Stockholders' Deficit

Preferred and Preference Stocks

NIC has authorized 30 million shares of preferred stock, none of which have been issued, with a par value of $1.00 per share. NIC has authorized 10 million shares of preference stock with a par value of $1.00 per share. Currently, Series B Nonconvertible Junior Preference Stock ("Series B") and Series D Convertible Junior Preference Stock ("Series D") are outstanding.

The UAW holds the Series B and is currently entitled to elect one member of our Board of Directors. As of October 31, 2016 and 2015, there was one share of Series B Preference stock with a par value of $1.00 per share authorized and outstanding.

As of October 31, 2016 and 2015, there were 70,182 and 70,282 shares, respectively, of Series D issued and outstanding. These shares were issued with a par value of $1.00 per share, an optional redemption price, and a liquidation preference of $25 per share plus accrued dividends. The Series D stock may be converted into NIC common stock at the holder's option (subject to adjustment in certain circumstances); upon conversion each share of Series D stock is converted to 0.3125 shares of common stock. The Series D stock ranks senior to common stock as to dividends and liquidation and receives dividends at a rate of 120% of the cash dividends on common stock as declared on an as-converted basis.

Common Stock

At October 31, 2016, our amount of authorized shares of Common Stock was 220 million, with a par value of $0.10 per share. At October 31, 2016 and 2015, we had 81.6 million shares and 81.5 million shares, respectively, of common stock outstanding, net of common stock held in treasury.

Volkswagen Truck & Bus GmbH Stock Purchase Agreement

On September 5, 2016, NIC and Volkswagen Truck & Bus GmbH (“VW T&B”) announced a Stock Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which we will issue and VW T&B will purchase an estimated 19.9% stake (16.6% on a pro forma basis) in the Company (the “Share Issuance”), and a Stockholder Agreement ("Stockholder Agreement"), which governs the rights and obligations of the parties in connection with the share issuance. The Board of Directors of the Company has approved the share issuance for purposes of Section 203 of the Delaware General Corporation Law (“DGCL”) and the Company and VW T&B have announced an agreement which permits VW T&B to acquire up to 20% of the Company without triggering the restrictions that would otherwise be imposed under Section 203 of the DGCL. VW T&B will also designate two people who are approved by the Company to be appointed to Navistar's Board of Directors. Subject to the terms and conditions set forth in the Stock Purchase Agreement, at the closing, we will issue to VW T&B 16.2 million shares of our common stock for a purchase price of $15.76 per share and an aggregate purchase amount of $256 million.

In addition to the agreements governing the Share Issuance, our operating subsidiary, NI concurrently entered into a Framework Agreement Concerning Technology Licensing and Supply (the “License and Supply Framework Agreement”) and a Procurement JV Framework Agreement (the “Procurement JV Framework Agreement”) with VW T&B. Pursuant to the License and Supply Framework Agreement, the parties have agreed to use commercially reasonable efforts to enter into certain individual contracts in respect of the licensing and supply of certain engines and technologies, conduct feasibility studies in order to investigate the feasibility of sharing certain technologies and begin good faith discussions on possible collaboration with respect to certain powertrain combinations and other strategic initiatives. Under the Procurement JV Framework Agreement, the parties intend to form a sourcing joint venture entity to make recommendations for sourcing to the parties. Each party will make final sourcing decisions considering recommendations made by the Procurement JV.

The closing of the Stock Purchase Agreement is subject to certain regulatory approvals, the finalization of the definitive agreements governing the procurement joint venture and the finalization of the first definitive contract under the License and Supply Framework Agreement, among other customary closing conditions.

Additional Paid in Capital

In connection with the sale of the 2014 Convertible Notes, we purchased call options for $125 million and entered into separate warrant transactions whereby we sold warrants for $87 million to purchase shares of common stock. As the call options and warrants are indexed to our common stock, we recognized them in permanent equity in Additional paid in capital, and will not recognize subsequent changes in fair value as long as the instruments remain classified as equity. On October 15, 2014, upon maturity, the 2014 Convertible Notes were paid in full and the purchased call options expired worthless.

In accounting for the issuance of the 2018 Convertible Notes, a debt component and an equity component were separated resulting in the debt component being recorded at its estimated fair value without consideration given to the conversion feature. We estimated the fair value of the liability component at $177 million. The resulting equity component of $22 million, net of $1 million of discount, was recorded in Additional paid in capital and will not be remeasured as long as it continues to meet the conditions for equity classification. Issuance costs were also allocated between the debt and equity components resulting in an immaterial amount being recorded as a reduction in Additional paid in capital.

In accounting for the issuance of the 2019 Convertible Notes, the debt component and equity component of the 2019 Convertible Notes were separated, resulting in the debt component being recorded at its estimated fair value without consideration given to the conversion feature. We estimated the fair value of the liability component at $367 million. The resulting equity component of $44 million was recorded in Additional paid in capital and will not be remeasured as long as it continues to meet the conditions for equity classification. Issuance costs were also allocated between debt and equity components with $1 million being recorded as a reduction in Additional paid in capital.

For more information on our 2014 Convertible Notes, 2018 Convertible Notes, and 2019 Convertible Notes, see Note 9, Debt.

Accumulated Other Comprehensive Loss

The following table presents changes in Accumulated other comprehensive loss, net of tax, included in our Consolidated Statements of Shareholders' Deficit:



(in millions)	Unrealized Gain on Marketable Securities		Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2015	$	1	$	(287	)	$	(2,315	)	$	(2,601	)
Other comprehensive income (loss) before reclassifications	—		7			(177		)	(170		)
Amounts reclassified out of accumulated other comprehensive loss	—		—			131			131
Net current-period other comprehensive income (loss)	—		7			(46		)	(39		)
Balance as of October 31, 2016	$	1	$	(280	)	$	(2,361	)	$	(2,640	)



(in millions)	Unrealized Gain on Marketable Securities		Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2014	$	1	$	(127	)	$	(2,137	)	$	(2,263	)
Other comprehensive loss before reclassifications	—		(160		)	(309		)	(469		)
Amounts reclassified out of accumulated other comprehensive loss	—		—			131			131
Net current-period other comprehensive loss	—		(160		)	(178		)	(338		)
Balance as of October 31, 2015	$	1	$	(287	)	$	(2,315	)	$	(2,601	)



(in millions)	Unrealized Gain on Marketable Securities		Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2013	$	—	$	(75	)	$	(1,749	)	$	(1,824	)
Other comprehensive income (loss) before reclassifications	1		(52		)	(491		)	(542		)
Amounts reclassified out of accumulated other comprehensive loss	—		—			103			103
Net current-period other comprehensive income (loss)	1		(52		)	(388		)	(439		)
Balance as of October 31, 2014	$	1	$	(127	)	$	(2,137	)	$	(2,263	)

The following table presents the amounts reclassified from Accumulated other comprehensive loss and the affected line item in our Consolidated Statements of Operations:



		For the Years Ended October 31,
	Location in Consolidated Statements of Operations	2016			2015			2014
Defined benefit plans
Amortization of prior service benefit	Selling, general and administrative expenses	$	(1	)	$	(4	)	$	(4	)
Amortization of actuarial loss	Selling, general and administrative expenses	133			136			109
	Total before tax	132			132			105
	Income tax expense	(1		)	(1		)	(2		)
Total reclassifications for the period, net of tax		$	131		$	131		$	103

Dividend Restrictions

Under the General Corporation Law of the State of Delaware, dividends may only be paid out of surplus or out of net profits for the year in which the dividend is declared or the preceding 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 our net assets.

Certain debt instruments, including our Senior Notes indenture, our Loan Agreement with regard to the Tax Exempt Bonds, our Amended Term Loan Credit Facility, and our Amended and Restated Asset-Based Credit Facility, contain terms that include various financial covenants and restrictions, including, among others, certain limitations on dividends. We have not paid dividends on our common stock since 1980.