<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
REGISTRATION NO. 333-52375
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NAVISTAR INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 36-3359573
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
455 NORTH CITYFRONT PLAZA DRIVE
CHICAGO, ILLINOIS 60611
TELEPHONE: (312) 836-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL OFFICES)
---------------
ROBERT A. BOARDMAN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
455 NORTH CITYFRONT PLAZA DRIVE
CHICAGO, ILLINOIS 60611
TELEPHONE: (312) 836-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL H. KERR, ESQ.
JOHN S. D'ALIMONTE, ESQ.
MARC S. ROSENBERG, ESQ.
KIRKLAND & ELLIS
WILLKIE FARR & GALLAGHER
CRAVATH, SWAINE & MOORE
200 EAST RANDOLPH DRIVE
153 EAST 53RD STREET 825 EIGHTH AVENUE
CHICAGO, ILLINOIS 60601
NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019
(312) 861-2000 (212) 821-8000 (212) 474-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible following the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS INCLUDED IN
THIS REGISTRATION STATEMENT ALSO RELATES TO THE COMPANY'S REGISTRATION
STATEMENT ON FORM S-3 (REGISTRATION NO. 333-48125) FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON MARCH 17, 1998. THIS REGISTRATION STATEMENT, WHICH
IS A NEW REGISTRATION STATEMENT, ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO.
1 TO REGISTRATION STATEMENT NO. 333-48125, AND SUCH POST-EFFECTIVE AMENDMENT
SHALL HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES ACT.
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.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in a concurrent underwritten
offering outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus are
identical except for the front and back cover pages. The form of U.S.
Prospectus is included herein and is followed by the alternate pages to be
used in the International Prospectus. The alternate pages for the
International Prospectus included herein are each labeled "International
Prospectus Alternate Page." Final forms of each prospectus will be filed with
the Securities and Exchange Commission under Rule 424(b) under the Securities
Act.
<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 MAY 13, 1998
PROSPECTUS
19,894,103 SHARES
LOGO
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
--------
All of the shares of Common Stock, par value $.10 per share (the "Common
Stock"), of Navistar International Corporation, a Delaware corporation
("Navistar" or the "Company"), offered hereby are being sold by the Navistar
International Transportation Corp. Retiree Supplemental Benefit Trust (the
"Supplemental Trust" or "Selling Stockholder"). The Supplemental Trust was
established in 1993 for the purpose of funding certain retiree health care
benefits. See "Selling Stockholder." The Company will not receive any proceeds
from the sale of shares by the Selling Stockholder.
Of the 19,894,103 shares of Common Stock being offered hereby, a total of
15,894,103 shares are being offered hereby for sale in the United States and
Canada (the "U.S. Offering") by the U.S. Underwriters (as defined) and a total
of 4,000,000 shares are being offered by the Managers (as defined) in a
concurrent international offering outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the
"Offerings"). The Company has agreed, subject to certain conditions, to
purchase 2,000,000 shares of Common Stock in the Offerings.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "NAV." On May 12, 1998, the last reported sales price of the Common
Stock on the NYSE was $27.00 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------
Total(3) $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Under certain circumstances, the Company will pay all or a portion of the
underwriting discounts and commissions. For information regarding
indemnification of the U.S. Underwriters, see "Underwriting."
(2) The Company will pay expenses related to the Offerings estimated at
$ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,300,000 additional shares to cover over-allotments, if any. See
"Underwriting." If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ and $ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001, or through the facilities of The Depository Trust
Company.
--------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON MARKET MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. SUCH ACTIVITIES, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
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 ("NIC") 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." Unless otherwise indicated, the
information contained in this Prospectus assumes the Underwriters' over-
allotment option is not exercised.
THE COMPANY
Navistar manufactures and markets 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. 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 had total
sales and revenues, income before income taxes and diluted earnings per share
of $6,371 million, $242 million and $1.65, respectively.
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 has completed
the construction of a new truck assembly facility located near Monterrey,
Mexico. Through Navistar Financial Corporation ("NFC"), the Company provides
wholesale, retail and, to a lesser extent, lease financing in the United States
and Mexico 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
school 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 eight regional parts distribution centers in North America, 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 American Truck Dealers ("ATD")
Attitude Survey, which evaluates OEMs on quality and performance issues related
to products, parts, policies and service.
3
<PAGE>
Leading 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 an 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 with over 8,500 lbs. gross vehicle weight
("GVW"). 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. In addition, the Company was recently
selected by Ford to negotiate an extended agreement to supply diesel engines
for select Ford under 8,500 lbs. GVW light trucks and sport utility vehicles,
such as the Ford Expedition, Lincoln Navigator, F-150 and F-250 pick-ups, and
Econoline 150 and 250 van models. Ford does not currently use a diesel engine
in its under 8,500 lbs. GVW light trucks and sport utility vehicles. 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
trucks. Under this program, Transportation rationalized the number of
possible option combinations by developing pre-packaged, application-
specific 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
consists 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 trucks. Similarly, in fiscal 1997 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 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 vehicle program (such program, formerly referred
to as the next generation truck program, is herein referred to as the
"NGV Program"). Pursuant to the NGV
4
<PAGE>
Program, the 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 NGV 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
heavy truck to replace the International(R) 8200 conventional heavy
truck and made significant improvements to its premium conventional
heavy truck models. Further model improvements are expected to be
introduced for Transportation's premium conventional heavy 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 has completed the construction of an assembly
facility located near Monterrey, Mexico. This medium and heavy truck
assembly facility is anticipated to cost approximately $167 million and
is expected to begin production by late summer 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 mid-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 NGV 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.
BACKGROUND OF THE OFFERINGS
In July 1993, Navistar restructured its postretirement health care and life
insurance benefits pursuant to a settlement agreement (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 required, among other
things, that Navistar establish the Supplemental Trust for the purpose of
funding certain retiree health care benefits under a Supplemental Benefit
Program. On July 1, 1993, the Company contributed 25,641,545 shares of Class B
Common Stock to the Supplemental Trust in satisfaction of certain of its
obligations under the Settlement Agreement. The Supplemental Trust currently
holds 19,894,103 shares of Class B Common Stock, representing all of the
outstanding shares of Class B Common Stock.
The Settlement Agreement added three seats to Navistar's Board of Directors,
one elected by the UAW and two elected by the committee that administers the
Supplemental Benefit Program (the "Supplemental Committee") on behalf of the
Supplemental Trust. Upon completion of the Offerings, the two directors
currently serving on Navistar's Board who were elected by the Supplemental
Committee on behalf of the Supplemental Trust will be deemed to have resigned.
See "Description of Capital Stock--Preferred Stock and Preference Stock" and
"Selling Stockholder."
5
<PAGE>
REQUIRED APPROVAL FOR CERTAIN PURCHASES OF COMMON STOCK
Article Eleventh of the Company's Certificate of Incorporation ("Article
Eleventh") requires approval by the Board of Directors of the Company for any
purchase of Common Stock in the Offerings if the purchaser will have a
Prohibited Ownership Percentage (defined generally as direct or indirect
ownership of 4.5% or more (based on value) of the Company's stock) upon
completion of the Offerings. Purchases of Common Stock from the U.S.
Underwriters or the Managers pursuant to the Offerings are subject to the
limitations imposed by Article Eleventh, and any unapproved purchase in excess
of the amounts permitted by Article Eleventh will be void. A prospective
purchaser of Common Stock in the Offerings who believes that a purchase by it
may be subject to the limitations imposed by Article Eleventh should consult
with such person's advisors or the Company to determine if approval must be
obtained from the Board of Directors of the Company. In accordance with the
terms of the Common Stock, purchasers of Common Stock in the Offerings (or
otherwise) consent by virtue of such purchase to the limitations imposed by
Article Eleventh. See "Description of Capital Stock--Prohibited Transfer
Provisions."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by Selling
Stockholder (1):
U.S. Offering................... 15,894,103
International Offering.......... 4,000,000
----------
Total......................... 19,894,103
==========
Common Stock to be outstanding
after the Offerings (2)(3)....... 67,010,286
Use of Proceeds................... All shares offered hereby are being sold by
the Selling Stockholder (other than shares
subject to the over-allotment option). The
Company will not receive any of the
proceeds from the sale of shares by the
Selling Stockholder. Any proceeds received
by the Company upon the exercise of the
U.S. Underwriters' over-allotment option
would be used to partially offset the
purchase price to be paid by the Company
for the 2,000,000 shares of Common Stock it
will acquire in the Offerings. See
"Capitalization" and "Use of Proceeds."
NYSE Symbol....................... NAV
</TABLE>
- --------
(1) Represents shares of Class B Common Stock which will automatically convert
into shares of Common Stock on a share-for-share basis upon the sale by the
Selling Stockholder in the Offerings. All outstanding shares of Class B
Common Stock are held by the Selling Stockholder. The Class B Common Stock
is identical to the Common Stock, except with respect to voting rights and
transferability. No shares of Class B Common Stock are expected to remain
outstanding after the completion of the Offerings. See "Selling
Stockholder" and "Description of Capital Stock--Class B Common Stock."
(2) Reflects the purchase by the Company of 2,000,000 shares of Common Stock in
the Offerings. Does not include the 1,300,000 shares of Common Stock
subject to the over-allotment option granted to the U.S. Underwriters by
the Company. See "Underwriting."
(3) As of April 30, 1998. Does not include: (i) 2,662,523 shares of Common
Stock issuable upon the exercise of outstanding stock options or (ii)
491,414 additional shares of Common Stock reserved for future grants or
awards under the Company's existing stock incentive plans.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the "Risk Factors" immediately following this Prospectus Summary.
----------------
Market data used throughout this Prospectus were obtained from internal
Company estimates and industry publications, including those generated by the
American Automobile Manufacturers Associations, the Canadian Vehicle
Manufacturers Association, the Motor Vehicle Manufacturers Association in the
United States and Canada, 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. The Company has not independently verified such market data or
obtained the consent of any of the industry publications referenced herein.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data of the Company and its subsidiaries for the periods indicated. The
Company's summary consolidated financial data for the three year period ended
October 31, 1997 has been derived from Navistar's audited consolidated
financial statements and notes thereto. The Company's summary consolidated
financial data for the three months ended January 31, 1998 and 1997 has been
derived from unaudited consolidated financial statements which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
periods. Results for the three months ended January 31, 1998 are not
necessarily indicative of results that may be expected for the entire year. 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>
THREE MONTHS
ENDED JANUARY FISCAL YEAR ENDED OCTOBER
31, 31,
---------------- ----------------------------
1998 1997 1997 1996 1995
------- ------- -------- -------- --------
(IN MILLIONS, EXCEPT SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales and revenues:
Sales of manufactured
products.................... $ 1,672 $ 1,240 $ 6,147 $ 5,508 $ 6,125
Finance and insurance
revenue(1).................. 45 45 174 197 167
Other income................. 10 11 50 49 50
------- ------- -------- -------- --------
Total sales and revenues... 1,727 1,296 6,371 5,754 6,342
------- ------- -------- -------- --------
Costs and expenses:
Cost of products and services
sold........................ 1,454 1,076 5,292 4,827 5,288
Other expenses............... 195 179 763 739 705
Interest expense............. 17 17 74 83 87
------- ------- -------- -------- --------
Total costs and expenses... 1,666 1,272 6,129 5,649 6,080
------- ------- -------- -------- --------
Income before income taxes..... 61 24 242 105 262
Income tax expense............. 23 9 92 40 98
------- ------- -------- -------- --------
Net income..................... 38 15 150 65 164
Less dividends on Series G
preferred stock(2)............ 7 7 29 29 29
------- ------- -------- -------- --------
Net income applicable to common
stock......................... $ 31 $ 8 $ 121 $ 36 $ 135
======= ======= ======== ======== ========
Diluted earnings per share(3).. $ .42 $ .10 $ 1.65 $ .49 $ 1.83
Diluted average number of
shares outstanding
(in millions)(4).............. 72.5 73.7 73.6 73.8 74.3
SELECTED BALANCE SHEET DATA (AT
END OF PERIOD)(2):
Total assets................... $ 4,929 $ 4,757 $ 5,516 $ 5,326 $ 5,566
Total debt..................... 1,145 1,060 1,316 1,420 1,457
Total sharehowners' equity..... 973 922 1,020 916 870
OTHER FINANCIAL AND OPERATING
DATA:
Capital expenditures........... $ 60 $ 25 $ 172 $ 117 $ 139
Depreciation and amortization.. 39 33 120 105 86
United States and Canadian
retail deliveries of trucks
and school buses.............. 24,900 19,000 99,500 94,000 101,700
United States and Canadian
market share(5)............... 28.6% 26.4% 28.6% 27.5% 26.7%
Worldwide unit shipments:
Trucks and school buses...... 29,400 20,400 104,400 95,200 112,200
OEM engines.................. 42,600 41,000 184,000 163,200 154,200
Parts sales.................... $ 185 $ 186 $ 806 $ 760 $ 730
</TABLE>
8
<PAGE>
(1) Includes revenues of NFC as well as the Company's other financial services
subsidiaries.
(2) On February 4, 1998, the Company issued an aggregate of $100 million
principal amount of 7% Senior Notes due 2003 (the "Senior Notes") and $250
million principal amount of 8% Senior Subordinated Notes due 2008 (the
"Senior Subordinated Notes" and, together with the Senior Notes, the
"Notes"). The net proceeds from the sale of the Notes were used or will be
used to: (i) redeem all of the Company's issued and outstanding Series G
Convertible Cumulative Preferred Stock (the "Series G Preferred Stock");
(ii) repay the Company's 9% Sinking Fund Debentures; (iii) redeem the
Company's 8% Secured Note; and (iv) provide working capital. See
"Capitalization."
(3) The earnings per common share information for the three year period ended
October 31, 1997 has been restated to reflect the new earnings per share
calculation required by Statement of Accounting Standards No. 128 "Earnings
Per Share."
(4) 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.
(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.
9
<PAGE>
RISK FACTORS
Potential investors in the Common Stock offered hereby 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 CYCLICALITY 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. The most recent industry
downturn was in the early 1990s, and before that the previous downturn was in
the early to mid 1980s. The financial information for the Company included in
this Prospectus reflects operating results for the Company only during a
period of strong industry demand. Downturns in industry volumes historically
have resulted in a sharp decline in the Company's sales and order backlog
caused by, among other things, a decline in incoming orders and a cancellation
of existing orders.
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. 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 NGV Program. Capital expenditures for
fiscal 1998 are expected to be approximately $400 million, of which $25
million is to be spent for the NGV Program. The fiscal 1998 budget also
includes expenditures for commencement of assembly operations at the Company's
Mexican facility, 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 NGV 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 NGV Program and to meet its other capital
expenditure and development objectives. The projected expenditures described
above do not include capital and development expenditures that the Company
would be required to make for introduction of its next generation diesel
engine to Ford, and, if the Company is successful in its negotiations, for
introduction of diesel engines for use in certain of Ford's under 8,500 lbs.
GVW light trucks and sport utility vehicles. 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 NGV
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
10
<PAGE>
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. In addition, restrictive covenants under
the indentures for Notes and under the Company's Mexican credit facility (the
"Mexican Facility") may limit how much debt financing the Company can raise,
and a need to preserve the Company's net operating losses may limit the
Company's ability to raise equity financing. If adequate funds are not
available, the Company may be required to cut back or discontinue the NGV
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."
RELIANCE ON MAJOR CUSTOMER
Ford accounted for approximately 14% of the Company's consolidated sales and
revenues during fiscal 1997 and fiscal 1996 and approximately 12% for fiscal
1995. Ford is the primary OEM customer for the Company's diesel engines.
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.
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 unfunded portion of the accumulated benefit obligation of Navistar's
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.
11
<PAGE>
In addition to providing pension benefits, Navistar provides health care and
life insurance benefits for a majority of its retired employees and their
spouses and certain dependents and will provide retiree health care and life
insurance benefits for most of its existing employees hired before July 1,
1993. In 1993, a trust (the "Base Trust") was established under the Navistar
Retiree Health Benefit and Life Insurance Program (the "Base Program") to
partially fund this post-retirement health care liability. 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.
RISK OF LOSS OF TAX BENEFITS AND RESTRICTIONS ON STOCK TRANSFER
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. Under Section 382 ("Section 382") of the
Internal Revenue Code of 1986, as amended (the "Code"), an "ownership change"
would be deemed to have occurred if on any testing date the ownership of stock
by one or more 5-percent shareholders had increased by more than 50 percentage
points during the preceding three years. 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."
The need to preserve the Company's NOLs by complying with the limitations
imposed by Section 382 may limit the Company's ability to raise equity
financing in the future. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Income Taxes" for a discussion of the
Company's NOLs.
The Common Stock sold to the public in the Offerings will be deemed, for
purposes of Section 382, to have been acquired by a separate "public group"
treated as a new 5-percent shareholder which had an increase in ownership. The
ownership increase by this new "public group," as well as any ownership
increase by other 5-percent shareholders, must be taken into account in
determining whether the Company has undergone an "ownership change" under
Section 382.
The Offerings will not result in an "ownership change." However, the Company
has taken and must continue to take into account the "public group" ownership
increase resulting from the Common Stock sold in the Offerings for three years
after the sale in computing the change in ownership for future transactions
(including the issuance of additional Common Stock or equity-related
instruments).
As part of the Settlement Agreement, a provision (the "Prohibited Transfer
Provision") was added to Navistar'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.
Under the Prohibited Transfer Provision, if a shareowner transfers or agrees
to transfer stock, the transfer will be prohibited to the extent that it (i)
would cause the transferee to hold a "Prohibited Ownership Percentage" or (ii)
would result in the transferee's ownership increasing if the transferee
already holds (or has held within the three prior years) a Prohibited
Ownership Percentage. A "Prohibited Ownership Percentage" is defined under
Navistar's Certificate of Incorporation by reference to complex federal tax
laws and regulations, but generally means direct and indirect ownership of
4.5% or more (based on value) of Navistar's stock (the use of a 4.5%
limitation rather than the Code's 5% limitation is intended to provide a
measure of safety). The Prohibited Transfer Provision does not prevent
transfers of stock between persons who do not hold a Prohibited Ownership
Percentage. See "Description of Capital Stock--Prohibited Transfer Provision."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND STATUTORY PROVISIONS
As a result of the Settlement Agreement, the Company's Certificate of
Incorporation provides that the affirmative vote of holders of at least 85% of
the shares of Common Stock (together with any outstanding Class
12
<PAGE>
B Common Stock) present at a meeting is required to approve certain mergers
and consolidations or a sale of all or substantially all of the Company's
assets (a "Supermajority Transaction"). Accordingly, any holder of 15% or more
of the aggregate outstanding Common Stock and Class B Common Stock represented
at any meeting of shareowners will be able to block any Supermajority
Transaction. The Company's Certificate of Incorporation and By-laws also
contain provisions which (i) permit the Company to issue so-called "flexible"
preferred stock, (ii) provide for a classified Board of Directors (which has
the effect under Delaware law of precluding shareowners from removing
directors without cause), (iii) limit the filling of Board vacancies to the
remaining directors, and (iv) prohibit shareowners from taking action by
written consent or calling special meetings. The Company also is subject to
Section 203 of the Delaware General Corporation Law, which restricts the
Company from engaging in certain business combinations with "interested
stockholders." The fact that the Company's utilization of its NOLs could be
adversely affected by a change of control also could have an anti-takeover
effect.
Although not intended, the foregoing provisions, as well as the Prohibited
Transfer Provision, may adversely affect the marketability of the Common Stock
by discouraging potential investors from acquiring stock of the Company. In
addition, these provisions could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy
contest involving the Company, or impede an attempt to acquire a significant
or controlling interest in the Company, even if such events might be
beneficial to the Company and its shareowners. See "Description of Capital
Stock--Prohibited Transfer Provision" and "--Certain Certificate of
Incorporation and By-laws Provisions; Certain Provisions of Delaware Law."
POSSIBLE VOLATILITY OF SHARE PRICE
The market price for the Common Stock may be significantly affected by
factors such as the announcement of new products or other strategic
initiatives by the Company or its competitors, technological innovations by
the Company or its competitors, the growth and expansion of the Company's
business, trends and uncertainties affecting the truck manufacturing industry
as a whole, issuances and repurchases of Common Stock, quarterly variations in
the Company's operating results or the operating results of the Company's
competitors, investors' expectations of the Company's prospects, changes in
earnings estimates by analysts or reported results that vary materially from
such estimates and general economic and other conditions, including the
cyclicality of the Company's business. In addition, in recent years the stock
market has experienced extreme price fluctuations. This volatility has had a
substantial effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Common Stock. See "Price Range of Common Stock."
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (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 and the documents incorporated by reference
herein generally. In addition, when used in this Prospectus, the words
"believes," "anticipates," "expects," "estimates," "intends," "indicates,"
"plans," "predicts" and "will be" 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 or
incorporated by reference in this Prospectus. The Company 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.
13
<PAGE>
USE OF PROCEEDS
All shares of Common Stock offered hereby are being sold by the Selling
Stockholder (other than shares subject to the over-allotment option). The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholder. See "Selling Stockholder." The Company will receive approximately
$35.1 million (before deducting expenses, including, under certain
circumstances, all or a portion of the underwriting discounts and commissions,
relating to the Offerings and payable by the Company) in the event that the
over-allotment granted to the U.S. Underwriters is exercised in full (at an
assumed public offering price of $27.00 per share). Any proceeds to the
Company from the exercise of such option would be used to partially offset the
purchase price to be paid by the Company for the 2,000,000 shares of Common
Stock it will acquire in the Offerings. See "Capitalization."
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since 1980. At
present, the Company does not expect to pay cash dividends on the Common Stock
in the foreseeable future. Any future determination to pay cash dividends will
be made by the Board of Directors in light of the Company's earnings,
financial position, capital requirements and such other factors as the Board
of Directors deems relevant at such time. The indentures under which the Notes
were issued contain restrictions on the Company's ability to pay cash
dividends on the Common Stock. In addition, the credit facility relating to
the Mexican Facility requires the Company to maintain certain debt to equity
ratios, which may indirectly limit the ability of the Company to pay cash
dividends on the Common Stock.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is listed on the New York, Chicago and
Pacific Stock Exchanges under the symbol "NAV." The table below sets forth the
high and low sales prices of the Common Stock on the NYSE Composite
Transactions Tape as reported in The Wall Street Journal during the indicated
time periods.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 1995
First Quarter ended January 31........................ $17 1/2 $12 5/8
Second Quarter ended April 30......................... 16 5/8 12 1/8
Third Quarter ended July 31........................... 16 5/8 13 3/4
Fourth Quarter ended October 31....................... 15 3/8 9
FISCAL YEAR 1996
First Quarter ended January 31........................ 12 3/8 9 1/2
Second Quarter ended April 30......................... 12 1/8 9 1/2
Third Quarter ended July 31........................... 12 1/8 9
Fourth Quarter ended October 31....................... 10 1/2 8 3/8
FISCAL YEAR 1997
First Quarter ended January 31........................ 10 3/8 9
Second Quarter ended April 30......................... 11 3/8 9 1/8
Third Quarter ended July 31........................... 21 5/16 11 1/4
Fourth Quarter ended October 31....................... 29 1/2 17 1/4
FISCAL YEAR 1998
First Quarter ended January 31........................ 28 20 1/16
Second Quarter ended April 30......................... 35 7/8 27 1/4
</TABLE>
For a recent sales price of the Common Stock on the NYSE, see the cover page
of this Prospectus. At April 30, 1998, the Company's Common Stock was held by
approximately 56,574 holders of record.
14
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of January 31, 1998 and pro forma to give effect to (i) the sale of the
Notes by the Company in February 1998 and the application of the net proceeds
therefrom, (ii) the conversion of all of the outstanding Class B Common Stock
to Common Stock in connection with the Offerings and (iii) the purchase of
2,000,000 shares of Common Stock by the Company in the Offerings (at an
assumed public offering price of $27.00 per share). The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholder. The following table does not give effect to (x) the
issuance of 1,300,000 shares of Common Stock by the Company in the event that
the over-allotment option is exercised in full or (y) the payment by the
Company of expenses relating to the Offerings, including, under certain
circumstances, all or a portion of the underwriting discounts and commissions.
<TABLE>
<CAPTION>
AT JANUARY 31,
1998
----------------
PRO
ACTUAL FORMA
------- -------
(IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents and marketable securities............. $ 549 $ 519
======= =======
TOTAL DEBT (INCLUDING CURRENT PORTION):
Manufacturing operations:
9% Sinking Fund Debentures due 2004........................ $ 45 $ --
8% Secured Note due 2002................................... 26 --
Capitalized leases and other obligations................... 19 19
Mexican Facility........................................... 35 35
7% Senior Notes due 2003 (1)............................... -- 100
8% Senior Subordinated Notes due 2008 (1).................. -- 250
------- -------
Total manufacturing operations debt...................... 125 404
Financial services operations:
Asset-backed commercial paper program...................... 143 143
Bank credit facility....................................... 430 430
8 7/8% Senior Subordinated Notes due 1998.................. 82 82
9% Senior Subordinated Notes due 2002...................... 100 100
Capitalized leases......................................... 149 149
Short-term debt............................................ 116 116
------- -------
Total financial services debt............................ 1,020 1,020
------- -------
Total debt............................................... 1,145 1,424
------- -------
SHAREOWNERS' EQUITY:
Series G convertible cumulative preferred stock (1)
(liquidation preference $240 million)..................... 240 --
Series D convertible junior preference stock (liquidation
preference $4 million).................................... 4 4
Common Stock (2)........................................... 1,748 2,136
Class B Common Stock (2)................................... 388 --
Retained earnings (deficit)................................ (1,271) (1,271)
Treasury stock, at cost.................................... (136) (193)
------- -------
Total shareowners' equity................................ 973 676
------- -------
Total capitalization..................................... $ 2,118 $ 2,100
======= =======
</TABLE>
- --------
(1) On February 4, 1998, the Company issued an aggregate of $100 million
principal amount of Senior Notes and $250 million principal amount of
Senior Subordinated Notes. The net proceeds from the sale of the Notes
were used or will be used to: (i) redeem all of the Company's issued and
outstanding Series G Preferred Stock; (ii) repay the Company's 9% Sinking
Fund Debentures; (iii) redeem the Company's 8% Secured Note; and (iv)
provide working capital.
(2) All outstanding shares of Class B Common Stock are held by the Selling
Stockholder. The Class B Common Stock will automatically convert into
shares of Common Stock on a share-for-share basis upon the sale by the
Selling Stockholder in the Offerings. No shares of Class B Common Stock
are expected to remain outstanding after the Offerings.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data for Navistar for the five year
period ended October 31, 1997 has been derived from Navistar's audited
consolidated financial statements and notes thereto. The Company's selected
consolidated financial data for the three months ended January 31, 1998 and
1997 has been derived from unaudited consolidated financial statements which,
in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited periods. Results for the three months ended January 31, 1998
are not necessarily indicative of results that may be expected for the entire
year. 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>
THREE MONTHS
ENDED
JANUARY 31, FISCAL YEAR ENDED OCTOBER 31,
------------- ------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Sales and revenues:
Sales of manufactured
products................. $1,672 $1,240 $6,147 $5,508 $6,125 $5,153 $ 4,510
Finance and insurance
revenue(1)............... 45 45 174 197 167 152 181
Other income.............. 10 11 50 49 50 32 30
------ ------ ------ ------ ------ ------ -------
Total sales and
revenues............... 1,727 1,296 6,371 5,754 6,342 5,337 4,721
------ ------ ------ ------ ------ ------ -------
Costs and expenses:
Cost of products and
services sold............ 1,454 1,076 5,292 4,827 5,288 4,496 3,925
Other expenses(2)......... 195 179 763 739 705 608 1,146
Interest expense.......... 17 17 74 83 87 75 91
------ ------ ------ ------ ------ ------ -------
Total costs and
expenses............... 1,666 1,272 6,129 5,649 6,080 5,179 5,162
------ ------ ------ ------ ------ ------ -------
Income (loss) before income
taxes..................... 61 24 242 105 262 158 (441)
Income tax expense
(benefit)................. 23 9 92 40 98 56 (168)
------ ------ ------ ------ ------ ------ -------
Income (loss) of continuing
operations................ 38 15 150 65 164 102 (273)
Loss of discontinued
operations(3)............. -- -- -- -- -- (20) --
Cumulative effect of
changes in accounting
policy(4)................. -- -- -- -- -- -- (228)
------ ------ ------ ------ ------ ------ -------
Net income (loss).......... 38 15 150 65 164 82 (501)
Less dividends on Series G
preferred stock(5)........ 7 7 29 29 29 29 29
------ ------ ------ ------ ------ ------ -------
Net income (loss)
applicable to common
stock..................... $ 31 $ 8 $ 121 $ 36 $ 135 $ 53 $ (530)
====== ====== ====== ====== ====== ====== =======
Income (loss) of continuing
operations per share(6):
Basic..................... $ .43 $ .10 $ 1.66 $ .49 $ 1.83 $ .99 $ (8.63)
Diluted................... $ .42 $ .10 $ 1.65 $ .49 $ 1.83 $ .99 $ (8.63)
Earnings (loss) per
share(6):
Basic..................... $ .43 $ .10 $ 1.66 $ .49 $ 1.83 $ .72 $(15.19)
Diluted................... $ .42 $ .10 $ 1.65 $ .49 $ 1.83 $ .72 $(15.19)
Average number of shares
outstanding(7):
Basic..................... 71.6 73.6 73.1 73.7 74.2 74.5 34.9
Diluted................... 72.5 73.7 73.6 73.8 74.3 74.6 34.9
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AT JANUARY 31, AT OCTOBER 31,
---------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA(5):
Total assets............ $ 4,929 $ 4,757 $ 5,516 $ 5,326 $ 5,566 $ 5,047 $ 5,060
Total debt.............. 1,145 1,060 1,316 1,420 1,457 1,218 1,374
Total shareowners'
equity................. 973 922 1,020 916 870 817 775
<CAPTION>
THREE MONTHS
ENDED
JANUARY 31, FISCAL YEAR ENDED OCTOBER 31,
---------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT MARKET SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND
OPERATING DATA:
Capital expenditures.... $ 60 $ 25 $ 172 $ 117 $ 139 $ 87 $ 110
Depreciation and
amortization........... 39 33 120 105 86 72 75
United States and
Canadian retail
deliveries of trucks
and school buses....... 24,900 19,000 99,500 94,000 101,700 91,600 79,800
United States and
Canadian market
share(8)............... 28.6% 26.4% 28.6% 27.5% 26.7% 27.0% 27.6%
Unit shipments:
Trucks and school
buses................. 29,400 20,400 104,400 95,200 112,200 95,000 87,200
OEM engines............ 42,600 41,000 184,000 163,200 154,200 130,600 118,200
Parts sales............. $ 185 $ 186 $ 806 $ 760 $ 730 $ 714 $ 632
</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 Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions" and SFAS No. 109, "Accounting
for Income Taxes," retroactive to November 1, 1992.
(5) On February 4, 1998, the Company issued an aggregate of $100 million
principal amount of Senior Notes and $250 million principal amount of
Senior Subordinated Notes. The net proceeds from the sale of the Notes
were used or will be used to: (i) redeem all of the Company's issued and
outstanding Series G Preferred Stock; (ii) repay the Company's 9% Sinking
Fund Debentures; (iii) redeem the Company's 8% Secured Note; and (iv)
provide working capital. See "Capitalization."
(6) The net income (loss) per common share information for the five year
period ended October 31, 1997 has been restated to reflect the new
earnings per share calculation required by SFAS No. 128 "Earnings Per
Share," and was filed in the Company's Current Report on Form 8-K, dated
March 6, 1998. The computations of earnings per share for the first
quarter of fiscal 1998 are included in Note F to the Company's Unaudited
Interim Financial Statements included elsewhere in this Prospectus. The
quarterly net income (loss) per common share data listed in Note 18 to the
Consolidated Audited Financial Statements included elsewhere in this
Prospectus are identical for both basic and diluted earnings per share in
accordance with SFAS No. 128 for all quarters listed except for the fourth
quarter of 1997 where the number listed reflects only diluted earnings per
share. Basic earnings per share for the fourth quarter of 1997 was $0.87.
(7) 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
Preference Stock were not included in 1993 diluted shares as such
inclusion would produce anti-dilutive results.
(8) 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" incorporated by reference, and 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 Consolidated Audited Financial
Statements included elsewhere in this Prospectus.
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 the first quarter of 1998. An improvement in the
number of new truck orders has increased the Company's order backlog to 60,600
units at January 31, 1998 from 29,200 units at January 31, 1997. 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. See "Risk Factors--Market Cyclicality and General Economic
Conditions."
A stronger than expected economy has led the Company to increase its
estimates of demand. The Company currently projects 1998 United States and
Canadian Class 8 heavy truck demand to be 230,000 units, a 17% increase from
1997. Class 5, 6 and 7 medium truck demand, excluding school buses, is
forecast at 127,000 units, a 8% increase from 1997. Demand for school buses is
expected to decline slightly in 1998 to 32,000 units. Mid-range diesel engine
shipments by the Company to OEMs in 1998 are expected to be 215,300 units, 17%
higher than in 1997. The Company's service parts sales are projected to grow
8% to $870 million.
At the currently forecasted 1998 demand of 389,000 units, the entire truck
industry is operating at or near capacity while the Company's manufacturing
facilities are near capacity. Accordingly, constraints have been placed on the
Company's ability to meet certain customers' demands because of component
parts availability.
On March 5, 1998, the Company announced that it has been selected to
negotiate an extended term agreement to supply diesel engines for select Ford
under 8,500 lbs. GVW light trucks and sport utility vehicles.
18
<PAGE>
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
Three Months Ended January 31, 1998 and 1997
The Company reported net income of $38 million, or $0.42 per diluted common
share, for the first quarter ended January 31, 1998 reflecting higher sales of
manufactured product. Net income was $15 million, or $0.10 per diluted common
share, for the same period last year.
The Company's manufacturing operations reported income before income taxes
of $38 million compared with pretax income of $1 million in the first quarter
of 1997 reflecting an increase in demand for trucks. The financial services
operations' pretax income for the first three months of both 1998 and 1997 was
$23 million.
Sales and Revenues. First quarter 1998 industry retail sales of Class 5
through 8 trucks totaled 87,200 units, an increase of 21% from 1997. Class 8
heavy truck sales of 53,300 units during the first quarter of 1998 were 26%
higher than the 1997 level of 42,400 units. Industry sales of Class 5, 6 and 7
medium trucks, including school buses, increased 14% to 33,900 units. Industry
sales of school buses, which accounted for 16% of the medium truck market,
decreased 5%.
Sales and revenues for the first quarter of 1998 totaled $1,727 million, 33%
higher than the $1,296 million reported for the comparable quarter in 1997.
Sales of trucks, mid-range diesel engines and service parts for the first
quarter of 1998 totaled $1,672 million compared with $1,240 million reported
for the same period in 1997.
The Company maintained its position as sales leader in the combined United
States and Canadian Class 5 through 8 truck market with a 28.6% market share
for the first quarter of 1998, an increase from the 26.4% market share
reported in 1997. (Sources: American Automobile Manufacturers Association, the
United States Motor Vehicle Manufacturers Association and R.L. Polk &
Company.)
Shipments of mid-range diesel engines by the Company to other OEMs during
the first quarter of 1998 totaled 42,600 units, a 4% increase from the same
period of 1997. Service parts sales of $185 million in the first quarter of
1998 were consistent with the prior year's level.
Finance and insurance revenue was $45 million for the first quarters of both
1998 and 1997.
Costs and expenses. Manufacturing gross margin was 13.4% of sales for the
first quarter of 1998, consistent with 13.6% for the same period in 1997.
Marketing and administrative expense increased to $98 million in 1998 from
$83 million in the first quarter of 1997, reflecting investment in the
implementation of the Company's truck strategy to reduce costs and complexity
in its manufacturing processes.
Postretirement benefits expense decreased to $45 million in 1998 from $51
million in the first quarter of 1997 mainly as a result of higher expected
return on plan assets.
Engineering and research expense increased $5 million from first quarter
1997 to $35 million, reflecting the Company's investment in its NGV Program.
Fiscal Years Ended October 31, 1997, 1996 and 1995
The Company reported net income of $150 million for 1997, or $1.65 per
diluted common share, reflecting higher sales of manufactured products. Net
income was $65 million, or $0.49 per diluted common share, in 1996 and $164
million, or $1.83 per diluted common share, in 1995. Net income in 1996
included a one-time $35
19
<PAGE>
million pretax charge for costs related to the termination of the NGV 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 unit 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 NGV 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 in 1997.
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 Manufacturers Associations, the United States
Motor Vehicle Manufacturers 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.
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.
20
<PAGE>
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 NGV 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 $549 million at January 31, 1998, $965 million at October 31,
1997, $881 million at October 31, 1996 and $1,040 million at October 31, 1995.
Cash used in operations during the first quarter of 1998 totaled $332
million, primarily from excess postretirement benefits funding of $271 million
and from a net change in operating assets and liabilities of $127 million.
During the first quarter, the Company contributed $200 million to the Base
Trust and $100 million to the hourly pension plan, which net of expense,
resulted in funding of $193 million and $78 million, respectively. The net
change in operating assets and liabilities during the first quarter of 1998
includes a $61 million decrease in accounts payable resulting from lower
production when compared to the fourth quarter of 1997.
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 in 1997
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.
21
<PAGE>
Investment programs during the first quarter of 1998 provided $153 million
in cash reflecting a net decrease in retail notes and lease receivables of
$248 million. Other investment activities during the first quarter of 1998
used $41 million for property and equipment leased to others and $60 million
to fund capital expenditures for construction of a truck assembly facility in
Mexico, to increase mid-range diesel engine capacity and for truck product
improvements.
Investment programs during 1997 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 in 1997 used
$42 million for an increase in property and equipment leased to others and
$172 million to fund capital expenditures. Capital expenditures in 1997
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 during the first quarter of 1998 used cash to pay $7
million in dividends on the Series G Preferred Stock and to reduce notes and
debt outstanding under the bank revolving credit facility and asset-backed and
other commercial paper program by $211 million offset by a $24 million net
increase in long-term debt at NFC primarily due to increased capital lease
funding and by $35 million of borrowings under the Company's Mexican Facility.
In addition, $83 million was used to repurchase 3.2 million shares of Class B
Common Stock during January 1998.
Financing activities during 1997 used cash to pay $29 million in dividends
on the Series G Preferred Stock, $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 the first quarter of 1998 and of 1997,
NFC sold $500 million and $486 million, respectively, of retail notes through
Navistar Financial Retail Receivables Corporation ("NFRRC"), a wholly owned
subsidiary. During 1997, 1996 and 1995, NFC sold $987 million, $985 million
and $740 million, respectively, of retail notes through NFRRC. The net
proceeds from these sales were used for general working capital purposes.
At January 31, 1998, available funding under the bank revolving credit
facility and the asset-backed and other commercial paper programs was $767
million of which $115 million was used to back short-term debt at January 31,
1998. The remaining $652 million, when combined with unrestricted cash and
cash equivalents, made $658 million available to fund the general business
purposes of NFC at January 31, 1998.
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 $107 million at January 31, 1998 primarily for increased
manufacturing capacity at the Indianapolis engine plant, improvements to
existing facilities and products, 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 NGV Program. Capital expenditures for
1998 are expected to be approximately double the amount in 1997. Approximately
$25 million is to be spent in 1998 for the NGV Program. The 1998 capital
budget also includes expenditures for the commencement of assembly operations
at the Company's Mexican facility,
22
<PAGE>
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 NGV Program will also
include $300 million in development expense over the next six years, of which
approximately $50 million is planned for 1998. The projected expenditures
described above do not include capital and development expenditures that the
Company would be required to make for introduction of its next generation
diesel engine to Ford, and, if the Company is successful in its negotiations,
for introduction of diesel engines for use in certain of Ford's under 8,500
lbs. GVW light trucks and sport utility vehicles.
In January 1998, Moody's, Standard and Poors and Duff and Phelps raised
Transportation's senior debt ratings from Ba2, BB, and BB to Ba1, BB+ and BB+,
respectively. NFC's senior debt ratings increased from Ba2, BB and BB+ to Ba1,
BB+ and BBB-. NFC's subordinated debt ratings were also raised from B1, B+ and
BB to Ba3, BB- and BB+, respectively.
On February 4, 1998, the Company completed the private placement of $100
million principal amount of Senior Notes and $250 million Senior Subordinated
Notes. The net proceeds from the sale of the Senior Notes were approximately
$98 million (after deducting discounts to initial purchasers and expenses of
the offering). The Company used approximately $27 million to repay the 8%
Secured Note due 2002 including accrued interest and expects to use
approximately $47 million to repay the 9% Sinking Fund Debentures due 2004
including accrued interest. The net proceeds from the sale of the Senior
Subordinated Notes (after deducting discounts to the initial purchasers and
expenses in connection with the offering) were approximately $244 million and
were used to redeem the Company's Series G Preferred Stock and to pay
accumulated and unpaid dividends thereon. The remaining proceeds are being
used for general corporate purposes, including working capital. Although the
issuance of the new debt resulted in higher interest costs, the redemption of
the Series G Preferred Stock eliminates the payment of the $6.00 per share
annual preferred dividend.
Management continues to evaluate current and forecasted cash flow as a basis
for financing operating requirements and capital expenditures. 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
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, in the aggregate, will not have a material effect on the Company's
financial results.
DERIVATIVE FINANCIAL INSTRUMENTS
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.
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 derivative foreign
exchange exposure at October 31, 1997.
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<PAGE>
As of January 31, 1998, the Company had open positions on future sales of
$103 million of 30-year Treasury bonds and future purchases of a duration-
weighted equivalent of 2-year Treasury bonds. These positions were closed in
February resulting in a gain which was not material.
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.
The Company purchases collateralized mortgage obligations ("CMOs") that have
predetermined fixed-principal payment patterns which are relatively certain.
These instruments totaled $84 million at January 31, 1998. At such date, the
unrecognized gain on the CMOs was not material.
YEAR 2000
The Company has identified all significant applications that will require
modification to ensure Year 2000 compliance. Internal and external resources
are being used to make the required modifications and test Year 2000
compliance. The Company plans to complete the modifications and testing
process of all significant applications by July 1999, which is prior to any
anticipated impact on its operating systems. The total cost of the Year 2000
project has not been and is not anticipated to be material to the Company's
financial position or results of operations and will be funded through
operating cash flows.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification
plans and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems or products of other
companies, including the Company's dealers, on which the Company relies will
be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), and SFAS 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 SFAS 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.
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<PAGE>
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 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.
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 through the generation of taxable income. Extensive
analysis has historically been performed on an annual basis 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 existing operating structure. As a result of the continued
successful implementation of its manufacturing strategy, including the
reinstatement of the NGV Program, the continued strength of industry volume
conditions, changes in the Company's operating structure and other positive
operating indicators management has initiated an extensive review of its
projected future taxable income. Other positive operating indicators include
an increase in the Company's combined market share of Class 5 through 8 trucks
and the opening of its Mexican assembly facility. This review which is
expected to be completed by the end of the fiscal year may result in a
reduction to the valuation allowance.
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.
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<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 Consolidated Audited Financial Statements
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 and for the
three month periods ended January 31, 1998 and 1997, in thousands of units:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JANUARY 31, YEARS ENDED OCTOBER 31,
------------- -----------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Class 5, 6 and 7 medium trucks
and school buses............. 33.9 29.6 150.6 145.8 151.8 134.2 122.5
Class 8 heavy trucks.......... 53.3 42.4 196.8 195.4 228.8 205.4 166.4
------ ------ ----- ----- ----- ----- -----
Total........................ 87.2 72.0 347.4 341.2 380.6 339.6 288.9
====== ====== ===== ===== ===== ===== =====
</TABLE>
Source: Monthly data derived from materials produced by the American
Automobile Manufacturers Associations 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. 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 24,900 Class 5 through 8 trucks, including school
buses, in the United States and Canada in the first quarter of 1998, a 31%
increase from the 19,000 units delivered in the comparable period in 1997.
Navistar's combined share of the Class 5 through 8 truck market was 28.6% in
the first quarter of 1998 and 26.4% in the comparable period in 1997.
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 American Automobile Manufacturers
Associations, the United States Motor Vehicle Manufacturers Association and
R.L. Polk & Company.
26
<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
school 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 eight regional parts distribution centers in North Amercia, 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.
Leading Supplier of Mid-Range Diesel Engines. The Company is a 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 an 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 with over 8,500 lbs. GVW. 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. In addition, the Company was recently selected by Ford to negotiate an
extended agreement to supply diesel engines for select Ford under 8,500 lbs.
GVW light trucks and sport utility vehicles, such as the Ford Expedition,
Lincoln Navigator, F-150 and F-250 pick-ups, and Econoline 150 and 250 van
models. Ford does not currently use a diesel engine in its under 8,500 lbs.
GVW light trucks and sport utility vehicles. 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
trucks. Under this program, Transportation rationalized the number of
possible option combinations by developing pre-packaged, application-
specific 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.
27
<PAGE>
. 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
consists 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 trucks. Similarly, in fiscal 1997 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 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 NGV Program. Pursuant to the NGV Program, the Company expects to
invest $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, which will offer enhanced driver comfort,
operating efficiency, overall appearance, quality and performance. The
design and development phases of the NGV 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 heavy truck to replace its 8200
conventional heavy truck and made significant improvements to its
premium conventional heavy truck models. Further model improvements are
expected to be introduced for Transportation's premium conventional
heavy 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 has completed the construction of an assembly
facility located near Monterrey, Mexico. This medium and heavy truck
assembly facility is anticipated to cost approximately $167 million and
is expected to begin production by late summer 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 mid-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 NGV Program and continue to
implement its five-point truck strategy. In 1996, Transportation signed
a new three-year collective bargaining agreement with the CAW.
28
<PAGE>
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,
----------------
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>
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 school 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 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 vehicles.
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 OEMs
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 OEMs totaled a record 184,000 units in 1997, an
increase of 13% from the 163,200 units shipped in 1996. In the first quarter
of 1998, shipment of engines to all OEMs totaled 42,600, a 4% increase from
the 41,000 units shipped in the same quarter last year. 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 (over 8,500 lbs. GVW). In March 1998, the
Company was selected by Ford to negotiate an extended agreement to supply
diesel engines for select Ford under 8,500 lbs. GVW light duty trucks and
sport utility vehicles, such as the Ford Expedition, Lincoln Navigator, F-150
and F-250 pick-ups, and Econoline 150 and 250 van models.
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.
29
<PAGE>
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.
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.
30
<PAGE>
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 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.
31
<PAGE>
At the currently forecasted 1998 demand of 376,000 units, the entire truck
industry is operating at or near capacity while the Company's manufacturing
facilities are near capacity. Accordingly, constraints have been placed on the
Company's ability to meet certain customers' demands because of component
parts availability.
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. GVW). 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
electronically-controlled diesel engines while it investigates whether these
engines fully comply with regulations concerning nitrogen oxide emissions. In
particular, the U.S. EPA is focusing on whether certain electronics strategies
used to attain 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 North America, the Company owns and operates nine manufacturing and
assembly operations, which contain approximately ten million square feet of
floor space. Five facilities manufacture and assemble trucks, two plants
manufacture diesel engines and two locations produce gray iron castings. The
Company also
32
<PAGE>
manufactures trucks at a facility owned and operated through a joint venture
in the U.S. 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.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The following table lists the names, ages and all positions held by the
executive officers of the Company as of April 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John R. Horne........... 60 Chairman, President and Chief Executive Officer
Donald DeFosset, Jr..... 49 Executive Vice President and President, Truck Group
Robert C. Lannert....... 58 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 the Company since 1996 and as a Director of the Company since 1990. 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 the Company
and President, Truck Group, 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, 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 and as a Director of the Company since 1990. Prior to this, Mr.
Lannert served as Vice President and Treasurer, 1979-1990,
Robert A. Boardman has served as Senior Vice President and General Counsel
of the Company 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 the Company
since 1992. Prior to this, Mr. Hough served as Assistant Treasurer of the
Company, 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 the Company
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 the Company since 1990.
Mr. Covey has also served as Associate General Counsel 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.
34
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the Common Stock
ownership of each director, the Company's Chief Executive Officer, each of the
four most highly compensated other executive officers, and the directors and
executive officers as a group as of April 30, 1998. Each individual owns less
than 1% of the Company's Common Stock. As a group, the directors and officers
own or have the right to acquire approximately 3.1% of the outstanding shares
of Common Stock as of such date (assuming conversion of the Class B Common
Stock into Common Stock).
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------------------
OBTAINABLE THROUGH
STOCK
NAME/GROUP OWNED(1)(2) OPTION EXERCISE(3) TOTAL
---------- ----------- ------------------ ---------
<S> <C> <C> <C>
William F. Andrews.............. 2,580 8,250 10,830
Robert A. Boardman.............. 45,621 35,700 81,321
John D. Correnti................ 1,780 6,500 8,280
William C. Craig................ 1,950 2,000 3,950
Donald D. DeFosset, Jr.......... 91,447 127,762 219,209
Jerry E. Dempsey................ 2,480 8,250 10,730
John F. Fiedler................. 2,480 6,000 8,480
John T. Grigsby................. 3,000 2,000 5,000
Michael N. Hammes............... 1,260 4,000 5,260
John R. Horne................... 181,147 301,320 482,467
Allen J. Krowe.................. 1,588 2,000 3,588
Robert C. Lannert............... 116,744 228,900 345,644
Walter J. Laskowski............. 0 6,000 6,000
William F. Patient.............. 1,886 4,000 5,886
Daniel C. Ustian................ 37,455 71,990 109,445
Directors and Executive Officers
as a Group(4).................. 839,809 1,322,357 2,162,166
</TABLE>
- --------
(1) Includes shares over which there is shared investment power as follows:
Mr. Patient--1,680 shares; Mr. Andrews--2,400 shares; Directors and
Executive Officers as a Group--4,130 shares.
(2) Includes shares over which there is shared voting power as follows: Mr.
Patient--1,680 shares; Directors and Executive Officers as a Group--1,730
shares.
(3) Includes all options held by such person, including options which are not
currently exercisable.
(4) Of the 22,462 shares owned by an executive officer who is not also a
director, 30 shares are owned by his wife as custodian for a minor child,
as to which he may be deemed to share voting or investment power, but as
to which he disclaims beneficial ownership.
35
<PAGE>
SELLING STOCKHOLDER
In July 1993, Navistar restructured its postretirement health care and life
insurance benefits pursuant to the Settlement Agreement, which 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 required, among other things, that
Navistar establish the Supplemental Trust for the purpose of funding certain
retiree health care benefits under a Supplemental Benefit Program. On July 1,
1993, the Company contributed 25,641,545 shares of Class B Common Stock to the
Supplemental Trust in satisfaction of certain of its obligations under the
Settlement Agreement. The Supplemental Trust currently holds 19,894,103 shares
of Class B Common Stock, representing all of the issued and outstanding shares
of Class B Common Stock. In addition, as part of the Settlement Agreement, the
Company agreed to make certain annual profit sharing payments to the
Supplemental Trust (see Note 2 to the Consolidated Audited Financial
Statements included elsewhere in this Prospectus).
The 19,894,103 shares of Common Stock being offered hereby are being sold by
the Supplemental Trust. Pursuant to the terms of the Company's Certificate of
Incorporation and with the approval of the Company's Board of Directors (which
approval has been obtained), each share of Class B Common Stock will
automatically convert into one share of Common Stock upon the sale by the
Supplemental Trust in the Offerings. On July 1, 1998, any of the Class B
Common Stock still outstanding will automatically convert into Common Stock.
Upon completion of the Offerings, the Supplemental Trust is expected not to
hold any shares of Class B Common Stock or shares of Common Stock. See
"Underwriting."
The Company has granted the Underwriters an option to purchase up to
1,300,000 shares of Common Stock solely to cover over-allotments, if any. The
Company has agreed to pay all expenses of the Selling Stockholder associated
with the Offerings, including, under certain circumstances, all or a portion
of the underwriting discounts and commissions. See "Underwriting."
The Settlement Agreement added three seats to Navistar's Board of Directors,
one elected by the UAW and two elected by the Supplemental Committee on behalf
of the Supplemental Trust. Upon completion of the Offerings, the two directors
currently serving on Navistar's Board who were elected by the Supplemental
Committee on behalf of the Supplemental Trust will be deemed to have resigned.
See "Description of Capital Stock--Preferred Stock and Preference Stock."
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 176 million shares, of
which 110 million shares are designated as Common Stock, with a par value of
$.10 per share, 26 million shares are designated as Class B Common, with a par
value of $.10 per share (the "Class B Common Stock"), 30 million shares are
designated as Preferred Stock, with a par value of $1.00 per share, and 10
million shares are designated as Preference Stock, with a par value of $1.00
per share. The following summary of the Company's capital stock is qualified
in its entirety by reference to the Company's Certificate of Incorporation
(the "Certificate of Incorporation"), which is incorporated by reference in
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
The authorized Common Stock consists of 110 million shares, of which
49,116,183 shares were outstanding at April 30, 1998 and were held by
approximately 56,574 holders of record as of such date.
Dividend Rights and Restrictions. Holders of Common Stock are entitled to
receive dividends when and as declared by the Board of Directors out of funds
legally available therefor, provided that, so long as any shares of Preferred
Stock and Preference Stock are outstanding, no dividends (other than dividends
payable in Common Stock) or other distributions (including purchases) may be
made with respect to the Common Stock unless full cumulative dividends, if
any, on the shares of Preferred Stock and Preference Stock have been paid.
Under the General Corporation Law of the State of Delaware (the "DGCL"),
dividends may only be paid out of surplus or out of net profits for the fiscal
year in which the dividend is declared or the preceding fiscal year, and no
dividend may be paid on Common Stock at any time during which the capital of
outstanding Preferred Stock or Preference Stock exceeds the net assets of the
Company.
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<PAGE>
The Company does not expect to pay cash dividends on the Common Stock in the
foreseeable future, and is subject to restrictions under the indentures for
the Notes on the amount of cash dividends the Company may pay and is subject
to certain debt to equity ratios under the Mexican Facility which may
indirectly limit its ability to pay dividends. See "Dividend Policy."
Voting Rights. Holders of shares of Common Stock are entitled to one vote
for each share for the election of directors and on any question arising at
any shareowners meeting. The UAW, as holder of the Series B Preference Stock,
is entitled to elect one member to the Company's Board of Directors. See "--
Preferred Stock and Preference Stock."
Liquidation Rights. In the event of the voluntary or involuntary
dissolution, liquidation or winding up of the Company, holders of Common Stock
are entitled to receive after satisfaction in full of the prior rights of
creditors (including holders of the Company's indebtedness) and holders of
Preferred Stock and Preference Stock, all the remaining assets of the Company
available for distribution.
Miscellaneous. The Common Stock is subject to certain transfer restrictions
imposed by the Prohibited Transfer Provision. See "Risk Factors--Risk of Loss
of Tax Benefits and Restrictions on Stock Transfer" and "Prohibited Transfer
Provision." The holders of Common Stock are not entitled to preemptive,
redemption or subscription rights. Harris Trust and Savings Bank is the
Transfer Agent and the Registrar for the Common Stock.
CLASS B COMMON STOCK
Upon completion of the Offerings, no shares of Class B Common Stock are
expected to remain outstanding. As of April 30, 1998, 19,894,103 shares of the
Company's Class B Common Stock were outstanding and held by the Supplemental
Trust. The Class B Common Stock is identical to the Common Stock, except with
respect to voting rights and transferability. The Class B Common Stock is not
entitled to vote on any matters submitted to shareowners, except with respect
to certain mergers, consolidations and asset sales requiring a supermajority
vote and with respect to changes in the Company's Certificate of Incorporation
which could adversely affect the Class B Common Stock. The Certificate of
Incorporation provides that any Class B Common Stock transferred in conformity
with its provisions will convert automatically into Common Stock on a share-
for-share basis.
REGISTRATION RIGHTS
The Company has agreed to register the shares offered hereby by the Selling
Stockholder in accordance with the terms of a registration rights agreement
between the Company and the Selling Stockholder. In connection with such
registration, the Company will pay the expenses of the Supplemental Trust and
has agreed to indemnify the Supplemental Trust against certain liabilities,
including liabilities under the Securities Act.
PREFERRED STOCK AND PREFERENCE STOCK
The Company is authorized to issue Preferred Stock and Preference Stock,
which may be issued from time to time in one or more series upon authorization
by the Company's Board of Directors. The Board of Directors, without further
approval of the shareowners, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each series of Preferred Stock and Preference
Stock. The issuance of Preferred Stock and Preference Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids
for the Common Stock at a premium or otherwise adversely affect the market
price of the Common Stock. The Company has no present plans to issue any
additional series of Preferred Stock or Preference Stock.
37
<PAGE>
Three series of Preference Stock are currently outstanding. Three million
shares of Convertible Junior Preference Stock, Series D (the "Series D
Preference Stock") are authorized, of which 172,365 shares were outstanding as
of April 30, 1998. One share of Nonconvertible Junior Preference Stock, Series
A (the "Series A Preference Stock") is authorized and held by the Supplemental
Trust, and one share of Nonconvertible Junior Preference Stock, Series B (the
"Series B Preference Stock") is authorized and held by the UAW.
Series D Preference Stock. Holders of shares of Series D Preference Stock
are entitled to receive accrued dividends, if any, if and when declared by the
Board of Directors, in the amount of 120 percent of the dividend (on an as-
converted basis) declared on Common Stock, other than a dividend payable
solely in shares of Common Stock. Holders of Series D Preference Stock have
the right at their option to convert shares of the Series D Preference Stock
into shares of Common Stock at any time at a conversion rate of 0.3125 of a
share of Common Stock for each share of Series D Preference Stock, subject to
adjustment in certain events. The Series D Preference Stock is redeemable at
any time, in whole or in part, at the option of the Company upon at least 30
days' advance written notice at the price of $25 per share plus accrued
dividends. Generally, holders of Series D Preference Stock do not have any
voting powers, except as provided by law and except that holders of at least
two-thirds of the number of shares outstanding must approve any adverse
amendment, alteration or repeal of the preferences, special rights or powers
of Series D Preference Stock. Before any distribution to holders of Common
Stock or of any other stock of the Company ranking junior upon liquidation to
the Series D Preference Stock upon any liquidation, dissolution or winding up
of the Company, holders of the Series D Preference Stock are entitled to
receive $25 per share plus accrued dividends.
Series A Preference Stock. As the holder of the Series A Preference Stock,
the Supplemental Trust is entitled to elect two members of the Company's Board
of Directors at any time when the Supplemental Trust holds at least 20% of the
outstanding Common Stock (including the Class B Common Stock) and one member
of the Company's Board of Directors at any time when the Supplemental Trust
holds at least 10% of the outstanding Common Stock (including the Class B
Common Stock). The Series A Preference Stock contains certain transitional
provisions concerning the timing of directors going on and off the Board when
the holdings of the Supplemental Trust are within a 1% range of the 20% and
10% thresholds described above. The Series A Preference Stock is not
transferable by the Supplemental Trust, does not have any voting rights other
than as described above or as required by the law, does not have the right to
receive dividends or distributions and is redeemable for a nominal price upon
the earlier of (i) the passage of 12 consecutive calendar months in which the
Supplemental Trust holds less than 5% of the outstanding Common Stock
(including the Class B Common Stock) and (ii) the date on which the Company is
entitled to cease its profit sharing contributions to the Supplemental Trust.
Upon completion of the Offerings, the holdings of the Supplemental Trust will
be reduced below 10% of the Company's outstanding Common Stock, and the two
currently serving directors elected by the Supplemental Committee on behalf of
the Supplemental Trust will be deemed to have automatically resigned as
directors.
Series B Preference Stock. As the holder of the Series B Preference Stock,
the UAW is entitled to elect one member of the Company's Board of Directors
(the "UAW Director") until such time as the Company has fully funded its
liability under the Base Program (subject to such right revesting if such
funding falls below 85% of the fully funded amount). The Series B Preference
Stock is not transferable by the UAW, does not have any voting rights other
than as described above or as required by the law, does not have the right to
receive dividends or distributions and is redeemable for a nominal price at
such time as the UAW has not been entitled to elect a director for five
consecutive years.
PROHIBITED TRANSFER PROVISION
The Prohibited Transfer Provision contained in Article Eleventh of
Navistar's Certificate of Incorporation applies to transfers of Common Stock
and Class B Common Stock (collectively, "Stock"). Under the Prohibited
Transfer Provision, if a shareowner transfers or agrees to transfer Stock, the
transfer will be prohibited and void to the extent that it would cause the
transferee to hold a "Prohibited Ownership Percentage" (as defined in the
38
<PAGE>
Certificate of Incorporation) or if the transfer would result in the
transferee's ownership increasing if the transferee had held a Prohibited
Ownership Percentage within the three prior years or if the transferee's
ownership percentage already exceeds the Prohibited Ownership Percentage under
applicable federal income tax rules.
A "Prohibited Ownership Percentage" is defined under the Certificate of
Incorporation by reference to complex federal tax laws and regulations, but
generally means direct and indirect ownership of 4.5% or more (based on value)
of the Stock or any other percentage that would cause a transferee to be
considered to be a 5-percent shareholder under applicable federal income tax
rules. This transfer restriction is intended to prevent any person or group of
persons from becoming a "5-percent shareholder" of Navistar and to prevent an
increase in the percentage stock ownership of any existing person or group of
persons that constitutes a 5-percent shareholder. The use of a 4.5% limitation
rather than a 5% limitation is intended to provide a margin of safety for
market value fluctuations in avoiding an "ownership change."
In accordance with the terms of the Common Stock, purchasers of the Common
Stock in the Offerings (or otherwise) consent by virtue of such purchase to
the limitations imposed by Article Eleventh. The Prohibited Transfer Provision
will expire on June 30, 2001, subject to such expiration date being extended
or accelerated in the event of a change in law upon a determination by the
Board of Directors that such action is reasonably necessary to preserve the
tax benefits, in the case of an extension, or that the restrictions are no
longer reasonably necessary for the preservation of the tax benefits, in the
case of an acceleration. The Prohibited Transfer Provision does not prevent
transfers of Stock between persons who do not hold a Prohibited Ownership
Percentage, and contains certain exceptions.
The acquisition of Stock from an individual or entity that owns directly 5%
of the Stock would be deemed to result in the identification of a separate,
segregated "public group" which is a new 5-percent shareholder. The ownership
increase by this new "public group," as well as any ownership increase by
other 5-percent shareholders, must be taken into account in determining
whether the Company has undergone an "ownership change" under Section 382.
Consequently, the Prohibited Transfer Provision will prohibit certain
transfers of equity interests by, and other actions involving, persons having
a Prohibited Ownership Percentage, unless the transfer or other action is
approved by Navistar's Board of Directors in advance or permitted by a
Navistar Board resolution. Although the Prohibited Transfer Provision is
intended to prevent transfers which could cause an "ownership change," the
Company may not be able to prevent every transaction that could cause an
"ownership change." Navistar's Board of Directors can waive the restriction on
certain transfers of stock by 5-percent shareholders even though such
transfers could count toward an "ownership change." See "Risk Factors--Risk of
Loss of Tax Benefits and Restrictions on Stock Transfer."
The Common Stock sold to the public in the Offerings will be deemed to have
been acquired by a separate "public group" treated as a new 5-percent
shareholder which had an increase in ownership. The ownership increase by this
new "public group," as well as any ownership increase by other 5-percent
shareholders, must be taken into account in determining whether the Company
has undergone an "ownership change" under Section 382. The Offerings will not
result in an "ownership change." However, the Company must take into account
the ownership increase resulting from the Common Stock sold to the public in
the Offerings for three years after the sale in computing the change in
ownership for future transactions (including the issuance of additional Common
Stock or equity-related instruments.)
The Prohibited Transfer Provision does not apply to any transfer that has
been approved in advance by Navistar's Board of Directors, which is made in
compliance with certain exceptions set forth in the Prohibited Transfer
Provision or exceptions established from time to time by resolution of
Navistar's Board of Directors. The Board may permit an otherwise prohibited
transfer if it reasonably and in good faith determines that a waiver would be
in the best interests of the Company.
Purchases of Common Stock from the U.S. Underwriters or the Managers
pursuant to the Offerings are subject to the limitations imposed by Article
Eleventh, and any unapproved purchase in excess of the amounts
39
<PAGE>
permitted by Article Eleventh will be void. A prospective purchaser of Common
Stock in the Offerings who believes that a purchase by it may be subject to
the limitations imposed by Article Eleventh should consult with such person's
advisors or the Company to determine if approval must be obtained from the
Board of Directors of the Company.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS; CERTAIN PROVISIONS
OF DELAWARE LAW
General. Certain provisions of the Company's Certificate of Incorporation
and By-laws could have an anti-takeover effect. These provisions are intended
to enhance the likelihood of continuity and stability in the composition of
the Company's Board of Directors and in the policies formulated by the Board
of Directors. The Company is also subject to Section 203 of the DGCL. As
described above under "--Preferred Stock and Preference Stock," the ability of
the Board of Directors to issue so-called "flexible" preferred stock may also
have an anti-takeover effect. The operation of Article Eleventh and the fact
that the Company's utilization of its NOLS could be adversely affected by a
change of control could have an anti-takeover effect. See "--Prohibited
Transfer Provision."
Classified Board; Board Vacancies. The Certificate of Incorporation provides
for the Board of Directors to be divided into three classes of directors
serving staggered three year terms, excluding the director elected by the UAW
as the holder of the Company's Series B Preference Stock. See "Preferred Stock
and Preference Stock." The overall effect of the provisions in the Certificate
of Incorporation with respect to the staggered Board may be to render more
difficult a change in control of the Company or the removal of incumbent
directors. Under the DGCL, since the Company has a classified Board, the
shareowners may only remove the directors for cause. A majority of the
remaining directors elected by the holders of Common Stock then in office (and
not shareowners), though less than a quorum, is empowered to fill any vacancy
on the Board of Directors. Notwithstanding the foregoing, whenever the holders
of any one or more classes or series of preferred or preference stock issued
by the Company have a preference over the Common Stock as to dividends or upon
liquidation have the right, voting separately by class or series, to elect
directors (such as the holder of the Series B Preference Stock), the number,
election, term of office, filling of vacancies, terms of removal and other
features of such directorships are governed by the terms relating to such
rights.
Special Meetings of Shareowners; Action by Written Consent. The Certificate
of Incorporation provides that no action may be taken by shareowners except at
an annual or special meeting of shareowners, and prohibits action by written
consent in lieu of a meeting. The Company's By-laws provide that special
meetings of shareowners of the Company may be called only by the Chairman of
the Board and Chief Executive Officer or by the Board of Directors. This
provision will make it more difficult for shareowners to take action opposed
by the Board of Directors.
Approval of Supermajority Transactions. As a result of the Settlement
Agreement, the Company's Certificate of Incorporation provides that the
affirmative vote of holders of at least 85% of the shares of Common Stock
(together with any outstanding Class B Common Stock) present at a meeting is
required to approve a Supermajority Transaction. Accordingly, any holder of
15% or more of the aggregate outstanding Common Stock and Class B Common Stock
represented at any meeting of shareowners will be able to block any
Supermajority Transaction.
Certain Provisions of Delaware Law. The Company is governed by the
provisions of Section 203 of the DGCL. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within
three years, did own) 15% or more of the corporation's voting stock.
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<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
A general discussion of certain United States federal income and estate tax
consequences of the ownership and disposition of Common Stock applicable to
Non-U.S. Holders (as defined) of Common Stock is set forth below. In general,
a "Non-U.S. Holder" is a person other than: (i) a citizen or resident (as
defined for United States federal income or estate tax purposes, as the case
may be) of the United States; (ii) a corporation or other entity taxable as a
corporation organized in or under the laws of the United States or a political
subdivision thereof; or (iii) an estate the income of which is subject to
United States federal income taxation regardless of its sources; or (iv) a
trust if a United States court is able to exercise primary jurisdiction over
administration of the trust and one or more United States persons have
authority to control all substantial decisions of the trust. The discussion is
based on current law and is provided for general information only. The
discussion does not address aspects of United States federal taxation other
than income and estate taxation and does not address all aspects of federal
income and estate taxation. The discussion does not consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder and does
not address all aspects of United States federal income tax law that may be
relevant to Non-U.S. Holders that may be subject to special treatment under
such law (for example, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers or certain United States expatriates).
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. CURRENT AND
POSSIBLE FUTURE INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF
COMMON STOCK.
DIVIDENDS
In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are (i)
effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States and a Form 4224 is filed with the withholding
agent or (ii) if a tax treaty applies, are attributable to a United States
permanent establishment of the Non-U.S. Holder. If either exception applies,
the dividend will be taxed at ordinary U.S. federal income tax rates. A Non-
U.S. Holder may be required to satisfy certain certification requirements in
order to claim the benefit of an applicable treaty rate or otherwise claim a
reduction of, or exemption from, the withholding obligation pursuant to the
above described rules. In the case of a Non-U.S. Holder that is a corporation,
effectively connected income may also be subject to an additional branch
profits tax (which is generally imposed on a foreign corporation at a rate of
30% of the deemed repatriation from the United States of "effectively
connected earnings and profits" or such lower rate as an applicable tax treaty
may provide). To the extent a distribution exceeds current or accumulated
earnings or profits ("E&P"), it will be treated first as a return of the
holder's basis to the extent thereof, and then as a gain from the sale of a
capital asset. Any withholding tax on a distribution in excess of the
Company's E&P is refundable to the Non-U.S. Holder.
The Company may pay dividends to Common Stock holders in the form of
additional Common Stock. In general, dividends of Common Stock paid pro rata
to holders of Common Stock are not taxable distributions. Holders who receive
such stock dividends must allocate the basis of the stock with respect to
which the distribution is made between such stock and the newly distributed
stock in proportion to the fair market values of each on the distribution
date. In certain circumstances stock dividends could be taxable distributions,
subject to the rules described in the previous paragraph. However, the Company
does not currently expect to pay any stock dividends that would be deemed
taxable distributions.
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of Common Stock unless:
(i) the Company has been, is, or becomes a "U.S. real property holding
corporation" for federal income tax purposes and certain other requirements
are met; (ii) the gain is effectively connected with a trade or business
carried on by the Non-U.S. Holder within the United States, or, alternatively,
if a tax treaty applies, attributable to a United States permanent
establishment maintained by the
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<PAGE>
Non-U.S. Holder (in which case such gain will be subject to tax at the rates
and in the manner applicable to U.S. persons, and, if the holder is a foreign
corporation, the branch profits tax may also apply); or (iii) the Common Stock
is disposed of by an individual Non-U.S. Holder, who holds the Common stock as
a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition and certain other conditions are met. The
Company believes that it has not been, is not currently and, based upon its
current business plans, is not likely to become a U.S. real property holding
corporation. Non-U.S. Holders should consult applicable treaties, which may
exempt from United States taxation gains realized upon the disposition of
Common Stock in certain cases.
ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be includible in the individual's gross estate for
United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING REQUIREMENTS AND QUALIFICATION FOR
TREATY BENEFITS
On October 6, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations generally will be effective with respect
to payments made after December 31, 1999.
Except as provided below, this section describes rules applicable to
payments made on or before December 31, 1999. Backup withholding (which
generally is a withholding tax imposed at the rate of 31% on certain payments
to persons that fail to furnish the information required under the United
States information reporting and backup withholding rules) generally will not
apply to (i) dividends paid to Non-U.S. Holders that are subject to the 30%
withholding discussed above (or that are not so subject because a tax treaty
applies that reduces or eliminates such 30% withholding) or (ii) dividends
paid on the Common Stock to a Non-U.S. Holder at an address outside the United
States. The Company will be required to report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld.
This information may also be made available to the tax authorities in the Non-
U.S. Holder's country of residence.
In the case of a Non-U.S. Holder that sells Common Stock to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the holder certifies its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption. In
the case of a Non-U.S. Holder that sells Common Stock to or through the
foreign office of a United States broker, or a foreign broker with certain
types of relationships to the United States, the broker must report the sale
to the IRS (but not backup withhold) unless the broker has documentary
evidence in its files that the seller is a Non-U.S. Holder or certain other
conditions are met, or the holder otherwise establishes an exemption. A Non-
U.S. Holder will generally not be subject to information reporting or backup
withholding if such Non-U.S. Holder sells the Common Stock to or through a
foreign office of a non-United States broker.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes
the required information to the IRS. In addition, certain penalties may be
imposed by the IRS on a holder who is required to supply information but does
not do so in the proper manner.
The Final Regulations eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of
that country. In addition, the Final Regulations impose certain certification
and documentation requirements on Non-U.S. Holders claiming the benefit of a
reduced withholding rate with respect to dividends under a tax treaty.
Prospective purchasers of the Common Stock are urged to consult their own
tax advisors as to the effect, if any, of the Final Regulations on their
purchase, ownership and disposition of the Common Stock.
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UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the U.S. Offering
named below (the "U.S. Underwriters"), for whom Smith Barney Inc., Credit
Suisse First Boston Corporation and J.P. Morgan Securities Inc. are acting as
the representatives (the "Representatives"), has severally agreed to purchase,
and the Selling Stockholder has agreed to sell to each U.S. Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Smith Barney Inc.........................................
Credit Suisse First Boston Corporation...................
J.P. Morgan Securities Inc...............................
----------
Total................................................ 15,894,103
==========
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof, each of the managers of the
concurrent International Offering named below (the "Managers"), for whom Smith
Barney Inc., Credit Suisse First Boston (Europe) Limited and J.P. Morgan
Securities Ltd. are acting as the lead managers (the "Lead Managers"), has
severally agreed to purchase, and the Selling Stockholder has agreed to sell
to each Manager, shares of Common Stock which equal the number of shares set
forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
MANAGERS NUMBER OF SHARES
-------- ----------------
<S> <C>
Smith Barney Inc.........................................
Credit Suisse First Boston (Europe) Limited..............
J.P. Morgan Securities Ltd...............................
---------
Total................................................ 4,000,000
=========
</TABLE>
Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the U.S. Underwriters and the
Managers to pay for and accept delivery of the shares of Common Stock offered
hereby are subject to the approval of certain legal matters by counsel and to
certain other conditions. The U.S. Underwriters and the Managers are obligated
to take and pay for all the shares of Common Stock included in the respective
Offerings (other than those covered by the over-allotment option described
below) if any such shares are taken.
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part to certain dealers at a price that represents a concession
not in excess of $ per share below the public offering price. The U.S.
Underwriters and the Managers may allow, and such dealers may reallow, a
concession not in excess of $ per share to other U.S. Underwriters and
Managers or to certain other dealers. After the initial offering of the shares
of Common Stock offered hereby, the public offering price and other selling
terms may be changed by the U.S. Underwriters and the Managers. Subject to the
second following paragraph the Company and the Selling Stockholder have agreed
that if the public offering price per share is (i) equal to or greater than
$30.00, the Selling Stockholder will pay all the underwriting discounts and
commissions, (ii) equal to or less than $27.00, the Company will pay all the
underwriting discounts and commissions and (iii) between $27.00 and $30.00,
the Company and the Selling Stockholder will pay the underwriting discounts
and commissions on a pro rata basis (determined by straight line allocation),
calculated based on a straight line interpolation between $27.00 and $30.00
with (a) the Company paying the larger portion of the underwriting discounts
and commissions as the price per share is closer to $27.00 and the Selling
Stockholder paying the balance, and (b) the Selling Stockholder paying the
larger portion of the underwriting discounts and commissions as the price per
share is closer to $30.00 and the Company paying the balance.
43
<PAGE>
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
1,300,000 additional shares of Common Stock at the price to public set forth
on the cover page of this Prospectus. The U.S. Underwriters may exercise such
option to purchase additional shares of Common Stock solely for the purpose of
covering over-allotments, if any, in connection with the sale of the shares of
Common Stock offered hereby. To the extent such option is exercised, the U.S.
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number of shares of Common Stock set forth opposite the U.S. Underwriters'
names in the preceding table bears to the total number of shares in such
table.
The Company has agreed with the Selling Stockholder to purchase 2,000,000
shares of the Common Stock in the Offerings at the public offering price set
forth on the cover page of this Prospectus. The Company's obligation to
purchase such shares is conditioned upon all of the other shares offered by
the Selling Stockholder being sold in the Offerings. The Underwriters will not
receive any discount or commission on the shares purchased by the Company in
the Offerings. Smith Barney Inc. will, however, receive a fee from the Selling
Stockholder equal to 1.0% of the purchase price for such shares.
The Company, the Selling Stockholder, the U.S. Underwriters and the Managers
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
The Company and the Selling Stockholder have agreed, subject to certain
limited exceptions, that, for a period of 90 days after the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any Common Stock
(or any securities convertible into or exercisable or exchangeable for Common
Stock) or, in the case of the Company, grant any options or warrants to
purchase Common Stock. In addition, all of the directors (other than those
resigning in connection with the Offerings) and executive officers of NIC and
Transportation have agreed to the same restriction for a period beginning on
the date of this Prospectus and ending on August 14, 1998, except with respect
to an aggregate of 200,000 shares of Common Stock, which may be sold by
executive officers (other than Messrs. Horne and Lannert) during such period
and certain other limited exceptions.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 15,894,103 shares of
Common Stock offered in the U.S. Offering, (i) it is not purchasing any such
shares for the account of anyone other than a U.S. or Canadian Person (as
defined below) and (ii) it has not offered or sold, and will not offer, sell,
resell or deliver, directly or indirectly, any of such shares or distribute
any prospectus relating to the U.S. Offering outside the United States or
Canada or to anyone other than a U.S. or Canadian Person. In addition, each
Manager has agreed that as part of the distribution of the 4,000,000 shares of
Common Stock offered in the International Offering (i) it is not purchasing
any such shares for the account of any U.S. or Canadian Person and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering in the United States or Canada or to any U.S. or
Canadian Person. Each Manager has also agreed that it will offer to sell
shares only in compliance with all relevant requirements of any applicable
laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the Managers; (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion; (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as a Manager or by a Manager who is also acting
as a U.S. Underwriter; and (iv) other transactions specifically approved by
the Representatives and the Lead Manager. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to United States or Canadian income taxation regardless of the
source of its income (other than the
44
<PAGE>
foreign branch of any U.S. or Canadian Person), and includes any United States
or Canadian branch of a person other than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each Manager agrees that it (i) will not offer or sell any shares to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (whether as
principal or agent) for the purposes of their businesses or in other
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995
(the "Regulations"), (ii) will comply with all applicable provisions of the
Regulations and of the Financial Services Act 1986 with respect to anything
done by it in relation to the shares in, from or otherwise involving the
United Kingdom and (iii) will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of these shares if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom such documents may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholder, the U.S. Underwriters or the Managers that would permit
any offering to the general public of the shares of Common Stock offered
hereby in any jurisdiction other than the United States.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares of Common Stock as may be mutually agreed. The price of any shares so
sold shall be the public offering price as then in effect for shares being
sold by the U.S. Underwriters and the Managers, less all or any part of the
selling concession, unless otherwise determined by mutual agreement. To the
extent that there are sales between the U.S. Underwriters and the Managers
pursuant to the Agreement Between U.S. Underwriters and Managers, the number
of shares initially available for sale by the U.S. Underwriters and by the
Managers may be more or less than the number of shares appearing on the front
cover of this Prospectus.
In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appear above) and
may effect transactions which stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the
purpose of reducing a syndicate short position created in connection with the
Offerings. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby if the Representatives or Lead Managers purchase Common
Stock in the open market for the account of the underwriting syndicate and the
securities purchased can be traced to a particular Underwriter or member of
the selling group, the underwriting syndicate may require the underwriter or
selling group member in question to purchase the Common Stock in question at a
cost price to the syndicate or may recover from (or decline to pay to) the
Underwriter or selling group member in question the selling concession
applicable to the securities in question. The Underwriters are not required to
engage in any of these activities and any such activities, if commenced, may
be discontinued at any time.
In the ordinary course of their respective businesses, each of the
Representatives and their affiliates have performed, and may in the future
perform, investment banking or commercial banking services for the Company or
the Selling Stockholder. Morgan Guaranty Trust Company of New York, which is a
lender and the
45
<PAGE>
administrative agent under the Company's bank revolving credit facility and a
lender under the liquidity facility that supports the Company's asset-backed
and other commercial paper programs, is an affiliate of J.P. Morgan Securities
Inc. ("JPMSI") and J.P. Morgan Securities Ltd. JPMSI is a co-arranger under
the Company's bank revolving credit facility. Credit Suisse First Boston
Corporation and JPMSI served as initial purchasers of the Notes.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Common Stock will
be passed upon for the Company by Kirkland & Ellis (a partnership including
professional corporations), Chicago, Illinois and certain legal matters will
be passed upon for the Selling Stockholder by Willkie Farr & Gallagher, New
York, New York. The Underwriters have been represented by Cravath, Swaine &
Moore, New York, New York.
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 and
incorporated by reference herein, and are included or incorporated by
reference in reliance upon the reports of such firm given their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such materials and other information concerning
the Company are also filed electronically with the Commission and are
accessible via the World Wide Web at http://www.sec.gov. The Common Stock is
traded on the New York, Chicago and Pacific Stock Exchanges. Reports and other
information concerning the Company can also be inspected at the offices of the
New York Stock Exchange at 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.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit or incorporated by reference to the Registration Statement of which
this Prospectus forms a part, each such statement being qualified in all
respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Copies of the
Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
46
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997, as amended by
Amendment No. 1 to Form 10-K (Commission File No. 1-9618); (ii) the Company's
Proxy Statement, dated February 2, 1998; (iii) the Company's Quarterly Report
on Form 10-Q for the quarterly period ended January 31, 1998, as amended by
Amendment No. 1 to Form 10-Q; (iv) the Company's Current Report on Form 8-K,
dated March 6, 1998; and (v) the Company's Current Report on Form 8-K, dated
July 9, 1993.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination or completion of the Offerings shall
be deemed to be incorporated by reference in this Prospectus and to be part of
this Prospectus from the date of the filing of such document. Any statement
contained herein or 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 or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE INFORMATION FILED BY IT
THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (NOT INCLUDING
EXHIBITS TO THE INFORMATION THAT IS INCORPORATED BY REFERENCE HEREIN UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH INFORMATION).
REQUESTS FOR SUCH INFORMATION SHOULD BE DIRECTED TO THE COMPANY, 455 NORTH
CITYFRONT PLAZA DRIVE, CHICAGO, ILLINOIS 60611, ATTENTION: INVESTOR RELATIONS
(TELEPHONE NUMBER: (312) 836-2000).
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Statement of Income for the three months ended January 31, 1998 and 1997.. F-2
Statement of Financial Condition as of January 31, 1998 and 1997.......... F-3
Statement of Cash Flow for the three months ended January 31, 1998 and
1997..................................................................... F-4
Notes to Financial Statements............................................. F-5
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-10
Statement of Income for the years ended October 31, 1997, 1996 and 1995... F-11
Statement of Financial Condition as of October 31, 1997 and 1996.......... F-12
Statement of Cash Flow for the years ended October 31, 1997, 1996 and
1995..................................................................... F-13
Notes to Financial Statements............................................. F-14
</TABLE>
F-1
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------
1998 1997
--------- ---------
(MILLIONS OF
DOLLARS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Sales and revenues
Sales of manufactured products............................. $ 1,672 $ 1,240
Finance and insurance revenue.............................. 45 45
Other income............................................... 10 11
--------- ---------
Total sales and revenues................................. 1,727 1,296
--------- ---------
Costs and expenses
Cost of products and services sold......................... 1,454 1,076
Postretirement benefits.................................... 45 51
Engineering and research expense........................... 35 30
Marketing and administrative expense....................... 98 83
Interest expense........................................... 17 17
Financing charges on sold receivables...................... 8 7
Insurance claims and underwriting expense.................. 9 8
--------- ---------
Total costs and expenses................................. 1,666 1,272
--------- ---------
Income before income taxes............................. 61 24
Income tax expense..................................... 23 9
--------- ---------
Net income................................................. 38 15
Less dividends on Series G preferred stock................. 7 7
--------- ---------
Net income applicable to common stock...................... $ 31 $ 8
========= =========
Earnings per share
Basic.................................................... $ .43 $ .10
Diluted.................................................. $ .42 $ .10
Average shares outstanding (millions)
Basic.................................................... 71.6 73.6
Diluted.................................................. 72.5 73.7
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
AS OF JANUARY
31,
----------------
1998 1997
------- -------
(MILLIONS OF
DOLLARS)
ASSETS
------
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 188 $ 197
Marketable securities........................................ 361 448
------- -------
549 645
Receivables, net............................................. 1,543 1,311
Inventories.................................................. 506 452
Property, net of accumulated depreciation and amortization of
$876 and $864............................................... 896 773
Investments and other assets................................. 312 238
Intangible pension assets.................................... 212 314
Deferred tax asset, net...................................... 911 1,024
------- -------
Total assets........................................... $ 4,929 $ 4,757
======= =======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C> <C>
Liabilities
Accounts payable, principally trade........................ $ 1,033 $ 714
Debt:
Manufacturing operations................................. 125 113
Financial services operations............................ 1,020 947
Postretirement benefits liability ......................... 893 1,278
Other liabilities.......................................... 885 783
------- -------
Total liabilities...................................... 3,956 3,835
------- -------
Commitments and contingencies
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 (55.4 and 51.0 million shares issued)......... 1,748 1,642
Class B Common stock (19.9 and 24.3 million shares issued). 388 491
Retained earnings (deficit)................................ (1,271) (1,425)
Common stock held in treasury, at cost..................... (136) (30)
------- -------
Total shareowners' equity ............................. 973 922
------- -------
Total liabilities and shareowners' equity.............. $ 4,929 $ 4,757
======= =======
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
--------------
1998 1997
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Cash flow from operations
Net income................................................... $ 38 $ 15
Adjustments to reconcile net income to cash used in
operations:
Depreciation and amortization.............................. 39 33
Deferred income taxes...................................... 23 8
Postretirement benefits funding in excess of expense....... (271) (71)
Other, net................................................. (34) (24)
Change in operating assets and liabilities:
Receivables................................................ (6) 37
Inventories................................................ (25) 11
Prepaid and other current assets........................... (10) (19)
Accounts payable........................................... (61) (106)
Other liabilities.......................................... (25) (24)
------ ------
Cash used in operations.................................. (332) (140)
------ ------
Cash flow from investment programs
Purchase of retail notes and lease receivables............... (237) (196)
Collections/sales of retail notes and lease receivables...... 485 485
Purchase of marketable securities............................ (129) (165)
Sales or maturities of marketable securities................. 128 113
Capital expenditures......................................... (60) (25)
Property and equipment leased to others...................... (41) (16)
Other investment programs, net............................... 7 4
------ ------
Cash provided by investment programs..................... 153 200
------ ------
Cash flow from financing activities
Issuance of debt............................................. 48 79
Principal payments on debt................................... (24) (13)
Net decrease in notes and debt outstanding under bank
revolving credit facility and asset-backed and other
commercial paper programs................................... (211) (409)
Mexican credit facility...................................... 35 --
Repurchase of common stock................................... (83) --
Dividends paid............................................... (7) (7)
------ ------
Cash used in financing activities........................ (242) (350)
------ ------
Cash and cash equivalents
Decrease during the period................................... (421) (290)
At beginning of the year..................................... 609 487
------ ------
Cash and cash equivalents at end of the period........... $ 188 $ 197
====== ======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 1998
NOTE A. SUMMARY OF ACCOUNTING POLICIES
Navistar International Corporation is a holding company whose principal
operating subsidiary is Navistar International Transportation Corp.
("Transportation"). As used hereafter, "Company" or "Navistar" 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 accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1997 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flow for the
periods presented. Interim results are not necessarily indicative of results
for the full year. Certain 1997 amounts have been reclassified to conform with
the presentation used in the 1998 financial statements.
NOTE B. SUPPLEMENTAL CASH FLOW INFORMATION
Consolidated interest payments during the first three months of 1998 and
1997 were $25 million and $22 million, respectively. There were no
consolidated tax payments made during the first three months of 1998 and 1997.
NOTE C. INCOME TAXES
The benefit of Net Operating Loss ("NOL") carryforwards is recognized as a
deferred tax asset in the Statement of Financial Condition, while the
Statement of Income includes income taxes calculated at the statutory rate.
The amount reported does not represent cash payment of income taxes except for
certain state income, foreign withholding and federal alternative minimum
taxes which are not material. In the Statement of Financial Condition, the
deferred tax asset is reduced by the amount of deferred tax expense or
increased by a deferred tax benefit recorded during the year. Until the
company has utilized its significant NOL carryforwards, the cash payment of
federal income taxes will be minimal.
NOTE D. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
AS OF JANUARY 31,
---------------------
1998 1997
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Finished products.................................... $ 253 $ 246
Work in process...................................... 109 83
Raw materials and supplies........................... 144 123
---------- ----------
Total inventories.................................. $ 506 $ 452
========== ==========
</TABLE>
NOTE E. FINANCIAL INSTRUMENTS
In November 1997, Navistar Financial Corporation ("NFC") sold $500 million
of retail notes, realizing proceeds of $477 million, net of underwriting fees
and credit enhancements, which were used for general working capital purposes.
A gain of approximately $7 million was recognized on the sale.
F-5
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE E. FINANCIAL INSTRUMENTS (CONTINUED)
During the first quarter of 1998, NFC entered into a $50 million forward
treasury lock in anticipation of a May 1998 sale of retail receivables. NFC
intends to close this position on the pricing date of the sale. Any gain or
loss resulting from this transaction will be included in the gain or loss
recognized on the sale of receivables in May 1998.
In anticipation of the $250 million 10-year Senior Subordinated Note
offering, the Company entered into four $50 million forward treasury locks
during the first quarter of 1998. The Company closed these positions on the
pricing date of the debt resulting in a gain which was not material.
As of January 31, 1998, the Company had open positions on future sales of
$103 million of 30-year Treasury bonds and future purchases of a duration-
weighted equivalent of 2-year Treasury bonds. These positions were closed in
February resulting in a gain which was not material.
The Company purchases collateralized mortgage obligations ("CMOs") that have
predetermined fixed-principal payment patterns which are relatively certain.
These instruments totaled $84 million at January 31, 1998. At January 31, the
unrecognized gain on the CMO's was not material.
NOTE F. EARNINGS PER SHARE
Effective for Navistar's consolidated financial statements for the three
months ended January 31, 1998, Navistar adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which replaces the
presentation of primary earnings per share and fully diluted earnings per
share with a presentation of basic earnings per share and diluted earnings per
share. Basic earnings per share excludes dilution and is computed by dividing
income available to common shareowners by the weighted-average number of basic
common shares outstanding for the period. Diluted earnings per share assumes
the issuance of common stock for other potentially dilutive equivalent shares
outstanding. All prior-period earnings per share data has been restated. The
adoption of this new accounting standard did not have a material effect on the
Company's reported earnings per share amounts.
Earnings per share was computed as follows:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
-------------
1998 1997
------ ------
(MILLIONS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net income.................................................... $ 38 $ 15
Less dividends on Series G Preferred stock.................... 7 7
---- ----
Net income applicable to common stock (Basic and Diluted)..... $ 31 $ 8
==== ====
Average shares outstanding
Basic....................................................... 71.6 73.6
Dilutive effect of options outstanding.................... .8 --
Conversion of Series D Preference Stock................... .1 .1
---- ----
Diluted..................................................... 72.5 73.7
==== ====
Earnings per share
Basic....................................................... $.43 $.10
Diluted..................................................... .42 .10
</TABLE>
F-6
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE F. EARNINGS PER SHARE (CONTINUED)
Unexercised employee stock options to purchase 0.7 million and 2.7 million
shares of Navistar common stock during the three months ended January 31, 1998
and 1997, respectively, were not included in the computation of diluted shares
outstanding because 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. In January 1998, the company repurchased approximately 3.2 million
shares of its Class B Common Stock from the Supplemental Trust.
NOTE G. NEW ACCOUNTING PRONOUNCEMENTS
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.
NOTE H. SUBSEQUENT EVENTS
On February 4, 1998, the Company completed the private placement of $100
million 7% Senior Notes due 2003 and $250 million 8% Senior Subordinated Notes
due 2008 (the "Senior Notes," together with the Senior "Subordinated Notes,"
the "Old Notes"). The proceeds of the Senior Notes were used to prepay an 8%
Secured Note due 2002 and will be used to repay the 9% Sinking Fund Debentures
due 2004. The proceeds of the Senior Subordinated Notes were used to redeem
the Company's $240 million, $6.00 Series G Convertible Cumulative Preferred
Stock and to pay accumulated and unpaid dividends thereon. Excess proceeds
from both debt issues will be used for general working capital purposes. On
March 5, 1998, the Company initiated an offer to exchange the Old Notes with
new notes (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended. The Exchange Notes will evidence the same
debt as the Old Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indentures governing the Old Notes.
On March 5, 1998, the Company announced that it has been selected to
negotiate an extended term agreement to supply diesel engines for select Ford
Motor Company under 8,500 lbs. GVW light duty trucks and sport utility
vehicles.
F-7
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE I. SUPPLEMENTAL FINANCIAL INFORMATION
NAVISTAR INTERNATIONAL CORPORATION (WITH FINANCIAL SERVICES OPERATIONS ON AN
EQUITY BASIS) IN MILLIONS OF DOLLARS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
CONDENSED STATEMENT OF INCOME
Sales of manufactured products....................... $ 1,672 $ 1,240
Other income......................................... 10 10
--------- ---------
Total sales and revenues....................... 1,682 1,250
--------- ---------
Cost of products sold................................ 1,448 1,071
Postretirement benefits.............................. 45 51
Engineering and research expense..................... 35 30
Marketing and administrative expense................. 89 76
Other expenses....................................... 27 21
--------- ---------
Total costs and expenses....................... 1,644 1,249
--------- ---------
Income before income taxes
Manufacturing operations........................... 38 1
Financial services operations...................... 23 23
--------- ---------
Income before income taxes....................... 61 24
Income tax expense................................... 23 9
--------- ---------
Net income..................................... $ 38 $ 15
========= =========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- -------
<S> <C> <C>
CONDENSED STATEMENT OF FINANCIAL CONDITION
Cash, cash equivalents and marketable securities......... $ 387 $ 476
Inventories.............................................. 506 452
Property and equipment, net.............................. 733 656
Equity in financial services subsidiaries................ 329 319
Other assets............................................. 876 689
Deferred tax asset, net.................................. 911 1,024
------- -------
Total assets....................................... $ 3,742 $ 3,616
======= =======
Accounts payable, principally trade...................... $ 994 $ 664
Postretirement benefits liabilities...................... 885 1,270
Other liabilities........................................ 890 760
Shareowners' equity...................................... 973 922
------- -------
Total liabilities and
shareowners' equity............................... $ 3,742 $ 3,616
======= =======
</TABLE>
F-8
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE I. SUPPLEMENTAL FINANCIAL INFORMATION--(CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION (WITH FINANCIAL SERVICES OPERATIONS ON AN
EQUITY BASIS) IN MILLIONS OF DOLLARS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CONDENSED STATEMENT OF CASH FLOW
Cash flow from operations
Net income............................................. $ 38 $ 15
Adjustments to reconcile net income to cash used in
operations:
Depreciation and amortization........................ 32 29
Postretirement benefits funding in excess of expense. (271) (71)
Equity in earnings of nonconsolidated companies, net
of dividends received............................... (3) (14)
Deferred income taxes................................ 23 8
Other, net........................................... (3) (7)
Change in operating assets and liabilities............. (124) (87)
--------- ---------
Cash used in operations............................ (308) (127)
--------- ---------
Cash flow from investment programs
Purchase of marketable securities.................... (118) (150)
Sales or maturities of marketable securities......... 114 91
Capital expenditures................................. (60) (25)
Receivable from Navistar Financial Corporation....... 3 (74)
Other investment programs, net....................... 7 4
--------- ---------
Cash used in investment programs................... (54) (154)
--------- ---------
Cash flow from financing activities................ (56) (10)
--------- ---------
Cash and cash equivalents
Decrease during the period............................. (418) (291)
At beginning of the year............................... 573 452
--------- ---------
Cash and cash equivalents at end of the period..... $ 155 $ 161
========= =========
</TABLE>
F-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Derivative financial instruments are generally held for purposes other than
trading. 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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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
====== ======
7. PROPERTY AND EQUIPMENT
At October 31, property and equipment includes the following:
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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 0.133 shares 0.3125 shares
adjustment in certain
circumstances)...............
Ranking as to dividends and Senior to all other Senior to Common;
upon liquidation............. 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
common equivalent basis
</TABLE>
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-29
<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-30
<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-31
<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> <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-32
<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-33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Special Note on Forward-Looking Statements................................ 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Price Range of Common Stock............................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial and Operating Data........................ 16
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 18
Business.................................................................. 26
Management................................................................ 34
Selling Stockholder....................................................... 36
Description of Capital Stock.............................................. 36
Certain United States Tax Consequences to Non-United States Holders....... 41
Underwriting.............................................................. 43
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 46
Information Incorporated by Reference..................................... 47
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19,894,103 SHARES
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
LOGO
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE 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 MAY 13, 1998
PROSPECTUS
19,894,103 SHARES
LOGO
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
--------
All of the shares of Common Stock, par value $.10 per share (the "Common
Stock") of Navistar International Corporation, a Delaware corporation
("Navistar" or the "Company"), offered hereby (the "Offering") are being sold
by the Navistar International Transportation Corp. Retiree Supplemental Benefit
Trust (the "Supplemental Trust" or "Selling Stockholder"). The Supplemental
Trust was established in 1993 for the purpose of funding certain retiree health
care benefits. See "Selling Stockholder." The Company will not receive any
proceeds from the sale of shares by the Selling Stockholder.
Of the 19,894,103 shares of Common Stock being offered hereby, a total of
4,000,000 shares are being offered hereby in an international offering outside
the United States and Canada (the "International Offering") by the Managers (as
defined) and a total of 15,894,103 shares are being offered by the U.S.
Underwriters (as defined) in a concurrent offering in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offerings"). The Company has agreed, subject to certain conditions, to
purchase 2,000,000 shares of Common Stock in the Offerings.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "NAV." On May 12, 1998, the last reported sales price of the Common
Stock on the NYSE was $27.00 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------
Total(3) $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Under certain circumstances, the Company will pay all or a portion of the
underwriting discounts and commissions. For information regarding
indemnification of the Managers, see "Underwriting."
(2) The Company will pay expenses related to the Offerings estimated at
$ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,300,000 additional shares to cover over-allotments, if any. See
"Underwriting." If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ and $ , respectively.
--------
The shares of Common Stock are being offered by the several Managers named
therein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1998, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001, or through the facilities of The Depository Trust Company.
--------
SALOMON SMITH BARNEY INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN SECURITIES LTD.
, 1998
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL
TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 10
Special Note on Forward-Looking Statements................................. 13
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Price Range of Common Stock................................................ 14
Capitalization............................................................. 15
Selected Consolidated Financial and Operating Data......................... 16
Management's Discussion and Analysis
of Results of Operations and
Financial Condition....................................................... 18
Business................................................................... 26
Management................................................................. 34
Selling Stockholder........................................................ 36
Description of Capital Stock............................................... 36
Certain United States Tax Consequences to Non-United States Holders........ 41
Underwriting............................................................... 43
Legal Matters.............................................................. 46
Experts.................................................................... 46
Available Information...................................................... 46
Information Incorporated by Reference...................................... 47
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19,894,103 SHARES
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
LOGO
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN SECURITIES LTD.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses of the Registrant in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts and commissions. All such amounts are estimates,
other than the fees payable to the Commission, NASD and the NYSE.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $165,510
NASD filing fee................................................. 30,500
NYSE listing fee................................................ *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Miscellaneous................................................... *
--------
Total....................................................... $ *
========
</TABLE>
- --------
* To be provided by Amendment.
ITEM 15. 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 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 Certificate
of Incorporation, the Registrant's By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
II-1
<PAGE>
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
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.
ITEM 16. EXHIBITS.
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (U.S. and Canada), among the
Company, the Selling Stockholder, Smith Barney Inc., Credit
Suisse First Boston Corporation and J.P. Morgan Securities Inc.*
1.2 Form of Underwriting Agreement (International), among the
Company, the Selling Stockholder, Smith Barney Inc., Credit
Suisse First Boston (Europe) Limited and J.P. Morgan Securities
Ltd.*
4.1 Specimen certificate for shares of Common Stock, incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-1 (Registration No. 33-50327).
4.2 Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K, dated October 31, 1993, which was filed on
January 27, 1994, Commission File No. 1-9618, and amended as of
May 4, 1998.
4.3 By-Laws of the Company, incorporated by reference to Exhibit 3.2
of the Company's Annual Report on Form 10-K, dated October 31,
1995, which was filed with the Commission on January 26, 1996,
Commission File No. 1-9618.
5.1 Opinion of Kirkland & Ellis regarding legality of securities
being registered.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1.*
24.1 Powers of Attorney (included in Part II of Registration
Statement).
</TABLE>
- --------
*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(A) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act that is
incorporated by reference in the registration statement) 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 deemed to be the initial
bona fide offering thereof.
(B) 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
II-2
<PAGE>
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.
(C) The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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 deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO.
1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, ILLINOIS, AS OF MAY 14,
1998.
Navistar International Corporation
/s/ Robert C. Lannert
By: _________________________________
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE 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 May 14, 1998
____________________________________ Chief Executive Officer and
John R. Horne Director (Principal
Executive Officer)
/s/ Robert C. Lannert Executive Vice President and May 14, 1998
____________________________________ Chief Financial Officer and
Robert C. Lannert Director (Principal
Financial Officer)
* Vice President and May 14, 1998
____________________________________ Controller (Principal
J. Steven Keate Accounting Officer)
* Director May 14, 1998
____________________________________
William F. Andrews
* Director May 14, 1998
____________________________________
John D. Correnti
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director May 14, 1998
____________________________________
William C. Craig
* Director May 14, 1998
____________________________________
Jerry E. Dempsey
* Director May 14, 1998
____________________________________
John F. Fiedler
* Director May 14, 1998
____________________________________
John T. Grigsby, Jr.
* Director May 14, 1998
____________________________________
Michael N. Hammes
* Director May 14, 1998
____________________________________
Allen J. Krowe
* Director May 14, 1998
____________________________________
Walter J. Laskowski
* Director May 14, 1998
____________________________________
William F. Patient
</TABLE>
- --------
* The undersigned, by signing his name hereto, does hereby execute this
Amendment No. 1 to the Registration Statement on behalf of the above-named
officers and/or directors of the Registrant pursuant to Powers of Attorneys
previously 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>
1.1 Form of Underwriting Agreement (U.S. and Canada), among the Company,
the Selling Stockholder, Smith Barney Inc., Credit Suisse First
Boston Corporation and J.P. Morgan Securities Inc.*
1.2 Form of Underwriting Agreement (International), among the Company,
the Selling Stockholder, Smith Barney Inc., Credit Suisse First
Boston (Europe) Limited and J.P. Morgan Securities Ltd.*
4.1 Specimen certificate for shares of Common Stock incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-1 (Registration No. 33-50327).
4.2 Restated Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K, dated October 31, 1993, which was filed on January 27, 1994,
Commission File No. 1-9618, and amended as of May 4, 1998.
4.3 By-Laws of the Company, incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K, dated October 31, 1995,
which was filed with the Commission on January 26, 1996, Commission
File No. 1-9618.
Opinion of Kirkland & Ellis regarding legality of securities being
5.1 registered.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1.*
24.1 Powers of Attorney (included in Part II of Registration Statement).
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Navistar International
Corporation on Form S-3 of our report dated December 15, 1997, appearing and
incorporated by reference in the Prospectus, which is part of this Registration
Statement, and of our report dated December 15, 1997 relating to the financial
statement schedule incorporated by reference elsewhere in this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
May 11, 1998
