain a Consolidated Fixed Charge Coverage Ratio of at least 1.25 to 1.0
(as of the end of any fiscal quarter) under the 1998 Notes Indenture, provided
that such ratio will be reduced to 1.10 to 1.0 for any fiscal quarter in which
the 1998 Notes are rated investment grade. These covenants are subject to
certain exceptions and qualifications.
The NFC Notes are general obligations of NFC and are subordinated to all
senior indebtedness of NFC (as defined in the 1998 Notes Indenture or the 2002
Notes Indenture, as applicable). The NFC Notes rank pari passu with all senior
subordinated indebtedness of NFC and rank senior to subordinated indebtedness
of NFC. As a result of the restrictive covenants contained in the 1998 Notes
Indenture and the 2002 Notes Indenture and pursuant to the Credit Agreement,
holders of the NFC Notes are secured, subject to the subordination provisions
contained in such Indenture, equally and ratably with the holders of the
Senior Indebtedness of NFC, by a lien on substantially all of the assets of
NFC. Such lien and security interest is subject to release without prior
notice to, or the consent of, the holders of the 1998 Notes or the 2002 Notes
Indenture, as the case may be.
Upon a Change of Control Triggering Event (as defined in the 1998 Notes
Indenture and the 2002 Notes Indenture), NFC will, subject to certain
conditions, make an offer to purchase all outstanding NFC Notes at a purchase
price of 101% of the principal amount thereof plus accrued and unpaid interest
to the redemption date. The Credit Agreement imposes certain limitations on
the purchase of the NFC Notes upon a Change of Control Triggering Event.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on February 4, 1998 to the
Initial Purchasers pursuant to the Purchase Agreements. The Initial Purchasers
subsequently placed the Old Notes with (i) qualified institutional buyers in
reliance on Rule 144A under the Securities Act and (ii) qualified buyers
outside the United States in reliance upon Registration S under the Securities
Act. As a condition of the Purchase Agreements, the Company entered into the
Registration Rights Agreements with the Initial Purchasers pursuant to which
the Company has agreed, for the benefit of the holders of the Old Notes, at
the Company's cost, to use its best efforts to (i) file the Exchange Offer
Registration Statement within 60 days after the date of the original issue of
the Old Notes (the "Issue Date") with the Commission with respect to the
Exchange Offer for the Exchange Notes, (ii) use its best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the Issue Date and (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
commence the Exchange Offer and use its best efforts to issue the Exchange
Notes on or prior to 180 days after the Issue Date. Upon the Exchange Offer
Registration Statement being declared effective, the Company will offer the
Exchange Notes in exchange for surrender of the Old Notes. The Company will
keep the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the holders of the Old Notes. For each Old Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Old Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. Interest on each Old Note will accrue from the last
interest payment date on which interest was paid on the Old Note surrendered
in exchange therefor or, if no interest has been paid on such Old Note, from
the date of its original issue. Interest on each Exchange Note will accrue
from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes will in general
be freely tradeable after the Exchange Offer without further registration
under the Securities Act. However, any purchaser of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes (i) will not be able to
rely on the interpretation of the staff of the Commission, (ii) will not be
able to tender its Old Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Exchange Notes, unless such sale
or transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreements, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal or Agent's Message that (i) the
Exchange Notes are to be acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder, in the ordinary
course of business, (ii) the holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging and does not
intend to engage, in distribution of the Exchange Notes, (iii) the holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act and (v) the holder or any such other
person acknowledges that if such holder or any other person participates in
the Exchange Offer for the purpose of distributing the Exchange Notes it must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the Exchange Notes and cannot
rely on those no-action letters. As indicated above, each Participating
Broker-Dealer that receives an Exchange Note for its own account in exchange
for Old Notes must acknowledge that it (i) acquired the Old Notes for its own
account as a result of market-making activities or other trading activities,
(ii) has not entered into any arrangement or understanding with the Company or
any "affiliate" of the Company (within the meaning of Rule 405 under the
Securities Act) to distribute the Exchange Notes to be received in the
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes. For a
description of the procedures for resales by Participant Broker-Dealers, see
"Plan of Distribution."
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In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 180 days of the Issue Date, the Company will (i) file the
Shelf Registration Statement covering resales of the Old Notes; (ii) use its
reasonable best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (iii) use its reasonable best
efforts to keep effective the Shelf Registration Statement until two years
after the Issue Date. The Company will, in the event of the filing of the
Shelf Registration Statement, provide to each applicable holder of the Old
Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resale of the Old Notes. A holder of the Old Notes that sells
such Old Notes pursuant to the Shelf Registration Statements generally will be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Rights
Agreements which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of the Old Notes will
be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have its Old Notes included in the Shelf Registration
Statement and to benefit from the provisions set forth in the following
paragraph.
The Registration Rights Agreements provide that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Issue Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 150 days after the Issue Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company
will commence the Exchange Offer and use its best efforts to issue the
Exchange Note on or prior to 180 days after the Issue Date and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the Commission in a
timely fashion. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreements or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for
such effectiveness, or (c) the Company fails to consummate the Exchange Offer
on or prior to the date specified for such consummation, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the period
specified in the Registration Rights Agreements (each such event referred to
in clauses (a) through (d) above a "Registration Default"), the sole remedy
available to holders of the Old Notes will be the immediate assessment of
Additional Interest as follows: the per annum interest rate on the Old Notes
will increase by 0.25% and the per annum interest rate will increase by an
additional 0.25% for each subsequent 90-day period during which the
Registration Default remains uncured, up to a maximum additional interest rate
of 1.0% per annum. All Additional Interest will be payable to holders of the
Old Notes in cash on each February 1 and August 1, commencing with the first
such date occurring after any such Additional Interest commences to accrue,
until such Registration Default is cured. After the date on which such
Registration Default is cured, the interest rate on the Old Notes will revert
to the original rate per annum.
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreements) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreements in order to have its Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreements,
a copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
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Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
its Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
its Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreements, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indentures.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Senior Notes and $250,000,000 aggregate principal amount of Old Senior
Subordinated Notes were outstanding. The Company has fixed the close of
business on , 1998 as the record date for the Exchange Offer for purposes
of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, or the Indentures in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on August 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each February 1
and August 1, commencing on August 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or transmit an Agent's
Message in connection with a book-entry transfer, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or an Agent's Message and other required
documents must be completed and received by the Exchange Agent at the address
set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time,
on the Expiration Date. Delivery of the Old Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
The term "Agent's Message" means a message transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and
(iii) that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR AGENT'S
MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
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Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of its authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, unless an Agent's Message is received by the
Exchange Agent in compliance with ATOP, an appropriate Letter of Transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be transmitted to and received
or confirmed by the Exchange Agent at its address set forth below on or prior
to the Expiration Date, or, if the guaranteed delivery procedures described
below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Old Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
By Mail: Overnight Courier:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station 77 Water Street, 4th Floor
P.O. Box 1023 New York, NY 10005
New York, NY 10268-1023 Attn: Reorganization Dept.
Attn: Reorganization Dept.
Facsimile Transmission:
(212) 701-7636 or 7637
By Hand:
c/o Harris Trust Company of New York For Information Telephone (call
Receive Window collect):
77 Water Street, 5th Floor (212) 701-7624
New York, NY 10005
Attn: Reorganization Dept.
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of pocket expenses in connection
therewith.
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The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreements, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
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<PAGE>
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
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<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Senior Exchange Notes will be issued under the Senior Notes Indenture.
The Senior Subordinated Exchange Notes will be issued under the Senior
Subordinated Notes Indenture. The Exchange Notes are subject to all such
terms, and Holders of Exchange Notes are referred to the Indentures and the
Trust Indenture Act for a statement thereof. The form and terms of the
Exchange Notes are the same as the form and terms of the Old Notes (which they
replace) except that (i) the Exchange Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange
Offer, which rights will terminate when the Exchange Offer is consummated. A
copy of the Indentures and the Registration Rights Agreements described below
have been filed as exhibits to the Exchange Offer Registration Statement of
which this Prospectus forms a part.
The following summary of certain provisions of the Indentures and the
Registration Rights Agreements does not purport to be complete and is
qualified in its entirety by reference to the Indentures and the Registration
Rights Agreements, including the definitions therein of certain terms used
below. The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions" or are otherwise defined in the
Indentures. Any reference to a "Trustee" means the Senior Note Trustee or the
Senior Subordinated Note Trustee, as the context may require. Unless otherwise
specifically indicated, all references in this section to the "Company" are to
NIC and not to any of its subsidiaries. The Old Senior Notes and Senior
Exchange Notes are sometimes collectively referred to herein as the "Senior
Notes," the Old Senior Subordinated Notes and the Senior Subordinated Exchange
Notes are sometimes collectively referred to herein as the "Senior
Subordinated Notes" and the Senior Notes and Senior Subordinated Notes are
sometimes collectively referred to herein as the "Notes."
The Senior Notes are general unsecured obligations of the Company, limited
to $100 million aggregate principal amount, and rank pari passu in right of
payment with all existing and future unsubordinated Indebtedness of the
Company and senior in right of payment to all existing and future subordinated
Indebtedness of the Company. The Senior Notes are effectively subordinated to
all secured Indebtedness of the Company, if any. The Senior Notes mature on
February 1, 2003 and bear interest at the rate per annum of 7%. Interest will
be payable semiannually (to holders of record of Senior Notes at the close of
business on the January 15 or July 15 immediately preceding the interest
payment date) on February 1 and August 1 of each year, respectively,
commencing August 1, 1998. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The Senior Subordinated Notes are general unsecured obligations of the
Company, limited to $250 million aggregate principal amount, and are
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. The Senior Subordinated Notes mature on February
1, 2008 and bear interest at the rate per annum of 8%. Interest will be
payable semiannually (to holders of record of Senior Subordinated Notes at the
close of business on the January 15 or July 15 immediately preceding the
interest payment date) on February 1 and August 1 of each year, respectively,
commencing August 1, 1998. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The Notes will not have the benefit of any sinking fund.
OPTIONAL REDEMPTION
On or after February 1, 2003, the Senior Subordinated Notes may be redeemed
at any time, in whole or in part, at the option of the Company, on not less
than 20 days' nor more than 60 days' notice, at the redemption
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<PAGE>
prices (expressed as percentages of the principal amount) set forth below, if
redeemed during the 12 month period beginning February 1 of the year indicated
below, in each case together with interest accrued to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................... 104.00%
2004........................................................... 102.67%
2005........................................................... 101.33%
2006 and thereafter............................................ 100.00%
</TABLE>
In addition, prior to February 1, 2001, the Company may, at its option
redeem up to 35% of the principal amount of the Senior Subordinated Notes
originally issued with the net cash proceeds received by the Company from one
or more public offerings of Common Stock of the Company made after the Issue
Date, at a redemption price (expressed as a percentage of the principal
amount) of 108.0% of the principal amount thereof, plus accrued and unpaid
interest to the date fixed for redemption; provided that at least $162.5
million in aggregate principal amount of the Senior Subordinated Notes remains
outstanding immediately after any such redemption (excluding any Notes owned
by the Company or any of its Affiliates). Notice of redemption pursuant to
this paragraph must be mailed to Holders of Senior Subordinated Notes not
later than 60 days following the consummation of such public offering.
Selection of Senior Subordinated Notes for any redemption shall be made by
the Trustee under the Senior Subordinated Note Indenture in accordance with
the rules of any national securities exchange on which the Senior Subordinated
Notes may be listed or if the Senior Subordinated Notes are not so listed, pro
rata or by lot or in such other manner as the Senior Subordinated Note Trustee
shall deem appropriate and fair. Senior Subordinated Notes in denominations
larger than $1,000 may be redeemed in part but only in integral multiples of
$1,000. Notice of redemption will be mailed at least 20 days but not more than
60 days before the redemption date to each Holder of Senior Subordinated Notes
to be redeemed at his or her registered address. On and after the redemption
date, interest will cease to accrue on Senior Subordinated Notes or portions
thereof called for redemption.
SUBORDINATION OF SENIOR SUBORDINATED NOTES; RANKING
The Company's obligations with respect to the payment of the principal of,
premium, if any, and interest on, and all other obligations in respect of,
each and all of the Senior Subordinated Notes shall be subordinated in right
of payment, to the extent and in the manner provided in the Senior
Subordinated Note Indenture, to the prior payment in full in cash of all
Senior Indebtedness of the Company.
In the event of (i) any insolvency or bankruptcy case or proceeding, (ii)
any receivership, liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy or (iii) any assignment for the benefit of the creditors or any
other marshaling of assets and liabilities of the Company, then and in any
such event specified in (i), (ii) or (iii) above, the holders of Senior
Indebtedness shall be entitled to receive payment in full in cash of all
amounts due or to become due on or in respect of all Senior Indebtedness
before the Holders of the Senior Subordinated Notes are entitled to receive
any Note Payment (as defined below), and in any such event any Note Payment to
which the Holders of the Senior Subordinated Notes or the Senior Subordinated
Note Trustee on their behalf would be entitled, but for the subordination
provisions of the Senior Subordinated Note Indenture, shall be made by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or distribution, directly to the holders
of the Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
respective trustee, agent or other representative under any agreement or
indenture pursuant to which any such Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
such Senior Indebtedness in full, in cash, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
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In the event that, notwithstanding the foregoing provision prohibiting such
Note Payment, any Note Payment shall be received by the Senior Subordinated
Note Trustee or any Holder of Senior Subordinated Notes at a time when such
Note Payment is prohibited as described in the preceding paragraph and before
all obligations in respect of Senior Indebtedness are paid in full in cash,
such Note Payment shall be received and held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their respective trustee, agent or other
representative under any agreement or indenture pursuant to which any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of Senior Indebtedness remaining unpaid
until all such Senior Indebtedness has been paid in full in cash after giving
effect to any concurrent payment, distribution or provision therefor to or for
the account of the holders of such Senior Indebtedness.
No direct or indirect payment, deposit or distribution of any kind or
character, whether in cash, property or securities (including any payment made
to Holders of the Senior Subordinated Notes under the terms of Indebtedness
subordinated to the Senior Subordinated Notes, but excluding any payment or
distribution of Permitted Junior Securities) by or on behalf of the Company of
principal of, premium, if any, or interest on, or any other obligation in
respect of, the Senior Subordinated Notes whether pursuant to the terms of the
Senior Subordinated Notes, upon acceleration, by way of repurchase,
redemption, defeasance or otherwise (all such payments, deposits or
distributions being referred to herein, individually and collectively, as a
"Note Payment"), shall be made if, at the time of such Note Payment, there
exists a default (a "Payment Default") in the payment when due of all or any
portion of the obligations under or in respect of any Designated Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such Payment Default shall not have
been cured or waived. In addition, during the continuance of any default or
event of default (other than a Payment Default) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without the giving of any notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable
grace periods, no Note Payment may be made by or on behalf of the Company for
a period (a "Payment Blockage Period") commencing upon the receipt by the
Company and the Senior Subordinated Note Trustee of written notice of such
default or event of default from the holder or holders of such Designated
Senior Indebtedness or any trustee, agent or other representative acting on
behalf of the holder or holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period (a "Payment
Blockage Notice") and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Senior Subordinated
Note Trustee and the Company from the holder or holders of such Designated
Senior Indebtedness or any trustee, agent or other representative acting on
behalf of the holder or holders of such Designated Senior Indebtedness, (ii)
by discharge or repayment in full in cash of such Designated Senior
Indebtedness or (iii) because the default or event of default giving rise to
such Payment Blockage Notice has been cured, waived or ceased to exist).
Subject to the provisions of the first sentence of this paragraph, the Company
may resume payments on the Senior Subordinated Notes after such Payment
Blockage Period.
Not more than one Payment Blockage Period may be commenced with respect to
the Senior Subordinated Notes during any period of 360 consecutive days,
unless at least 180 consecutive days shall have elapsed during which time no
payment blockage was in effect. No default or event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period may be, or be made, the basis for the commencement of any other Payment
Blockage Period by the holder or holders of such Designated Senior
Indebtedness or any trustee, agent or other representative acting on behalf of
the holder or holders of such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such default or event of
default has been cured or waived for a period of not less than 90 consecutive
days.
In the event that, notwithstanding the foregoing, any Note Payment shall be
received by the Senior Subordinated Note Trustee or any Holder when such Note
Payment is prohibited by the second preceding paragraph, such payment shall be
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Designated Senior Indebtedness or any trustee, agent or other
representative under any agreement or
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indenture pursuant to which any such Designated Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that, upon notice from the Senior Subordinated Note Trustee to the holders of
Designated Senior Indebtedness that such prohibited Note Payment has been
made, the holders of the Designated Senior Indebtedness (or their trustee,
agent or other representative) notify the Senior Subordinated Note Trustee in
writing of the amounts then due and owing on the Designated Senior
Indebtedness, if any, and only the amount specified in such notice to the
Senior Subordinated Note Trustee shall be paid to or for the account of the
holders of Designated Senior Indebtedness.
The failure to make any payment or distribution for or on account of the
Senior Subordinated Notes by reason of the provisions of the Senior
Subordinated Note Indenture described under this section will not be construed
as preventing the occurrence of an Event of Default described in clause (a),
(b) or (c) of the first paragraph under "--Events of Default."
If the Company fails to make any payment on the Senior Subordinated Notes
when due or within any applicable grace period, whether or not such failure is
on account of the subordination provisions referred to above, such failure
would constitute an Event of Default under the Senior Subordinated Note
Indenture and would enable the Holders to accelerate the maturity of the
Senior Subordinated Notes. See "--Events of Default."
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are not holders of Senior Indebtedness of the
Company (other than the Holders of the Senior Subordinated Notes or other
equally subordinated obligations) may recover less, ratably, than the holders
of Senior Indebtedness of the Company and may recover more, ratably, than the
Holders of the Senior Subordinated Notes.
At October 31, 1997, on a pro forma basis after giving effect to the Initial
Offerings, the Company would have had approximately $100.0 million of
Indebtedness outstanding which would constitute Senior Indebtedness of the
Company. In addition, the Senior Notes will constitute Senior Indebtedness for
purposes of the Senior Subordinated Note Indenture. Although the Senior
Subordinated Note Indenture will restrict, but not prohibit, the incurrence of
Senior Indebtedness of the Company and other Indebtedness by the Company and
its Subsidiaries, the incurrence of significant amounts of additional
Indebtedness could have an adverse impact on the Company's ability to service
its Indebtedness, including the Senior Subordinated Notes. Moreover, the
Senior Subordinated Note Indenture does not impose any limitation on the
incurrence by the Company or by any Subsidiary of the Company of liabilities
that are not Indebtedness under the Senior Subordinated Note Indenture.
At October 31, 1997, on a pro forma basis after giving effect to the Initial
Offerings, there would have been no Indebtedness of the Company outstanding
which would rank pari passu with the Senior Subordinated Notes and no
Indebtedness outstanding that would rank subordinated to the Senior
Subordinated Notes.
The Notes are effectively subordinated to all existing and future
liabilities (including liabilities owed to trade creditors) of the
Subsidiaries of the Company to the extent of the assets of each Subsidiary of
the Company. Any right of the Company to participate in any distribution of
the assets of its Subsidiaries upon the liquidation, reorganization or
insolvency thereof (and the consequent right of the Holders to benefit from
those assets) will be subject to the claims of creditors (including trade
creditors) of such Subsidiary, except to the extent that claims of the Company
itself as a creditor of such Subsidiary may be recognized, in which case the
claims of the Company would still be subordinate to any security interest in
the assets of such Subsidiary and any Indebtedness of such Subsidiary senior
to that held by the Company.
At the date of this Prospectus, the Notes would be solely the obligation of
the Company, and no Subsidiary of the Company would be obligated to the
Holders or obligated or required to pay any amounts due pursuant to the Notes
or make funds available therefor in the form of dividends or advances to the
Company. At October 31, 1997, on a pro forma basis after giving effect to the
Initial Offerings, the Subsidiaries of the Company had other liabilities under
generally accepted accounting principles (including trade payables) to third
parties of approximately $4,431 million. Such Indebtedness includes various
obligations not reported in the capitalization of the Company, primarily
current liabilities (other than short-term debt).
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CERTAIN COVENANTS
Relating Only to the Senior Notes
APPLICATION OF FALL AWAY COVENANTS. After the Senior Notes have been
assigned an Investment Grade rating by both Rating Agencies, the Company will
no longer be subject to the agreements and covenants contained in "Limitation
on Incurrence of Indebtedness," "Limitation on Certain Asset Dispositions,"
"Limitation on Restricted Payments," "Limitation on Preferred Stock of
Restricted Subsidiaries," "Limitation on Transactions with Affiliates,"
"Limitation on Payment Restrictions Affecting Restricted Subsidiaries,"
clauses (i)(A) and (iii) of the first paragraph of "Limitation on
Sale/Leaseback Transactions" and clause (ii) of the first paragraph of
"Merger, Consolidation, Etc." as therein; provided, such provisions shall no
longer have application for any purpose of the Senior Note Indenture.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Liens upon any of their respective properties or assets (including,
without limitation, any asset in the form of the right to receive payments,
fees or other consideration or benefits) whether owned on the Issue Date or
acquired after the Issue Date, other than (i) Liens granted by the Company on
property or assets of the Company securing Indebtedness of the Company that is
permitted by the Senior Note Indenture and that is pari passu with the Senior
Notes; provided, that the Senior Notes are secured on an equal and ratable
basis with such Liens; (ii) Liens granted by the Company on property or assets
of the Company securing Indebtedness of the Company that is permitted by the
Senior Note Indenture and that is subordinated to the Senior Notes, provided
that the Senior Notes are secured by Liens ranking prior to such Liens; (iii)
Permitted Liens; (iv) Liens in respect of Acquired Indebtedness permitted by
the Senior Note Indenture; provided, that the Liens in respect of such
Acquired Indebtedness secured such Acquired Indebtedness at the time of the
incurrence of such Acquired Indebtedness and such Liens and the Acquired
Indebtedness were not incurred by the Company or by the Person being acquired
or from whom the assets were acquired in connection with, or in anticipation
of, the incurrence of such Acquired Indebtedness by the Company, and provided,
further that such Liens in respect of such Acquired Indebtedness do not extend
to or cover any property or assets of the Company or of any Restricted
Subsidiary of the Company other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company; (v) Liens granted in connection with any
Qualified Securitization Transaction; (vi) Liens arising from claims of
holders of Indebtedness against funds held in a defeasance trust for the
benefit of such holders; and (vii) Liens on property or assets of the Company
or any Restricted Subsidiary securing Indebtedness permitted by the Senior
Note Indenture not to exceed the greater of (A) $100.0 million and (B) the sum
of (1) 85.0% of the total book value of accounts receivable and (2) 50.0% of
the total book value of inventory, in each case as reflected on the Company's
most recent consolidated financial statements prepared in accordance with
GAAP.
Relating Only to the Senior Subordinated Notes
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company will not
directly or indirectly, in any event incur any (a) Indebtedness that purports
to be by its terms (or by the terms of any agreement governing such
Indebtedness) both subordinate to any other Indebtedness of the Company and
senior or superior in any right of payment or interest to the Senior
Subordinated Notes or (b) Indebtedness which by its terms (or by the terms of
any agreement governing such Indebtedness) is subordinated to any other
Indebtedness of the Company (other than indebtedness of the Company that is
subordinated solely to Senior Indebtedness of the Company) unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate to the Senior Subordinated Notes
to the same extent and in the same manner as such Indebtedness is subordinated
pursuant to subordination provisions that are most favorable to the holders of
any other Indebtedness of the Company.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Liens upon any of their respective properties or assets (including,
without limitation, any asset in the form of the right to receive payments,
fees or other consideration or benefits) whether owned on the Issue Date or
acquired after the Issue Date, other than (i) Liens granted by the Company
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on property or assets of the Company securing Senior Indebtedness of the
Company that is permitted by the Senior Subordinated Note Indenture; (ii)
Liens granted by the Company on property or assets of the Company securing
Indebtedness of the Company that is permitted by the Senior Subordinated Note
Indenture and that is pari passu with the Senior Subordinated Notes, provided,
that the Senior Subordinated Notes are secured on an equal and ratable basis
with such Liens; (iii) Liens granted by the Company on property or assets of
the Company securing Indebtedness of the Company that is permitted by the
Senior Subordinated Note Indenture and that is subordinated to the Senior
Subordinated Notes, provided that the Senior Subordinated Notes are secured by
Liens ranking prior to such Liens; (iv) Permitted Liens; (v) Liens in respect
of Acquired Indebtedness permitted by the Senior Subordinated Note Indenture,
provided, that the Liens in respect of such Acquired Indebtedness secured such
Acquired Indebtedness at the time of the incurrence of such Acquired
Indebtedness by the Company and such Liens and the Acquired Indebtedness were
not incurred by the Company or by the Person being acquired or from whom the
assets were acquired in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company, and provided, further that such
Liens in respect of such Acquired Indebtedness do not extend to or cover any
property or assets of the Company or of any Subsidiary of the Company other
than the property or assets that secured the Acquired Indebtedness prior to
the time such Indebtedness became Acquired Indebtedness of the Company; (vi)
Liens granted in connection with any Qualified Securitization Transaction; and
(vii) Liens arising from claims of holders of Indebtedness against funds held
in a defeasance trust for the benefit of such holders.
Relating to all Notes
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Indentures provide that the
Company will not, and will not cause or permit any of its Restricted
Subsidiaries to incur, directly or indirectly, any Indebtedness, except:
(i) Indebtedness of the Company, if immediately after giving effect to
the incurrence of such Indebtedness and the receipt and application of the
net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for
the four full fiscal quarters for which quarterly or annual financial
statements are available next preceding the incurrence of such Indebtedness
would be greater than 2.25 to 1.00;
(ii) Indebtedness outstanding on the Issue Date;
(iii) Indebtedness incurred pursuant to the $125.0 million Credit
Agreement dated as of November 26, 1997 among Navistar International
Corporation Mexico, S.A. de C.V., the Company and the lenders listed
therein, as such agreement, in whole or in part, may be amended, renewed,
extended, increased (but only so long as such increase as is permitted
under the terms of the Indenture), substituted, refinanced, restructured,
replaced (including, without limitation, any successive renewals,
extensions, increases, substitutions, refinancings, restructurings,
replacements, supplements, or other modifications of the foregoing);
(iv) Indebtedness owed by the Company to any Wholly-Owned Subsidiary of
the Company or Indebtedness owed by a Subsidiary of the Company to the
Company or a Wholly-Owned Subsidiary of the Company; provided, that, upon
either (I) the transfer or other disposition by such Wholly-Owned
Subsidiary or the Company of any Indebtedness so permitted under this
clause (iv) to a Person other than the Company or another Wholly-Owned
Subsidiary of the Company or (II) the issuance (other than directors'
qualifying shares), sale, transfer or other disposition of shares of
Capital Stock or other ownership interests (including by consolidation or
merger) of such Wholly-Owned Subsidiary to a Person other than the Company
or another such Wholly-Owned Subsidiary of the Company, the provisions of
this clause (iv) shall no longer be applicable to such Indebtedness and
such Indebtedness shall be deemed to have been incurred at the time of any
such issuance, sale. transfer or other disposition, as the case may be;
(v) Indebtedness of the Company or its Restricted Subsidiaries under any
Interest Rate Protection Agreement or Currency Agreement to the extent
entered into to hedge any other Indebtedness permitted under the
Indentures;
(vi) Acquired Indebtedness to the extent the Company could have incurred
such Indebtedness in accordance with clause (i) above on the date such
Indebtedness became Acquired Indebtedness;
(vii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in response to worker's compensation claims
or self-insurance;
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(viii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn-out or other similar obligations, in
each case, incurred or assumed in connection with the disposition of any
business, assets or a Subsidiary of the Company;
(ix) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(x) Indebtedness consisting of notes issued to employees, officers or
directors in connection with the redemption or repurchase of Capital Stock
held by such Persons in an aggregate amount not in excess of $10.0 million
at any time outstanding;
(xi) Indebtedness consisting of take-or-pay obligations contained in
supply agreements entered into by the Company or its Restricted
Subsidiaries in the ordinary course;
(xii) Guarantees by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or any Restricted Subsidiary permitted to be
incurred under another provision of the covenant; provided, that such
Guarantee is incurred at the same time as such other Indebtedness;
(xiii) Indebtedness incurred to renew, extend, refinance or refund
(collectively for purposes of this clause (xiii) to "refund") any
Indebtedness incurred pursuant to clauses (i) or (ii) above; provided, that
(I) such Indebtedness does not exceed the principal amount (or accreted
amount, if less) of Indebtedness so refunded plus the amount of any premium
required to be paid in connection with such refunding pursuant to the terms
of the Indebtedness refunded or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refunding by
means of a tender offer, exchange offer, or privately negotiated
repurchase, plus the expenses of the Company or such Restricted Subsidiary
incurred in connection therewith and (II)(A) in the case of any refunding
of Indebtedness that is pari passu with the Senior Notes or the Senior
Subordinated Notes, as the case may be, such refunding Indebtedness is made
pari passu with or subordinate in right of payment to such Senior Notes or
Senior Subordinated Notes, as the case may be, and, in the case of any
refunding of Indebtedness that is subordinate in right of payment to the
Senior Notes or the Senior Subordinated Notes, as the case may be, such
refunding Indebtedness is subordinate in right of payment to such Senior
Notes or Senior Subordinated Notes, as the case may be, on terms no less
favorable to the Holders than those contained in the Indebtedness being
refunded, (B) in either case, the refunding Indebtedness by its terms, or
by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued does not have an Average Life that is less than the
remaining Average Life of the Indebtedness being refunded and does not
permit redemption or other retirement (including pursuant to any required
offer to purchase to be made by the Company or any of its Restricted
Subsidiaries) of such Indebtedness at the option of the holder thereof
prior to the final stated maturity of the Indebtedness being refunded,
other than a redemption or other retirement at the option of the holder of
such Indebtedness (including pursuant to a required offer to purchase made
by the Company or any of its Restricted Subsidiaries) which is conditioned
upon a change of control of the Company pursuant to provisions
substantially similar to those contained in the Indentures described under
"--Change of Control" below and (C) Indebtedness of a Restricted Subsidiary
may not be incurred to refund any Indebtedness of the Company;
(xiv) Indebtedness of the Company under the Notes and the Exchange Notes;
(xv) the consummation of any Qualified Securitization Transaction;
(xvi) Attributable Indebtedness relating to any Sale/Leaseback
Transaction with respect to the purchase of tooling and related
manufacturing equipment in the ordinary course of business consistent with
past practices; and
(xvii) Indebtedness of the Company or its Restricted Subsidiaries, not
otherwise permitted to be incurred pursuant to clauses (i) through (xvi)
above, which, together with any other outstanding Indebtedness incurred
pursuant to this clause (xvii), has an aggregate principal amount not in
excess of $100.0 million at any time outstanding.
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After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Indentures
provide that the Company will not cause or permit any of its Restricted
Subsidiaries to issue any Preferred Stock other than to the Company or to
another Restricted Subsidiary.
After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON RESTRICTED PAYMENTS. The Indentures provide that the Company
will not, and will not cause or permit any of its Restricted Subsidiaries to
directly or indirectly, (i) declare or pay any dividend, or make any
distribution of any kind or character (whether in cash, property or
securities), in respect of any class of its Capital Stock or to the holders
thereof in their capacity as stockholders, excluding any (x) dividend or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire its Qualified Capital Stock or
(y) in the case of any Restricted Subsidiary of the Company, dividends or
distributions payable to the Company or a Restricted Subsidiary of the
Company; (ii) purchase, redeem, or otherwise acquire or retire for value
shares of Capital Stock of the Company or a Restricted Subsidiary of the
Company, any securities convertible or exchangeable into shares of Capital
Stock of the Company or a Restricted Subsidiary of the Company or any options,
warrants or rights to purchase or acquire shares of Capital Stock of the
Company or a Restricted Subsidiary of the Company, excluding any such shares
of Capital Stock, options, warrants, rights or securities which are owned by
the Company or a Restricted Subsidiary of the Company; (iii) make any
Investment (other than a Permitted Investment) in, or payment on a guarantee
of any obligation of, any Person; or (iv) redeem, defease, repurchase, retire
or otherwise acquire or retire for value, prior to any scheduled maturity,
repayment or sinking fund payment, Indebtedness which is subordinate in right
of payment to the Senior Notes in the case of the Senior Note Indenture and
the Senior Subordinated Notes in the case of the Senior Subordinated Note
Indenture (each of the transactions described in clauses (i) through (iv)
(other than any exception to any such clause) being a "Restricted Payment") if
at the time thereof:
(1) an Event of Default, or an event that with the passing of time or
giving of notice, or both, would constitute an Event of Default, shall have
occurred and be continuing, or
(2) upon giving effect to such Restricted Payment, the Company could not
incur at least $1.00 of additional Indebtedness pursuant to the terms of
the Indentures described in clause (i) of "--Limitation on Incurrence of
Indebtedness" above, or
(3) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments made on or after the Issue Date exceeds the sum
(without duplication) of: (a) 50% of cumulative Consolidated Net Income of
the Company (or, in the case cumulative Consolidated Net Income of the
Company shall be negative, less 100% of such deficit) for the period
(treated as an accounting period) from the Issue Date through the last day
of the Company's most recently ended fiscal quarter for which financial
statements are available, plus (b) 100% of the aggregate net cash proceeds
received after the Issue Date, including the fair market value of readily
marketable securities from the issuance of Qualified Capital Stock of the
Company and warrants, rights or options on Qualified Capital Stock of the
Company (other than in respect of any such issuance to a Subsidiary of the
Company) and the principal amount of Indebtedness of the Company or a
Subsidiary of the Company that has been converted into or exchanged for
Qualified Capital Stock of the Company which Indebtedness was incurred
after the Issue Date; plus (c) in the case of the disposition or repayment
of any Investment constituting a Restricted Payment made after the Issue
Date, an amount equal to the lesser of the return of capital with respect
to such Investment and the cost of such Investment, in either case, less
the cost of the disposition of such Investment; provided, that at the time
any such
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Investment is made the Company delivers to the Trustee a resolution of the
Board of Directors of the Company to the effect that, for purposes of this
"--Limitation on Restricted Payments" covenant, such Investment constitutes
a Restricted Payment made after the Issue Date; plus (d) an amount equal to
the sum of (i) the net reduction in Investments in Unrestricted
Subsidiaries resulting from the receipt of dividends, repayments of loans
or advances or other transfers of assets or proceeds from the disposition
of Capital Stock or other distributions or payments, in each case to the
Company or any Restricted Subsidiary from, or with respect to, interests in
Unrestricted Subsidiaries, and (ii) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, that the
foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary,
the amount of Investments previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary subsequent to the Issue Date; plus (e) $25.0 million. For
purposes of determining the amount expended for Restricted Payments under
this clause (3), property other than cash shall be valued at its fair
market value.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph will not prohibit (i) any dividend on any class of Capital
Stock of the Company or any of its Restricted Subsidiaries paid within 60 days
after the declaration thereof if, on the date when the dividend was declared,
the Company or any of its Restricted Subsidiaries, as the case may be, could
have paid such dividend in accordance with the provisions of the Indentures,
(ii) the renewal, extension, refunding or refinancing of any Indebtedness
otherwise permitted pursuant to the terms of the Indentures described in
clause (xiii) of "--Limitation on Incurrence of Indebtedness" above, (iii) the
exchange or conversion of any Indebtedness of the Company or any of its
Restricted Subsidiaries for or into Qualified Capital Stock of the Company,
(iv) any Restricted Payments, including loans or other advances made pursuant
to any employee benefit plans (including plans for the benefit of directors)
or employment agreements or other compensation arrangements, in each case as
approved by the Board of Directors of the Company in its good faith judgment,
(v) so long as no Default or Event of Default has occurred and is continuing,
any Investment made with the proceeds of a substantially concurrent sale of
Qualified Capital Stock of the Company; provided, that the proceeds of such
sale of Qualified Capital Stock shall not be (and have not been) included in
clause (3) of the preceding paragraph, (vi) the redemption, repurchase,
retirement or other acquisition of any Capital Stock of the Company in
exchange for or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of Qualified
Capital Stock of the Company; provided, that the proceeds of such sale of
Capital Stock shall not be (and have not been) included in clause (3) of the
preceding paragraph, (vii) so long as no Event of Default has occurred and is
continuing, the redemption, repurchase, retirement or other acquisition of any
Subordinated Indebtedness of the Company in exchange for or out of the net
cash proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of Qualified Capital Stock of the Company; provided, that the
proceeds of such sale of Qualified Capital Stock shall not be (and have not
been) included in clause (3) of the preceding paragraph, (viii) in the case of
the Senior Note Indenture only, the purchase of Senior Subordinated Notes
pursuant to an Offer to Purchase required by the covenant described under "--
Limitation on Certain Asset Dispositions" or the covenant described under "--
Change of Control"; provided, that no such purchase shall be permitted until
all Senior Notes validly tendered pursuant to the applicable Offer to Purchase
in respect of the Senior Notes shall have been purchased by the Company, (ix)
the redemption, retirement or repurchase of the Company's outstanding Series G
Convertible Preferred Stock out of the net proceeds of the Offerings, (x)
Investments in Navistar Financial Corporation made pursuant to the Support
Agreement to the extent required by the Support Agreement, (xi) the
declaration and payment of dividends to holders of any class of Preferred
Stock issued after the Issue Date; provided, that at the time of the issuance
of such Preferred Stock, the Company, after giving pro forma effect to such
issuance, would have been able to incur at least $1.00 of additional
Indebtedness pursuant to the terms of the Indentures described in clause (i)
of "--Limitation on Incurrence of Indebtedness" above; (xii) so long as no
Event of Default has occurred and is continuing, any purchase or redemption or
other retirement for value of Capital Stock of the Company required pursuant
to any shareholders agreement, management agreement or employee stock option
agreement in accordance with the provisions of any such arrangement in an
amount not to exceed $10.0 million in the aggregate; (xiii) repurchases of
Capital Stock
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deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; (xiv) payments not to
exceed $500,000 per annum in the aggregate to enable the Company to make
payments to holders of its Capital Stock in lieu of issuance of fractional
shares of its Capital Stock; (xv) so long as no Event of Default has occurred
and is continuing, the repurchase of any shares of Class B Common Stock or
Common Stock held by the Supplemental Trust; (xvi) so long as no Event of
Default has occurred and is continuing, the redemption of any stock purchase
rights under a rights plan in an aggregate amount not to exceed $1.0 million;
and (xvii) so long as no Event of Default has occurred and is continuing,
Investments in Permitted Joint Ventures and designations of Restricted
Subsidiaries as Unrestricted Subsidiaries; provided, that after giving pro
forma effect to such Investment, the Company could incur at least $1.00 of
additional Indebtedness pursuant to the terms of the Indentures described in
clause (i) of "--Limitation on Incurrence of Indebtedness" above. Each
Restricted Payment described in clauses (i), (iv), (x), (xii) and (xv) of the
previous sentence shall be taken into account (and the Restricted Payments
described in the remaining clauses shall not be taken into account) for
purposes of computing the aggregate amount of all Restricted Payments made
pursuant to clause (3) of the preceding paragraph.
After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON CERTAIN ASSET DISPOSITIONS. The Indentures provide that the
Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, make one or more Asset Dispositions
unless: (i) the Company or the Restricted Subsidiary, as the case may be,
receives consideration for such Asset Disposition at least equal to the fair
market value of the assets sold or disposed of (as determined in good faith by
the Company); (ii) not less than 75% of the consideration for the disposition
consists of cash or readily marketable cash equivalents or the assumption of
Indebtedness (other than non-recourse Indebtedness or any Indebtedness
subordinated to the Senior Notes, in the case of the Senior Note Indenture, or
the Senior Subordinated Notes, in the case of the Senior Subordinated Note
Indenture) of the Company or such Restricted Subsidiary or other obligations
relating to such assets (and release of the Company or such Restricted
Subsidiary from all liability on the Indebtedness or other obligations
assumed); and (iii) all Net Available Proceeds, less any amounts invested or
committed to be invested within 360 days of such Asset Disposition in assets
related to the business of the Company (including capital expenditures or the
Capital Stock of another Person (other than the Company or any Person that is
a Restricted Subsidiary of the Company immediately prior to such investment);
provided, that immediately after giving effect to any such investment (and not
prior thereto) such Person shall be a Restricted Subsidiary of the Company),
are applied, on or prior to the 360th day after such Asset Disposition (unless
and to the extent that the Company shall determine to make an Offer to
Purchase), either to (A) the permanent reduction and prepayment of any
Indebtedness of the Company (other than Indebtedness which is expressly
subordinate to the applicable issue of Notes) then outstanding (including a
permanent reduction of commitments in respect thereof) or (B) the permanent
reduction and repayment of any Indebtedness of any Restricted Subsidiary of
the Company then outstanding (including a permanent reduction of commitments
in respect thereof). The 361st day after such Asset Disposition shall be
deemed to be the "Asset Sale Offer Trigger Date," and the amount of Net
Available Proceeds from Asset Dispositions otherwise subject to the preceding
provisions not so applied or as to which the Company has determined not to so
apply shall be referred to as the "Unutilized Net Available Proceeds." Within
fifteen days after the Asset Sale Offer Trigger Date, the Company shall make
an Offer to Purchase the outstanding applicable issue of Notes at a purchase
price in cash equal to 100% of their principal amount plus any accrued and
unpaid interest thereon to the Purchase Date. Notwithstanding the foregoing,
the Company may defer making any Offer to Purchase outstanding Notes until
there are aggregate Unutilized Net Available Proceeds equal to or in excess of
$25.0 million (at which time, the entire Unutilized Net Available Proceeds,
and not just the amount in excess of $25.0 million, shall be applied as
required pursuant to this paragraph). Pending application of the Unutilized
Net Available Proceeds pursuant to this covenant, such Unutilized Net
Available Proceeds shall be invested in Permitted Investments of the types
described in clauses (i), (ii) and (iii) of the definition of "Permitted
Investments."
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If any Indebtedness of the Company or any of its Restricted Subsidiaries
ranking pari passu with the Senior Notes or the Senior Subordinated Notes , as
the case may be, requires that prepayment of, or an offer to prepay, such
Indebtedness be made with any Net Available Proceeds, the Company may apply
such Net Available Proceeds pro rata (based on the aggregate principal amount
of the Senior Notes or the Senior Subordinated Notes, as the case may be, then
outstanding and the aggregate principal amount (or accreted value, if less) of
all such other Indebtedness then outstanding) to the making of an Offer to
Purchase the Senior Notes and the Senior Subordinated Notes in accordance with
the foregoing provisions and the prepayment or the offer to prepay such pari
passu Indebtedness. Any remaining Net Available Proceeds following the
completion of the required Offer to Purchase may be used by the Company for
any other purpose (subject to the other provisions of the Indentures) and the
amount of Net Available Proceeds then required to be otherwise applied in
accordance with this covenant shall be reset to zero, subject to any
subsequent Asset Disposition. These provisions will not apply to a transaction
consummated in compliance with the provisions of the Indentures described
under "--Merger, Consolidation, Etc." below.
Notwithstanding the foregoing, the provisions of this covenant shall not
apply to any Sale/Leaseback Transaction with respect to the purchase of
tooling and related manufacturing equipment in the ordinary course of business
consistent with past practices.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act and any violation of the provisions of the Indentures
relating to such Offer to Purchase occurring as a result of such compliance
shall not be deemed an Event of Default or an event that with the passing of
time or giving of notice, or both, would constitute an Event of Default.
The subordination provisions relating to the Senior Subordinated Notes and
the "Limitation on Restricted Payments" covenant in the Senior Note Indenture
will prohibit the Company from repurchasing any tendered Senior Subordinated
Notes upon an Asset Disposition unless and until all of the tendered Senior
Notes are first repurchased. In addition, the Company's ability to repurchase
Senior Notes and Senior Subordinated Notes may be limited by other then-
existing borrowing agreements of the Company and its Restricted Subsidiaries.
There can be no assurance that the Company will be able to obtain such a
consent or a waiver of such limitations. See "--Subordination of Senior
Subordination Notes; Ranking" and "--Certain Covenants--Relating to all
Notes--Limitation on Restricted Payments".
After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (i) the Company
or such Restricted Subsidiary would be entitled to (A) incur Indebtedness in
an amount equal to the Attributable Indebtedness with respect to such
Sale/Leaseback Transaction pursuant to clause (i) of "--Limitation on
Incurrence of Indebtedness" and (B) create a Lien on such property securing
such Attributable Indebtedness without securing the Senior Notes pursuant to
"--Relating Only to the Senior Notes--Limitation on Liens" and the Senior
Subordinated Notes pursuant to "--Relating Only to the Senior Subordinated
Notes --Limitation on Liens," (ii) the net proceeds received by the Company or
any Restricted Subsidiary in connection with such Sale/Leaseback Transaction
are at least equal to the fair value (as determined by the Board of Directors)
of such property and (iii) the Company applies the proceeds of such
transaction in compliance with "--Limitation on Certain Asset Dispositions."
Notwithstanding the foregoing, the provisions of this covenant shall not
prohibit the Company or any Restricted Subsidiary from entering into any
Sale/Leaseback Transaction with respect to the purchase of tooling and related
manufacturing equipment in the ordinary course of business consistent with
past practices.
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After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The
Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or suffer to exist or allow to
become effective any consensual encumbrance or restriction of any kind on the
ability of any such Restricted Subsidiary to (i) pay dividends, in cash or
otherwise, or make other payments or distributions on its Capital Stock or any
other equity interest or participation in, or measured by, its profits, owned
by the Company or by any Restricted Subsidiary of the Company, or make
payments on any Indebtedness owed to the Company or to any Restricted
Subsidiary of the Company; (ii) make loans or advances to the Company or to
any Restricted Subsidiary of the Company; or (iii) transfer any of their
respective property or assets to the Company or to any Restricted Subsidiary
of the Company, except for such encumbrances or restrictions existing under or
by reason of (A) applicable law or regulations; (B) customary provisions
restricting subletting or assignment of any lease governing a leasehold
interest of any Restricted Subsidiary of the Company; (C) Indebtedness or any
other contractual requirements (including pursuant to any corporate governance
documents in the nature of a charter or by-laws) of a Securitization
Subsidiary arising in connection with a Qualified Securitization Transaction,
provided, that any such encumbrances and restrictions apply only to such
Securitization Subsidiary; (D) any agreement in effect on the Issue Date as
any such agreement is in effect on such date; (E) any agreement relating to
any Indebtedness incurred by such Restricted Subsidiary prior to the date on
which such Restricted Subsidiary became a Subsidiary of the Company and
outstanding on such date and not incurred in anticipation or contemplation of
becoming a Subsidiary of the Company, provided, such encumbrance or
restriction shall not apply to any assets of the Company or its Restricted
Subsidiaries other than such Restricted Subsidiary; and (F) the Indentures.
After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not cause or permit any of its Restricted Subsidiaries to (a) sell, lease,
transfer or otherwise dispose of any of its property or assets to, (b)
purchase any property or assets from, (c) make any Investment in, or (d) enter
into or amend or extend any contract, agreement or understanding with or for
the benefit of, any Affiliate of the Company or of any Subsidiary (an
"Affiliate Transaction"), other than Affiliate Transactions that are on terms
that are fair and reasonable to the Company or such Restricted Subsidiary of
the Company and that are no less favorable to the Company or such Restricted
Subsidiary of the Company than those that could be obtained in a comparable
arm's length transaction by the Company or such Restricted Subsidiary of the
Company from an unaffiliated party; provided, that if the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction or
series of Affiliate Transactions involving or having an aggregate value of
more than $20.0 million, a majority of the disinterested members of the Board
of Directors of the Company or a committee thereof shall, prior to the
consummation of such Affiliate Transaction, have determined (as evidenced by a
resolution thereof) that such Affiliate Transaction meets the foregoing
standard. The foregoing restrictions shall not apply to (a) any transaction
between Restricted Subsidiaries of the Company, or between the Company and any
Restricted Subsidiary of the Company if such transaction is not otherwise
prohibited by the terms of the Indentures, (b) transactions entered into
pursuant to the terms of the Master Intercompany Agreement and the Tax
Allocation Agreement, (c) transactions entered into in the ordinary course of
business, (d) Qualified Securitization Transactions, (e) reasonable fees and
compensation paid to and advances of expenses to and indemnity provided on
behalf of officers, directors, employees or consultants of the Company or any
Subsidiary as determined in good faith by the Company's Board of Directors or
senior management; (f) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant
to any
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amendment thereto) or in any replacement agreement thereto so long as any such
management or replacement agreement is not more disadvantageous to the Holders
in any material respect than the original agreement as in effect on the Issue
Date; (g) Restricted Payments permitted by the Indenture; (h) loans or
advances to employees or consultants in the ordinary course of business and
consistent with past practices in an aggregate amount outstanding at any time
not to exceed $10.0 million; (i) joint venture partners or purchasers or
sellers of goods or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of the Indenture which are fair to the
Company or its Restricted Subsidiaries, in the reasonable determination of the
senior management of the Company, or are on terms at least as favorable as
might reasonably have been obtained at such time from an unaffiliated party;
and (j) any employment or compensation arrangement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business that
is not otherwise prohibited by the Indenture.
After the Senior Notes have been assigned an Investment Grade rating by both
Rating Agencies, and notwithstanding that the Senior Notes may later cease to
have an Investment Grade rating, the Company will not be subject to the
provisions of this covenant with respect to the Senior Note Indenture;
provided, that no Default has occurred and is continuing at the time the
Senior Notes have been assigned such rating.
LIMITATION ON GUARANTEES BY RESTRICTED SUBSIDIARIES. The Company shall not
cause or permit any of its Restricted Subsidiaries, directly or indirectly, to
guarantee the payment of any Indebtedness of the Company unless such
Restricted Subsidiary of the Company simultaneously executes and delivers a
supplemental indenture to each of the Indentures providing for the guarantee
of payment of the Senior Notes and the Senior Subordinated Notes (each a
"Subsidiary Guarantee") by such Restricted Subsidiary of the Company (a
"Subsidiary Guarantor"); provided, any guarantee by a Subsidiary Guarantor of
such other Indebtedness (A) (1) (X) is unsecured or (Y) is secured and (I) in
the case of any such guarantee of Senior Indebtedness of the Company, the
Subsidiary Guarantee with respect to the Senior Subordinated Note Indenture is
secured equally and ratably with any Liens securing such guarantee, subject to
the provisions set forth under "--Subordination of the Senior Subordinated
Notes; Ranking" above, (II) in the case of any such guarantee of Indebtedness
of the Company ranking pari passu with the Senior Notes or the Senior
Subordinated Notes, as the case may be, the relevant Subsidiary Guarantees are
secured equally and ratably with any Liens securing such guarantee and (III)
in the case of any such guarantee of Indebtedness of the Company subordinated
to the Senior Notes or the Senior Subordinated Notes, as the case may be, the
relevant Subsidiary Guarantees are secured on a basis ranking prior to the
Liens securing such guarantee and (2) (X) in the case of any such guarantee of
Indebtedness of the Company subordinated or junior to the Senior Notes or the
Senior Subordinated Notes, as the case may be (whether pursuant to its terms
or by operation of law), such guarantee is subordinated pursuant to a written
agreement to the relevant Subsidiary Guarantees at least to the same extent
and in the same manner as such other Indebtedness is subordinated to the
Senior Notes or the Senior Subordinated Notes, as the case may be, or (Y) (I)
in the case of any such guarantee of Senior Indebtedness of the Company
incurred in accordance with the Senior Subordinated Note Indenture, the
relevant Subsidiary Guarantee with respect to the Senior Subordinated Note
Indenture is subordinated to Guarantor Senior Indebtedness of such Subsidiary
Guarantor to the same extent and in the same manner as the Senior Subordinated
Notes are subordinated to Senior Indebtedness of the Company or (II) the
relevant Subsidiary Guarantees are not subordinated or junior to any
Indebtedness of such Subsidiary Guarantor; and (B) such Subsidiary Guarantor
waives, and agrees it will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Subsidiary of the Company
as a result of any payment by it under such Subsidiary Guarantees.
Notwithstanding the foregoing, any Subsidiary Guarantee shall provide by its
terms that it shall be automatically and unconditionally released and
discharged upon either (A) the unconditional release or discharge of such
Subsidiary Guarantor's guarantees of all other Indebtedness of the Company
(other than a release resulting from payment under such Subsidiary Guarantor's
guarantees) or (B) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all (but not less than all) of the Capital Stock
of such Subsidiary Guarantor, or all or substantially all of the assets of
such Subsidiary Guarantor, pursuant to a transaction which is in compliance
with all of the terms of the relevant Indenture.
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CHANGE OF CONTROL. Upon the occurrence of a Change of Control (the date of
each such occurrence being the "Change of Control Date"), the Company will
notify the Holders in writing of such occurrence and will commence an Offer to
Purchase (the "Change of Control Offer") all Senior Notes and Senior
Subordinated Notes then outstanding, in each case, at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the Purchase Date. Notice of a Change of Control will be mailed by the
Company to the Holders not more than 30 days after any Change of Control Date.
None of the provisions relating to a purchase upon a Change of Control are
waivable by the Board of Directors of the Company. The Company could, in the
future, enter into certain transactions, including certain recapitalizations
of the Company, that would not constitute a Change of Control with respect to
the Change of Control purchase feature of the Senior Notes and Senior
Subordinated Notes, but would increase the amount of Indebtedness outstanding
at such time. If a Change of Control were to occur, there can be no assurance
that the Company would have sufficient funds to pay the redemption price for
all Notes that the Company is required to redeem. In the event that the
Company were required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Company expects that it would need to seek third-party
financing to the extent it does not have available funds to meet its purchase
obligations. However, there can be no assurance that the Company would be able
to obtain such financing.
With respect to the disposition of property or assets, the phrase "all or
substantially all" as used in the Indentures (including as set forth under "--
Merger, Consolidation, Etc." below) varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which governs the Indentures) and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the property or assets of a
Person and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Holders are subject to a Change of Control Offer.
The subordination provisions relating to the Senior Subordinated Notes and
the "Limitation on Restricted Payments" covenant in the Senior Note Indenture
will prohibit the Company from repurchasing any tendered Senior Subordinated
Notes upon a Change of Control unless and until all of the tendered Senior
Notes are first repurchased. In addition, the Company's ability to repurchase
Senior Notes and Senior Subordinated Notes may be limited by other then-
existing borrowing agreements of the Company and its Subsidiaries. There can
be no assurance that the Company will be able to obtain such a consent or a
waiver of such limitations. See "--Subordination of Senior Subordination
Notes; Ranking" and "--Certain Covenants--Relating to all Notes--Limitation on
Restricted Payments".
If an offer is made to redeem Senior Notes and Senior Subordinated Notes as
a result of a Change of Control, the Company will comply with all tender offer
rules under state and Federal securities laws, including, but not limited to,
Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent
applicable to such offer.
The Change of Control redemption feature of the Senior Notes and the Senior
Subordinated Notes may in certain circumstances make more difficult or
discourage a takeover of the Company and, thus, the removal of incumbent
management.
REPORTS. So long as any Note is outstanding, the Company will file with the
Commission and, within 15 days after it files them with the Commission, file
with the Trustees and mail or cause the Trustees to mail to the Holders at
their addresses as set forth in the registers of the Notes, copies of the
annual reports and of the information, documents and other reports which the
Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act or which the Company would be required to file with
the Commission if the Company then had a class of securities registered under
the Exchange Act. In addition, the Company shall cause its annual report to
stockholders and any quarterly or other financial reports furnished to its
stockholders generally to be filed with the Trustees and mailed, no later than
the date such materials are mailed or made available to the Company's
stockholders, to the Holders at their addresses as set forth in the registers
of Notes.
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MERGER, CONSOLIDATION, ETC. The Company will not, in a single transaction or
series of related transactions, consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of (and the Company will
not cause or permit any of its Restricted Subsidiaries to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of
the Company's and its Restricted Subsidiaries' assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries) to any
Person or adopt a Plan of Liquidation unless: (i) either (1) the Company shall
be the surviving or continuing corporation or (2) the Person (if other than
the Company) formed by such consolidation or into which the Company is merged
or the Person which acquires by conveyance, transfer or lease the properties
and assets of the Company and its Restricted Subsidiaries substantially as an
entirety or in the case of a Plan of Liquidation, or Person to which assets of
the Company and its Restricted Subsidiaries have been transferred (x) shall be
a corporation, limited liability company or partnership organized and validly
existing under the laws of the United States or any State thereof or the
District of Columbia and (y) shall expressly assume, by supplemental indenture
(in form and substance satisfactory to each Trustee), executed and delivered
to each Trustee, the due and punctual payment of the principal of, and
premium, if any, and interest on all of the Notes and the performance of every
covenant of the Notes and the Indentures on the part of the Company to be
performed or observed; (ii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction), the Company (in the case of clause (1) of the foregoing
clause (i)) or such Person (in the case of clause (2) thereof) could incur at
least $1.00 of additional Indebtedness pursuant to clause (i) of "--Limitation
on Incurrence of Indebtedness"; (iii) immediately before and after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in respect of the
transaction) no Default and no Event of Default shall have occurred or be
continuing (subject, in the case of the Senior Notes, to the applicability of
the covenant described under "Certain Covenants--Relating Only to the Senior
Notes--Application of Fall Away Covenants"); and (iv) the Company or such
Person shall have delivered to the Trustees (A) an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease or Plan of Liquidation and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with this provision of the applicable Indenture and that all
conditions precedent in the applicable Indenture relating to such transaction
have been satisfied and (B) a certificate from the Company's independent
certified public accountants stating that the Company has made the
calculations required by clause (ii) above in accordance with the terms of the
applicable Indenture. Notwithstanding the foregoing, (x) a Restricted
Subsidiary of the Company may consolidate with, or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, the Company or another Restricted
Subsidiary of the Company without complying with clause (ii) of the above, (y)
a series of transactions involving the sale of Receivables or interests
therein by a Securitization Subsidiary in connection with a Qualified
Securitization Transaction shall not be deemed to be the sale of all or
substantially all of the Company's assets to the extent such transactions are
consummated in the ordinary course of business and (z) the provisions of
clause (i) above shall not prohibit the Company or any Restricted Subsidiary
from selling, assigning, transferring, leasing, conveying or otherwise
disposing of all or substantially all of its assets to a Permitted Joint
Venture in a transaction entered into in compliance with "Certain Covenants--
Relating to All the Notes--Limitation on Restricted Payments."
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indentures with the
same effect as if such successor had been named as the
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Company therein, and thereafter (except in the case of a sale, assignment,
transfer, lease, conveyance or other disposition) the predecessor corporation
will be relieved of all further obligations and covenants under the Indentures
and the Notes.
EVENTS OF DEFAULT
The following are Events of Default under the Indentures:
(a) default in the payment of principal of, or premium, if any, on any
Senior Note or Senior Subordinated Note, as the case may be, when due at
maturity, upon repurchase, upon acceleration or otherwise, including,
without limitation, failure of the Company to repurchase any Senior Note or
Senior Subordinated Note, as the case may be, on the date required
following a Change of Control (whether or not, in the case of the Senior
Subordinated Notes, any such payment is prohibited by the provisions
described under "--Subordination of Senior Subordinated Notes; Ranking"
above); or
(b) default in the payment of any installment of interest on any Senior
Note or Senior Subordinated Note, as the case may be, when due and
continuance of such Default for 30 days or more (whether or not, in the
case of the Senior Subordinated Notes, such payment is prohibited by the
provisions described under "--Subordination of Senior Subordinated Notes;
Ranking" above); or
(c) failure to observe, perform or comply with any of the provisions
described under "Certain Covenants--Relating to all Notes--Merger,
Consolidation, Etc." above; or
(d) default (other than a default set forth in clauses (a), (b) and (c)
above) in the performance of, or breach of, any other covenant or warranty
of the Company or of any Restricted Subsidiary in the Senior Note Indenture
or the Senior Subordinated Note Indenture, as the case may be, or in the
Notes and failure to remedy such default or breach within a period of 30
days after written notice from the relevant Trustee or the Holders of at
least 25% in aggregate principal amount of the then outstanding Senior
Notes or Senior Subordinated Notes, as the case may be; or
(e) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Subsidiary of the
Company (or the payment of which is guaranteed by the Company or any
Restricted Subsidiary of the Company), which default results in the
acceleration of such Indebtedness prior to its express maturity and the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness the maturity of which has been so
accelerated, aggregates $20.0 million or more and such acceleration has not
been rescinded or annulled or such Indebtedness discharged in full within
30 days; or
(f) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Company or any Subsidiary of the
Company or any of their respective property or assets in an aggregate
amount in excess of $20.0 million, which judgments, orders or decrees have
not been vacated, discharged, satisfied or stayed pending appeal within 30
days from the entry thereof and with respect to which legal enforcement
proceedings have been commenced; or
(g) certain events of bankruptcy, insolvency or reorganization involving
the Company or any Material Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(g) above involving the Company) occurs and is continuing, then and in every
such case the Senior Note Trustee or the Senior Subordinated Note Trustee or
the Holders of not less than 25% in aggregate principal amount of the then
outstanding Senior Notes or Senior Subordinated Notes may, and the relevant
Trustee shall upon the request of Holders of not less than 25% in aggregate
principal amount of the Senior Notes or Senior Subordinated Notes then
outstanding, declare the unpaid principal of, premium, if any, and accrued and
unpaid interest on all the Senior Notes or Senior Subordinated Notes, as the
case may be, then outstanding to be due and payable, by a notice in writing to
the Company (and to the relevant Trustee, if given by Holders) and upon such
declaration such principal amount, premium, if any, and accrued and unpaid
interest will become immediately due and payable, notwithstanding
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anything contained in the relevant Indenture or the Notes to the contrary, but
subject to the provisions limiting payment described in "--Subordination of
Senior Subordinated Notes; Ranking" above. If an Event of Default specified in
clause (g) above involving the Company occurs, all unpaid principal of, and
premium, if any, and accrued and unpaid interest on the Senior Notes and the
Senior Subordinated Notes then outstanding will ipso facto become due and
payable, subject to the prior payment in full of all Senior Indebtedness of
the Company, without any declaration or other act on the part of any Trustee
or any Holder.
No Holder of any Note may enforce either Indenture or the Notes except as
provided in the relevant Indenture. Subject to the provisions of the relevant
Indenture relating to the duties of the Trustee, with respect to each such
Indenture the Trustee is under no obligation to exercise any of its rights or
powers under such Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to such Trustee reasonable
indemnity. Subject to all provisions of the Indentures and applicable law, the
Holders of a majority in aggregate principal amount of the then outstanding
Senior Notes and Senior Subordinated Notes, as the case may be, have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the relevant Trustee or exercising any trust or power
conferred on the relevant Trustee. The Trustee may withhold from the relevant
Holders notice of any continuing Default or Event of Default (except a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Senior Notes or Senior Subordinated Notes, as the case may be,
or that resulted from the failure of the Company to comply with the provisions
of "--Certain Covenants--Relating to all Notes--Change of Control" or "--
Merger, Consolidation, Etc." above) if it determines that withholding notice
is in their interest. The Holders of a majority in aggregate principal amount
of the Senior Notes then outstanding by notice to the Senior Note Trustee may
rescind an acceleration of such Senior Notes and its consequences if all
existing Events of Default (other than the nonpayment of principal of and
premium, if any, and interest on the Senior Notes which has become due solely
by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree. The Holders of a
majority in aggregate principal amount of the Senior Subordinated Notes then
outstanding by notice to the Senior Subordinated Note Indenture Trustee may
rescind an acceleration of such Senior Subordinated Notes and its consequences
if all existing Events of Default (other than the non-payment of principal of
and premium, if any, and interest on the Senior Subordinated Notes which has
become due solely by virtue of such acceleration) have been cured or waived
and if the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may, on behalf of the Holders of all the Senior Notes, waive
any past Default or Event of Default under the Senior Note Indenture and its
consequences, except a Default in the payment of principal of or premium, if
any, or interest on the Senior Notes or in respect of a covenant or provision
of the Senior Note Indenture which cannot be modified or amended without the
consent of all Holders. The Holders of a majority in aggregate principal
amount of the Senior Subordinated Notes then outstanding may on behalf of the
Holders of all the Senior Subordinated Notes, waive any past Default or Event
of Default under the Senior Subordinated Note Indenture and its consequences,
except a Default in the payment of principal of or premium, if any, or
interest on, the Senior Subordinated Notes or in respect of a covenant or
provision of the Senior Subordinated Note Indenture which cannot be modified
or amended without the consent of all Holders.
Under each Indenture, two executive officers of the Company are required to
provide a certificate to the relevant Trustee promptly upon any such officer
obtaining knowledge of any Default or Event of Default (provided that such
officers shall provide such certification at least annually whether or not
they know of any Default or Event of Default) that has occurred and, if
applicable, describe such Default or Event of Default and the status thereof.
AMENDMENT, SUPPLEMENT AND WAIVER
From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the relevant Trustee, may, without the consent of the
Holders, amend, waive or supplement either Indenture and the Notes
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issued thereunder for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the relevant Indenture under the TIA, or
making any change that does not adversely affect the rights of any Holder;
provided that the Company has delivered to the relevant Trustee an opinion of
counsel stating that such change does not adversely affect the rights of any
Holder. Other amendments and modifications of an Indenture and the Notes
issued thereunder may be made by the Company, and the relevant Trustee with
the consent of the Holders of not less than a majority of the aggregate
principal amount of the Notes issued under such Indenture then outstanding;
provided that no such amendment or modification may, without the consent of
the Holder of each outstanding Senior Note or Senior Subordinated Note, as the
case may be, affected thereby: (a) change the maturity of the principal of or
any installment of interest on any such Senior Note or Senior Subordinated
Note or alter the optional redemption or repurchase provisions of any such
Senior Note or Senior Subordinated Note or such Indenture in a manner adverse
to the Holders of such Senior Notes or Senior Subordinated Notes, as the case
may be, (b) reduce the principal amount of (or the premium) of any such Senior
Note or Senior Subordinated Note, as the case may be, (c) reduce the rate of
or extend the time for payment of interest on any such Senior Note or Senior
Subordinated Note, as the case may be, (d) change the place or currency of
payment of principal of (or premium) or interest on any such Senior Note or
Senior Subordinated Note, as the case may be, (e) modify any provisions of
such Indenture relating to the waiver of past defaults (other than to add
sections of such Indenture or such Senior Notes or Senior Subordinated Notes
subject thereto or the right of the Holders of Senior Notes and the Senior
Subordinated Notes, as the case may be, outstanding thereunder to institute
suit for the enforcement of any payment on or with respect to any such Senior
Note or Senior Subordinated Note or the modification and amendment of such
Indenture and such Senior Notes or Senior Subordinated Notes (other than to
add sections of such Indenture or such Notes which may not be amended,
supplemented or waived without the consent of each Holder herein affected),
(f) reduce the percentage of the principal amount of outstanding Senior Notes
and Senior Subordinated Notes, as the case may be, necessary for amendment to
or waiver of compliance with any provision of the applicable Indenture or the
Senior Notes and Senior Subordinated Notes, as the case may be, outstanding
thereunder or for waiver of any Default in respect thereof, (g) waive a
default in the payment of principal of, interest on, or redemption payment
with respect to, such Senior Note or Senior Subordinated Note (except a
rescission of acceleration of the relevant Notes by the Holders thereof as
provided in such Indenture and a waiver of the payment default that resulted
from such acceleration), (h) in the case of the Senior Subordinated Note
Indenture, modify the ranking or priority of the Senior Subordinated Notes or
modify the definition of Senior Indebtedness or amend or modify the
subordination provisions of the Senior Subordinated Note Indenture in any
manner adverse to the Holders of Senior Subordinated Notes, (i) in the case of
the Senior Note Indenture, modify the ranking or priority of the Senior Notes,
or (j) modify the provisions relating to any Offer to Purchase required under
the covenants described under "--Certain Covenants--Relating to all the
Notes--Limitation on Certain Asset Dispositions" or "--Certain Covenants--
Relating to all the Notes--Change of Control" in a manner materially adverse
to the Holders of Senior Notes and Senior Subordinated Notes affected thereby.
No amendment or modification of the Senior Subordinated Indenture or the
Senior Subordinated Notes may adversely affect the rights of the holders of
Senior Indebtedness of the Company unless the holders of such Senior
Indebtedness consent to such amendment or modification.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to either the Senior Notes or the Senior Subordinated
Notes ("defeasance"). Such defeasance means that the Company shall be deemed
to have paid and discharged the entire Indebtedness represented by the
outstanding Notes so defeased, except for (i) the rights of holders of
outstanding Notes to receive payment in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations to issue temporary Notes, register the transfer or
exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and
maintain an office or agency for payments in respect of the Notes, (iii) the
rights, powers, trusts, duties and immunities of the relevant Trustee, and
(iv) the defeasance provisions of the relevant Indenture. In addition, the
Company may, at its option and at any time, elect to terminate its obligations
with respect to
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certain covenants that are set forth in the Indentures, some of which are
described under "--Certain Covenants" above, and any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Notes so defeased ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the relevant Trustee, in trust, for the
benefit of the holders of the Notes to be defeased, cash in United States
dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Notes to be defeased to redemption or
maturity; (ii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that the holders of the outstanding Notes to be defeased
will not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if the act of such defeasance or covenant
defeasance had not occurred (in the case of defeasance, such opinion must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable Federal income tax laws); (iii) no Default or Event of
Default under the relevant Indenture shall have occurred and be continuing
immediately after giving effect to such deposit; (iv) such defeasance or
covenant defeasance shall not cause the relevant Trustee to have a conflicting
interest with respect to any securities of the Company; (v) such defeasance or
covenant defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument to which the
Company is a party or by which it is bound; (vi) the Company shall have
delivered to the relevant Trustee an opinion of counsel to the effect that (A)
in the case of the Senior Subordinated Notes, the trust funds will not be
subject to any rights of holders of Senior Indebtedness of the Company,
including, without limitation, those arising under the Senior Subordinated
Indenture and (B) after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and
(vii) the Company shall have delivered to the relevant Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent under the relevant Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with. Notwithstanding the
foregoing, the Opinion of Counsel required by clause (ii) above need not be
delivered if at such time all outstanding Senior Notes or Senior Subordinated
Notes, as the case may be, have been irrevocably called for redemption.
SATISFACTION AND DISCHARGE
An Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes issued thereunder, as expressly provided for in such Indenture) as to
all outstanding Notes issued thereunder when (i) either (a) all the Notes
issued thereunder theretofore authenticated and delivered (except lost, stolen
or destroyed Notes issued thereunder which have been replaced or paid and
Notes issued thereunder for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust) have been delivered to the
relevant Trustee for cancellation or (b) all Notes issued thereunder not
theretofore delivered to the relevant Trustee for cancellation have become due
and payable and the Company has irrevocably deposited or caused to be
deposited with the relevant Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Notes issued thereunder not
theretofore delivered to the relevant Trustee for cancellation, for principal
of, premium, if any, and interest on the Notes issued thereunder to the date
of deposit together with irrevocable instructions from the Company directing
the relevant Trustee to apply such funds to the payment thereof at maturity;
(ii) the Company has paid all other sums payable under such Indenture by the
Company; and (iii) the Company has delivered to the relevant Trustee an
officers' certificate and an opinion of counsel stating that all conditions
precedent under such Indenture relating to the satisfaction and discharge of
such Indenture have been complied with.
GOVERNING LAW
The Indentures and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect
to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
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THE TRUSTEES
The Indentures will provide that, except during the continuance of an Event
of Default, the Trustees will perform only such duties as are specifically set
forth in the Indentures. During the existence of an Event of Default, the
relevant Trustee will exercise such rights and powers vested in it by such
Indenture, and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
The Indentures and the provisions of the TIA contain certain limitations on
the rights of the Trustees, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustees will be permitted to engage in other transactions, provided
that if any Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form without interest coupons.
The Global Notes
Each of the Senior Exchange Notes and the Senior Subordinated Exchange Notes
issued in the Exchange Offer will initially be represented by a single,
permanent global Note in definitive, fully registered form without interest
coupons (the "Global Notes"). Upon the issuance of the Global Notes, the
Depositary or its custodian will credit, on its internal system, the
respective principal amount of the individual beneficial interests represented
by such Global Note to the accounts of persons who have accounts with such
Depositary. Ownership of beneficial interests in a Global Note will be limited
to persons who have accounts with the Depositary ("participants") or persons
who hold interests through participants. Ownership of beneficial interests in
a Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary or its nominee
(with respect to interests of participants) and the records of participants
(with respect to interests of persons other than participants).
So long as the Depositary, or its nominee, is the registered holder of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Note for all purposes under the Indenture and the Notes. No beneficial owner
of an interest in a Global Note will be able to transfer that interest except
in accordance with the procedures provided for under the Depositary's
applicable procedures.
Payments of the principal of, and interest on, the Global Notes will be made
to the Depositary or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such,
beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depositary or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the name of nominees for such
customers. Such payments will he the responsibility of such participants.
Transfers between participants in the Depositary will be effected in the
ordinary way in accordance with the Depositary rules and will be settled in
same-day funds.
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The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
participants to whose accounts an interest in the Global Notes is credited and
only in respect of such portion of the aggregate principal amount of Notes as
to which such participant or participants has or have given such direction.
The Depositary has advised the Company as follows: The Depositary is a
limited purpose trust company organized under the laws of the State of New
York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the
Depositary system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
the Depositary it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Company nor the Trustee will have any responsibility for the performance
by the Depositary or its respective participants or indirect participants of
its respective obligations under the rules and procedures governing its
operations.
Certificated Notes
Global Notes may not be transferred as or exchanged for physical
certificates in registered form without coupons (the "Certificated Notes")
except (i) if the Depositary notifies the Company that it is unwilling or
unable to continue to act as depositary with respect to the Global Notes or
ceases to be a clearing agency registered under the Exchange Act and, in
either case, a successor depositary registered as a clearing agency under the
Exchange Act is not appointed by the Company within 120 days, (ii) at any time
if the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Certificated Notes or (iii) if
the owner of an interest in the Global Notes requests such Certificated Notes,
following an Event of Default under the Indenture, in a writing delivered
through the Depositary to the Trustee.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Restricted Subsidiaries existing at the time such other
Person merged with or into or became a Restricted Subsidiary of such specified
Person or assumed by the specified Person in connection with the acquisition
of assets from such other Person and not incurred by the specified Person in
connection with or in anticipation of (a) such other Person and its Restricted
Subsidiaries being merged with or into or becoming a Restricted Subsidiary of
such specified Person or (b) such acquisition by the specified Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct or cause the direction of management or policies of
the referent Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or sale-and-leaseback
transaction) of (i) shares of Capital Stock of a Restricted Subsidiary of the
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Company (other than directors' qualifying shares) or (ii) property or assets
of the Company or any of its Restricted Subsidiaries; provided, that an Asset
Disposition shall not include (a) any sale, transfer or other disposition of
shares of Capital Stock, property or assets by a Restricted Subsidiary of the
Company to the Company or to any Restricted Subsidiary of the Company, (b) any
sale, transfer or other disposition of defaulted receivables for collection or
any sale, transfer or other disposition of property or assets in the ordinary
course of business, (c) any isolated sale, transfer or other disposition that
does not (together with all related sales, transfers or dispositions) involve
aggregate consideration in excess of $5.0 million, (d) the grant in the
ordinary course of business of any license of patents, trademarks,
registrations therefor and other similar intellectual property, (e) the
granting of any Lien (or foreclosure thereon) securing Indebtedness to the
extent that such Lien is granted in compliance with "--Certain Covenants--
Relating Only to the Senior Subordinated Notes--Limitation on Liens" above, in
the case of the Senior Subordinated Note Indenture, or "--Certain Covenants--
Relating to the Senior Notes--Limitation on Liens" above, in the case of the
Senior Note Indenture, (f) any sale, transfer or other disposition
constituting a Permitted Investment or Restricted Payment permitted by "--
Certain Covenants--Relating to all the Notes--Limitation on Restricted
Payments" above, (g) any disposition of assets or property in the ordinary
course of business to the extent such property or assets are obsolete, worn-
out or no longer useful in the Company's or any of its Subsidiaries' business,
(h) the sale, lease, conveyance or disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "--Certain
Covenants--Relating to all the Notes--Merger, Consolidation, etc.", (i) sales
of accounts receivable, equipment and related assets (including contract
rights) of the type specified in the definition of "Qualified Securitization
Transaction" to a Securitization Subsidiary for the fair market value thereof,
including cash in an amount at least equal to 90% of the fair market value
thereof as determined in accordance with GAAP, and (j) transfers of accounts
receivable, equipment and related assets (including contract rights) of the
type specified in the definition of "Qualified Securitization Transaction" (or
a fractional undivided interest therein) by a Securitization Subsidiary in a
Qualified Securitization Transaction.
"Asset Sale Offer Trigger Date" has the meaning set forth in "--Certain
Covenants--Relating to all the Notes--Limitation on Certain Asset
Dispositions."
An "Associate" of, or a Person "associated" with, any Person, means (i) any
trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity and (ii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Senior Notes with respect to the Senior Note
Indenture and at the interest rate borne by the Senior Subordinated Notes with
respect to the Senior Subordinated Note Indenture, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term
of the lease included in such Sale/Leaseback Transaction (including any period
for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value payments,
by (ii) the sum of all such principal or liquidation value payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, including
each class of Common or Preferred Stock of such Person, whether outstanding on
the Issue Date or issued after the Issue Date, and any and all rights,
warrants or options exchangeable for or convertible into such capital stock.
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"Capitalized Lease Obligation" means obligations under a lease that are
required to be classified and accounted for as capital lease obligations under
GAAP and, for purposes of the Indenture, the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP. The Stated Maturity of such obligation
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without penalty.
"Change of Control" means the occurrence of one or more of the following
events: (i) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Exchange Act), other than employee or retiree benefit plans
or trusts sponsored or established by the Company or Transportation, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 35% or
more of the combined voting power of the Company's then outstanding Voting
Stock; (ii) the following individuals cease for any reason to constitute more
than two-thirds of the number of directors then serving on the Board of
Directors of the Company: individuals who, on the Issue Date, constitute the
Board of Directors and any new director (other than a director whose initial
assumption of the office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose appointment or
election by the Board of Directors or nomination for election by the Company's
stockholders was approved (A) by the vote of at least a majority of the
directors then still in office or whose appointment, election or nomination
was previously so approved or recommended or (B) with respect to directors
whose appointment of election to the Board of Directors was made by the
holders of the Company's nonconvertible junior preference stock, series A and
nonconvertible junior preference stock, series B, by the holders of such
preference stock; (iii) the shareholders of the Company shall approve any Plan
of Liquidation (whether or not otherwise in compliance with the provisions of
the Indentures); or (iv) the Company consolidates with or merges with or into
another Person, other than a merger or consolidation of the Company in which
the holders of the Common Stock of the Company outstanding immediately prior
to the consolidation or merger hold, directly or indirectly, at least a
majority of the Common Stock of the surviving corporation immediately after
such consolidation or merger; (v) the Company or any Restricted Subsidiary of
the Company, directly or indirectly, sells, assigns, conveys, transfers,
leases or otherwise disposes of, in one transaction or a series of related
transactions, all or substantially all of the property or assets of the
Company and the Restricted Subsidiaries of the Company (determined on a
consolidated basis) to any Person (other than a Permitted Joint Venture in a
transaction entered into in compliance with "Certain Covenants--Relating to
all the Notes--Limitation on Restricted Payments") ; provided, that neither
(x) the merger of a Restricted Subsidiary of the Company into the Company or
into any Restricted Subsidiary of the Company nor (y) a series of transactions
involving the sale of Receivables or interests therein in the ordinary course
of business by a Securitization Subsidiary in connection with a Qualified
Securitization Transaction, shall be deemed to be a Change of Control.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated Cash Flow Available For Fixed Charges" of any Person means for
any period the Consolidated Net Income of such Person for such period
increased (to the extent Consolidated Net Income for such period has been
reduced thereby) by the sum of (without duplication) (i) Consolidated Interest
Expense of such Person for such period, plus (ii) Consolidated Tax Expense of
such Person for such period, plus (iii) the consolidated depreciation and
amortization expense included in the income statement of such Person prepared
in accordance with GAAP for such period, plus (iv) any other non-cash charges
to the extent deducted from or
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reflected in Consolidated Net Income except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be made in any
future accounting period, minus (1) any non-cash items increasing Consolidated
Net Income for such period and (2) all cash payments during such period
relating to non-cash charges that were added back in determining Consolidated
Cash Flow Available For Fixed Charges in any prior period.
"Consolidated Cash Flow Ratio" of any Person means for any period the ratio
of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for
such period to (ii) Consolidated Fixed Charges for such period; provided,
however, that all incurrences and repayments of Indebtedness (including the
incurrence giving rise to such calculation and any repayments in connection
therewith) and all dispositions (including discontinued operations) or
acquisition of assets (other than in the ordinary course of business) made
during or after such period and on or prior to the date of determination shall
be given pro forma effect as if they occurred on the first day of such four-
quarter period. Calculations of pro forma amounts in accordance with this
definition shall be done in accordance with Article 11 of Regulation S-X under
the Securities Act or any successor provision.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period, taken as
a single accounting period, of (i) Consolidated Interest Expense; and (ii) the
product of (x) the amount of all dividend requirements (whether or not
declared) on Preferred Stock of such Person, whether in cash or otherwise
(except dividends payable in shares of Qualified Capital Stock) paid, accrued
or scheduled to be paid or accrued during such period times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current effective consolidated Federal, state, local and foreign tax rate
(expressed as a decimal number between 1 and 0) of such Person (as reflected
in the audited consolidated financial statements of such Person for the most
recently completed fiscal year). In calculating "Consolidated Fixed Charges"
for purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness
determined on a fluctuating basis as of the date of determination and which
will continue to be so determined thereafter shall be deemed to have accrued
at a fixed rate per annum equal to the rate of interest on such Indebtedness
in effect on the date of determination; (2) if interest on any Indebtedness
actually incurred on the date of determination may be optionally determined at
an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate or other rates, then the interest rate in
effect on the date of determination will be deemed to have been in effect
during the relevant four-quarter period reference; and (3) notwithstanding the
foregoing, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest swap
agreements, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, including (a) all
amortization of original issue discount; (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person during such period; (c) net cash costs under all
Interest Rate Protection Agreements (including amortization of fees); (d) all
capitalized interest; and (e) the interest portion of any deferred payment
obligations for such period.
"Consolidated Net Income" means, with respect to any Person for any period,
the consolidated net income (or deficit) of such Person and its Consolidated
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP; provided, that the net income of any other Person (other
than a Restricted Subsidiary) shall be included only to the extent of the
amount that has been actually received by the referent Person or a Restricted
Subsidiary of the referent Person in the form of cash dividends or other cash
distributions (other than payments in respect of debt obligations), and
provided, further, that there shall be excluded (i) the net income of any
Person acquired in a "pooling of interests" transaction accrued prior to the
date it became a Restricted Subsidiary of the referent Person or is merged
into or consolidated with the referent Person or any Restricted Subsidiary of
the referent Person; (ii) any restoration to income of any contingency
reserve, except to
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the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date; (iii) any gain or loss,
together with any related provisions for taxes, realized upon the sale or
other disposition (including, without limitation, dispositions pursuant to
sale-leaseback transactions) of any property or assets which are not sold or
otherwise disposed of in the ordinary course of business (provided that sales
of Receivables or interests therein pursuant to Qualified Securitization
Transactions shall be deemed to be in the ordinary course of business) and
upon the sale or other disposition of any Capital Stock of any Subsidiary of
the referent Person, (iv) any extraordinary gain or extraordinary loss
together with any related provision for taxes and any one time gains or losses
(including, without limitation, those related to the adoption of new
accounting standards) realized by the referent Person or any of its Restricted
Subsidiaries during the period for which such determination is made; (v)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued); (vi) in the case of a successor
to the referent Person by consolidation or merger or as a transferee of the
referent Person's assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets; and (vii) the net income of
any Restricted Subsidiary of such Person which is subject to restrictions
which prevent or limit the payment of dividends or the making of distributions
to such Person to the extent of such restrictions (regardless of any waiver
thereof).
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount, determined in accordance with GAAP, by which the assets of
such Person and of its Restricted Subsidiaries on a consolidated basis exceed
the sum of (a) the total liabilities of such Person and of its Restricted
Subsidiaries on a consolidated basis, plus (b) any redeemable Preferred Stock
of such Person.
"Consolidated Subsidiary" of any Person means a Restricted Subsidiary which
for financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated Subsidiary.
"Consolidated Tax Expense" means, with respect to any Person for any period,
the aggregate of the U.S. Federal, state and local tax expense attributable to
taxes based on income and foreign income tax expenses of such Person and its
Consolidated Subsidiaries for such period (net of any income tax benefit),
determined in accordance with GAAP other than taxes (either positive or
negative) attributable to extraordinary or unusual gains or losses or taxes
attributable to sales or dispositions of assets.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Restricted Subsidiaries is
a party or a beneficiary on the date of the Indenture or becomes a party or a
beneficiary thereafter.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default (as defined in the Indenture).
"Designated Senior Indebtedness" means (i) so long as any Indebtedness under
the Senior Notes is outstanding, the Senior Notes, (ii) so long as any
Indebtedness under the Mexico Credit Agreement is outstanding, the guarantee
by the Company under the Mexico Credit Agreement and (iii) so long as
outstanding, any other Senior Indebtedness which has at the time of initial
issuance an aggregate outstanding principal amount in excess of $25.0 million
which has been so designated as Designated Senior Indebtedness by the Board of
Directors of the Company at the time of initial issuance in a resolution
delivered to the Trustee.
"Disqualified Capital Stock" means any Capital Stock that, other than solely
at the option of the issuer thereof, by its terms (or by the terms of any
security into which it is convertible or exchangeable) is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased, in whole or in part, prior to the first anniversary of the
Maturity Date or has, or upon the happening of an event or the passage of time
would have, a redemption or similar payment due on or prior to the first
anniversary of the Maturity Date, or is convertible into or exchangeable for
debt securities at the option of the holder thereof at any time prior to the
first anniversary of the Maturity Date.
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"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or
by agreement to keepwell, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part), provided that the term
"guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"Guarantor Senior Indebtedness" means any guarantee incurred by a Subsidiary
Guarantor of Senior Indebtedness (including, without limitation, the Senior
Notes) of the Company incurred in accordance with the Indentures, whether such
Indebtedness is outstanding on the Issue Date or thereafter; provided that
Guarantor Senior Indebtedness expressly shall not include: (i) any
Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue
Date or thereafter incurred that is, pursuant to its terms or the terms of any
agreement relating thereto, subordinated or junior to any other Indebtedness
of such Subsidiary Guarantor, (ii) any Indebtedness of such Subsidiary
Guarantor whether outstanding on the Issue Date or thereafter incurred that
is, by its terms or the terms of any agreement relating thereto, pari passu
with or subordinated or junior to such Subsidiary Guarantor's Subsidiary
Guarantee; (iii) the Subsidiary Guarantee of such Subsidiary Guarantor; (iv)
any Indebtedness or any other obligation of such Subsidiary Guarantor to any
of such Subsidiary Guarantor's Subsidiaries or to any of such Subsidiary
Guarantor's Affiliates, or to any joint venture in which such Subsidiary
Guarantor has an interest; (v) to the extent such may be deemed Indebtedness
of such Subsidiary Guarantor, any liability for Federal, state, local, foreign
or other taxes owed or owing by such Subsidiary Guarantor or by any of its
Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement);
(vi) to the extent such may be deemed Indebtedness of such Subsidiary
Guarantor, obligations of such Subsidiary Guarantor incurred in connection
with the purchase of goods, assets, materials or services in the ordinary
course of business or representing amounts recorded as accounts payable, trade
payables or other current liabilities of such Subsidiary Guarantor on the
books of such Subsidiary Guarantor (other than the current portion of any
long-term Indebtedness of such Subsidiary Guarantor that but for this clause
(vi) would constitute Guarantor Senior Indebtedness of such Subsidiary
Guarantor); (vii) to the extent such may be deemed Indebtedness of such
Subsidiary Guarantor, any amount owed by such Subsidiary Guarantor to
employees for services rendered to such Subsidiary Guarantor or to any of its
Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at
the time of incurrence was incurred in violation of the Senior Subordinated
Note Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred," "incurable" and "incurring"
shall have meanings correlative to the foregoing), provided that the accrual
of interest (whether such interest is payable in cash or in kind) and the
accretion of original issue discount shall not be deemed an incurrence of
Indebtedness, provided, further, that (A) any Indebtedness or Capital Stock of
a Person existing at the time such Person becomes (after the Issue Date) a
Restricted Subsidiary (whether by merger, consolidation, acquisition or
otherwise) of the Company shall be deemed to be incurred or issued, as the
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case may be, by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary of the Company and (B) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously incurred shall not be
deemed to be an incurrence of Indebtedness unless and then only to the extent
such amendment, modification or waiver increases the principal or premium
thereof or interest rate thereon (including by way of original issue
discount).
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (i) any liability, contingent or otherwise, of
such Person (A) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion thereof),
(B) evidenced by a note, bond, debenture or similar instrument or letters of
credit (including a purchase money obligation) or (C) for the payment of money
relating to a Capitalized Lease Obligation or other obligation (whether issued
or assumed) relating to the deferred purchase price of property, but excluding
trade accounts payable of such Person arising in the ordinary course of
business; (ii) all conditional sale obligations and all obligations under any
title retention agreement (even if the rights and remedies of the seller under
such agreement in the event of default are limited to repossession or sale of
such property), but excluding trade accounts payable of such Person arising in
the ordinary course of business; (iii) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction entered into in the ordinary course of business; (iv) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien (other than in connection with property subject to a Qualified
Securitization Transaction) on any asset or property (including, without
limitation, leasehold interests and any other tangible or intangible property)
of such Person, whether or not such Indebtedness is assumed by such Person or
is not otherwise such Person's legal liability; provided, that if the
obligations so secured have not been assumed by such Person or are otherwise
not such Person's legal liability, the amount of such Indebtedness for the
purposes of this definition shall be limited to the lesser of the amount of
such Indebtedness secured by such Lien or the fair market value of the assets
or property securing such Lien; (v) all Indebtedness of others (including all
dividends of other Persons the payment of which is) guaranteed, directly or
indirectly, by such Person or that is otherwise its legal liability or which
such Person has agreed to purchase or repurchase or in respect of which such
Person has agreed continently to supply or advance funds; (vi) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends if any; (vii) all
obligations under Currency Agreements and Interest Rate Protection Agreements
and (viii) all Attributable Indebtedness in respect of Sale/Leaseback
Transactions entered into by such person. For purposes hereof, the "maximum
fixed repurchase price" of any Disqualified Capital Stock which does not have
a fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value shall he determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock. The amount of
Indebtedness of any Person at any date shall be the outstanding balance
without duplication at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date, provided
that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the full amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in accordance with GAAP.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect a Person or any Restricted Subsidiary against
fluctuations in interest rates to or under which such Person or any Restricted
Subsidiary of such Person is a party or a beneficiary on the Issue Date or
becomes a party or a beneficiary thereafter.
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"Investment" by any Person means any direct or indirect (i) loan, advance or
other extension of credit (other than a guarantee) or capital contribution (by
means of transfers of cash or other property (valued at the fair market value
thereof as of the date of transfer) to others or payments for property or
services for the account or use of others, or otherwise other than in the
ordinary course of business); (ii) purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by any other Person (whether by merger, consolidation, amalgamation or
otherwise and whether or not purchased directly from the issuer of such
securities or evidences of Indebtedness); (iii) assumption of the Indebtedness
of any other Person; and (iv) all other items that would be classified as
investments (including, without limitation, purchases of assets outside the
ordinary course of business) on a balance sheet of such Person prepared in
accordance with GAAP. Investments shall exclude (a) transactions between the
Navistar Financial Corporation and Navistar International Transportation Corp.
pursuant to the Master Intercompany Agreement and (b) extensions of loans,
trade credit and advances to customers and suppliers to the extent made in the
ordinary course of business.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Certain Covenants--Relating to all Notes--Limitation on
Restricted Payments," (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
that if such designation is made in connection with the acquisition of such
Subsidiary or the assets owned by such Subsidiary, the "Investment" in such
Subsidiary shall be deemed to be the consideration paid in connection with
such acquisition; provided, further, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount
(if positive) equal to (x) the Company's "Investment" in such Subsidiary at
the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Investment Grade" means (i) with respect to S&P any of the rating
categories from and including AAA to and including BBB- and (ii) with respect
to Moody's any of the rating categories from and including Aaa to and
including Baa3.
"Issue Date" means the date on which the Old Notes are originally issued
under the Indentures.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting tide or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to
sell, in each case securing obligations of such Person and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statute or statutes) of any jurisdiction but excluding any such
filing or agreement which reflects ownership by a third party of (i) property
leased to the referent Person or any of its Restricted Subsidiaries under a
lease that is not in the nature of a conditional sale or title retention
agreement or (ii) accounts, general intangibles or chattel paper sold to the
referent Person).
"Master Intercompany Agreement" means the Master Intercompany Agreement
dated as of April 26, 1993 and as amended on September 30, 1996, between
Navistar Financial Corporation and Navistar International Transportation Corp.
as it may be amended, modified, supplemented or restated from time to time in
accordance with the terms of the Indenture.
"Material Subsidiary" means, at any date of determination, any Subsidiary of
the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 5% of the consolidated
revenues of the Company or (ii) as of the end of such fiscal year, was the
owner of more than 5% of the consolidated assets of the Company, all as set
forth on the most recently available consolidated financial statements of the
Company and its Consolidated Subsidiaries for such fiscal year prepared in
conformity with GAAP.
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"Maturity Date" means (i) with respect to the Senior Notes, February 1, 2003
and (ii) with respect to the Senior Subordinated Notes, February 1, 2008.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquirer of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the
monetization or other disposition of any non-cash consideration (including
notes or other securities) received in connection with such Asset Disposition,
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred (including, without limitation, fees and expenses
of accountants, brokers, printers and other similar entities) and all federal,
state, foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) all payments made by such Person
or its Restricted Subsidiaries on any Indebtedness which is secured by such
assets in accordance with the terms of any Lien upon or with respect to such
assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid
out of the proceeds from such Asset Disposition, (iii) all payments made with
respect to liabilities associated with the assets which are the subject of the
Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (iv) appropriate amounts to be provided by such Person or
any Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with GAAP against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such time as
such amounts are no longer reserved or such reserve is no longer necessary (at
which time any remaining amounts will become Net Available Proceeds to be
allocated in accordance with the provisions of clause (iii) of the covenant of
the Indentures described under "--Certain Covenants--Relating to all the
Notes--Limitation on Certain Asset Dispositions") and (v) all distributions
and other payments, made to minority interest holders, if any, in Restricted
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each Holder at its address appearing
in the register for the Senior Note, or the Senior Subordinated Notes, as the
case may be, on the date of the Offer, offering to purchase up to the
principal amount Senior Notes or the Senior Subordinated Notes, as the case
may be, in such Offer at the purchase price specified in such Offer (as
determined pursuant to the relevant Indenture). Unless otherwise required by
applicable law, the Offer shall specify an expiration date (the "Expiration
Date") of the Offer to Purchase which shall be not less than 30 days nor more
than 60 days after the date of such Offer and a settlement date (the "Purchase
Date") for purchase of such Notes within five Business Days after the
Expiration Date. The Company shall notify the relevant Trustee at least 15
Business Days (or such shorter period as is acceptable to such Trustee) prior
to the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by such Trustee in the name and at the expense of the Company. The
Offer shall contain all the information required by applicable law to be
included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender such Notes pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
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(5) that the Holder may tender all or any portion of the Notes registered
in the name of such Holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by the Holder thereof or his attorney duly authorized in
writing);
(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paving Agent) receives, not later
than the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note the
Holder tendered, the certificate number of the Note the Holder tendered and
a statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part,
the Company shall execute, and the Trustee shall authenticate and deliver
to the Holder of such Note without service charge, a new Note or Notes, of
any authorized denomination as requested by such Holder, in all aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note or Notes so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Permitted Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or any
governmental entity or agency or political subdivision thereof (provided, that
the good faith and credit of the United States of America is pledged in
support thereof), maturing within one year of the date of purchase; (ii)
Investments in commercial paper issued by corporations or financial
institutions maturing within 180 days from the date of the original issue
thereof, and rated "P-1" or better by Moody's or "A-1" or better by S&P or an
equivalent rating or better by any other nationally recognized securities
rating agency; (iii) Investments in certificates of deposit issued or
acceptances accepted by or guaranteed by any bank or trust company organized
under the laws of the United States of America or any state thereof or the
District of Columbia, in each case having capital, surplus and undivided
profits totaling more than $500,000,000, maturing within one year of the date
of purchase; (iv) deposits, including interest-bearing deposits, maintained in
the ordinary course of business in banks; (v) any acquisition of the Capital
Stock of any Person; provided, that after giving effect to any such
acquisition such Person shall become a Restricted Subsidiary of the Company;
(vi) trade receivables and prepaid expenses. in each case arising in the
ordinary course of business; provided, that such receivables and prepaid
expenses would be recorded as assets of such Person in accordance with GAAP;
(vii) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments of
such other Person received as payment for ordinary course of business trade
receivables; (viii) any interest swap or hedging obligation with an
unaffiliated Person otherwise permitted by the
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Indentures (including, without limitation, any Currency Agreement and any
Interest Rate Protection Agreement otherwise permitted by the Indentures);
(ix) Investments received as consideration for an Asset Disposition in
compliance with the provisions of the Indentures described under "--Certain
Covenants--Relating to all the Notes--Limitation on Certain Asset
Dispositions" above; (x) Investments for which the sole consideration provided
is Qualified Capital Stock of the Company; provided, that the issuance of such
Qualified Capital Stock is not included in the calculation set forth in clause
(3) of the first paragraph of "--Certain Covenants--Relating to all the
Notes--Limitation on Restricted Payments"; (xi) loans and advances to
employees made in the ordinary course of business in an aggregate amount not
to exceed $10.0 million at any one time outstanding; (xii) Investments
outstanding on the Issue Date; (xiii) Investments in the Company or a Wholly
Owned Subsidiary; (xiv) Investments in securities of trade creditors,
suppliers or customers received pursuant to any plan of reorganization or
similar arrangement upon bankruptcy or insolvency of such trade creditor,
supplier or customer; (xv) Investments in any Person after the Issue Date in
an aggregate amount not in excess of $20.0 million at any one time
outstanding; and (xvi) Investments in publicly traded equity or publicly
traded Investment Grade debt obligations issued by a corporation (other than
the Company or an affiliate of the Company) organized under the laws of any
State of the United States of America and subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act in an aggregate amount
not in excess of $50.0 million at any one time outstanding.
"Permitted Joint Venture" means any Person which is, directly or indirectly,
through its subsidiaries or otherwise, engaged principally in any business in
which the Company is engaged, or a reasonably related business, and the
Capital Stock of which is owned by the Company and one or more Persons other
than the Company or any affiliate of the Company.
"Permitted Junior Securities" means (i) Qualified Stock, (ii) securities of
the Company or any other corporation authorized by an order or decree giving
effect, and stating in such order or decree that effect is given, to the
subordination of such securities to the Senior Indebtedness, and made by a
court of competent jurisdiction in a reorganization proceeding under any
applicable bankruptcy, insolvency or other similar law, or (iii) any
securities of the Company provided for a plan of reorganization or
readjustment that are subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding to substantially the same
extent as, or to a greater extent than, the Senior Subordinated Notes are
subordinated as provided in the Senior Subordinated Note Indenture.
"Permitted Liens" means (a) Liens for taxes, assessments and governmental
charges (other than any Lien imposed by the Employee Retirement Income
Security Act of 1974, as amended) that are not yet delinquent or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which adequate reserves have been established or
other provisions have been made in accordance with generally accepted
accounting principles; (b) statutory mechanics', workmen's, materialmen's,
operators' or similar Liens imposed by law and arising in the ordinary course
of business for sums which are not yet due or are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and for which adequate reserves have been established or other provisions have
been made in accordance with generally accepted accounting principles; (c)
minor imperfections of, or encumbrances on, title that do not impair the value
of property for its intended use; (d) Liens (other than any Lien under the
Employee Retirement Income Security Act of 1974, as amended) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (e)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return of money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (f)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or of any of its
Restricted Subsidiaries; (g) Liens (including extensions and renewals thereof)
upon real or tangible personal property acquired after the Issue Date;
provided, that (I) such Lien is created solely for the purpose of securing
Indebtedness that is incurred in accordance with the Indenture to finance the
cost (including the cost of improvement or construction) of the item of
property or assets subject
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thereto and such Lien is created prior to, at the time of or within 180 days
after the later of the acquisition, the completion of construction or the
commencement of full operation of such property, (II) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and
(III) any such Lien shall not extend to or cover any property or assets of the
Company or of any Restricted Subsidiary of the Company other than such item of
property or assets and any improvements on such item; (h) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Company or of any Restricted Subsidiary of the Company; (i)
any interest or title of a lessor in the property subject to any Capitalized
Lease Obligation, provided that any transaction related thereto otherwise
complies with the Indenture; (j) Liens arising from filing Uniform Commercial
Code financing statements regarding leases; (k) Liens arising from the
rendering of a final judgment or order against the Company or any Restricted
Subsidiary of the Company that does not give rise to an Event of Default; (l)
Liens securing reimbursement obligations with respect to letters of credit
incurred in accordance with the Indenture that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof; (m) Liens in favor of the Trustees arising under the Indentures; (n)
any lien existing on property, shares of stock or Indebtedness of a Person at
the time such Person becomes a Restricted Subsidiary of the Company or is
merged with or consolidated into the Company or a Restricted Subsidiary of the
Company or at the time of sale, lease or other disposition of the properties
of any Person as an entirety or substantially as an entirety to the Company or
any Restricted Subsidiary of the Company; (o) Liens on property of any
Subsidiary of the Company to secure Indebtedness for borrowed money owed to
the Company or to another Restricted Subsidiary of the Company; (p) Liens in
favor of the Company; (q) Liens existing on the Issue Date; (r) Liens in favor
of custom and revenue authorities arising as a matter of law to secure payment
of nondelinquent customs duties in connection with the importation of goods;
(s) Liens encumbering customary initial deposits and margin deposits, and
other Liens incurred in the ordinary course of business that are within the
general parameters customary in the industry, in each case securing
Indebtedness under Interest Rate Protection Agreement; (t) Liens encumbering
deposits made in the ordinary course of business to secure nondelinquent
obligations arising from statutory, regulatory, contractual or warranty
requirements of the Company or its Restricted Subsidiaries for which a reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made; and (u) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any
Restricted Subsidiary in the ordinary course of business in accordance with
industry practice.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously) (i) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the referent Person and (ii) the
distribution of all or substantially all of the proceeds of such sale, lease,
conveyance or other disposition and all or substantially all of the remaining
assets of the referent Person to holders of Capital Stock of the referent
Person.
"Preferred Stock" means, as applied to the Capital Stock of any Person, the
Capital Stock of such Person (other than the Common Stock of such Person) of
any class or classes (however designated) that ranks prior, as to the payment
of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding-up of such Person, to shares
of Capital Stock of any other class of such Person.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible
into or exchangeable or exercisable for Disqualified Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that have been or may be entered into by any of the Restricted
Subsidiaries of the Company in connection with or reasonably related to a
transaction or series of transactions in which any of the Restricted
Subsidiaries of the Company may sell, convey or otherwise transfer to (i) a
Securitization Subsidiary or (ii) any other Person, or may grant a security
interest in, any Receivables or interests therein secured by the merchandise
or services financed thereby
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(whether such Receivables are then existing or arising in the future) of any
of the Restricted Subsidiaries of the Company, and any assets related thereto
including, without limitation, all security or ownership interests in
merchandise or services financed thereby, the proceeds of such Receivables,
and other assets which are customarily sold or in respect of which security
interests are customarily granted in connection with securitization
transactions involving such assets.
"Rating Agency" means each of (i) S&P and (ii) Moody's.
"Receivables" means any right of payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising from the financing by any Restricted Subsidiary of the
Company of merchandise or services, and monies due thereunder, security or
ownership interests in the merchandise and services financed thereby, records
related thereto, and the right to payment of any interest or finance charges
and other obligations with respect thereto, proceeds from claims on insurance
policies related thereto, any other proceeds related thereto, and any other
related rights.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a person and the Company or a Restricted Subsidiary
leases it from such Person.
"Securitization Subsidiary" means a Subsidiary of the Company which engages
in no activities other than those reasonably related to or in connection with
the entering into of securitization transactions and which is designated by
the Board of Directors of the Company (as provided below) as a Securitization
Subsidiary (a) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which (i) is guaranteed by the Company or any
Restricted Subsidiary of the Company, (ii) is recourse to or obligates the
Company or any Restricted Subsidiary of the Company in any way other than
pursuant to representations, warranties and covenants (including those related
to servicing) entered into in the ordinary course of business in connection
with a Qualified Securitization Transaction or (iii) subjects any property or
asset of the Company or any Restricted Subsidiary of the Company, directly or
indirectly, continently or otherwise, to any Lien or to the satisfaction
thereof, other than pursuant to representations, warranties and covenants
(including those related to servicing) entered into in the ordinary course of
business in connection with a Qualified Securitization Transaction, (b) with
which neither the Company nor any Restricted Subsidiary of the Company (i)
provides any credit support or (ii) has any contract, agreement, arrangement
or understanding other than on terms that are fair and reasonable and that are
no less favorable to the Company or such Restricted Subsidiary than could be
obtained from an unrelated Person (other than, in the case of subclauses (i)
and (ii) of this clause (b), representations, warranties and covenants
(including those relating to servicing) entered into in the ordinary course of
business in connection with a Qualified Securitization Transaction and
intercompany notes relating to the sale of Receivables to such Securitization
Subsidiary) and (c) with which neither the Company nor any Restricted
Subsidiary of the Company has any obligation to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolutions of the Board of Directors of the
Company giving effect to such designation.
"Senior Indebtedness" means (a) the Senior Notes, including principal,
premium, if any, and interest on the Senior Notes and all other amounts due on
or in connection with the Senior Notes, and (b) any other Indebtedness
(including principal, premium, if any, and interest on such Indebtedness)
incurred by the Company in accordance with the Senior Subordinated Note
Indenture, whether such Indebtedness is outstanding on the Issue Date or
thereafter, provided that Senior Indebtedness of the Company expressly shall
not include: (i) any Indebtedness of the Company (whether outstanding on the
Issue Date or thereafter incurred) that is, pursuant to its terms or the terms
of any agreement relating thereto, subordinated or junior to any other
Indebtedness of the Company; (ii) any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) that is, by its terms or
the terms of any agreement relating thereto, pari passu with or
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subordinated or junior to the Senior Subordinated Notes; (iii) the Senior
Subordinated Notes; (iv) any Indebtedness or any other obligation of the
Company to any of the Company's Restricted Subsidiaries or to any of the
Company's Affiliates, or to any joint venture in which the Company has an
interest; (v) to the extent such may be deemed Indebtedness of the Company,
any liability for Federal, state, local, foreign or other taxes owed or owing
by the Company or by any of its Restricted Subsidiaries (including pursuant to
the Tax Allocation Agreement); (vi) to the extent such may be deemed
Indebtedness of the Company, obligations of the Company incurred in connection
with the purchase of goods, assets, materials or services in the ordinary
course of business or representing amounts recorded as accounts payable, trade
payables, or other current liabilities of the Company on the books of the
Company (other than the current portion of any long-term Indebtedness of the
Company that but for this clause (vi) would constitute Senior Indebtedness of
the Company); (vii) to the extent such may be deemed Indebtedness of the
Company, any amount owed by the Company to employees for services rendered to
the Company or to any of its Restricted Subsidiaries; and (viii) that portion
of any Indebtedness which at the time of incurrence is incurred in violation
of the Senior Subordinated Note Indenture.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security or Indebtedness of a
Person, the date specified therein as the fixed date on which any principal of
such security or Indebtedness is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase thereof at the option of the holder thereof).
"Subsidiary" of any Person means (a) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more Restricted Subsidiaries of such Person or by such Person and one
or more Restricted Subsidiaries of such Person or (b) any other Person (other
than a trust formed in connection with a Qualified Securitization Transaction)
in which such Person, a Restricted Subsidiary of such Person or such Person
and one or more Restricted Subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, have at least a majority
ownership interest.
"Subsidiary Guarantee" means each Subsidiary Guarantee of the Notes issued
pursuant to "--Certain Covenants--Relating to all Notes--Limitation on
Guarantees by Restricted Subsidiaries" above.
"Subsidiary Guarantor" means each Restricted Subsidiary of the Company that
becomes a guarantor of the Notes pursuant to "--Certain Covenants--Relating to
all Notes--Limitation on Guarantees by Restricted Subsidiaries" above.
"Support Agreement" means the Amended and Restated Parent's Side Agreement
dated as of November 8, 1994 between the Company and Navistar International
Transportation Corp.
"Tax Allocation Agreement" means the Tax Allocation Agreement among the
Company and its subsidiaries, effective as of October 1, 1981, as it has been
and may be amended and/or supplemented from time to time.
"Unrestricted Subsidiary" means (i) each of Navistar Financial Corporation,
Arrendadora Financiera Navistar S.A. de C.V., Servicios Financieros Navistar
S.A. de C.V., Servicios Financieros NFC, S.A. de C.V., Harbour Assurance
Company of Bermuda Limited, Navistar Acceptance Corporation Limited, the
DealCor Subsidiaries of Transportation that are treated on an equity basis by
the Company on the Issue Date, and their respective Subsidiaries until such
time as it is designated a Restricted Subsidiary pursuant to the second
succeeding sentence, (ii) any Subsidiary of the Company that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (iii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock of, or holds any Lien on any property of, the Company
or any other
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Restricted Subsidiary of the Company; provided, that either (A) the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Relating to all
Notes--Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
that immediately after giving effect to such designation (x) if such
Unrestricted Subsidiary at such time has Indebtedness, the Company could incur
$1.00 of additional Indebtedness under clause (i) of the covenant described
under "--Certain Covenants--Relating to all Notes--Limitation on Incurrence of
Indebtedness" and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced by the Company
to the Trustee by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the Board of
Directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person all the outstanding shares of Capital Stock (other
than directors' qualifying shares, if applicable) of which are owned directly
by such Person or another Wholly Owned Subsidiary of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material United States federal
income tax consequences of the acquisition, ownership and disposition of the
Notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are original beneficial owners of the Notes
and who hold such Notes as capital assets ("Holders"). This discussion does
not address specific tax consequences that may be relevant to particular
persons (including, for example, financial institutions, broker-dealers,
insurance companies, tax-exempt organizations, estates, trusts, and persons in
special situations, such as those who hold Notes as part of a straddle, hedge,
conversion transaction, or other integrated investment). This discussion also
does not address the tax consequences to Non-U.S. Holders (as defined below)
that are subject to U.S. federal income tax on a net basis on income realized
with respect to a Note because such income is effectively connected with the
conduct of a U.S. trade or business. This discussion does not address the tax
consequences to persons that have a functional currency other than the U.S.
dollar. In addition, this discussion does not address U.S. federal alternative
minimum tax consequences or any aspect of state, local or foreign taxation.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Department regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as of the date hereof
and all of which are subject to change, possibly on a retroactive basis.
HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND
DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest
In general, interest on a Note will be taxable to a beneficial owner who or
which is, (i) a citizen or resident of the United States; (ii) a corporation
created or organized under the laws of the United States or any State thereof
(including the District of Columbia); or (iii) a person otherwise subject to
U.S. federal income taxation on its worldwide income (a "U.S. Holder") as
ordinary income at the time it is (actually or constructively) received or
accrued, depending on such holder's method of accounting for U.S. federal
income tax purposes.
Disposition of Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between (i) the sum of cash plus the fair market
value of all other property received on such disposition (except to the extent
such cash or property is attributable to accrued but unpaid interest, which
will be taxable as ordinary income); and (ii) such holder's adjusted tax basis
in the Note. A U.S. Holder's adjusted tax basis in a Note generally will equal
the cost of the Note to such holder, less any principal payments received by
such holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss. The net amount of such capital gain recognized by an
individual U.S. Holder will be subject to tax at a maximum rate of (i) 28%, if
the Note is held for more than 12 months but not more than 18 months, and (ii)
20%, if the Note is held for more than 18 months.
Exchange Offer
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for U.S. federal income tax purposes
because the Exchange Notes will not be considered to differ materially in kind
or extent from the Old Notes. As a result, there will be no U.S. federal
income tax consequences to beneficial owners exchanging the Old Notes for the
Exchange Notes pursuant to the Exchange
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Offer. The Company is obligated to pay additional interest to the beneficial
owners of Old Notes under certain circumstances. The Company believes that any
such payments of interest should be treated as subject to an "incidental
contingency" for purposes of the original issue discount rules because the
potential amount of any such interest payments, if required to be made, is
expected to be insignificant relative to the total expected amount of
remaining payments on the Old Notes, and accordingly, if such interest
payments are required to be made, such interest should be taxable to
beneficial owners in the manner described under "Certain Federal Income Tax
Considerations--U.S. Federal Income Taxation of U.S. Holders--Payments of
Interest." It is possible, however, that the Internal Revenue Service ("IRS")
may take a different position, in which case the timing and amount of such
income may be different.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Under present U.S. federal income tax law and subject to the discussion of
backup withholding below:
(i) payments of principal and interest on the Notes by the Company or any
agent of the Company to any beneficial owner of a Note that is not a U.S.
Holder (a "Non-U.S. Holder") generally will not be subject to U.S. federal
withholding tax, provided that in the case of interest (a) (1) the Non-U.S.
Holder does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of stock of the Company entitled
to vote, (2) the Non-U.S. Holder is not a controlled foreign corporation
that is related to the Company through stock ownership, (3) the Non-U.S.
Holder is not a bank described in Section 881(c)(3)(A) of the Code, and (4)
either (A) the beneficial owner of the Notes certifies to the Company or
its agent on IRS Form W-8 (or a suitable substitute form), under penalties
of perjury, that it is not a "U.S. person" (as defined in the Code) and
provides its name and address, or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Notes on behalf of the beneficial owner who certifies to the
Company or its agent under penalties of perjury that such statement has
been received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy
thereof (the "Portfolio Interest Exemption") or (b) the Non-U.S. Holder is
entitled to the benefits of an income tax treaty under which interest on
the Notes is exempt from U.S. federal withholding tax and provides a
properly executed IRS Form 1001 claiming the exemption (a "Treaty
Exemption");
(ii) a Non-U.S. Holder generally will not be subject to U.S. federal
withholding tax on gain realized on the sale, exchange or other disposition
of a Note unless (a) the Non-U.S. Holder is an individual who is present in
the United States for a period or periods aggregating 183 or more days in
the taxable year of the disposition and certain other conditions are met or
(b) the Non-U.S. Holder is subject to tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates; and
(iii) the exchange of Notes for Exchange Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for U.S. federal income tax
purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Notes. As a result, there will be no
U.S. federal income tax consequences to beneficial owners exchanging the
Notes for the Exchange Notes pursuant to the Exchange Offer.
The United States Treasury Department recently adopted final regulations
governing federal withholding taxes, information reporting and backup
withholding rules ("Final Regulations") which are generally effective for
payments after December 31, 1998, subject to certain transition rules.
In general, the Final Regulations continue to require that Form W-8 be
furnished to establish eligibility for the Portfolio Interest Exemption;
however, Form W-8 may in some circumstances require additional information not
required on current Form W-8.
The Final Regulations generally require Non-U.S. Holders to execute Form W-
8, rather than Form 1001, to establish eligibility for a Treaty Exemption. For
any periods during which the Notes are not "actively traded," a
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Non-U.S. Holder may be required, in order to claim a Treaty Exemption, to (a)
furnish a valid United States federal taxpayer identification number and (b)
furnish proof of the holder's foreign residency (by furnishing an Internal
Revenue Service certification based on (i) a certification from the
appropriate tax official in the foreign country, or (ii) appropriate
documentary evidence).
Under the Final Regulations, certification on Form W-8 for purposes of the
Portfolio Interest Exemption or a Treaty Exemption will generally remain valid
for 3 years, at which time a new Form W-8 may be required to be executed. In
certain cases, the Final Regulations provide alternative forms of
documentation for purposes of the Portfolio Interest Exemption or a Treaty
Exemption, for example, where the Notes are held by certain foreign
partnerships or certain foreign intermediaries.
EACH NON-U.S. HOLDER SHOULD CONSULT THE HOLDER'S TAX ADVISOR AS TO THE
APPLICATION OF THE FINAL REGULATIONS AND THE PROCEDURES THEREUNDER FOR
ESTABLISHING FOREIGN STATUS FOR PURPOSES OF THE PORTFOLIO INTEREST EXEMPTION
OR A TREATY EXEMPTION.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, the Company is
required to provide the IRS with certain information, including the beneficial
owner's name, address and taxpayer identification number, the aggregate amount
of interest paid to that beneficial owner during the calendar year and the
amount of tax withheld, if any. This obligation, however, does not apply with
respect to certain payments to U.S. Holders, including corporations, tax-
exempt organizations, qualified pension and profit sharing, trusts and
individual retirement accounts, provided that such holders establish
entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold at a rate of 31% with respect to payments in respect of interest,
principal (and premium, if any) and gross proceeds from dispositions of Notes.
This backup withholding is not an additional tax and may be credited against
the U.S. Holder's U.S. federal income tax liability, provided that the
required information is furnished to the IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a Note if such holder has
provided the required certification that it is not a U.S. person as set forth
in clause (a)(4) in paragraph (i) under "Certain Federal Income Tax
Considerations--U.S. Federal Income Taxation of Non-U.S. Holders," or has
otherwise established an exemption (provided that neither the Company nor its
agent has actual knowledge that the holder is a U.S. person or that the
conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding. However, if such broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes or a foreign person 50
percent or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, information reporting may
apply to such payments. Payment of the proceeds from a sale of a Note to or
through the U.S. office of a broker will be subject to information reporting
and backup withholding unless the holder or beneficial owner certifies as to
its taxpayer identification number or otherwise establishes an exemption from
information reporting and backup withholding.
Under the Final Regulations (described above under "Certain Federal Income
Tax Consequences--U.S. Federal Income Taxation of Non-U.S. Holders"),
generally effective for payments after December 31, 1998, information
reporting and backup withholding will not be required if the Non-U.S. Holder
has (i) furnished documentation establishing eligibility for the Portfolio
Interest Exemption or a Treaty Exemption (provided that, in the case of a sale
of a Note by an individual, Form W-8 (or any substitute) includes a
certification that the individual has not been, and does not intend to be,
present in the United States for 183 days or more days for the
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relevant period) or (ii) otherwise establishes an exemption. Certain
additional rules may apply where the Notes are held through a custodian,
nominee, broker, foreign partnership or foreign intermediary.
EACH NON-U.S. HOLDER SHOULD CONSULT THE HOLDER'S TAX ADVISOR AS TO THE
APPLICATION OF THE FINAL REGULATIONS AND THE PROCEDURES THEREUNDER FOR
ESTABLISHING FOREIGN STATUS FOR PURPOSES OF INFORMATION REPORTING AND BACKUP
WITHHOLDING.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale
(provided that the Company receive notice from such Participating Broker-
Dealer within 30 days after the consummation of the Exchange Offer of his
status as a Participating Broker-Dealer).
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date (subject to receiving
notice as set forth above), the Company will promptly send additional copies
of this Prospectus and any amendment or supplement to this Prospectus to any
Participating Broker-Dealer that requests such documents in the Letter of
Transmittal.
Prior to the Exchange Offer, there has not been any public market for the
Old Notes. The Old Notes have not been registered under the Securities Act and
will be subject to restrictions on transferability to the extent that they are
not exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. The holders of Old Notes (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. The Exchange
Notes will constitute a new issue of securities with no established trading
market. The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of the Shelf Registration Statements. Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of the trading market for the
Exchange Notes. If a trading market does not develop or is not maintained,
holders of the Exchange Notes may experience difficulty in reselling the
Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Exchange Notes will
be passed upon for the Company by Kirkland & Ellis (a partnership including
professional corporations), Chicago, Illinois.
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EXPERTS
The consolidated financial statements of Navistar International Corporation
as of October 31, 1997 and 1996 and for each of the three years in the period
ended October 31, 1997, included in this Prospectus and the related financial
statement schedule incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended October 31, 1997 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing
herein and incorporated by reference in the registration statement, and are
included in reliance upon the reports of such firm given their authority as
experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Statement of Income for the years ended October 31, 1997, 1996 and 1995... F-3
Statement of Financial Condition as of October 31, 1997 and 1996.......... F-4
Statement of Cash Flow for the years ended October 31, 1997, 1996 and
1995..................................................................... F-5
Notes to Financial Statements............................................. F-6
</TABLE>
F-1
<PAGE>
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, 1997
and 1996, and the related Statements of Income and of Cash Flow for each of
the three years in the period ended October 31, 1997. 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, 1997
and 1996, and the results of their operations and their cash flow for each of
the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
December 15, 1997
Chicago, Illinois
F-2
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
1997 1996 1995
------ ------ ------
(MILLIONS OF
DOLLARS,
EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales and revenues
Sales of manufactured products.......................... $6,147 $5,508 $6,125
Finance and insurance revenue........................... 174 197 167
Other income............................................ 50 49 50
------ ------ ------
Total sales and revenues.............................. 6,371 5,754 6,342
------ ------ ------
Costs and expenses
Cost of products and services sold...................... 5,292 4,827 5,288
Postretirement benefits................................. 215 220 206
Engineering and research expense........................ 124 129 113
Marketing and administrative expense.................... 365 319 307
Interest expense........................................ 74 83 87
Financing charges on sold receivables................... 23 24 29
Insurance claims and underwriting expense............... 36 47 50
------ ------ ------
Total costs and expenses.............................. 6,129 5,649 6,080
------ ------ ------
Income before income taxes................................ 242 105 262
Income tax expense........................................ 92 40 98
------ ------ ------
Net income................................................ 150 65 164
Less dividends on Series G preferred stock................ 29 29 29
------ ------ ------
Net income applicable to common stock..................... $121 $ 36 $ 135
====== ====== ======
Net income per common share............................... $ 1.65 $ .49 $ 1.83
====== ====== ======
Average number of common and dilutive common equivalent
shares outstanding (millions)............................ 73.6 73.8 74.3
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF OCTOBER
31
--------------
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents.......................................... $ 609 $ 487
Marketable securities.............................................. 356 394
------ ------
965 881
Receivables, net................................................... 1,755 1,655
Inventories........................................................ 483 463
Property and equipment, net........................................ 835 770
Investments and other assets....................................... 332 213
Intangible pension assets.......................................... 212 314
Deferred tax asset, net............................................ 934 1,030
------ ------
Total assets................................................. $5,516 $5,326
====== ======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C>
Liabilities
Accounts payable, principally trade.............................. $1,100 $ 820
Debt:
Manufacturing operations....................................... 92 115
Financial services operations.................................. 1,224 1,305
Postretirement benefits liability................................ 1,186 1,351
Other liabilities................................................ 894 819
------ ------
Total liabilities............................................ 4,496 4,410
------ ------
Commitments and contingencies (Note 11)
Shareowners' equity
Series G convertible preferred stock (liquidation preference $240
million)........................................................ 240 240
Series D convertible junior preference stock (liquidation
preference $4 million).......................................... 4 4
Common stock (52.2 million and 51.0 million shares issued)....... 1,659 1,642
Class B Common stock (23.1 million and 24.3 million shares
issued)......................................................... 471 491
Retained earnings (deficit)--balance accumulated after the
deficit reclassification as of October 31, 1987................. (1,301) (1,431)
Common stock held in treasury, at cost (2.9 million and 1.6
million shares held)............................................ (53) (30)
------ ------
Total shareowners' equity.................................... 1,020 916
------ ------
Total liabilities and shareowners' equity.................... $5,516 $5,326
====== ======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
------------------------
1997 1996 1995
------ ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Cash flow from operations
Net income......................................... $ 150 $ 65 $ 164
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization.................... 120 105 86
Deferred income taxes............................ 82 37 89
Other, net....................................... (61) (13) (9)
Change in operating assets and liabilities:
Receivables...................................... (195) 186 (91)
Inventories...................................... (25) (47) 35
Prepaid and other current assets................. 4 1 10
Accounts payable................................. 288 (110) 63
Other liabilities................................ 17 (106) 70
------ ------- -------
Cash provided by operations.................... 380 118 417
------ ------- -------
Cash flow from investment programs
Purchase of retail notes and lease receivables..... (970) (1,108) (1,099)
Collections/sales of retail notes and lease
receivables....................................... 1,052 1,107 850
Purchase of marketable securities.................. (512) (585) (722)
Sales or maturities of marketable securities....... 557 752 480
Capital expenditures............................... (172) (117) (139)
Property and equipment leased to others............ (42) (73) (19)
Other investment programs, net..................... 3 (8) 8
------ ------- -------
Cash used in investment programs............... (84) (32) (641)
------ ------- -------
Cash flow from financing activities
Issuance of debt................................... 209 -- --
Principal payments on debt......................... (46) (136) (121)
Net increase (decrease) in notes and debt
outstanding under bank revolving credit facility
and asset-backed and other commercial paper
programs.......................................... (285) 81 312
Dividends paid..................................... (29) (29) (29)
Repurchase of common stock......................... (23) -- (10)
------ ------- -------
Cash (used in) provided by financing
activities.................................... (174) (84) 152
------ ------- -------
Cash and cash equivalents
Increase (decrease) during the year................ 122 2 (72)
At beginning of the year........................... 487 485 557
------ ------- -------
Cash and cash equivalents at end of the year... $ 609 $ 487 $ 485
====== ======= =======
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1997
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"). As used hereafter, "Company" refers to Navistar
International Corporation and its consolidated subsidiaries. The consolidated
financial statements include the results of the Company's manufacturing
operations and its wholly owned financial services subsidiaries. The effects
of transactions between the manufacturing and financial services operations
have been eliminated to arrive at the consolidated totals. The distinction
between current and long-term assets and liabilities in the Statement of
Financial Condition is not meaningful when finance, insurance and
manufacturing operations are combined; therefore, the Company has adopted an
unclassified presentation. Certain 1996 and 1995 amounts have been
reclassified to conform with the presentation used in the 1997 financial
statements.
The Company operates in two principal industry segments: manufacturing and
financial services. Manufacturing operations are responsible for the
manufacture and marketing of medium and heavy trucks, including school buses,
mid-range diesel engines and service parts primarily in the United States and
Canada as well as in selected export markets. Based on assets and revenues,
manufacturing operations represent the majority of the Company's business
activities. The financial services operations consist of Navistar Financial
Corporation ("NFC"), its domestic insurance subsidiary and the Company's
foreign finance and insurance subsidiaries. NFC's primary business is the
retail and wholesale financing of products sold by the manufacturing
operations and its dealers within the United States and the providing of
commercial physical damage and liability insurance to the manufacturing
operations' dealers and retail customers and to the general public through an
independent insurance agency system.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Manufacturing operations recognize shipments of new trucks and service parts
to independent dealers and retail customers as sales. Price allowances,
expected in the normal course of business, and the cost of special incentive
programs are recorded at the time of sale. Engine sales are recognized at the
time of shipment to original equipment manufacturers. An allowance for losses
on receivables is maintained at an amount that management considers
appropriate in relation to the outstanding receivables portfolio and it is
charged when receivables are determined to be uncollectible.
Financial services operations recognize finance charges on retail notes and
finance leases as income over the term of the receivables utilizing the
interest method. Interest due from interest-bearing notes and accounts is
recognized on the accrual basis. Operating lease revenues are recognized on a
straight-line basis over the life of the lease. Selected receivables are sold
and securitized to public and private investors with limited recourse. Gains
or losses on sales of receivables are credited or charged to revenue in the
period in which the sale occurs. Financial services operations continue to
service the sold receivables and receive a fee for such services from the
investor. An allowance for losses is maintained at a level deemed appropriate
based on such factors as overall portfolio quality, historical loss experience
and current economic conditions.
F-6
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Insurance premiums are earned 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.
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, United States government securities and floating rate notes,
are classified as cash equivalents in the Statement of Financial Condition and
Statement of Cash Flow.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale securities and
are reported at fair value. The difference between amortized cost and fair
value is recorded as an adjustment to shareowners' equity, net of applicable
deferred taxes.
INVENTORIES
Inventories are valued at the lower of average cost or market.
PROPERTY AND OTHER LONG-LIVED ASSETS
Significant expenditures for replacement of equipment, tooling and pattern
equipment, and major rebuilding of machine tools are capitalized. Depreciation
and amortization are generally provided on the straight-line basis over the
estimated useful lives of the assets, which average 35 years for buildings and
improvements and eight years for machinery and equipment. Gains and losses on
property disposals are included in other income and expense. The carrying
amount of all long-lived assets is evaluated periodically to determine if
adjustment to the depreciation and amortization period or to the unamortized
balance is warranted. Such evaluation is based principally on the expected
utilization of the long-lived assets and the projected, undiscounted cash
flows of the operations in which the long-lived assets are deployed.
ENGINEERING AND RESEARCH EXPENSE
Engineering and research expense includes research and development expenses
and routine ongoing costs associated with improving existing products and
manufacturing processes. Research and development expenses, which include
activities for the introduction of new truck and diesel engine products and
major improvements to existing products and processes, totaled $92 million,
$101 million and $91 million in 1997, 1996 and 1995, respectively.
PRODUCT RELATED COSTS
The Company accrues warranty expense at the time of end product sale.
Product liability expense is accrued based on the estimate of total future
payments to settle product liability claims.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivatives to transfer or reduce risks of foreign exchange
and interest rate volatility and to potentially increase the return on
invested funds. NFC, a wholly owned subsidiary of Transportation, uses
derivatives such as forward contracts and interest rate swaps to reduce its
exposure to interest rate volatility. NFC's primary use of such financial
instruments is to hedge the fair value of its fixed rate receivables against
changes in market interest rates in anticipation of securitization and sale of
such receivables. The anticipated transactions are probable of occurrence and
their significant terms and characteristics have been identified.
F-7
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
All derivative financial instruments are held for purposes other than
trading, and Company policy prohibits the use of derivatives for speculative
purposes. Gains or losses related to hedges of anticipated sales of
receivables are deferred and are recognized in income when the receivables are
sold. At all times, the principal balance of receivables owned and expected to
be sold by NFC exceeds the notional amount of open derivative contracts.
STOCK-BASED COMPENSATION
Effective November 1, 1996, the Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). Accordingly, the Company elected
to continue to account for stock-based compensation plans consistent with
prior years.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This
statement specifies the computation, presentation and disclosure requirements
for earnings per share and is effective for financial statements issued for
periods ending after December 15, 1997. The standard is not expected to have a
material effect on the Company's net income per common share computation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. These statements
are effective for fiscal years beginning after December 15, 1997. These
standards expand or modify current disclosures and, accordingly, will have no
impact on the Company's reported financial position, results of operations and
cash flows. The Company is assessing the impact of SFAS 131 on its reported
segments.
2. POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to substantially all of its
employees. Costs associated with postretirement benefits include pension
expense for employees, retirees and surviving spouses, and postretirement
health care and life insurance expense for employees, retirees, surviving
spouses and dependents. In addition, as part of the 1993 restructured retiree
health care and life insurance plans, profit sharing payments to an
independent retiree trust are required. The cost of postretirement benefits is
segregated as a separate component in the Statement of Income and is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Pension expense.............................................. $129 $160 $110
Health/life insurance........................................ 66 60 70
Profit sharing provision to Trust............................ 20 -- 26
---- ---- ----
Total postretirement benefits expense.................... $215 $220 $206
==== ==== ====
</TABLE>
In the Statement of Financial Condition, the postretirement benefits
liability of $1,186 million in 1997 and $1,351 million in 1996 includes $445
million and $607 million, respectively, for pension and $741 million and $744
million, respectively, for postretirement health care and life insurance
benefits. Included in investments and
F-8
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. POSTRETIREMENT BENEFITS (CONTINUED)
other assets in the Statement of Financial Condition is a prepaid pension
asset of $120 million in 1997 and $38 million in 1996.
PENSION BENEFITS
Generally, the pension plans are noncontributory 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 United States and
Canadian 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 year, all legal funding
requirements have been met. Plan assets are invested primarily in dedicated
portfolios of long-term fixed income securities with more recent contributions
invested in equity securities.
PENSION EXPENSE
Net pension expense included in the Statement of Income is composed of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Service cost for benefits earned during the period...... $ 34 $ 34 $ 24
Interest on projected benefit obligation................ 238 231 232
Net amortization costs and other........................ 99 104 57
Less expected return on assets.......................... (242) (209) (203)
----- ----- -----
Net pension expense................................. $ 129 $ 160 $ 110
===== ===== =====
Actual return on assets............................. $ 505 $ 188 $ 398
===== ===== =====
</TABLE>
"Amortization costs" include amortization of cumulative gains and losses
over the expected remaining service life of employees, amortization of the
initial transition liability over 15 years, the expense related to yearly
lump-sum payments to retirees required by negotiated labor contracts and
amortization of plan amendments, recognized over the remaining service life of
employees, except for those plan amendments arising from negotiated labor
contracts, which are amortized over the length of the contract.
PENSION ASSETS AND LIABILITIES
Included in the Statement of Financial Condition is the minimum pension
liability for certain unfunded pension plans. The adjustment for the minimum
pension liability in the amounts of $504 million and $623 million are offset
by intangible pension assets of $212 million and $314 million and accumulated
reductions in shareowners' equity of $195 million and $206 million at October
31, 1997 and October 31, 1996, respectively. The changes in shareowners'
equity are net of deferred income taxes of $97 million at October 31, 1997 and
$103 million at October 31, 1996. The minimum pension liability will change
from year to year as a result of revisions to actuarial assumptions,
experience gains or losses and settlement rate changes.
F-9
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. POSTRETIREMENT BENEFITS (CONTINUED)
The funded status of the Company's plans as of October 31, 1997 and 1996 and
a reconciliation with amounts recognized in the Statement of Financial
Condition are provided below.
<TABLE>
<CAPTION>
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits....................... $(1,122) $ (59) $(1,857) $(2,672)
Nonvested benefits.................... (80) (7) (207) (270)
------- ------- ------- -------
Accumulated benefit obligation...... (1,202) (66) (2,064) (2,942)
Effect of projected future compensation
levels................................. (30) (3) (3) (23)
------- ------- ------- -------
Projected benefit obligation............ (1,232) (69) (2,067) (2,965)
Plan assets at fair value............... 1,279 91 1,621 2,336
------- ------- ------- -------
Funded status at October 31............. 47 22 (446) (629)
Unamortized pension costs:
Net losses............................ 29 11 293 332
Prior service costs................... 12 6 77 113
(Asset) liability at date of
transition........................... 32 (1) 135 200
Adjustment for the minimum liability.... -- -- (504) (623)
------- ------- ------- -------
Net asset (liability)............... $ 120 $ 38 $ (445) $ (607)
======= ======= ======= =======
</TABLE>
The weighted average rate assumptions used in determining pension costs and
the projected benefit obligation were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate used to determine present value of projected
benefit obligation at end of year.......................... 7.3% 8.1% 7.8%
Expected long-term rate of return on plan assets for the
year....................................................... 9.8% 9.0% 9.9%
Expected rate of increase in future compensation levels..... 3.5% 3.5% 3.5%
</TABLE>
OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides health care
and life insurance for a majority of its retired employees, spouses and
certain dependents in the United States and Canada.
In 1993, a trust was established to provide a vehicle for funding the health
care liability through Company contributions and retiree premiums. The funds
in this trust are invested primarily in equity securities. The Company was
required to make a prefunding contribution of $200 million to the trust on or
prior to June 30, 1998. This contribution was made during November 1997.
The components of expense for other postretirement benefits included in the
Statement of Income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Service cost for benefits earned during the year.......... $ 13 $ 14 $ 10
Interest cost on the accumulated benefit obligation and
other.................................................... 96 84 90
Less expected return on assets............................ (43) (38) (30)
---- ---- ----
Net other postretirement benefits expense............. $ 66 $ 60 $ 70
==== ==== ====
Actual return on assets............................... $102 $ 46 $ 65
==== ==== ====
</TABLE>
F-10
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. POSTRETIREMENT BENEFITS (CONTINUED)
The funded status of other postretirement benefits as of October 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accumulated other postretirement benefit obligation
(APBO):
Retirees and their dependents............................. $ (952) $ (773)
Active employees eligible to retire....................... (221) (244)
Other active participants................................. (201) (208)
------ ------
Total APBO............................................ (1,374) (1,225)
Plan assets at fair value................................. 486 401
------ ------
APBO in excess of plan assets............................. (888) (824)
Unamortized prior service cost............................ (5) (6)
Unrecognized net loss..................................... 152 86
------ ------
Net liability......................................... $ (741) $ (744)
====== ======
</TABLE>
The weighted average expected return on plan assets was 11.1% for 1997,
10.5% for 1996 and 10% for 1995. The weighted average of discount rates used
to determine the accumulated other postretirement benefit obligation was 7.4%
and 8.2% at October 31, 1997 and 1996, respectively. For 1998, the weighted
average rate of increase in the per capita cost of covered health care
benefits is projected to be 8.2%. The rate is projected to decrease to 5.0% by
the year 2004 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
$167 million and the associated expense recognized for the year ended October
31, 1997 would increase by an estimated $16 million.
3. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes
consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Domestic.................................................... $239 $108 $251
Foreign..................................................... 3 (3) 11
---- ---- ----
Total income before income taxes........................ $242 $105 $262
==== ==== ====
</TABLE>
The components of income tax expense consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Current:
Federal..................................................... $ 8 $ 1 $ 7
State and local............................................. 2 2 2
--- --- ---
Total current expense..................................... 10 3 9
--- --- ---
Deferred:
Federal..................................................... 71 32 77
State and local............................................. 11 5 12
--- --- ---
Total deferred expense.................................... 82 37 89
--- --- ---
Total income tax expense.................................. $92 $40 $98
=== === ===
</TABLE>
The deferred tax expense does not represent cash payment of income taxes and
was primarily generated by the utilization of net operating loss ("NOL")
carryforwards and the increase of temporary differences, and will not require
future cash payments. Consolidated tax payments made during 1997, 1996 and
1995 were $10 million, $3 million and $9 million, respectively.
F-11
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES (CONTINUED)
The relationship of the tax expense to income before taxes for 1997, 1996
and 1995 differs from the U.S. statutory rate (35%) because of state income
taxes and the benefit of NOLs in foreign countries. The effective tax rates
for the years 1997, 1996 and 1995 were 38.0%, 38.1% and 37.4%, respectively.
Undistributed earnings of foreign subsidiaries were $35 million and $30
million at October 31, 1997 and 1996, respectively. 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.
Taxpaying 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.
The components of the deferred tax asset (liability) at October 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
UNITED STATES
Deferred tax assets:
Net operating loss carryforwards................. $ 680 $ 753
Alternative minimum tax.......................... 19 11
Product liability and warranty................... 97 100
Other liabilities................................ 168 143
Postretirement benefits.......................... 353 363
---------- ----------
Total deferred tax assets...................... 1,317 1,370
---------- ----------
Deferred tax liabilities:
Prepaid pension assets........................... (58) (12)
Depreciation..................................... (37) (40)
---------- ----------
Total deferred tax liabilities................. (95) (52)
---------- ----------
Total deferred tax asset....................... 1,222 1,318
Less valuation allowance........................... (288) (288)
---------- ----------
Net deferred tax asset......................... $ 934 $ 1,030
========== ==========
FOREIGN
Deferred tax assets:
Net operating loss carryforwards................. $ 2 $ 2
Postretirement benefits.......................... 19 19
---------- ----------
Total deferred tax assets...................... 21 21
Less valuation allowance........................... (21) (21)
---------- ----------
Net deferred tax assets........................ -- --
---------- ----------
Deferred tax liabilities--prepaid pension assets... (16) (16)
---------- ----------
Net deferred tax liabilities................... $ (16) $ (16)
========== ==========
</TABLE>
A valuation allowance has been provided for those NOL carryforwards and
temporary differences which are estimated to expire before they are utilized.
Because the foreign tax carryforward period is relatively short, an allowance
has been provided against the total deferred tax assets.
F-12
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES (CONTINUED)
At October 31, 1997, the Company had $1,802 million of domestic and $6
million of foreign NOL carryforwards available to offset future taxable
income. Such carryforwards reflect income tax losses incurred which will
expire as follows, in millions of dollars:
<TABLE>
<S> <C>
2000.............................. $ 174
2001.............................. 143
2002.............................. 47
2004.............................. 238
2005.............................. 7
2006 through 2011................. 1,199
------
Total............................. $1,808
======
</TABLE>
Additionally, the reversal of net temporary differences of $1,413 million as
of October 31, 1997 will create net tax deductions which, if not utilized
previously, will expire subsequent to 2011.
4. MARKETABLE SECURITIES
The fair value of marketable securities is estimated based on quoted market
prices, when available. If a quoted price is not available, fair value is
estimated using quoted market prices for similar financial instruments.
Information related to the Company's marketable securities at October 31 is
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Corporate securities......................... $150 $150 $127 $126
U.S. government securities................... 88 89 152 152
Mortgage and asset-based securities.......... 86 86 94 94
Foreign government securities................ 10 10 5 5
---- ---- ---- ----
Total debt securities........................ 334 335 378 377
Equity securities............................ 16 21 14 17
---- ---- ---- ----
Total marketable securities.................. $350 $356 $392 $394
==== ==== ==== ====
</TABLE>
Contractual maturities of marketable debt securities at October 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Due in one year or less...................... $113 $114 $ 66 $ 66
Due after one year through five years........ 100 100 189 188
Due after five years through ten years....... 25 25 23 23
Due after ten years.......................... 10 10 6 6
---- ---- ---- ----
248 249 284 283
Mortgage and asset-backed securities......... 86 86 94 94
---- ---- ---- ----
Total debt securities........................ $334 $335 $378 $377
==== ==== ==== ====
</TABLE>
Gross gains and losses realized on sales or maturities of marketable
securities were not material for each of the two years. At October 31, 1997
and 1996, a domestic insurance subsidiary had $15 million and $17 million,
respectively, of marketable securities which were on deposit with various
state departments of insurance or otherwise not available. These securities
are included in total marketable securities balances at October 31, 1997 and
1996.
F-13
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RECEIVABLES
Receivables at October 31 are summarized by major classification as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accounts receivable.......................................... $ 671 $ 560
Retail notes and lease financing............................. 706 733
Wholesale notes.............................................. 46 101
Amounts due from sales of receivables........................ 233 264
Notes receivable............................................. 101 --
Other........................................................ 29 28
Allowance for losses......................................... (31) (31)
------ ------
Total receivables, net................................... $1,755 $1,655
====== ======
</TABLE>
NFC 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 NFC's funding for retail and wholesale notes comes from sales
of receivables by NFC to third parties with limited recourse. Proceeds from
sales of retail notes receivable, net of underwriting costs, were $958 million
in 1997, $982 million in 1996 and $727 million in 1995. Uncollected sold
retail and wholesale receivable balances totaled $1,968 million and $1,866
million as of October 31, 1997 and 1996, respectively.
Contractual maturities of accounts receivable, retail notes and lease
financing and wholesale notes, including unearned finance income, at October
31, 1997 were: 1998--$950 million, 1999--$195 million, 2000--$161 million,
2001--$131 million, 2002--$91 million, and 2003 and thereafter--$18 million.
Unearned finance income totaled $123 million at October 31, 1997. Notes
receivable are due upon demand from a limited partnership that invests in S&P
500 stock index arbitrage.
6. INVENTORIES
Inventories at October 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Finished products............................................ $ 212 $ 242
Work in process.............................................. 106 97
Raw materials and supplies................................... 165 124
------ ------
Total inventories........................................ $ 483 $ 463
====== ======
</TABLE>
7. PROPERTY AND EQUIPMENT
At October 31, property and equipment includes the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Land......................................................... $ 18 $ 12
------ ------
Buildings, machinery and equipment at cost:
Plants..................................................... 1,200 1,241
Distribution............................................... 86 79
Construction in progress................................... 117 58
Other...................................................... 261 222
------ ------
Subtotal................................................. 1,664 1,600
------ ------
Total property........................................... 1,682 1,612
Less accumulated depreciation and amortization............... (847) (842)
------ ------
Total property and equipment, net........................ $ 835 $ 770
====== ======
</TABLE>
F-14
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. PROPERTY AND EQUIPMENT (CONTINUED)
Total property includes property under capitalized lease obligations of $25
million at October 31, 1997 and 1996. In addition, other property includes
vehicles under operating leases to third parties of $150 million at October
31, 1997 and $116 million at October 31, 1996.
8. DEBT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Manufacturing operations
Notes payable and current maturities of long-term
debt............................................... $ 13 $ 14
---------- ----------
9% Sinking Fund Debentures, due 2004................ 45 53
8% Secured Note, due 2002, secured by plant assets.. 21 26
Capitalized leases and other........................ 13 22
---------- ----------
Total long-term debt.............................. 79 101
---------- ----------
Manufacturing operations debt......................... 92 115
---------- ----------
Financial services operations
Commercial paper.................................... 141 99
Capitalized leases.................................. 13 --
---------- ----------
Total short-term debt............................. 154 99
---------- ----------
Asset-backed commercial paper program, variable
rate, due 2001..................................... 400 402
Bank revolver, variable rate, due 2001.............. 393 704
---------- ----------
Total senior debt................................. 793 1,106
---------- ----------
8 7/8% Subordinated Senior Notes due 1998........... 94 100
9% Subordinated Senior Notes due 2002............... 100 --
---------- ----------
Total subordinated term debt...................... 194 100
---------- ----------
Capitalized leases, 5.2% to 5.6%, due 2002.......... 83 --
---------- ----------
Total long-term debt.............................. 1,070 1,206
---------- ----------
Financial services operations debt.................... 1,224 1,305
---------- ----------
Total debt........................................ $ 1,316 $ 1,420
========== ==========
</TABLE>
The effective annual interest rate on Manufacturing notes payable was 8.3%
in 1997 and 8.9% in 1996. Consolidated interest payments were $66 million, $83
million and $82 million in 1997, 1996 and 1995, respectively.
NFC issues commercial paper with varying terms and has short-term borrowings
with various banks on a noncommitted basis. Compensating cash balances and
commitment fees are not required under these borrowings.
F-15
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT (CONTINUED)
The aggregate annual maturities and sinking fund requirements for debt for
the years ended October 31 are as follows:
<TABLE>
<CAPTION>
FINANCIAL
MANUFACTURING SERVICES
OPERATIONS OPERATIONS TOTAL
------------- ---------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
1998........................................ $ 13 $154 $167
1999........................................ 15 111 126
2000........................................ 15 25 40
2001........................................ 15 820 835
2002........................................ 14 114 128
Thereafter.................................. 20 -- 20
Weighted average interest rate on total
debt, including short-term, and the effect
of discounts and related amortization for
the years ended:
October 31, 1997.......................... 10.3% 6.4% 6.8%
October 31, 1996.......................... 9.7% 6.5% 6.8%
</TABLE>
At October 31, 1997, NFC has a $925 million contractually committed bank
revolving credit facility and a $400 million asset-backed commercial paper
("ABCP") program supported by a bank liquidity facility. Available funding
under the ABCP program is comprised of a $400 million liquidity facility plus
$14 million of trust certificates issued in connection with the formation of
the ABCP trust.
Available funding under the amended and restated credit facility and the
ABCP program was $546 million, of which $141 million provided funding backup
for the outstanding short-term debt at October 31, 1997. The remaining $405
million when combined with unrestricted cash and cash equivalents made $416
million available to fund the general business purposes of NFC at October 31,
1997.
NFC's wholly owned subsidiaries, Navistar Financial Retail Receivables
Corporation ("NFRRC") and Navistar Financial Securities Corporation ("NFSC"),
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. The
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 NFC or affiliated companies.
NFSC has in place a $600 million revolving wholesale note trust that
provides for the continuous sale of eligible wholesale notes on a daily basis.
The trust is comprised of two $100 million tranches of investor certificates
maturing in 1998 and 1999 and two $200 million tranches maturing in 2003. At
October 31, 1997, the remaining shelf registration available to NFSC for
issuance of investor certificates was $200 million.
During 1997, NFC sold $987 million of retail notes, net of unearned finance
income, through NFRRC to two individual owner trusts. The owner trusts in turn
sold notes and certificates to investors. The net proceeds, after underwriting
costs and credit enhancements, were used by NFC for general working capital
purposes. At October 31, 1997, the remaining shelf registration available to
NFRRC for issuance of asset-backed securities was $1,473 million.
In November 1997, NFC sold $500 million of retail notes, net of unearned
finance income, through NFRRC. The net proceeds were used for general working
capital purposes.
F-16
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT (CONTINUED)
During 1997, NFC entered into sale/leaseback agreements involving vehicles
that were already subject to retail finance and operating leases with end
users. The remaining balance as of October 31, 1997 is classified under
Financial Services operations as capitalized leases. These agreements grant a
security interest in the underlying vehicles and lease receivables to the
purchasers.
During November 1997, the Company arranged financing for $125 million of
funds denominated in U.S. dollars and Mexican pesos to be used for development
of the Company's Mexican operations.
9. OTHER LIABILITIES
Major classifications of other liabilities at October 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Product liability and warranty......................... $ 285 $ 293
Loss reserves and unearned premiums.................... 99 113
Employee incentive programs............................ 93 10
Payroll, commissions and employee related benefits..... 83 73
Long-term disability and workers' compensation......... 54 55
Taxes.................................................. 59 44
Environmental.......................................... 27 23
Interest............................................... 13 9
Other.................................................. 181 199
---------- ----------
Total other liabilities............................ $ 894 $ 819
========== ==========
</TABLE>
During the fourth quarter of 1996, the Company recorded a one-time $35
million pretax charge for costs related to the termination of its next
generation truck program. In August 1997, the Company and the United Auto
Workers reached agreement on a master contract extension that enabled the
Company to reinstate its next generation truck program. The remaining accrual
at the time of the announcement was not material.
10. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, as reported in the Statement
of Financial Condition and described in various Notes to the Financial
Statements, and their fair values at October 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Receivables, net............................ $1,755 $1,764 $1,655 $1,658
Investments and other assets................ 332 343 213 221
Debt........................................ 1,316 1,321 1,420 1,414
</TABLE>
Cash and cash equivalents approximate fair value. The cost and fair value of
marketable securities are disclosed in Note 4.
Customer receivables, wholesale notes, retail and wholesale accounts, notes
receivable, and other variable-rate retail notes approximate fair value as a
result of the short-term maturities of the financial instruments. The fair
value of 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 by discounting expected cash flows at estimated
current market rates.
F-17
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of investments and other assets is estimated based on quoted
market prices or by discounting future cash flows.
The short-term debt and variable-rate borrowings under NFC'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.
DERIVATIVES HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Company uses derivatives to transfer or reduce risks of foreign exchange
and interest rate volatility and to potentially increase the return on
invested funds.
NFC manages its exposure to fluctuations in interest rates by limiting the
amount of fixed rate assets funded with variable rate debt, by selling fixed
rate retail receivables on a fixed rate basis and, to a lesser extent, by
utilizing derivative financial instruments. These instruments may include
interest rate swaps, interest rate caps and forward interest rate contracts.
NFC manages exposure to counter-party credit risk by entering into derivative
financial instruments with major financial institutions that can be expected
to fully perform under the terms of such agreements. Notional amounts are used
to measure the volume of derivative financial instruments and do not represent
exposure to credit loss.
NFC enters into forward interest rate contracts to manage its exposure to
fluctuations in the fair value and resulting funding costs from the
anticipated securitization and sale of retail notes. NFC manages interest rate
risk by entering into either forward contracts to sell fixed debt securities
or interest rate swaps whose fair values are highly correlated with the fair
value of NFC's receivables. Gains or losses incurred with the closing of these
agreements are included as a component of the gain or loss on sale of
receivables.
During 1997, NFC entered into $500 million of interest rate hedge agreements
in anticipation of the November 1997 sale of retail receivables. These hedge
agreements were closed in conjunction with the pricing of the sale, and the
loss at October 31, 1997, which was not material, was deferred and reduced the
gain recognized on the sale of receivables in November 1997.
11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS, AND LEASES
COMMITMENTS, CONTINGENCIES AND RESTRICTED ASSETS
At October 31, 1997, commitments for capital expenditures in progress were
approximately $137 million.
NFC's maximum exposure under all receivable sale recourse provisions at
October 31, 1997 was $246 million; however, management believes that the
allowance for credit losses on sold receivables is adequate.
At October 31, 1997, 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 $261 million on retail contracts
and $13 million on retail leases. In addition, as of October 31, 1997, the
Company is contingently liable for approximately $49 million for various
guarantees and buyback programs; however, based on historical loss trends, the
Company's exposure is not considered material.
The Canadian operating subsidiary, NFC and certain other subsidiaries
included in financial services operations are parties to agreements that may
result in the restriction of amounts which can be distributed to
Transportation in the form of dividends or loans and advances. At October 31,
1997, the maximum amount of dividends which were available for distribution
under the most restrictive covenants was $62 million.
F-18
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS, AND
LEASES (CONTINUED)
The Company and Transportation are obligated under certain agreements with
public and private lenders of NFC to maintain the subsidiary's income before
interest expense and income taxes at not less than 125% of its total interest
expense. No income maintenance payments were required for the three years
ended October 31, 1997.
CONCENTRATIONS
At October 31, 1997, the Company employed 10,593 hourly workers and 5,434
salaried workers in the United States and Canada. Approximately 93% of the
hourly employees and 23% of the salaried employees are represented by unions.
Of these represented employees, 91% of the hourly workers and 94% of the
salaried workers are represented by the United Automobile, Aerospace, and
Agricultural Implement Workers of America ("UAW") or the National Automobile,
Aerospace, and Agricultural Implement Workers of Canada ("CAW"). During August
1997, the Company's current master contract with the UAW was extended from
October 1, 1998 to October 1, 2002. The collective bargaining agreement with
the CAW expires on October 24, 1999.
Reflecting higher consumer demand for light trucks and vans, sales of mid-
range diesel engines to Ford Motor Company were 14% of consolidated sales and
revenues in 1997 and 1996 and 12% in 1995. During 1997, the Company entered
into a ten-year agreement, effective with model year 2003, to continue
supplying Ford Motor Company with diesel engines for use in its diesel-powered
light trucks and vans.
LEASES
The Company has long-term noncancellable leases for use of various equipment
and facilities. Lease terms are generally for five to 25 years and, in many
cases, provide for renewal options. The Company is generally obligated for the
cost of property taxes, insurance and maintenance. The Company leases office
buildings, distribution centers, furniture and equipment, machinery and
equipment, and computer equipment.
The majority of the Company's lease payments are for operating leases. At
October 31, 1997, future minimum lease payments under operating leases having
lease terms in excess of one year are: 1998--$36 million, 1999--$34 million,
2000--$33 million, 2001--$20 million, 2002--$15 million and thereafter--$42
million. Total operating lease expense was $40 million in 1997, $35 million in
1996 and $42 million in 1995. Income received from sublease rentals was $6
million in 1997, 1996 and 1995, respectively.
12. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims arising in
the ordinary course of business, and are parties to various legal proceedings
which constitute ordinary routine litigation incidental to the business of the
Company and its subsidiaries. In the opinion of the Company's management, none
of these proceedings or claims is material to the business or the financial
condition of the Company.
13. ENVIRONMENTAL MATTERS
In the fourth quarter of 1994, Transportation recorded a $20 million charge,
net of $13 million of income taxes, as a loss of discontinued operations
related to environmental liabilities at production facilities of two formerly
owned businesses, Wisconsin Steel and Solar Turbine, Inc. Included in the
charge was an anticipated $11 million payment to the Economic Development
Administration, a division of the U.S. Department of Commerce, in settlement
of commercial and environmental disputes related to the Wisconsin Steel
property. In 1997, the U.S. Department of Justice and Transportation approved
the final consent decree related to the Wisconsin Steel property and the
Company paid the $11 million to the Economic Development Administration.
F-19
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. ENVIRONMENTAL MATTERS (CONTINUED)
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 known as the Superfund law. These cases involve
sites which allegedly have received wastes from current or former Company
locations. Based on information available to the Company, which in most cases
consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRPs
and/or federal or state regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the Company's share, if any, of the
probable costs and is provided for in the financial statements. These
obligations generally are recognized no later than completion of the remedial
feasibility study and are not discounted to their present value. The Company
reviews its accruals on a regular basis and believes that, based on these
calculations, its share of the potential additional costs for the cleanup of
each site will not have a material effect on the Company's financial results.
14. INDUSTRY SEGMENT DATA
Information concerning operations by industry segment is as follows:
<TABLE>
<CAPTION>
FINANCIAL
MANUFACTURING SERVICES
OPERATIONS OPERATIONS CONSOLIDATED
------------- ---------- ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
OCTOBER 31, 1997
Total sales and revenues............. $6,191 $ 239 $6,371
Operating profit..................... 873 101 924
Depreciation and amortization........ 97 23 120
Capital expenditures................. 172 -- 172
Identifiable assets.................. 4,111 1,857 5,516
OCTOBER 31, 1996
Total sales and revenues............. $5,550 $ 258 $5,754
Operating profit..................... 690 109 755
Depreciation and amortization........ 90 15 105
Capital expenditures................. 117 -- 117
Identifiable assets.................. 3,815 1,843 5,326
OCTOBER 31, 1995
Total sales and revenues............. $6,168 $ 235 $6,342
Operating profit..................... 845 80 870
Depreciation and amortization........ 75 11 86
Capital expenditures................. 139 -- 139
Identifiable assets.................. 4,018 1,922 5,566
</TABLE>
Intersegment sales and revenues were not material in 1997, 1996 or 1995.
Transactions between manufacturing operations and financial services
operations have been eliminated from the consolidated column.
15. PREFERRED AND PREFERENCE STOCKS
The Company's Nonconvertible Junior Preference Stock Series A is held for
the Retiree Supplemental Benefit Program by the Supplemental Trust which is
currently entitled to elect two members to the Company's Board of Directors.
The UAW holds the Nonconvertible Junior Preference Stock Series B and is
currently entitled to elect one member of the Company's Board of Directors. At
October 31, 1997, there was one share each of Series A and Series B Preference
stock authorized and outstanding. The value of the preference shares is
minimal.
F-20
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. PREFERRED AND PREFERENCE STOCKS (CONTINUED)
Other information pertaining to preferred and preference stocks outstanding
is summarized as follows:
<TABLE>
<CAPTION>
SERIES G CONVERTIBLE SERIES D CONVERTIBLE
CUMULATIVE PREFERRED JUNIOR PREFERENCE
-------------------- -----------------------
<S> <C> <C>
Number authorized and issued.. 4,800,000 3,000,000
Number outstanding............ 4,800,000 175,000
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 $6.00 120% of the cash
per share, payable dividends on Common
quarterly Stock as declared on a
</TABLE> common equivalent basis
Dividends may be paid out of surplus as defined under Delaware corporation
law. At October 31, 1997, the Company had such defined surplus of $1,007
million.
16. COMMON SHAREOWNERS' EQUITY
Changes in the common shareowners' equity accounts are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
COMMON STOCK
Beginning of year.............................. $ 1,642 $ 1,641 $ 1,628
Conversion of Class B Common Stock and other... 17 1 13
------- ------- -------
End of year.................................. $ 1,659 $ 1,642 $ 1,641
======= ======= =======
CLASS B COMMON STOCK
Beginning of year.............................. $ 491 $ 491 $ 501
Repurchase of stock............................ (20) -- (10)
------- ------- -------
End of year.................................. $ 471 $ 491 $ 491
======= ======= =======
RETAINED EARNINGS (DEFICIT)
Beginning of year.............................. $(1,431) $(1,478) $(1,538)
Net income..................................... 150 65 164
Preferred dividends............................ (29) (29) (22)
Minimum pension liability adjustments and
other......................................... 9 11 (82)
------- ------- -------
End of year.................................. $(1,301) $(1,431) $(1,478)
======= ======= =======
COMMON STOCK HELD IN TREASURY
Beginning of year.............................. $ (30) $ (28) $ (18)
Repurchase of Common Stock and other........... (23) (2) (10)
------- ------- -------
End of year.................................. $ (53) $ (30) $ (28)
======= ======= =======
</TABLE>
F-21
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
16. COMMON SHAREOWNERS' EQUITY (CONTINUED)
COMMON STOCK
The Company has authorized 110 million shares of Common Stock with a par
value of $.10 per share and 26 million shares of Class B Common Stock with a
par value of $.10 per share and restricted voting rights and transfer
provisions. At October 31, 1997 and 1996, there were 49.3 million and 49.4
million shares of Common Stock outstanding, net of Common Stock held in
Treasury, respectively. The number of shares of Class B Common Stock
outstanding at October 31, 1997 and 1996 was 23.1 million and 24.3 million,
respectively. The remaining Class B Common Stock will convert into Common
Stock on July 1, 1998.
17. STOCK COMPENSATION PLANS
The Company has stock-based compensation plans, approved by the Committee on
Organization of the Board of Directors, which provide for granting of stock
options to employees for purchase of Common Stock at the fair market value of
the stock on the date of grant. The grants are generally exercisable after one
year and generally have a ten-year life.
The Company has elected to continue to account for stock option grants in
accordance with Accounting Principles Board Opinion No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized for
fixed stock options because the exercise prices of the stock options equal the
market value of the Company's Common Stock at the date of grant. Had
compensation cost for the plans been determined based upon the fair value at
the grant date consistent with SFAS 123, pro forma net income would have been
$147 million in 1997 and $63 million in 1996 and pro forma earnings per share
would have been $1.61 in 1997 and $0.46 in 1996. The pro forma effect on net
income for 1997 and 1996 may not be representative of the pro forma effect on
net income of future years because it does not take into consideration pro
forma compensation expense relating to grants made prior to November 1, 1995.
The weighted-average fair values at date of grant for options granted during
1997 and 1996 were $5.71 and $5.34, respectively, and were estimated using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-free interest rate.......................................... 6.6% 6.1%
Dividend yield................................................... 0.0% 0.0%
Expected volatility.............................................. 29.8% 30.9%
Expected life in years........................................... 10 10
</TABLE>
The following summarizes stock option activity for the years ended October
31:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period.... 2,346 $20.34 1,762 $24.25 1,163 $30.08
Granted................. 876 10.13 718 10.45 642 13.58
Exercised............... (715) 12.45 -- -- -- --
Canceled................ (77) 28.52 (134) 18.75 (43) 22.46
----- ------ ----- ------ ----- ------
Options outstanding at
year end............... 2,430 $18.73 2,346 $20.34 1,762 $24.25
===== ====== ===== ====== ===== ======
Options exercisable at
year end............... 1,579 $23.35 1,682 $24.25 1,140 $30.07
===== ====== ===== ====== ===== ======
Options available for
grant at year end...... -- -- --
===== ===== =====
</TABLE>
F-22
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17. STOCK COMPENSATION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at October 31, 1997.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
-------- -------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.31-$13.75 1,448 8.5 $10.70 649 $12.11
17.40- 25.63 686 6.5 23.52 642 23.93
27.96- 37.50 113 5.5 36.78 105 37.43
43.75- 61.88 156 3.5 49.49 156 49.49
68.12- 91.25 27 1.1 73.09 27 73.09
</TABLE>
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---------------- ---------------- ----------------- ----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- -------- ------- ------- -------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues...... $ 1,296 $ 1,432 $ 1,551 $ 1,480 $ 1,586 $ 1,391 $ 1,938 $ 1,451
======= ======= ======= ======= ======== ======= ======= =======
Manufacturing gross
margin................. 13.6% 12.2% 13.8% 13.7% 13.8% 12.6% 15.2% 11.6%
======= ======= ======= ======= ======== ======= ======= =======
Net income.............. $ 15 $ 22 $ 30 $ 26 $ 35 $ 17 $ 70 --
Net income (loss) per
common share........... $ 0.10 $ 0.20 $ 0.31 $ 0.26 $ 0.38 $ 0.13 $ 0.85 $ (0.10)
Market price range--
Common Stock
High.................. $10 3/8 $12 1/8 $11 3/8 $12 $21 5/16 $12 $29 1/2 $10 3/8
Low................... $ 9 $ 9 1/2 $ 9 1/8 $ 9 1/2 $11 1/4 $ 9 1/8 $17 1/4 $ 8 1/2
</TABLE>
Net income per common share is computed independently based on the weighted
average number of Common and Class B Common shares at the end of each quarter.
F-23
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
19. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31 AND FOR THE YEARS THEN
ENDED (UNAUDITED)
NAVISTAR INTERNATIONAL CORPORATION (WITH FINANCIAL SERVICES OPERATIONS ON AN
EQUITY BASIS) IN MILLIONS OF DOLLARS:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CONDENSED STATEMENT OF INCOME
Sales of manufactured products............................ $6,147 $5,508 $6,125
Other income.............................................. 44 42 43
------ ------ ------
Total sales and revenues............................ 6,191 5,550 6,168
------ ------ ------
Cost of products sold..................................... 5,274 4,818 5,280
Postretirement benefits................................... 214 219 205
Engineering and research expense.......................... 124 129 113
Marketing and administrative expense...................... 332 282 277
Other expenses............................................ 83 80 93
------ ------ ------
Total costs and expenses............................ 6,027 5,528 5,968
------ ------ ------
Income before income taxes
Manufacturing operations................................ 164 22 200
Financial services operations........................... 78 83 62
------ ------ ------
Income before income taxes.......................... 242 105 262
Income tax expense........................................ 92 40 98
------ ------ ------
Net income................................................ $ 150 $ 65 $ 164
====== ====== ======
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
CONDENSED STATEMENT OF FINANCIAL CONDITION
Cash, cash equivalents and marketable securities.......... $ 802 $ 707
Inventories............................................... 483 463
Property and equipment, net............................... 706 666
Equity in nonconsolidated subsidiaries.................... 322 306
Other assets.............................................. 864 643
Deferred tax asset, net................................... 934 1,030
------ ------
Total assets........................................ $4,111 $3,815
------ ------
Accounts payable.......................................... $1,060 $ 771
Postretirement benefits liabilities....................... 1,178 1,344
Other liabilities......................................... 853 784
Shareowners' equity....................................... 1,020 916
------ ------
Total liabilities and shareowners' equity........... $4,111 $3,815
====== ======
</TABLE>
F-24
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
19. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31 AND FOR THE YEARS
THEN ENDED (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
CONDENSED STATEMENT OF CASH FLOW
Cash flow from operations
Net income.............................................. $ 150 $ 65 $ 164
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization......................... 97 90 75
Equity in earnings of nonconsolidated companies, net
of dividends received................................ (8) (24) (28)
Deferred income taxes................................. 82 37 89
Other, net............................................ (26) 4 (66)
Change in operating assets and liabilities.............. 143 (172) 166
----- ----- -----
Cash provided by operations......................... 438 -- 400
----- ----- -----
Cash flow from investment programs
Purchase of marketable securities......................... (428) (501) (646)
Sales or maturities of marketable securities.............. 454 665 399
Capital expenditures...................................... (172) (117) (139)
Loan to NFC............................................... (99) -- --
Other investment programs, net............................ 4 (8) 8
----- ----- -----
Cash (used in) provided by investment programs...... (241) 39 (378)
----- ----- -----
Cash flow from financing activities................. (76) (48) (60)
----- ----- -----
Cash and cash equivalents
Increase (decrease) during the year..................... 121 (9) (38)
At beginning of the year................................ 452 461 499
----- ----- -----
Cash and cash equivalents at end of the year........ $ 573 $ 452 $ 461
===== ===== =====
</TABLE>
F-25
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY EXCHANGE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................ 4
Statistical and Market Data............................................... 4
Available Information..................................................... 4
Information Incorporated by Reference..................................... 5
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 20
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Selected Consolidated Financial and Operating Data........................ 27
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 29
Business.................................................................. 36
Management................................................................ 44
Description of Other Financing Arrangements............................... 45
The Exchange Offer........................................................ 48
Description of the Notes.................................................. 57
Certain Federal Income Tax Considerations................................. 92
Plan of Distribution...................................................... 96
Legal Matters............................................................. 96
Experts................................................................... 97
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NAVISTAR INTERNATIONAL
CORPORATION
OFFER TO EXCHANGE ITS SERIES B 7% SENIOR NOTES DUE 2003 FOR ANY AND ALL OF ITS
OUTSTANDING 7% SENIOR NOTES DUE 2003 AND TO EXCHANGE ITS SERIES B 8% SENIOR
SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING 8% SENIOR
SUBORDINATED NOTES DUE 2008
-----------------
PROSPECTUS
-----------------
MARCH , 1998
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware provides
that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceedings, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to any criminal
action or proceedings, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may also indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. To the extent that an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred
in connection with such defense.
Under Article Ninth of the Registrant's Restated Certificate of
Incorporation and Article XII of its By-Laws, as amended, the Registrant shall
indemnify any person who was or is made a party or is threatened to be made
party to or is otherwise involved in any action, suit or proceedings, whether
civil, criminal, administrative or investigative, by reason of the fact that
he or she is or was a director or officer of the Registrant (including any
predecessor corporation of the Registrant), or is or was serving at the
request of the Registrant 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, 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 person in connection therewith to the fullest
extent authorized by the General Corporation Law of the State of Delaware.
Such right of indemnification shall be a contract right and shall not be
exclusive of any other right which such directors, officers or representatives
may have or hereafter acquire under any statute, the Registrant's Restated
Certificate of Incorporation, the Registrant's By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
In addition, Section 102 of the General Corporation Law of the State of
Delaware allows a corporation to eliminate the personal liability of a
director of a corporation to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, except in the
case where the director (i) breaches his duty of loyalty, (ii) fails to act in
good faith, engages in intentional misconduct or knowingly violates a law,
(iii) authorized the payment of a dividend or approves a stock repurchase in
violation of the General Corporation Law of the State of Delaware or (iv)
obtains an improper personal benefit. Article Eighth of the Registrant's
Restated Certificate of Incorporation includes a provision which eliminates
directors' personal liability to the full extent permitted under the General
Corporation Law of the State of Delaware.
The Registrant maintains a policy of directors and officers liability
insurance covering certain liabilities incurred by its directors and officers
in connection with the performance of their duties.
II-1
<PAGE>
ITEM 21. EXHIBITS.
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.1 Indenture, dated as of February 4, 1998, by and between
the Company and Harris Trust and Savings Bank, as Trustee,
pursuant to which the Series B 7% Senior Notes due 2003
will be issued.
*4.2 Form of Series B 7% Senior Notes due 2003 (included in Ex-
hibit 4.1).
*4.3 Indenture, dated as of February 4, 1998, by and between
the Company and Harris Trust and Savings Bank, as Trustee,
pursuant to which the Series B 8% Senior Subordinated
Notes due 2008 will be issued.
*4.4 Form of Series B 8% Senior Subordinated Notes due 2008
(included in Exhibit 4.3).
*4.5 Purchase Agreement, dated as of January 30, 1998, by and
among the Company and J.P. Morgan Securities Inc., Credit
Suisse First Boston Corporation and Chase Securities Inc.,
as Initial Purchasers of the Senior Notes.
*4.6 Registration Rights Agreement, dated as of February 4,
1998, by and among the Company and J.P. Morgan Securities
Inc., Credit Suisse First Boston Corporation and Chase Se-
curities Inc., as Initial Purchasers of the Senior Notes.
*4.7 Purchase Agreement, dated as of January 30, 1998, by and
among the Company and J.P. Morgan Securities Inc., Credit
Suisse First Boston Corporation, Chase Securities Inc.,
BancAmerica Robertson Stephens and NationsBanc Montgomery
Securities L.L.C., as Initial Purchasers of the Senior
Subordinated Notes.
*4.8 Registration Rights Agreement, dated as of May 30, 1997,
by and among the Company and J.P. Morgan Securities Inc.,
Credit Suisse First Boston Corporation, Chase Securities
Inc., BankAmerica Robertson Stephens and NationsBanc Mont-
gomery Securities L.L.C., as Initial Purchasers of the Se-
nior Subordinated Notes.
*5.1 Opinion of Kirkland & Ellis regarding legality of securi-
ties being registered.
*12.1 Statement regarding computation of ratios.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1.
24.1 Powers of Attorney.
*25.1 Statement of Eligibility of Trustee.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
*To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-2
<PAGE>
(iii) To include any material information with respect ot the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, ILLINOIS, AS OF
FEBRUARY 27, 1998.
Navistar International Corporation
By: /s/ Robert C. Lannert
--------------------------------
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND AS OF
THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman, President and February 27, 1998
____________________________________ Chief Executive Officer and
John R. Horne Director (Principal
Executive Officer)
/s/ Robert C. Lannert Executive Vice President and February 27, 1998
____________________________________ Chief Financial Officer and
Robert C. Lannert Director(Principal
Financial Officer)
* Vice President and February 27, 1998
____________________________________ Controller (Principal
J. Steven Keate Accounting Officer)
* Director February 27, 1998
____________________________________
John D. Correnti
* Director February 27, 1998
____________________________________
William C. Craig
* Director February 27, 1998
____________________________________
</TABLE> Jerry E. Dempsey
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director February 27, 1998
____________________________________
Mary Garst
* Director February 27, 1998
____________________________________
Michael N. Hammes
* Director February 27, 1998
____________________________________
Allen J. Krowe
</TABLE>
*The undersigned, by signing his name hereto, does hereby execute this
Registration Statement on behalf of the above-named officers and/or
directors of the Registrant pursuant to Powers of Attorneys being
concurrently filed with the Commission.
/s/ Robert C. Lannert
__________________________________________
Robert C. Lannert, Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.1 Indenture, dated as of February 4, 1998, by and between the
Company and Harris Trust and Savings Bank, as Trustee, pursu-
ant to which the Series B 7% Senior Notes due 2003 will be is-
sued.
*4.2 Form of Series B 7% Senior Notes due 2003 (included in Exhibit
4.1).
*4.3 Indenture, dated as of February 4, 1998, by and between the
Company and Harris Trust and Savings Bank, as Trustee, pursu-
ant to which the Series B 8% Senior Subordinated Notes due
2008 will be issued.
*4.4 Form of Series B 8% Senior Subordinated Notes due 2008 (in-
cluded in Exhibit 4.3).
*4.5 Purchase Agreement, dated as of January 30, 1998, by and among
the Company and J.P. Morgan Securities Inc., Credit Suisse
First Boston Corporation and Chase Securities Inc., as Initial
Purchasers of the Senior Notes.
*4.6 Registration Rights Agreement, dated as of February 4, 1998,
by and among the Company and J.P. Morgan Securities Inc.,
Credit Suisse First Boston Corporation and Chase Securities
Inc., as Initial Purchasers of the Senior Notes.
*4.7 Purchase Agreement, dated as of January 30, 1998, by and among
the Company and J.P. Morgan Securities Inc., Credit Suisse
First Boston Corporation, Chase Securities Inc., BancAmerica
Robertson Stephens and NationsBanc Montgomery Securities
L.L.C., as Initial Purchasers of the Senior Subordinated
Notes.
*4.8 Registration Rights Agreement, dated as of May 30, 1997, by
and among the Company and J.P. Morgan Securities Inc., Credit
Suisse First Boston Corporation, Chase Securities Inc.,
BankAmerica Robertson Stephens and NationsBanc Montgomery Se-
curities L.L.C., as Initial Purchasers of the Senior Subordi-
nated Notes.
*5.1 Opinion of Kirkland & Ellis regarding legality of securities
being registered.
*12.1 Statement regarding computation of ratios.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1.
24.1 Powers of Attorney.
*25.1 Statement of Eligibility of Trustee.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* To be filed by amendment.
II-6
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Navistar
International Corporation on Form S-4 of our report dated December 15, 1997,
appearing in the Prospectus, which is part of this Registration Statement, and
of our report also dated December 15, 1997 relating to the financial statement
schedule incorporated by reference in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
February 26, 1998
<PAGE>
EXHIBIT 24.1
NAVISTAR INTERNATIONAL CORPORATION
POWER OF ATTORNEY
REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of the Navistar International Corporation ( the "Company "), hereby
appoint John R. Horne, Robert C. Lannert, Robert A. Boardman and J. Steven
Keate, and each of them, as attorneys-in-fact for the undersigned and for each
of them (with full power of substitution and resubstitution), for and in the
name, place and stead of each of undersigned officers and directors of the
Company, to sign and file with the Securities and Exchange Commission under
the Securities Act of 1933, a Registration Statement on Form S-4 (the
"Registration Statement"), for the purpose of registering the Company's offer
to exchange its Series B 7% Senior Notes due 2003 for all its outstanding 7%
Senior Notes due 2003 and its Series B 8% Senior Subordinated Notes due 2008
for all of its outstanding 8% Senior Subordinated Notes due 2008, and any and
all amendments, supplements and exhibits to any such Registration Statement,
including post-effective amendments, and any and all documents required to be
filed with any state securities regulating board or commission pertaining to
such Registration Statement or securities covered thereby, hereby granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
order to effectuate the same as fully and to all intents and purposes as each
of the undersigned might or could do if personally present, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
any of their substitutes, may do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ John R. Horne Chairman, President and Chief
Executive Officer and Director
(Principal Executive Officer)
February 27,
- ------------------------------------- 1998
JOHN R. HORNE
Executive Vice President and
Chief Financial Officer and
Director (Principal Financial
Officer)
February ,
- ------------------------------------- 1998
- -------------------------------------
ROBERT C. LANNERT
/s/ J. Steven Keate Vice President and Controller
(Principal Accounting Officer)
February 27,
- ------------------------------------- 1988
J. STEVEN KEATE
Director February ,
- ------------------------------------- 1998
WILLIAM F. ANDREWS
Director February ,
- ------------------------------------- 1998
ANDREW F. BRIMMER
/s/ John D. Correnti Director February 25,
- ------------------------------------- 1998
JOHN D. CORRENTI
<PAGE>
SIGNATURE TITLE DATE
/s/ William C. Craig Director February 25,
- ------------------------------------- 1998
WILLIAM C. CRAIG
/s/ Jerry E. Dempsey Director February 25,
- ------------------------------------- 1998
JERRY E. DEMPSEY
Director February ,
- ------------------------------------- 1998
JOHN F. FIEDLER
Director February ,
- ------------------------------------- 1998
JOHN T. GRIGSBY, JR.
/s/ Mary Garst Director February 24,
- ------------------------------------- 1998
MARY GARST
/s/ Michael N. Hammes Director February 24,
- ------------------------------------- 1998
MICHAEL N. HAMMES
/s/ Allen J. Krowe Director February 25,
- ------------------------------------- 1998
ALLEN J. KROWE
Director February ,
- ------------------------------------- 1998
WALTER J. LASKOWSKI
Director February ,
- ------------------------------------- 1998
WILLIAM F. PATIENT
