10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________

Form 10-Q

___________________________________________________

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____.        

   Commission file number 1-9618

___________________________________________________

  

NAVISTAR INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

_______________________________________________

Delaware		36-3359573
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2701 Navistar Drive
Lisle	Illinois	60532
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (331) 332-5000

______________________________________________________

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10	NAV	New York Stock Exchange
Cumulative convertible junior preference stock, Series D (par value $1.00)	NAV-D	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	þ	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐     No  þ

As of August 31, 2019, the number of shares outstanding of the registrant’s common stock was 99,205,588, net of treasury shares.

NAVISTAR INTERNATIONAL CORPORATION FORM 10-Q

TABLE OF CONTENTS

		Page
PART I—Financial Information
Item 1.	Financial Statements (Unaudited)	5
	Consolidated Statements of Operations for the three and nine months ended July 31, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income for the three and nine months ended July 31, 2019 and 2018	6
	Consolidated Balance Sheets as of July 31, 2019 and October 31, 2018	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2019 and 2018	8
	Consolidated Statements of Stockholders' Deficit for the three and nine months ended July 31, 2019 and 2018	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59
Item 4.	Controls and Procedures	59
PART II
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60
	Signature	61

2

Disclosure Regarding Forward-Looking Statements

Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this report and Navistar International Corporation assumes no obligation to update the information included in this report.

Such forward-looking statements include, but are not limited to, statements concerning:

• estimates we have made in preparing our financial statements;

• our expectations and estimates relating to the impact of the federal Tax Cuts and Jobs Act (the “Tax Act”) on our business and financial condition;

• the implementation of, and expected benefits from, our strategic alliance with TRATON SE and certain of its subsidiaries and affiliates ("TRATON Group");

• our development and launch of new products and technologies;

• anticipated sales, volume, demand, markets for our products, and financial performance;

• anticipated performance and benefits of our products and technologies;

• our business strategies relating to, and our ability to meet, federal and state regulatory heavy-duty diesel emissions standards applicable to certain of our engines, including the timing and costs of compliance and consequences of noncompliance with such standards, as well as our ability to meet other federal, state and foreign regulatory requirements;

• our business strategies and short-term and long-term goals and activities to accomplish such strategies and goals;

• our ability to implement our strategy focused on growing the core business (i.e., the truck and parts markets for the United States and Canada, where we participate primarily in the Class 6 through 8 vehicle market segments (the “Core” business and “Core” markets)), driving operational excellence, pursuing innovative technology solutions, leveraging the TRATON Group strategic alliance, continuing our commitment to a customer-centric approach, enhancing cross functional teamwork and our winning culture, and improving our financial performance, as well as the results we expect to achieve from the implementation of our strategy;

• our expectations related to new product launches;

• anticipated results from the realignment of our leadership and management structure;

• anticipated results from acquisitions, dispositions, strategic alliances, and joint ventures we complete;

• our expectations and estimates relating to restructuring activities, including restructuring charges and timing of cash payments related thereto, and operational flexibility, savings, and efficiencies from such restructurings;

• our expectations relating to debt refinancing activities;

• our expectations relating to the potential effects of anticipated divestitures and closures of businesses;

• our expectations relating to our cost-reduction actions and actions to reduce discretionary spending;

• our expectations relating to our ability to service our long-term debt;

• our expectations relating to our wholesale and retail finance receivables and revenues;

• our expectations relating to liabilities resulting from environmental, health and safety laws and regulations;

• our anticipated capital expenditures;

• our expectations relating to payments of taxes;

• our expectations relating to warranty costs;

• our expectations relating to interest expense;

• our expectations relating to impairment of goodwill and other assets;

• our expectations relating to litigation costs (including, without limitation, the MaxxForce Advanced EGR engine lawsuits) and similar matters;

• estimates relating to pension plan contributions and unfunded pension and postretirement benefits;

• our expectations relating to commodity price risk, including the impact of tariff increases or potential new tariffs; and

• anticipated trends, expectations, and outlook relating to matters affecting our financial condition or results of operations.

3

These statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our results of operations and could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause or contribute to differences in our future financial results include those discussed in Item 1A, Risk Factors, included within our Annual Report on Form 10-K for the fiscal year ended October 31, 2018 which was filed on December 18, 2018, as well as those factors discussed elsewhere in this report. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

Available Information

We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as a result, are obligated to file annual, quarterly, and current reports, proxy statements, and other information with the United States ("U.S.") Securities and Exchange Commission ("SEC"). We make these filings available free of charge on our website (http://www.navistar.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not constitute part of this Quarterly Report on Form 10-Q. In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC.

4

PART I—Financial Information

Item 1. Financial Statements

Navistar International Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions, except per share data)	2019			2018			2019			2018
Sales and revenues
Sales of manufactured products, net	$	2,996		$	2,566		$	8,330		$	6,815
Finance revenues	46			40			141			118
Sales and revenues, net	3,042			2,606			8,471			6,933
Costs and expenses
Costs of products sold	2,501			2,096			6,973			5,615
Restructuring charges	—			1			1			(1		)
Asset impairment charges	3			8			6			11
Selling, general and administrative expenses	167			222			726			613
Engineering and product development costs	81			72			242			222
Interest expense	76			82			243			240
Other expense (income), net	25			(55		)	140			36
Total costs and expenses	2,853			2,426			8,331			6,736
Equity in income of non-consolidated affiliates	1			—			4			—
Income before income tax	190			180			144			197
Income tax expense	(29		)	(3		)	(9		)	(25		)
Net income	161			177			135			172
Less: Net income attributable to non-controlling interests	5			7			16			20
Net income attributable to Navistar International Corporation	$	156		$	170		$	119		$	152
Income per share attributable to Navistar International Corporation:
Basic	$	1.57		$	1.72		$	1.20		$	1.54
Diluted	1.56			1.71			1.20			1.53
Weighted average shares outstanding:
Basic	99.4			99.0			99.2			98.8
Diluted	99.7			99.7			99.5			99.6

See Notes to Consolidated Financial Statements

5

Navistar International Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited) 

(in millions)	Three Months Ended July 31,					Nine Months Ended July 31,
	2019		2018			2019		2018
Net income	$	161	$	177		$	135	$	172
Other comprehensive income (loss):
Foreign currency translation adjustment	9		(13		)	5		(19		)
Defined benefit plans, net of tax	23		29			161		92
Total other comprehensive income	32		16			166		73
Comprehensive income	193		193			301		245
Less: Net income attributable to non-controlling interests	5		7			16		20
Total comprehensive income attributable to Navistar International Corporation	$	188	$	186		$	285	$	225

See Notes to Consolidated Financial Statements

6

Navistar International Corporation and Subsidiaries

Consolidated Balance Sheets

	As of July 31, 2019			As of October 31, 2018
(in millions, except per share data)
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$	1,160		$	1,320
Restricted cash and cash equivalents	79			62
Marketable securities	3			101
Trade and other receivables, net	429			456
Finance receivables, net	2,187			1,898
Inventories, net	1,195			1,110
Other current assets	273			189
Total current assets	5,326			5,136
Restricted cash	57			63
Trade and other receivables, net	12			49
Finance receivables, net	275			260
Investments in non-consolidated affiliates	33			50
Property and equipment (net of accumulated depreciation and amortization of $2,463 and $2,498, respectively)	1,290			1,370
Goodwill	38			38
Intangible assets (net of accumulated amortization of $142 and $140, respectively)	27			30
Deferred taxes, net	124			121
Other noncurrent assets	112			113
Total assets	$	7,294		$	7,230
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	676		$	946
Accounts payable	1,806			1,606
Other current liabilities	1,323			1,255
Total current liabilities	3,805			3,807
Long-term debt	4,528			4,521
Postretirement benefits liabilities	1,929			2,097
Other noncurrent liabilities	692			731
Total liabilities	10,954			11,156
Stockholders’ deficit
Series D convertible junior preference stock	2			2
Common stock, $0.10 par value per share (103.1 shares issued and 220 shares authorized at both dates)	10			10
Additional paid-in capital	2,730			2,731
Accumulated deficit	(4,501		)	(4,593		)
Accumulated other comprehensive loss	(1,754		)	(1,920		)
Common stock held in treasury, at cost (3.9 and 4.2 shares, respectively)	(150		)	(161		)
Total stockholders’ deficit attributable to Navistar International Corporation	(3,663		)	(3,931		)
Stockholders’ equity attributable to non-controlling interests	3			5
Total stockholders’ deficit	(3,660		)	(3,926		)
Total liabilities and stockholders’ deficit	$	7,294		$	7,230

See Notes to Consolidated Financial Statements

7

Navistar International Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended July 31,
(in millions)	2019			2018
Cash flows from operating activities
Net income	$	135		$	172
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	99			107
Depreciation of equipment leased to others	45			53
Deferred taxes, including change in valuation allowance	(41		)	(3		)
Asset impairment charges	6			11
Gain on sales of investments and businesses, net	(56		)	—
Amortization of debt issuance costs and discount	15			23
Stock-based compensation	20			27
Provision for doubtful accounts	8			6
Equity in income of non-consolidated affiliates, net of dividends	(3		)	4
Write-off of debt issuance costs and discount	6			43
Other non-cash operating activities	(6		)	(17		)
Changes in other assets and liabilities, exclusive of the effects of businesses disposed	(124		)	(606		)
Net cash provided by (used in) operating activities	104			(180		)
Cash flows from investing activities
Purchases of marketable securities	—			(214		)
Sales of marketable securities	—			460
Maturities of marketable securities	98			29
Capital expenditures	(90		)	(79		)
Purchases of equipment leased to others	(130		)	(142		)
Proceeds from sales of property and equipment	12			9
Proceeds from sales of investments and businesses	100			(3		)
Other investing activities	1			—
Net cash provided by (used in) investing activities	(9		)	60
Cash flows from financing activities
Proceeds from issuance of securitized debt	331			32
Principal payments on securitized debt	(300		)	(50		)
Net change in secured revolving credit facilities	120			64
Proceeds from issuance of non-securitized debt	144			3,210
Principal payments on non-securitized debt	(988		)	(2,669		)
Net change in notes and debt outstanding under revolving credit facilities	469			(52		)
Debt issuance costs	(9		)	(36		)
Proceeds from financed lease obligations	13			48
Proceeds from exercise of stock options	3			7
Dividends paid by subsidiaries to non-controlling interest	(18		)	(19		)
Other financing activities	(2		)	(17		)
Net cash provided by (used in) financing activities	(237		)	518
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(7		)	(16		)
Increase (decrease) in cash, cash equivalents and restricted cash	(149		)	382
Cash, cash equivalents and restricted cash at beginning of the period	1,445			840
Cash, cash equivalents and restricted cash at end of the period	$	1,296		$	1,222

See Notes to Consolidated Financial Statements

8

Navistar International Corporation and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(Unaudited)

(in millions)	Series D Convertible Junior Preference Stock		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Common Stock Held in Treasury, at cost			Stockholders' Equity Attributable to Non-controlling Interests			Total
Balance as of October 31, 2018	$	2	$	10	$	2,731		$	(4,593	)	$	(1,920	)	$	(161	)	$	5		$	(3,926	)
Net income	—		—		—			119			—			—			16			135
Total other comprehensive income	—		—		—			—			166			—			—			166
ASC-606 modified retrospective adoption	—		—		—			(27		)	—			—			—			(27		)
Stock-based compensation	—		—		9			—			—			—			—			9
Stock ownership programs	—		—		(10		)	—			—			11			—			1
Cash dividends paid to non-controlling interest	—		—		—			—			—			—			(18		)	(18		)
Balance as of July 31, 2019	$	2	$	10	$	2,730		$	(4,501	)	$	(1,754	)	$	(150	)	$	3		$	(3,660	)
Balance as of October 31, 2017	$	2	$	10	$	2,733		$	(4,933	)	$	(2,211	)	$	(179	)	$	4		$	(4,574	)
Net income	—		—		—			152			—			—			20			172
Total other comprehensive income	—		—		—			—			73			—			—			73
Stock-based compensation	—		—		9			—			—			—			—			9
Stock ownership programs	—		—		(10		)	—			—			16			—			6
Cash dividends paid to non-controlling interest	—		—		—			—			—			—			(19		)	(19		)
Stock deferral and issuance - directors	—		—		(1		)	—			—			—			—			(1		)
Balance as of July 31, 2018	$	2	$	10	$	2,731		$	(4,781	)	$	(2,138	)	$	(163	)	$	5		$	(4,334	)

See Notes to Consolidated Financial Statements

9

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

Organization and Description of the Business

Navistar International Corporation ("NIC"), incorporated under the laws of the State of Delaware in 1993, is a holding company whose principal operating entities are Navistar, Inc. ("NI") and Navistar Financial Corporation ("NFC"). References herein to the "Company," "we," "our," or "us" refer collectively to NIC and its consolidated subsidiaries, including certain variable interest entities ("VIEs") of which we are the primary beneficiary. We operate in four principal industry segments: Truck, Parts, Global Operations (collectively called "Manufacturing operations"), and Financial Services, which consists of NFC and our foreign finance operations (collectively called "Financial Services operations"). These segments are discussed in Note 12, Segment Reporting.

Our fiscal year ends on October 31. As such, all references to 2019, 2018, and other years contained within this Quarterly Report on Form 10-Q relate to the fiscal year, unless otherwise indicated.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations and our Financial Services operations, including VIEs of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.

We prepared the accompanying unaudited consolidated financial statements in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for comprehensive annual financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended October 31, 2018, which should be read in conjunction with the disclosures therein. In our opinion, these interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.

Variable Interest Entities

We have an interest in several VIEs, primarily joint ventures, established to manufacture or distribute products and enhance our operational capabilities. We have determined for certain of our VIEs that we are the primary beneficiary because we have the power to direct the activities of the VIE that most significantly impact its economic performance and we have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Accordingly, we include in our consolidated financial statements the assets and liabilities and results of operations of those entities, even though we may not own a majority voting interest. The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather they represent claims against the specific assets of these VIEs. Assets of these entities are not readily available to satisfy claims against our general assets.

We are the primary beneficiary of our Blue Diamond Parts, LLC ("BDP") joint venture with Ford Motor Company ("Ford"). As a result, our Consolidated Balance Sheets include assets of $28 million and $39 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $3 million and $4 million, at each date. As of July 31, 2019 and October 31, 2018, assets include $3 million and $4 million of cash and cash equivalents, respectively, which are not readily available to satisfy claims against our general assets. The creditors of BDP do not have recourse to our general credit.

Our Financial Services segment consolidates several VIEs. As a result, our Consolidated Balance Sheets include secured assets of $1.1 billion and $994 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $956 million and $852 million as of July 31, 2019 and October 31, 2018, respectively, all of which are involved in securitizations that are treated as asset-backed debt. In addition, our Consolidated Balance Sheets include secured assets of $465 million and $370 million as of July 31, 2019 and October 31, 2018, respectively, and corresponding liabilities of $253 million and $205 million, at the respective dates, which are related to other secured transactions that do not qualify for sale accounting treatment, and, therefore, are treated as borrowings secured by operating and finance leases. Investors that hold securitization debt have a priority claim on the cash flows generated by their respective securitized assets to the extent that the related VIEs are required to make principal and interest payments. Investors in securitizations of these entities have no recourse to our general credit.

10

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

We also have an interest in other VIEs, which we do not consolidate because we are not the primary beneficiary. Our financial support and maximum loss exposure relating to these non-consolidated VIEs are not material to our financial condition, results of operations, or cash flows.

We use the equity method to account for our investments in entities that we do not control under the voting interest or variable interest models, but where we have the ability to exercise significant influence over operating and financial policies. Equity in income of non-consolidated affiliates includes our share of the net income of these entities.

Related Party Transactions

We have a series of commercial relationships and agreements with TRATON SE and certain of its subsidiaries and affiliates ("TRATON Group") for royalties related to use of certain engine technology, contract manufacturing operations performed by us, the sale of engines, the sale and purchase of parts, and a procurement joint venture. We also have development agreements with TRATON Group involving certain engine and transmission projects. This development work is being expensed as incurred. For the three and nine months ended July 31, 2019, revenue recognized was approximately $42 million and $113 million, respectively, compared to $33 million and $114 million in the comparable prior year periods. For the three and nine months ended July 31, 2019, expenses incurred were $11 million and $29 million, respectively, compared to $2 million and $21 million in the comparable prior year periods, included primarily in Engineering and product development costs on our Consolidated Statements of Operations. Our receivable from TRATON Group was $16 million and $10 million as of July 31, 2019 and October 31, 2018, respectively. Our payable to TRATON Group was $48 million and $25 million as of July 31, 2019 and October 31, 2018, respectively.

We have an exclusive long-term agreement to supply military and commercial parts and chassis to our former defense business, ND Holdings, LLC (“Navistar Defense”). We also entered into an intellectual property agreement and a transition services agreement. For the three and nine months ended July 31, 2019, revenue recognized was approximately $9 million and $43 million, respectively. As of July 31, 2019, our receivables from Navistar Defense were $29 million.

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is principally determined using the first-in, first-out method. Our gross used truck inventory was $251 million at July 31, 2019 compared to $154 million at October 31, 2018, offset by reserves of $55 million and $31 million, respectively.

Property and Equipment

We report land, buildings, leasehold improvements, machinery and equipment (including tooling and pattern equipment), furniture, fixtures, and equipment, and equipment leased to others at cost, net of depreciation. We initially record assets under capital lease obligations at the lower of their fair value or the present value of the aggregate future minimum lease payments. We depreciate our assets using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets.

We test for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset or asset group (hereinafter referred to as "asset group") may not be recoverable by comparing the sum of the estimated undiscounted future cash flows expected to result from the operation of the asset group and its eventual disposition to the carrying value.

Continued economic weakness in Brazil has resulted in a decline in forecasted results for the Brazilian asset group, which is included in the Global Operations segment. It is reasonably possible that within the next twelve months, we could recognize impairment charges if we experience adverse changes in our business including further declines in profitability due to changes in volume, market pricing, cost, or the business environment. Significant adverse changes to our business environment and future cash flows could cause us to record impairment charges in future periods, which could be material.

11

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Product Warranty Liability

The following table presents accrued product warranty and deferred warranty revenue activity:

	Nine Months Ended July 31,
(in millions)	2019			2018
Balance at beginning of period	$	529		$	629
Costs accrued and revenues deferred	182			139
Adjustments to pre-existing warranties(A)	7			(4		)
Payments and revenues recognized	(208		)	(233		)
Other adjustments(B)	12			—
Balance at end of period	522			531
Less: Current portion	247			254
Noncurrent accrued product warranty and deferred warranty revenue	$	275		$	277

_________________________

(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior fiscal periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

(B) Other adjustments include a $14 million increase in revenues deferred in connection with the adoption of the new revenue standard (as defined below regarding Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606), partially offset by a $2 million reduction in liability related to the sale of a majority interest in our defense business, ND Holdings, LLC ("Navistar Defense")..

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, pension and other postretirement benefits, allowance for doubtful accounts, tax contingency accruals and valuation allowances, product warranty accruals, asbestos and other product liability accruals, asset impairment charges, restructuring charges and litigation-related accruals. Actual results could differ from our estimates.

Concentration Risks

Our financial condition, results of operations, and cash flows are subject to concentration risks related to our significant unionized workforce. As of July 31, 2019, approximately 8,300, or 98%, of our hourly workers and approximately 700, or 13%, of our salaried workers, are represented by labor unions and are covered by collective bargaining agreements. In January 2019, certain of our United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") represented employees executed a new six-year master collective bargaining agreement with a ratification date of December 17, 2018 that replaced the prior agreement which expired in October 2018. Our future operations may be affected by changes in governmental procurement policies, budget considerations, changing national defense requirements, and political, regulatory and economic developments in the U.S. and certain foreign countries (primarily Canada, Mexico, and Brazil).

Recently Adopted Accounting Standards

On November 1, 2018, we adopted the new accounting standard ASC 606, "Revenue from Contracts with Customers" and all the related amendments (“new revenue standard”) using the modified retrospective method to all contracts. Based on our assessment, the cumulative effect adjustment upon adoption of the new revenue standard had a $27 million impact on our Accumulated deficit. The primary impacts include an increase in Accumulated deficit due to an increase in the refund liability owed to our customers for future returns of core components. Previously our refund liability was recorded net of our future trade-in value to our suppliers. Under the new revenue standard, we record a liability for the amounts owed to our customers and a deposit asset for the amount we are currently eligible to receive from our suppliers. An additional increase relates to a change in the recognition pattern of revenue for extended warranty contracts. Revenue from these contracts was recognized on a straight-line basis over the life of the contract. Under the new revenue standard, revenue for extended warranty contracts is recorded in proportion to the costs expected to be incurred in satisfying the obligations based on historical cost patterns over the life of similar contracts.

12

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The increase in Accumulated deficit is partially offset by certain contracts where revenue recognition occurred as units were delivered and accepted. Under the new revenue standard, when the contract transfers control of a good to a customer as services or production occurs, revenue is recognized over time. An additional decrease in Accumulated deficit relates to certain sales that were recorded as leases or borrowings as we retained substantial risks of ownership. Under the new revenue standard, revenue is recognized upon transfer of control for these transactions, less the value of any guarantees provided to the customer. The adoption of the new revenue standard resulted in changes in the classification of Sales and revenues, net and Costs of products sold in our Consolidated Statements of Operations. The new revenue standard also resulted in changes in the classification of certain assets and liabilities in our Consolidated Balance Sheets.

We have revised our relevant policy and procedures and provided expanded revenue recognition disclosures based on the new qualitative and quantitative disclosure requirements of the standard in Note 2, Revenue.

The cumulative effects of the adjustments made to our November 1, 2018 Consolidated Balance Sheet for the adoption of the new revenue standard were as follows:

(in millions)	Balance at October 31, 2018			Change Due to New Standard			Balance at November 1, 2018
ASSETS
Current assets
Trade and other receivables, net	$	456		$	(8	)	$	448
Inventories, net	1,110			(91		)	1,019
Other current assets	189			101			290
Total current assets	5,136			2			5,138
Property and equipment, net	1,370			(109		)	1,261
Deferred taxes, net	121			1			122
Other noncurrent assets	113			(3		)	110
Total assets	$	7,230		$	(109	)	$	7,121
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	946		$	(15	)	$	931
Other current liabilities	1,255			13			1,268
Total current liabilities	3,807			(2		)	3,805
Long-term debt	4,521			(58		)	4,463
Other noncurrent liabilities	731			(22		)	709
Total liabilities	11,156			(82		)	11,074
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,931		)	(27		)	(3,958		)
Total liabilities and stockholders’ deficit	$	7,230		$	(109	)	$	7,121

13

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The following reconciles amounts as they would have been reported under the prior standard to current reporting:

	Three months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	2,998		$	(2	)	$	2,996
Costs of products sold	2,504			(3		)	2,501
Interest expense	77			(1		)	76
Income before income tax	188			2			190
Income tax expense	(29		)	—			(29		)
Net income	$	159		$	2		$	161

	Nine months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	8,307		$	23		$	8,330
Costs of products sold	6,965			8			6,973
Interest expense	246			(3		)	243
Income before income tax	126			18			144
Income tax expense	(6		)	(3		)	(9		)
Net income	$	120		$	15		$	135

______________________

(A) Our Consolidated Statements of Operations for the nine months ended July 31, 2019 includes two months of the operating activity of Navistar Defense prior to the sale of a majority interest in our former defense business. See Note 3 Restructuring, Impairments and Divestitures for additional information.

14

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

	As of July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
ASSETS
Current assets
Trade and other receivables, net	$	432		$	(3	)	$	429
Inventories, net	1,248			(53		)	1,195
Other current assets	210			63			273
Total current assets	5,319			7			5,326
Property and equipment, net	1,485			(195		)	1,290
Deferred taxes, net	126			(2		)	124
Other noncurrent assets	120			(8		)	112
Total assets	$	7,492		$	(198	)	$	7,294
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	689		$	(13	)	$	676
Other current liabilities	1,305			18			1,323
Total current liabilities	3,800			5			3,805
Long-term debt	4,577			(49		)	4,528
Other noncurrent liabilities	824			(132		)	692
Total liabilities	11,130			(176		)	10,954
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,641		)	(22		)	(3,663		)
Total liabilities and stockholders’ deficit	$	7,492		$	(198	)	$	7,294

_________________________

(A) Our Consolidated Balance Sheet as of July 31, 2019 does not include the impact of Navistar Defense due to the sale of a majority interest in our former defense business. See Note 3, Restructuring, Impairments and Divestitures for additional information.

Recently Issued Accounting Standards

In August 2018, the FASB issued Accounting Standard Update ("ASU") No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". This ASU provides guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) and determining when the arrangement includes a software license. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2021. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)". This ASU provides guidance on a reclassification from accumulated other comprehensive income to retained earnings for the effect of the tax rate change resulting from the Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We are currently evaluating the impact of this ASU on our consolidated financial statements.

15

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (Topic 326), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-13. This ASU sets forth an expected credit loss model which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, and certain off-balance sheet credit exposures. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Adoption will require a modified retrospective transition. This ASU is effective for us in the first quarter of fiscal 2021. The impact of this ASU on our consolidated financial statements will primarily result from our Financial Services operations and certain financial guarantees, and will largely depend on economic conditions and forecasts existing at the time of adoption.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-02. This ASU requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. The accounting by lessors will remain largely unchanged. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We expect to adopt this ASU in the first quarter of fiscal 2020 on a modified retrospective basis by which the cumulative effect adjustment will be recognized in Accumulated deficit as of November 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also expect to elect the practical expedient related to land easements, but do not expect to elect the use-of-hindsight. We are currently evaluating our lease population to assess the effect of the guidance on our consolidated financial statements, but expect to record lease liabilities and right-of-use assets for operating leases related to certain property and equipment. We have selected our software and service providers and are focused on designing new processes and controls to assist with the implementation of the standard. We continue to evaluate the impact of this ASU on our consolidated financial statements.

2. Revenue

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Disaggregation of Revenue

The following tables disaggregate our external revenue by product type for the three and nine months ended July 31, 2019 (in millions):

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Three Months Ended July 31, 2019
Truck products and services(A)	$	2,115	$	—	$	—	$	—	$	3	$	2,118
Truck contract manufacturing	144		—		—		—		—		144
Used trucks	54		—		—		—		—		54
Engines	—		73		63		—		—		136
Parts	2		496		19		—		—		517
Extended warranty contracts	27		—		—		—		—		27
Sales of manufactured products, net	2,342		569		82		—		3		2,996
Retail financing(C)	—		—		—		35		—		35
Wholesale financing(C)	—		—		—		11		—		11
Sales and revenues, net	$	2,342	$	569	$	82	$	46	$	3	$	3,042

16

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Nine Months Ended July 31, 2019
Truck products and services(A)(B)	$	5,891	$	—	$	—	$	—	$	9	$	5,900
Truck contract manufacturing	274		—		—		—		—		274
Used trucks	151		—		—		—		—		151
Engines	—		217		168		—		—		385
Parts	4		1,476		55		—		—		1,535
Extended warranty contracts	85		—		—		—		—		85
Sales of manufactured products, net	6,405		1,693		223		—		9		8,330
Retail financing(C)	—		—		—		106		—		106
Wholesale financing(C)	—		—		—		35		—		35
Sales and revenues, net	$	6,405	$	1,693	$	223	$	141	$	9	$	8,471

_________________________

(A) Includes other markets primarily consisting of Bus, Export Truck and Mexico.

(B) Includes military sales of $62 million. In December 2018, we completed the sale of a 70% equity interest in Navistar Defense. See Note 3, Restructuring, Impairments and Divestitures for additional information.

(C) Retail financing and Wholesale financing revenues in the Financial Services segment include interest revenue of $15 million and $11 million for the three months ended July 31, 2019, respectively, and $42 million and $35 million for the nine months ended July 31, 2019, respectively.

Trucks, Truck Contract Manufacturing, Used trucks, Engines and Parts

Revenue for our Truck products and services, certain truck contract manufacturing, Used trucks, certain Engines and Parts is recognized at a point in time when control is transferred to the customer. Our Trucks, Used trucks, Engines, and Parts have a standard warranty, the estimated cost of which is included in Costs of products sold. Operating lease and borrowing revenues are recognized on a straight-line basis over the life of the lease.

Prior to our sale of a 70% equity interest in Navistar Defense, certain truck sales to the U.S. government of non-commercial products manufactured to government specification were recognized over time as the goods were manufactured. Certain truck and other contract manufacturing arrangements, unrelated to Navistar Defense, continue to be recognized over time. We recognize revenue over time when the finished assets have no alternative use and we have a right to payment for work performed in the event of a contract cancellation or when we create or enhance an asset that the customer controls as it is being created or enhanced. We recognize revenue using a cost-based input method because it best depicts our progress in satisfying the performance obligation. The selection of the method requires judgement and is based on the nature of the products or services to be provided.

Certain terms or modifications to U.S. and foreign government contracts may have been unpriced; that is, the work to be performed was defined, but the related contract price was to be negotiated at a later date. In situations where we could reliably estimate a profit margin in excess of costs incurred, revenue and gross margin were recorded for delivered contract items. Otherwise, revenue was recognized when the price had been agreed with the applicable government and costs were deferred when it was probable that the costs would be recovered.

An allowance for parts sales returns is recorded as a reduction to revenue based upon estimates using historical information about returns. This includes when the Company is a reseller of certain service parts that include a core component. A core component is the basic forging or casting, such as an engine block, that can be remanufactured by a certified remanufacturing supplier. When a dealer returns a core component within the specified eligibility period, we refund the core return deposit, which is applied to the customer's account balance.

Extended Warranty Contracts

We sell separately-priced extended warranty contracts that can be purchased for periods ranging from one to ten years. Warranty revenue related to extended warranty contracts is recognized over the life of the contract in proportion to the costs expected to be incurred in satisfying the obligation under the contract. Costs under extended warranty contracts are expensed as incurred. We recognize losses on defined pools of extended warranty contracts when the remaining expected costs for a given pool of contracts exceed the related deferred revenue.

17

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Retail and Wholesale Financing

Financial Services operations recognize revenue from retail notes, finance leases, wholesale notes, retail accounts, and wholesale accounts as Finance revenues over the term of the receivables utilizing the effective interest method. Certain direct origination costs and fees are deferred and recognized as adjustments to yield and are reported as part of interest income over the life of the receivable. Loans are impaired when we conclude it is probable the customer will not be able to make full payment according to contractual terms after reviewing the customer's financial performance, payment ability, capital-raising potential, management style, economic situation, and other factors. The accrual of interest on such loans is suspended when the loan becomes 90 days or more past due. Finance revenues on these loans are recognized only to the extent cash payments are received. We resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured.

Operating lease revenues are recognized on a straight-line basis over the life of the lease. Recognition of revenue is suspended when management determines the collection of future revenue is not probable. Recognition of revenue is resumed if collection again becomes probable.

Performance Obligations

Generally, revenue from our sales is recognized at a point in time when control is transferred to the customer which generally occurs upon shipment from our plants and distribution centers or at the time of delivery to our customers. The standard payment term is less than 30 days, but we may extend payment terms on selected receivables. We have elected the practical expedient that allows the Company to not assess whether a contract has a significant financing component when the time between cash collection and transfer of control is less than one year.

We recognize price allowances, returns and the cost of incentive programs in the normal course of business based on programs offered to dealers or fleet customers. Estimates are made for sales incentives on certain vehicles in dealer stock inventory based on historical experience and announced special programs. The estimated sales incentives and returns are adjusted at the earlier of when the estimate of consideration we expect to receive changes or the consideration becomes fixed. For contracts where there is more than one performance obligation, discounts are allocated to all of the performance obligations in the contract based on their relative standalone selling prices.

Revenue on bill and hold arrangements is not recognized until after the customer is notified that the product (i) has been completed according to customer specifications, (ii) has passed our quality control inspections, (iii) is ready for physical transfer to the customer and (iv) the reason for the bill and hold arrangement is substantive.

We have elected to account for shipping and handling activities that occur subsequent to transfer of control as a fulfillment cost and not as a separate performance obligation. The costs are recognized as an expense in Costs of products sold when control of the related performance obligation has transferred to the customer. As a practical expedient, we do not disclose the transaction price related to order backlogs as they have an original expected duration of less than one year.

We exclude from revenue any sales taxes, value added taxes and other related taxes collected from customers.

The impact of changes to revenue related to performance obligations satisfied in prior periods was not material to our consolidated financial statements in the third quarter of 2019.

Contract Balances

Most of our contracts are for a period of less than one year. We have certain long-term contract manufacturing and extended warranty contracts that extend beyond one year. We record deferred revenue, primarily related to extended warranty contracts, when we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract. This deferred revenue represents contract liabilities which are included in our Consolidated Balance Sheets as components of current and long-term liabilities. The amount of manufacturing contract liabilities is not material to our consolidated financial statements.

The amount of deferred revenue related to extended warranty contracts was $273 million and $255 million at July 31, 2019 and October 31, 2018, respectively. Revenue recognized under our extended warranty programs was $27 million and $85 million for the three and nine months ended July 31, 2019, respectively, and $24 million and $80 million for the three and nine months ended July 31, 2018, respectively. We expect to recognize revenue under our extended warranty programs of approximately $23 million in the remainder of 2019, $82 million in 2020, $68 million in 2021, $47 million in 2022, $26 million in 2023 and $27 million thereafter.

18

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Contract Costs

We recognize incremental costs to obtain contracts as an asset if they are recoverable. As a practical expedient, we recognize the costs of obtaining a contract as an expense when the related contract period is less than one year. We have no contract costs capitalized as of July 31, 2019.

3. Restructuring, Impairments and Divestitures

Restructuring charges are recorded based on restructuring plans that have been committed to by management and are, in part, based upon management's best estimates of future events. Changes to the estimates may require future adjustments to the restructuring liabilities.

Manufacturing Restructuring Activities

We continue to focus on our core Truck and Parts businesses and evaluate our portfolio of assets to validate their strategic and financial fit. This allows us to close or divest non-strategic businesses and identify opportunities to restructure our business and rationalize our Manufacturing operations in an effort to optimize our cost structure.

For those areas that fall outside our strategic businesses, we evaluate alternatives which could result in additional restructuring and other related charges in the future, including but not limited to: (i) impairments, (ii) costs for employee and contractor termination and other related benefits, and (iii) charges for pension and other postretirement contractual benefits and curtailments. These charges could be significant.

Global operations employee separation actions

In the fourth quarter of 2017, we initiated cost-reduction actions impacting our workforce in Brazil. As a result of these actions, we recognized restructuring charges of $6 million in personnel costs for employee separation and related benefits. In the first nine months of 2018, we recognized a benefit of $1 million upon the completion of these separation actions. This benefit was recorded in our Global operations segment within Restructuring charges in our Consolidated Statements of Operations.

Melrose Park Facility restructuring activities

In the third quarter of 2017, we committed to a plan to cease engine production at our plant in Melrose Park, Illinois (“Melrose Park Facility”) in the third quarter of fiscal year 2018. As a result, in the third quarter of 2017, we recognized charges of $41 million in our Truck segment. The charges include $23 million related to pension and other post-employment benefits ("OPEB") liabilities and $8 million for severance pay recorded in Restructuring charges in our Consolidated Statements of Operations. We also recorded $10 million of inventory reserves and other related charges in Costs of products sold in our Consolidated Statements of Operations. In the first nine months of 2018, we recognized a benefit of $2 million related to the finalized cessation of the production agreement. This benefit was recorded in our Truck segment within Restructuring charges in our Consolidated Statements of Operations. Production at the Melrose Park Facility ceased on May 17, 2018.

Asset Impairments

In the three and nine months ended July 31, 2019 and 2018, we concluded that we had triggering events related to certain assets under operating lease. As a result, we recorded charges in our Truck segment of $3 million and $6 million, respectively, compared to $1 million and $2 million, in the respective prior year periods.

In the nine months ended July 31, 2018, we concluded that we had triggering events related to the sale of our railcar business in Cherokee, Alabama requiring the impairment of certain long-lived assets. As a result, we recorded a charge of $2 million in our Truck segment. In February 2018, we completed the sale of the business. We also concluded that we had triggering events related to other certain long-lived assets, and recorded additional charges of $6 million in our Truck segment and a charge of $1 million in our Financial Services segment.

These charges were recorded in Asset impairment charges in our Consolidated Statements of Operations.

See Note 10, Fair Value Measurements, for information on the valuation of impaired operating leases and other assets.

Navistar Defense Divestiture

In December 2018, we completed the sale of a 70% equity interest in Navistar Defense, to an affiliate of Cerberus Capital Management, L.P. In connection with the closing of the transaction, we entered into an exclusive long-term agreement to supply military and commercial parts and chassis to Navistar Defense. We also entered into an intellectual property agreement and a transition services agreement concurrent with the sale.

19

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The Navistar Defense purchase price, adjusted for certain calendar year 2018 chargeouts, was approximately $140 million, which is subject to additional adjustments for working capital, transfers of certain liabilities and commitments, and other items. The transaction also includes potential additional consideration of up to $17 million, not included in the gain on the sale, based on cash proceeds from certain contracts which exceed defined thresholds.

During the first quarter of 2019, we recognized a gain on the sale in our Truck segment of $54 million in Other expense, net in our Consolidated Statements of Operations. During the third quarter of 2019, we recognized a charge of $3 million in our Truck segment related to adjustments to the purchase price within Other expense, net in our Consolidated Statements of Operations.

4. Finance Receivables

Finance receivables are receivables of our Financial Services operations. Finance receivables generally consist of wholesale notes and accounts, as well as retail notes, finance leases and accounts. Total finance receivables reported on the Consolidated Balance Sheets are net of an allowance for doubtful accounts. Total assets of our Financial Services operations net of intercompany balances were $3.0 billion and $2.6 billion as of July 31, 2019 and October 31, 2018, respectively.

Included in total assets of our Financial Services operations were finance receivables of $2.5 billion and $2.2 billion as of July 31, 2019 and October 31, 2018, respectively. We have two portfolio segments of finance receivables that we distinguish based on the type of customer and nature of the financing inherent to each portfolio. The retail portfolio segment represents loans or leases to end-users for the purchase or lease of vehicles. The wholesale portfolio segment represents loans to dealers to finance their inventory.

Our Finance receivables, net in our Consolidated Balance Sheets consist of the following:

(in millions)	As of July 31, 2019		As of October 31, 2018
Retail portfolio	$	851	$	720
Wholesale portfolio	1,635		1,460
Total finance receivables	2,486		2,180
Less: Allowance for doubtful accounts	24		22
Total finance receivables, net	2,462		2,158
Less: Current portion, net(A)	2,187		1,898
Noncurrent portion, net	$	275	$	260

_________________________

(A) The current portion of finance receivables is computed based on contractual maturities. Actual cash collections typically vary from the contractual cash flows because of prepayments, extensions, delinquencies, credit losses, and renewals.

Securitizations

Our Financial Services operations transfer wholesale notes, retail accounts receivable, finance leases, and operating leases to special purpose entities ("SPEs"), which generally are only permitted to purchase these assets, issue asset-backed securities, and make payments on the securities issued. In addition to servicing receivables, our continued involvement in the SPEs may include an economic interest in the transferred receivables and, in some cases, managing exposure to interest rate changes on the securities using interest rate swaps or interest rate caps. There were no transfers of finance receivables that qualified for sale accounting treatment as of July 31, 2019 or October 31, 2018, and as a result, the transferred finance receivables are included in our Consolidated Balance Sheets and the related interest earned is included in Finance revenues.

We transfer eligible finance receivables into owner trusts in order to issue asset-backed securities. These trusts are VIEs of which we are determined to be the primary beneficiary, and, therefore, the assets and liabilities of the trusts are included in our Consolidated Balance Sheets. The outstanding balance of finance receivables transferred into these VIEs was $1.1 billion and $956 million as of July 31, 2019 and October 31, 2018, respectively.

Other finance receivables related to secured transactions that do not qualify for sale accounting treatment were $321 million and $235 million as of July 31, 2019 and October 31, 2018, respectively. For more information on assets and liabilities of consolidated VIEs and other securitizations accounted for as secured borrowings by our Financial Services segment, see Note 1, Summary of Significant Accounting Policies.

20

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Finance Revenues

The following table presents the components of our Finance revenues in our Consolidated Statements of Operations:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	2019		2018		2019		2018
Retail notes and finance leases revenue	$	16	$	12	$	45	$	36
Wholesale notes interest	31		26		93		75
Operating lease revenue	19		19		62		54
Retail and wholesale accounts interest	8		8		26		22
Gross finance revenues	74		65		226		187
Less: Intercompany revenues	28		25		85		69
Finance revenues	$	46	$	40	$	141	$	118

5. Allowance for Doubtful Accounts

Our two finance receivables portfolio segments, retail and wholesale, each consist of one class of receivable based on: (i) initial measurement attributes of the receivables, and (ii) the assessment and monitoring of risk and performance of the receivables. For more information, see Note 4, Finance Receivables.

The following tables present the activity related to our allowance for doubtful accounts for our retail portfolio segment, wholesale portfolio segment, and trade and other receivables:

	Three Months Ended July 31, 2019										Three Months Ended July 31, 2018
(in millions)	Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables		Total			Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total
Allowance for doubtful accounts, at beginning of period	$	22		$	3	$	29	$	54		$	19		$	3	$	27		$	49
Provision for doubtful accounts	1			—		1		2			2			—		1			3
Charge-off of accounts	(2		)	—		—		(2		)	(1		)	—		—			(1		)
Recoveries	1			—		—		1			1			—		—			1
Other(A)	(1		)	—		2		1			—			—		(2		)	(2		)
Allowance for doubtful accounts, at end of period	$	21		$	3	$	32	$	56		$	21		$	3	$	26		$	50

	Nine Months Ended July 31, 2019											Nine Months Ended July 31, 2018
(in millions)	Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total			Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total
Allowance for doubtful accounts, at beginning of period	$	19		$	3	$	28		$	50		$	17		$	3	$	28		$	48
Provision for doubtful accounts	5			—		3			8			5			—		1			6
Charge-off of accounts	(4		)	—		(1		)	(5		)	(4		)	—		—			(4		)
Recoveries	1			—		—			1			3			—		—			3
Other(A)	—			—		2			2			—			—		(3		)	(3		)
Allowance for doubtful accounts, at end of period	$	21		$	3	$	32		$	56		$	21		$	3	$	26		$	50

____________________

(A) Amounts include impact from currency translation.

The accrual of interest income is suspended on certain impaired finance receivables. Impaired finance receivables include accounts with specific loss reserves and certain accounts that are on non-accrual status. In certain cases, we continue to collect payments on our impaired finance receivables.

21

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The following table presents information regarding impaired finance receivables:

	July 31, 2019						October 31, 2018
(in millions)	Retail Portfolio		Wholesale Portfolio		Total		Retail Portfolio		Wholesale Portfolio		Total
Impaired finance receivables with specific loss reserves	$	22	$	—	$	22	$	20	$	—	$	20
Impaired finance receivables without specific loss reserves	—		—		—		—		—		—
Specific loss reserves on impaired finance receivables	11		—		11		9		—		9
Finance receivables on non-accrual status	22		—		22		20		—		20

The average balances of the impaired finance receivables in the retail portfolio were $21 million and $19 million during the nine months ended July 31, 2019 and 2018, respectively. See Note 10, Fair Value Measurements, for information on the valuation of impaired finance receivables.

We use the aging of our receivables as well as other inputs when assessing credit quality. The following table presents the aging analysis for finance receivables:

	July 31, 2019						October 31, 2018
(in millions)	Retail Portfolio		Wholesale Portfolio		Total		Retail Portfolio		Wholesale Portfolio		Total
Current, and up to 30 days past due	$	771	$	1,634	$	2,405	$	655	$	1,459	$	2,114
30-90 days past due	59		1		60		51		1		52
Over 90 days past due	21		—		21		14		—		14
Total finance receivables	$	851	$	1,635	$	2,486	$	720	$	1,460	$	2,180

6. Inventories

The following table presents the components of Inventories in our Consolidated Balance Sheets:

(in millions)	July 31, 2019		October 31, 2018
Finished products	$	779	$	671
Work in process	104		118
Raw materials	312		321
Total inventories, net	$	1,195	$	1,110

22

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

7. Debt

The following tables present the components of Notes payable and current maturities of long-term debt and Long-term debt in our Consolidated Balance Sheets:

(in millions)	July 31, 2019		October 31, 2018
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $6 and $7, respectively, and unamortized debt issuance costs of $10 and $11, respectively	$	1,560	$	1,570
6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $15 and $17, respectively	1,085		1,083
4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $5 and unamortized debt issuance costs of $1	—		405
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates	220		220
Financed lease obligations	54		122
Other	10		26
Total Manufacturing operations debt	2,929		3,426
Less: Current portion	30		461
Net long-term Manufacturing operations debt	$	2,899	$	2,965

(in millions)	July 31, 2019		October 31, 2018
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2023, net of unamortized debt issuance costs of $5 and $4, respectively	$	1,102	$	948
Senior secured NFC Term Loan, due 2025, net of unamortized discount of $2 and unamortized debt issuance costs of $4	—		394
Bank credit facilities, at fixed and variable rates, due dates from 2019 through 2025, net of unamortized debt issuance costs of zero and $2, respectively	1,000		519
Commercial paper, at variable rates, program matures in 2022	71		75
Borrowings secured by operating and finance leases, at various rates, due serially through 2024	102		105
Total Financial Services operations debt	2,275		2,041
Less: Current portion	646		485
Net long-term Financial Services operations debt	$	1,629	$	1,556

Manufacturing Operations

4.75% Senior Subordinated Convertible Notes

The 4.75% Senior Subordinated Convertible Notes were fully repaid upon maturity in April 2019, and none were converted into our common stock.

Financial Services Operations

Asset-backed Debt

In November 2018, the maturity of our wholesale variable funding notes ("VFN") facility was extended from December 2018 to May 2020. In April 2019, the VFN facility capacity was temporarily increased from $350 million to $550 million until the earlier of June 28, 2019, or the completion of a qualifying wholesale asset-backed term transaction. In June, the capacity decreased from $550 million to $350 million, upon the issuance of $300 million of two-year investor notes by Navistar Financial Securities Corporation secured by assets of the wholesale note owner trust. Proceeds were used, in part, to replace the $250 million of investor notes that matured in June 2019.

23

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

In December 2018, the maturity of our Truck Retail Accounts Corporation ("TRAC") funding facility was extended from January 2019 to January 2020. In April 2019, the maximum capacity of the TRAC funding facility was increased from $100 million to $150 million.

NFC Term Loan and Bank Credit Facility

In May 2019, NFC increased the capacity of its revolving bank credit facility from $269 million to $748 million and extended the maturity from September 2021 to May 2024. The additional capacity was used to fully repay the senior secured NFC Term Loan balance of $398 million. The early repayment of the senior secured NFC Term Loan resulted in the write off of unamortized debt issuance costs and discount of $6 million which was recorded in Other expense (income), net in our Consolidated Statements of Operations.

8. Postretirement Benefits

Defined Benefit Plans

We provide postretirement benefits to a substantial portion of our employees and retirees. Costs associated with postretirement benefits include pension and postretirement health care expenses for employees, retirees, surviving spouses and dependents.

Generally, the pension plans are non-contributory. Our policy is to fund the pension plans in accordance with applicable U.S. and Canadian government regulations and to make additional contributions from time to time. For the three and nine months ended July 31, 2019, we contributed $9 million and $140 million, respectively, and for the three and nine months ended July 31, 2018, we contributed $25 million and $78 million, respectively, to our pension plans to meet regulatory funding requirements. During the first quarter of 2019, we accelerated the payment of a substantial portion of our 2019 minimum required funding. We do not expect any additional contributions to our pension plans during the remainder of 2019.

We primarily fund OPEB obligations, such as retiree medical, in accordance with the 1993 Settlement Agreement (the "1993 Settlement Agreement"), which requires us to fund a portion of the plans' annual service cost to a retiree benefit trust (the "Base Trust"). The 1993 Settlement Agreement resolved a class action lawsuit originally filed in 1992 regarding the restructuring of our then applicable retiree health care and life insurance benefits. Contributions for the three and nine months ended July 31, 2019 and 2018, as well as anticipated contributions for the remainder of 2019, are not material.

Components of Net Periodic Benefit Expense

Net periodic benefit expense included in our Consolidated Statements of Operations, and other amounts recognized in our Consolidated Statements of Stockholders' Deficit, for the three and nine months ended July 31, 2019 and 2018 are comprised of the following:

	Three Months Ended July 31,												Nine Months Ended July 31,
	Pension Benefits						Health and Life Insurance Benefits						Pension Benefits						Health and Life Insurance Benefits
(in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Service cost for benefits earned during the period	$	1		$	1		$	1		$	1		$	5		$	5		$	3		$	3
Interest on obligation	30			27			12			10			92			81			36			32
Amortization of cumulative loss	23			26			—			3			70			79			—			7
Settlements	—			—			—			—			142			9			—			—
Premiums on pension insurance	3			1			—			—			7			3			—			—
Expected return on assets	(35		)	(40		)	(5		)	(5		)	(108		)	(121		)	(16		)	(17		)
Net periodic benefit expense	$	22		$	15		$	8		$	9		$	208		$	56		$	23		$	25

In the nine months ended July 31, 2019, we adopted ASU No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." This ASU requires that an employer disaggregate the service cost component from the other components of net periodic benefit cost. As a result, we have reclassified certain net periodic benefit costs from SG&A expenses to Other expense, net in our Consolidated Statements of Operations. The guidance, which required retrospective application, resulted in a reclassification of $22 million and $73 million for the three and nine months ended July 31, 2018, respectively.

24

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

In the nine months ended July 31, 2019 and 2018, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. The purchase of the group annuity contracts was funded directly by the assets of our pension plans. As a result, in the nine months ended July 31, 2019 and 2018, net actuarial losses of $11 million and $2 million, respectively, were recognized as components of Accumulated other comprehensive loss and non-cash pension settlement accounting expenses of $142 million and $9 million, respectively, were recognized in Other income, net in our Consolidated Statements of Operations.

Defined Contribution Plans and Other Contractual Arrangements

Our defined contribution plans cover a substantial portion of domestic salaried employees and certain domestic represented employees. The defined contribution plans contain a 401(k) feature and provide most participants with a matching contribution from the Company. Effective January 1, 2019, we deposit the matching contribution monthly. Many participants covered by the plans receive annual Company contributions to their retirement accounts based on an age-weighted percentage of the participant's eligible compensation for the calendar year. Defined contribution expense pursuant to these plans was $8 million and $28 million in the three and nine months ended July 31, 2019, respectively, and $7 million and $25 million in the three and nine months ended July 31, 2018, respectively.

In accordance with the 1993 Settlement Agreement, an independent Retiree Supplemental Benefit Trust (the "Supplemental Trust") was established. The Supplemental Trust, and the benefits it provides to certain retirees pursuant to a certain Retiree Supplemental Benefit Program under the 1993 Settlement Agreement ("Supplemental Benefit Program"), is not part of our consolidated financial statements.

Our contingent profit sharing obligations under a certain Supplemental Benefit Trust Profit Sharing Plan ("Supplemental Benefit Trust Profit Sharing Plan") will continue until certain funding targets defined by the 1993 Settlement Agreement are met. We record profit sharing accruals based on the operating performance of the entities that are included in the determination of qualifying profits. For more information on pending arbitration regarding the Supplemental Benefit Trust Profit Sharing Plan, see Note 11, Commitments and Contingencies.

9. Income Taxes

We compute, on a quarterly basis, an estimated annual effective tax rate considering ordinary income and related income tax expense. Tax jurisdictions with a projected or year to date loss for which a tax benefit cannot be realized are excluded. Ordinary income refers to income (loss) before income tax expense excluding significant unusual or infrequently occurring items. The tax effect of a significant unusual or infrequently occurring item is recorded in the interim period in which the item occurs. We included an income tax benefit of $38 million in the first quarter of 2019 for the tax effect of a group annuity contract purchase for certain retired pension plan participants as a significant unusual or infrequently occurring item. Other items included in income tax expense in the periods in which they occur include the tax effects of cumulative changes in tax laws or rates, foreign exchange gains and losses, adjustments to uncertain tax positions, and adjustments to our valuation allowance due to changes in judgment regarding the ability to realize deferred tax assets in future years.

On December 22, 2017, the Tax Act was signed into U.S. law. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company’s financial statement effects were reported on a provisional basis for the year ended October 31, 2018. The remeasurement period for SAB 118 ended on December 22, 2018. The Tax Act reduced the statutory corporate income tax rate from 35% to 21%, effective January 1, 2018. This rate reduction required us to remeasure our deferred taxes as of the date the Tax Act was enacted. Our U.S. deferred tax assets, net of deferred tax liabilities, were remeasured and reduced by $983 million, entirely offset by a valuation allowance reduction. As a result, the remeasurement of our deferred tax assets, net of deferred tax liabilities, including the valuation allowance, did not impact our income tax expense or net income. The Tax Act also included a mandatory deemed repatriation of earnings of the Company’s foreign subsidiaries and resulted in a one-time transition tax for the year ended October 31, 2018. We included $147 million of foreign earnings in taxable income due to this deemed repatriation. The deferred tax impact had a valuation allowance offset, resulting in no impact on our income tax expense or net income.

The income tax accounting for the effect of the rate change on deferred taxes and the mandatory deemed repatriation is complete.

25

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The Tax Act also included many other provisions, including changes to limits on the deductions for executive compensation and interest expense, a tax on global intangible low‐taxed income (“GILTI”), the base erosion anti‐abuse tax and a deduction for foreign derived intangible income. We have included the impact of these provisions in our interim period tax calculations, which first apply to our taxable year beginning November 1, 2018. Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is electing to account for taxes on GILTI as incurred.

We will continue to evaluate the Tax Act’s impact, which may change as a result of additional Treasury guidance, federal or state legislative actions, or changes in accounting standards or related interpretations. The Company’s analyses performed to date are sufficient to calculate a reasonable estimate of the impacts of the Tax Act.

We have evaluated the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. There were no significant changes in judgement related to our valuation allowance positions during the quarter ended July 31, 2019. For certain deferred tax assets, while we believe that it is more likely than not that they will be realized, we believe that it is reasonably possible that additional deferred tax asset valuation allowances could be required in the next twelve months in certain jurisdictions.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of July 31, 2019, the amount of liability for uncertain tax positions was $21 million. The liability as of July 31, 2019 has a recorded offsetting tax benefit associated with various issues that total $9 million. If the unrecognized tax benefits are recognized, all would impact our effective tax rate, except for positions for which we maintain a full valuation allowance against certain deferred tax assets. In this case, the effect may be in the form of an increase in the deferred tax asset related to our net operating loss carryforward, which would be offset by a full valuation allowance.

We recognize interest and penalties related to uncertain tax positions as part of Income tax expense. Total interest and penalties for the three and nine months ended July 31, 2019 related to our uncertain tax positions resulted in an income tax expense of less than $1 million, for both periods.

We have open tax years back to 2001 with various significant taxing jurisdictions, including the U.S., Canada, Mexico, and Brazil. In connection with the examination of tax returns, contingencies may arise that generally result from differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenues or expenses in taxable income, or the sustainability of tax credits to reduce income taxes payable. We believe we have sufficient accruals for our contingent tax liabilities. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns, although actual results may differ. While it is probable that the liability for unrecognized tax benefits may increase or decrease during the next twelve months, we do not expect any such change would have a material effect on our financial condition, results of operations, or cash flows.

10. Fair Value Measurements

For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect our assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, we classify each fair value measurement as follows:

• Level 1—based upon quoted prices for identical instruments in active markets,

• Level 2—based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and

• Level 3—based upon one or more significant unobservable inputs.

The following section describes key inputs and assumptions in our valuation methodologies:

Cash Equivalents and Restricted Cash Equivalents—Cash equivalents are highly liquid investments, with an original maturity of 90 days or less, which may include U.S. government and federal agency securities, commercial paper, and other highly liquid investments. The carrying amounts of cash and cash equivalents and restricted cash and cash equivalents approximate fair value because of the short-term maturity and highly liquid nature of these instruments.

26

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Marketable Securities—Our marketable securities portfolios are classified as available-for-sale and may include investments in U.S. government and federal agency securities, commercial paper and other investments with an original maturity greater than 90 days. We use quoted prices from active markets to determine fair value.

Derivative Assets and Liabilities—We measure the fair value of derivatives assuming that the unit of account is an individual derivative transaction and that each derivative could be sold or transferred on a stand-alone basis. We classify within Level 2 our derivatives that are traded over-the-counter and valued using internal models based on observable market inputs.

Guarantees—We provide certain guarantees of payments and residual values, to which losses are generally capped, to specific counterparties. The fair value of these guarantees includes a contingent component and a non-contingent component that are based upon internally developed models using unobservable inputs. We classify these liabilities within Level 3. For more information regarding guarantees, see Note 11, Commitments and Contingencies.

Impaired Finance Receivables and Impaired Assets Under Operating Leases—Fair values of the underlying collateral are determined by current and forecasted sales prices, aging of and demand for used trucks, and the mix of sales through various market channels. For more information regarding impaired finance receivables, see Note 5, Allowance for Doubtful Accounts.

Impaired Property, Plant and Equipment—We measure the fair value by discounting future cash flows expected to be received from the operation of, or disposition of, the asset or asset group that has been determined to be impaired. For more information regarding the impairment of property, plant and equipment, see Note 3, Restructurings and Impairments.

The following table presents the financial instruments measured at fair value on a recurring basis:

	As of July 31, 2019								As of October 31, 2018
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. government and federal agency securities	$	3	$	—	$	—	$	3	$	101	$	—	$	—	$	101
Derivative financial instruments:
Commodity forward contracts(A)	—		—		—		—		—		2		—		2
Foreign currency contracts(A)	—		1		—		1		—		—		—		—
Interest rate caps(B)	—		—		—		—		—		2		—		2
Total assets	$	3	$	1	$	—	$	4	$	101	$	4	$	—	$	105
Liabilities
Derivative financial instruments:
Commodity forward contracts(C)	$	—	$	2	$	—	$	2	$	—	$	—	$	—	$	—
Foreign currency contracts(C)	—		1		—		1		—		—		—		—
Guarantees	—		—		26		26		—		—		24		24
Total liabilities	$	—	$	3	$	26	$	29	$	—	$	—	$	24	$	24

_________________________

(A) The asset value of commodity forward contracts and foreign currency contracts is included in Other current assets in the accompanying Consolidated Balance Sheets.

(B) The asset value of interest rate caps is included in Other noncurrent assets in the accompanying Consolidated Balance Sheets.

(C) The liability value of commodity forward contracts and foreign currency contracts is included in Other current liabilities in the accompanying Consolidated Balance Sheets.

The following table presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	2019			2018			2019			2018
Guarantees, at beginning of period	$	(22	)	$	(27	)	$	(24	)	$	(21	)
Net (issuances) terminations	(4		)	7			(3		)	(1		)
Settlements	—			—			1			2
Guarantees, at end of period	$	(26	)	$	(20	)	$	(26	)	$	(20	)

27

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

There were no transfers of Level 3 financial instruments.

In addition to the methods and assumptions we use for the financial instruments recorded at fair value as discussed above, we use the following methods and assumptions to estimate the fair value for our other financial instruments that are not marked to market on a recurring basis. The carrying amounts of Cash and cash equivalents, Restricted cash and cash equivalents, and Accounts payable approximate fair values because of the short-term maturity and highly liquid nature of these instruments. Finance receivables generally consist of retail and wholesale accounts and notes.

The carrying amounts of Trade and other receivables and retail and wholesale accounts approximate fair values as a result of the short-term nature of the receivables. The carrying amounts of wholesale notes approximate fair values as a result of the short-term nature of the wholesale notes and their variable interest rate terms. Due to the nature of the aforementioned financial instruments, they have been excluded from the fair value amounts presented in the table below.

The fair values of our retail notes are estimated by discounting expected cash flows at estimated current market rates. The fair values of our retail notes are classified as Level 3 financial instruments.

The fair values of our debt instruments classified as Level 1 were determined using quoted market prices. The 6.75% Tax Exempt Bonds, due 2040, are traded, but the trading market is illiquid, and as a result, the Loan Agreement underlying the Tax Exempt Bonds is classified as Level 2. Trading in our 6.625% Senior Notes is limited to qualified institutional buyers; therefore the notes are classified as Level 2. The fair values of our Level 3 debt instruments are generally determined using internally developed valuation techniques such as discounted cash flow modeling. Inputs such as discount rates and credit spreads reflect our estimates of assumptions that market participants would use in pricing the instrument and may be unobservable.

The following tables present the carrying values and estimated fair values of financial instruments:

	As of July 31, 2019
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	198	$	198	$	204
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025	—		—		1,578		1,578		1,560
6.625% Senior Notes, due 2026	—		1,130		—		1,130		1,085
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040	—		235		—		235		220
Financed lease obligations	—		—		54		54		54
Other(A)	—		—		9		9		9
Financial Services operations
Asset-backed debt issued by consolidated SPEs, due serially through 2023	—		—		1,106		1,106		1,102
Bank credit facilities, due dates from 2019 through 2025	—		—		975		975		1,000
Commercial paper, program matures in 2022	71		—		—		71		71
Borrowings secured by operating and finance leases, due serially through 2024	—		—		101		101		102

28

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

	As of October 31, 2018
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	180	$	180	$	183
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025	—		—		1,597		1,597		1,570
6.625% Senior Notes, due 2026	—		1,122		—		1,122		1,083
4.75% Senior Subordinated Convertible Notes, due 2019(B)	412		—		—		412		405
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040	—		235		—		235		220
Financed lease obligations	—		—		122		122		122
Other	—		—		25		25		26
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2023	—		—		949		949		948
Senior secured NFC Term Loan, due 2025	—		—		400		400		394
Bank credit facilities, due dates from 2019 through 2025	—		—		511		511		519
Commercial paper, at variable rates, program matures in 2022	75		—		—		75		75
Borrowings secured by operating and finance leases, due serially through 2024	—		—		104		104		105

________________________

(A) Excludes capital lease obligation debt of $1 million as of July 31, 2019.

(B) The carrying value represents the consolidated financial statement amount of the debt which excludes the allocation of the conversion feature to equity, while the estimated fair value is derived from quoted prices in active markets which include the equity feature.

11. Commitments and Contingencies

Guarantees

We occasionally provide guarantees that could obligate us to make future payments if the primary entity fails to perform under its contractual obligations. We have recognized liabilities for some of these guarantees in our Consolidated Balance Sheets as they meet the recognition and measurement provisions of U.S. GAAP. In addition to the liabilities that have been recognized, we are contingently liable for other potential losses under various guarantees. We do not believe that claims that may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash flows.

Under the terms of the Navistar Capital Operating Agreement, Navistar Capital (a program of BMO Harris Bank N.A. and Bank of Montreal (together "BMO")) is our third-party preferred source of retail and lease customer financing for equipment offered by us and our dealers in the U.S. We refer to this alliance as "Navistar Capital." The Navistar Capital Operating Agreement, as amended, contains a loss sharing arrangement under which we generally reimburse BMO for excess credit losses as defined in the arrangement. Our exposure to loss is mitigated because contracts under the Navistar Capital Operating Agreement are secured by the financed equipment. There were $1.6 billion and $1.5 billion of outstanding loan principal and operating lease payments receivable at July 31, 2019 and October 31, 2018, respectively, financed through the Navistar Capital Operating Agreement and subject to the loss sharing arrangements in the U.S. The related financed values of these outstanding contracts were $2.6 billion and $2.5 billion at July 31, 2019 and October 31, 2018, respectively. We have recognized a guarantee liability for our portion of estimated Navistar Capital credit losses. Generally, we do not carry the contracts under the Navistar Capital Operating Agreement on our Consolidated Balance Sheets. However, for certain Navistar Capital financed contracts which we have accounted for as borrowings, we have recognized equipment leased to others of $46 million and $104 million and financed lease obligations of $54 million and $122 million, in our Consolidated Balance Sheets as of July 31, 2019 and October 31, 2018, respectively.

29

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

We also have issued a limited number of residual value guarantees, for which losses are generally capped. If control has not transferred, we account for these arrangements as operating leases and revenue is recognized on a straight-line basis over the term of the lease. If control has transferred, revenue is recognized upon sale and the amounts of the guarantees are estimated and recorded. Our guarantees are contingent upon the fair value of the leased assets at the end of the lease term. We have recognized liabilities for some of these guarantees in our Consolidated Balance Sheets as they meet recognition and measurement provisions. In addition to the liabilities that have been recognized, we are contingently liable for other potential losses under various guarantees that are not recognized in our Consolidated Balance Sheets. We do not believe claims that may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash flows.

We obtain certain stand-by letters of credit and surety bonds from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance-related requirements. As of July 31, 2019, the amount of stand-by letters of credit and surety bonds issued was $129 million.

In addition, as of July 31, 2019, we have $125 million of outstanding purchase commitments and contracts with $29 million of cancellation fees with expiration dates through 2025.

In the ordinary course of business, we also provide routine indemnifications and other guarantees, the terms of which range in duration and often are not explicitly defined. We do not believe these will result in claims that would have a material impact on our financial condition, results of operations, or cash flows.

Environmental Liabilities

We have been named a potentially responsible party ("PRP"), in conjunction with other parties, in a number of cases arising under an environmental protection law, the Comprehensive Environmental Response, Compensation, and Liability Act, popularly known as the "Superfund" law. These cases involve sites that allegedly received wastes from current or former Company locations. Based on information available to us which, in most cases, consists of data related to quantities and characteristics of material generated at current or former Company locations, material allegedly shipped by us to these disposal sites, 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 our share of the probable costs, if any, and accruals are recorded in our consolidated financial statements. These accruals are generally recognized no later than upon completion of the remedial feasibility study and are not discounted to their present value. We review all accruals on a regular basis and believe that, based on these calculations, our share of the potential additional costs for the cleanup of each site will not have a material effect on our financial condition, results of operations, or cash flows.

In addition, other sites formerly owned by us or where we are currently operating have been identified as having soil and groundwater contamination. While investigations and cleanup activities continue at these sites, we believe that we have appropriate accruals to cover costs to complete the cleanup of all sites.

We have accrued $20 million for these and other environmental matters, which are included within Other current liabilities and Other noncurrent liabilities, as of July 31, 2019. The majority of these accrued liabilities are expected to be paid subsequent to 2020.

Along with other vehicle manufacturers, we have been subject to an increased number of asbestos-related claims in recent years. In general, these claims relate to illnesses alleged to have resulted from asbestos exposure from component parts found in older vehicles, although some cases relate to the alleged presence of asbestos in our facilities. In these claims, we are generally not the sole defendant, and the claims name as defendants numerous manufacturers and suppliers of a wide variety of products allegedly containing asbestos. We have strongly disputed these claims, and it has been our policy to defend against them vigorously. Historically, the actual damages paid out to claimants have not been material in any year to our financial condition, results of operations, or cash flows. It is possible that the number of these claims will continue to grow, and that the costs for resolving asbestos related claims could become significant in the future.

Legal Proceedings

Overview

We are subject to various claims arising in the ordinary course of business and are party to various legal proceedings that constitute ordinary, routine litigation incidental to our business. The majority of these claims and proceedings relate to commercial, product liability, and warranty matters. In addition, from time to time we are subject to various claims and legal proceedings related to employee compensation, benefits, and benefits administration including, but not limited to, compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Department of Labor requirements.

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Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

In our opinion, apart from the actions set forth below, the disposition of these proceedings and claims, after taking into account recorded accruals and the availability and limits of our insurance coverage, will not have a material adverse effect on our business or our financial condition, results of operations, or cash flows.

Profit Sharing Disputes

Pursuant to the 1993 Settlement Agreement, the program administrator and named fiduciary of the Supplemental Benefit Program is the Supplemental Benefit Program Committee (the "Committee"), composed of individuals not appointed by NI or NIC. In August 2013, the Committee filed a motion for leave to amend its February 2013 complaint (which sought injunctive relief for the Company to provide certain information to which it was allegedly entitled under the Supplemental Benefit Trust Profit Sharing Plan) and a proposed amended complaint (the "Profit Sharing Complaint") in the U.S. District Court for the Southern District of Ohio (the "Court"). Leave to file the Profit Sharing Complaint was granted by the Court in October 2013. In its Profit Sharing Complaint, the Committee alleged the Company breached the 1993 Settlement Agreement and violated ERISA by failing to properly calculate profit sharing contributions due under the Supplemental Benefit Trust Profit Sharing Plan. The Committee seeks damages in excess of $50 million, injunctive relief and reimbursement of attorneys' fees and costs. Following the resolution of a procedural dispute by the U.S. Court of Appeals for the 6th Circuit, in May 2015, the Court ordered that the claims in the Profit Sharing Complaint be arbitrated pursuant to the dispute resolution procedures in the Supplemental Benefit Trust Profit Sharing Plan. In November 2015, the Company and the Committee selected an arbitrator. The arbitration discovery process commenced and on August 1, 2016, the parties submitted briefs on issues related to the scope of the arbitration. On June 29, 2017, the arbitrator ruled, among other things, that the arbitration will include Supplemental Benefit Trust Profit Sharing Plan calculations for the years ending October 31, 2001 through October 31, 2014. On September 21, 2018, the arbitrator set a schedule to rule on all issues and determine final calculations by April 15, 2020. On April 29, 2019, the arbitrator ordered a new schedule for arbitration, and the arbitrator's final determination is expected by April 30, 2020.

By letter dated February 14, 2019, the Committee indicated the Company’s Supplemental Benefit Trust Profit Sharing Plan calculation for the Plan year ending October 31, 2018 reflects numerous positions that have caused the Committee to dispute the Supplemental Benefit Trust Profit Sharing Plan calculations in the past, and on that basis the Committee disagrees with the 2018 calculation. In the February 14, 2019 letter, the Committee also requested information about the 2018 calculation. On March 12, 2019, the Committee filed in the Court a motion to enforce the 1993 Settlement Agreement for the Company’s failure to respond to the Committee’s February 14, 2019 information requests. On May 15, 2019, the Company responded to the information requests, and the motion is pending with the Court.

As noted under “Retiree Health Care Litigation” below, on August 14, 2018, the Company filed a motion to schedule a status hearing, in which the Company requested an in-person hearing to discuss the possibility of a global resolution of various disputes under the 1993 Settlement Agreement, including the pending Profit Sharing Complaint. As a result, in-person hearings were held on November 2, 2018 and February 22, 2019. Additional hearings may be scheduled in the future.

In addition, various local bargaining units of the UAW have filed separate grievances pursuant to the profit sharing plans under various collective bargaining agreements in effect between the Company and the UAW that may have similar legal and factual issues as the Profit Sharing Complaint.

Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.

Retiree Health Care Litigation

On October 21, 2016, two lawsuits were filed in the U.S. District Court for the Southern District of Ohio relating to postretirement healthcare and life insurance obligations under the 1993 Settlement Agreement. The first lawsuit (the “Committee’s Complaint”) was filed by the Committee. 

The Committee’s Complaint was filed against NIC, NI, NFC and a former affiliate, all of which are parties to the 1993 Settlement Agreement. Since January 1, 2012, the Navistar, Inc. Retiree Health Benefit Trust, created pursuant to the 1993 Settlement Agreement (the “Base Trust”), has received certain Medicare Part D subsidies from the federal Centers for Medicare and Medicaid Services that were made available for prescription drug benefits provided to Medicare-eligible seniors pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and has also received certain Medicare Part D coverage-gap discounts from prescription drug manufacturers that were made available to eligible seniors pursuant to the Patient Protection and Affordable Care Act (collectively, the “Subsidies”). 

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Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The Committee alleges, among other things, that the defendants breached the 1993 Settlement Agreement since January 1, 2012 by causing the Base Trust to allocate the Subsidies in a manner that improperly decreased the defendants’ contributions to the Base Trust and increased retiree contributions. The Committee seeks damages, attorneys’ fees and costs for all alleged violations of the 1993 Settlement Agreement, including approximately $26 million which the Committee alleges is the eligible retirees’ “fair share” of the Subsidies that were allegedly misappropriated by the defendants from January 2012 through April 2015. 

The second lawsuit was filed by two individual members of the Committee (the “Committee Members”) who are retirees and participants in the Navistar, Inc. Health Benefit and Life Insurance Plan (the “Plan”) created pursuant to the 1993 Settlement Agreement. The Committee Members’ complaint (the “Committee Members’ Complaint”) was filed against NIC, NI, NFC and certain other former or current affiliates, all of which are parties or employers as defined in the 1993 Settlement Agreement. The Committee Members allege, among other things, that the Company violated the terms of the Plan, breached a fiduciary duty under ERISA, and engaged in ERISA-prohibited transactions by improperly using the Plan’s assets (a portion of the Subsidies) for the Company’s benefit. The Committee Members request that the court order the defendants to restore all losses to the Base Trust, including approximately $26 million, which the Committee Members allege is the Plan participants’ “fair share” of the Subsidies that were allegedly misappropriated by the defendants from January 2012 through April 2015. The Committee Members also request that the court enjoin the defendants from alleged future violations of the Plan and ERISA with respect to treatment of the Subsidies, order the defendants to remedy all alleged ERISA-prohibited transactions and pay the Committee Members’ attorneys’ fees and costs.

The defendants filed motions to dismiss each respective complaint on January 10, 2017. On May 10, 2017, the court dismissed the Committee's Complaint with prejudice, stating that the Committee lacked standing to bring its claims. With respect to the Committee Members’ Complaint, the court declined to dismiss the complaint, but ordered the parties to conduct discovery regarding whether the Committee Members’ Complaint is barred by the applicable statute of limitations and to file a motion for summary judgment thereafter on that issue of timeliness. The defendants filed their motion for summary judgment on September 21, 2017, the Committee Members’ filed their opposition on November 2, 2017, and the defendants filed their reply on November 22, 2017. On June 26, 2018, the court conditionally overruled the defendants’ motion for summary judgment. The court bifurcated the case and in September 2018 the court conducted a trial on the issue of whether the Committee Members’ Complaint is barred by the applicable statute of limitations. On November 20, 2018, the Committee Members filed a motion for sanctions, alleging various discovery and trial misconduct by the defendants and requesting that the court enter judgment in favor of the Committee Members with respect to the statute of limitations issue and award attorneys’ fees to the Committee Members. On December 11, 2018, the defendants filed their opposition to the Committee Members’ motion for sanctions. On March 26, 2019, the court granted the Committee Members’ motion for sanctions and ordered that discovery related to the statute of limitations be re-opened through May 28, 2019, and the court subsequently extended the statute of limitations discovery period to October 7, 2019. The court set a hearing for October 7, 2019 to complete the record on the statute of limitations defense. The court also ordered the Company to pay certain of the Committee Members legal and other costs to file the motion for sanctions and to conduct additional discovery related to the statute of limitations issue.

On August 14, 2018, under the original Shy et. al. v. Navistar International Corporation, Civil Action No. 3:92-CV-333 (S.D. Ohio 1992), the Company filed a motion to schedule a status hearing to request an in-person hearing to discuss the possibility of a global resolution of various disputes under the 1993 Settlement Agreement, including but not limited to resolving the pending Profit Sharing Complaint and Committee Members’ Complaint described above. As a result, in-person hearings were held on November 2, 2018 and February 22, 2019. Additional hearings may be scheduled in the future.

Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.

FATMA Notice

International Indústria Automotiva da América do Sul Ltda. ("IIAA"), formerly known as Maxion International Motores S/A ("Maxion"), now a wholly owned subsidiary of the Company, received a notice (the “FATMA Notice”) in July 2010 from the State of Santa Catarina Environmental Protection Agency ("FATMA") in Brazil. The FATMA Notice alleged that Maxion sent waste to a facility owned and operated by a company known as Natureza (the “Natureza Facility”) and that soil and groundwater contamination had occurred at the Natureza Facility.

The FATMA Notice asserted liability against Maxion and assessed an initial penalty in the amount of R$2 million (approximately US$1 million as of July 31, 2019), which is not due and final until all administrative appeals are exhausted. Maxion was one of numerous companies that received similar notices. IIAA filed an administrative defense in August 2010 and has not yet received a decision following that filing.

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Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

In addition to the matter described above, there is a suit pending in the federal court of Brazil in which the federal district attorney has sued (a) FATMA, for claims related to FATMA’s actions in connection with licensing and inspection procedures related to the Natureza Facility, and (b) Selamix, as the current owner of the Natureza Facility. In this federal suit, Selamix was found liable for the contamination at the Natureza Facility due to it being the successor owner of the facility. However, the federal court’s decision does not prohibit Selamix from seeking to recover its damages from third parties that contributed to the contamination at the Natureza Facility.

In connection with the FATMA Notice, IIAA presented a motion to the district attorney of the State of Santa Catarina (the “SC District Attorney”) to set forth its defenses and correct inaccuracies in the FATMA Notice in August 2017. In September 2017, the SC District Attorney informed IIAA that it intended to present a Consent Agreement to all of the companies that sent waste to Natureza to determine the allocation of the liability for generating the waste which led to the contamination of the Natureza Facility. IIAA then filed a motion requesting that the SC District Attorney consider certain facts and circumstances prior to presenting the Consent Agreement.

In January 2018, the SC District Attorney, local and state authorities, Selamix, IIAA and the 14 other companies (together, the "Companies") that are alleged to have significantly contributed to the contamination met to discuss the matter. Selamix then presented three proposals for conducting a preliminary environmental assessment in the area to determine the allocation of liability among the Companies. In March 2018, Selamix informed the SC District Attorney that it would voluntarily conduct a preliminary environmental study at the Natureza Facility in an attempt to determine and allocate the liability for the contamination pursuant to an agreement with the Companies after the study is completed. The SC District Attorney agreed to suspend further inquiry into the matter until Selamix’s study had been completed. The Companies (other than Selamix) have expressed an interest in having an independent environmental study conducted. The SC District Attorney has indicated that it may consider requiring an independent environmental study after Selamix’s environmental study is completed.

In June 2018, Selamix presented its Environmental Preliminary Assessment Report to the SC District Attorney and the Companies alleged to have contributed to the contamination and the report indicated that the entire property should be subject to further studies to confirm the type and extent of the contamination due to signs of buried residues in several areas. Selamix also presented commercial proposals from two additional companies specializing in environmental studies to perform the next steps of the technical work. The SC District Attorney then requested a third commercial proposal which was to be presented and paid for by Selamix. One of the commercial proposals included an Environmental Preliminary Assessment Report ("Phase 1 Study") and indicated that a Phase 2 assessment should be performed to include: (i) geophysical investigations to identify buried drums; (ii) investigations to verify and delimitate the volume and size of the contamination; and (iii) sample collection and analysis of soil and water. In July 2019, the SC District Attorney requested that each of the Companies (including IIAA) inform the SC District Attorney of whether they intend to contribute to the costs of the portion of the Phase 2 assessment related to geophysical investigations to identify buried drums at the Natureza Facility. The request did not include any information related to the potential range of the associated costs or indicate whether contributions for the cost of the other portions of the Phase 2 assessment would be sought from the Companies (including IIAA). IIAA responded to the request indicating that it would not contribute to the cost of the Phase 2 assessment related to geophysical investigations and requested a meeting with the SC District Attorney to discuss the next steps in the process.

IIAA continues to dispute the allegations in the FATMA Notice and intends to continue to vigorously defend itself. Currently, no demands or offers are outstanding.

Sao Paulo Groundwater Notice

In March 2014, IIAA, along with other nearby companies, received from the Sao Paulo District Attorney (the "District Attorney") a notice and proposed Consent Agreement relating to alleged neighborhood-wide groundwater contamination at or around its Sao Paulo manufacturing facility. The proposed Consent Agreement sought certain groundwater investigations and other technical relief and proposed sanctions in the amount of R$3 million (approximately US$1 million as of July 31, 2019). In November 2014, IIAA extended a settlement offer. The parties remained in discussions and IIAA’s settlement offer was never accepted, rejected or countered by the District Attorney.

On August 31, 2016, the District Attorney filed civil actions against IIAA and other companies in the Central Forum of the capital of the State of Sao Paulo seeking soil and groundwater investigation and remediation, together with monetary payment in an unspecified amount. IIAA filed its defense to the civil action on January 26, 2017, alleging that IIAA has made all necessary investigations and has taken remedial measures to address the contamination and that Companhia Ambiental do Estado de Sao Paulo ("CETESB"), the environmental agency of Sao Paulo State, has agreed to the remedial measures taken by IIAA. On June 20, 2017, IIAA presented a petition requesting a 90-day suspension of the lawsuit. IIAA has since held and is currently engaged in discussions with the District Attorney regarding settlement of this matter. The District Attorney agreed to an initial suspension on June 30, 2017 and a subsequent suspension for an additional 90 days which ended on July 9, 2018.

33

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

A new district attorney (the “New District Attorney”) assumed responsibility for the case in February 2018. The New District Attorney would like the companies involved to try to reach a settlement agreement as to the remediation efforts to be taken after having discussions and negotiations with the New District Attorney’s technical experts. IIAA attempted to schedule a meeting with the New District Attorney’s technical experts. IIAA met with the New District Attorney on July 25, 2018. The New District Attorney has indicated that he will request information related to the status of the current remediation from CETESB. After receiving that information, the New District Attorney indicated that he will schedule a meeting with IIAA to discuss the proposed terms of a potential settlement agreement and granted a third suspension on August 14, 2018 which ended on November 14, 2018. Although the suspension was technically terminated, the New District Attorney continued to evaluate the possibility of settlement. The New District Attorney requested a suspension, which was granted by the court and technically ended on August 26, 2019. In the event that the New District Attorney does not request a further suspension, the proceedings will continue and the parties will begin discovery and evidence production.

There are no current demands or offers outstanding.

MaxxForce Engine EGR Warranty Litigation

On June 24, 2014, N&C Transportation Ltd. ("N&C") filed a putative class action lawsuit against NIC, NI, Navistar Canada Inc., and Harbour International Trucks in Canada in the Supreme Court of British Columbia (the "N&C Action"). Subsequently, seven additional, similar putative class action lawsuits have been filed in Canada (together with the N&C Action, the "Canadian Actions").

From June 13-17, 2016, the court conducted a certification hearing in the N&C Action. On November 16, 2016, the court certified a Canada-wide class comprised of persons who purchased heavy-duty trucks equipped with Advanced EGR MaxxForce 11, MaxxForce 13, and MaxxForce 15 engines designed to meet 2010 EPA regulations. The court in the N&C Action denied certification to persons who operated but did not buy the trucks in question. On November 2, 2017, NIC, NI, Navistar Canada Inc. and Harbour International Trucks filed a notice of appeal. On December 8, 2017, the plaintiff filed a notice of cross-appeal. Both the appeal and cross-appeal were heard by the British Columbia Court of Appeal on February 9, 2018. On August 1, 2018, the appellate court denied our appeal and granted, in part, N&C's cross-appeal and as such certified three narrow issues on whether misrepresentations were made in Navistar's advertising materials. On September 28, 2018, Navistar sought leave to appeal the certification decision to the Supreme Court of Canada, but leave was denied on March 28, 2019. The next step will be an attendance before the case management judge regarding the details of the notice of certification to be given to the class. No date for this attendance has been set.

On June 5, 2017, a hearing was held in the Quebec putative class action lawsuit captioned 4037308 Canada Inc. v. Navistar Canada Inc., NI, and NIC. At that hearing, the court ruled on certain motions regarding evidence related to certification but deferred a ruling on plaintiff’s proposed amendment to narrow the proposed class to Quebec-only purchasers and lessees of model year 2010-13 vehicles containing MaxxForce 11, 13, and 15 liter engines. On November 23, 2017, we filed a motion to stay the Quebec case until the British Columbia Court of Appeal rules on the certification order in the N&C Action. The stay motion was granted on December 7, 2017. The decision of the British Columbia Court of Appeal was provided to the Quebec court. On September 6, 2018, the stay was extended until the Supreme Court of Canada decides the application for leave to appeal in the N&C Action. The stay has since been removed, but no hearing date or certification schedule has been set.

In the Manitoba putative class action lawsuit captioned Vern Brown v. Navistar International Corporation and Navistar Canada, Inc., the court held a case management conference on June 29, 2018, after the plaintiff failed to file a complete certification record by the previously court-ordered due date. The plaintiff advised that it expected to file its remaining certification affidavits by August 31, 2018, and the court suspended certification scheduling in the interim. The plaintiff filed an additional affidavit on July 5, 2018. On September 5, 2018, the court adjourned the certification application indefinitely to allow the plaintiff to obtain an expert report. On July 30, 2019, the plaintiff served an expert report and wrote to the court seeking a case management conference. There are no certification or other hearings scheduled in any of the other Canadian Actions at this time.

On July 7, 2014, Par 4 Transport, LLC filed a putative class action lawsuit against NI in the United States District Court for the Northern District of Illinois (the "Par 4 Action"). Subsequently, seventeen additional putative class action lawsuits were filed in various United States district courts, including the Northern District of Illinois, the Eastern District of Wisconsin, the Southern District of Florida, the Middle District of Pennsylvania, the Southern District of Texas, the Western District of Kentucky, the District of Minnesota, the Northern District of Alabama, and the District of New Jersey (together with the Par 4 Action, the "U.S. Actions"). Some of the U.S. Actions name both NIC and NI, and allege matters substantially similar to the Canadian Actions. More specifically, one or more of the Canadian Actions and the U.S. Actions (collectively, the "EGR Class Actions") seek to certify a class of persons or entities in Canada or the United States who purchased and/or leased a ProStar or other Navistar vehicle equipped with a model year 2008-2013 MaxxForce Advanced EGR engine.

34

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

In substance, the EGR Class Actions allege that the MaxxForce Advanced EGR engines are defective and that the Company and NI failed to disclose and correct the alleged defect. The EGR Class Actions assert claims based on theories of contract, breach of warranty, consumer fraud, unfair competition, misrepresentation and negligence. The EGR Class Actions seek relief in the form of monetary damages, punitive damages, declaratory relief, interest, fees, and costs.

On October 3, 2014, NIC and NI filed a motion before the United States Judicial Panel on Multidistrict Litigation (the "MDL Panel") seeking to transfer and consolidate before Judge Joan B. Gottschall of the United States District Court for the Northern District of Illinois all of the then-pending U.S. Actions, as well as certain non-class action MaxxForce Advanced EGR engine lawsuits pending in various federal district courts.

On December 17, 2014, Navistar's motion to consolidate the U.S. Actions and certain other non-class action lawsuits was granted. The MDL Panel issued an order consolidating all of the U.S. Actions that were pending on the date of Navistar’s motion before Judge Gottschall in the United States District Court for the Northern District of Illinois (the "MDL Action").

The MDL Panel also consolidated into the MDL Action certain non-class action MaxxForce Advanced EGR engine lawsuits pending in the various federal district courts. Non-class federal lawsuits presenting pre-trial issues similar to the MDL Action continue to be transferred to the MDL Action. Approximately 28 such actions are currently pending.

On March 5, 2015, Judge Gottschall entered an order in the MDL Action appointing interim lead counsel and interim liaison counsel for the plaintiffs. On May 11, 2015, lead counsel for the plaintiffs filed a First Master Consolidated Class Action Complaint ("Consolidated Complaint"). The parties to the MDL Action exchanged initial disclosures on May 29, 2015. The Company answered the Consolidated Complaint on July 13, 2015. On September 22, 2016, lead counsel for the plaintiffs filed a First Amended Consolidated Class Action Complaint (the “Amended Consolidated Complaint”). The Amended Consolidated Complaint added 25 additional named plaintiffs. NI and NIC answered the Amended Consolidated Complaint on October 20, 2016.

On October 13, 2017, lead counsel for the plaintiffs filed a Motion for Leave to File a Second Amended Consolidated Class Action Complaint, as well as a Motion for Voluntary Dismissal of Claims without Prejudice relating to 15 previously named plaintiffs. On January 4, 2018, Judge Gottschall granted both motions. On January 9, 2018, the plaintiffs filed a Second Amended Consolidated Class Action Complaint. The Second Amended Consolidated Class Action Complaint removed 15 named plaintiffs and substituted in 8 new named plaintiffs. Three class action cases were dismissed without prejudice because there were no longer any remaining plaintiffs in those cases. On May 30, 2019, the court granted plaintiffs leave to file a Third Amended Consolidated Class Action Complaint. The Third Amended Consolidated Class Action Complaint removed 2 named plaintiffs. NI and NIC answered the Third Amended Consolidated Class Action Complaint on June 16, 2019.

On August 16, 2018, Judge Gottschall entered a minute order setting a status hearing for September 26, 2018 in light of the ongoing settlement efforts of the parties. During the September 26, 2018 status hearing, the parties advised the court that additional settlement discussions were scheduled. Accordingly, on September 27, 2018 Judge Gottschall entered a minute order extending class plaintiffs' deadline to file a motion for class certification and supporting expert reports until November 16, 2018.  Since September 2018, Judge Gottschall has extended the deadlines for class certification briefing several times to allow for settlement discussions. On May 28, 2019, NIC and NI entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”) with certain named plaintiffs to settle the class actions consolidated in the U.S. Actions. On May 28, 2019, plaintiffs submitted the Settlement Agreement to the court for preliminary approval. The Settlement Agreement class consists of entities and natural persons who owned or leased a 2011-2014 model year vehicle equipped with a MaxxForce 11 or 13 liter engine certified to meet EPA 2010 emissions standards without selective catalytic reduction technology, provided that vehicle was purchased or leased in the U.S.

Pursuant to the Settlement Agreement, among other things, (1) the parties will establish a non-reversionary common fund consisting of cash (the “Cash Fund”) and rebates (the “Rebate Fund”) with a total value of $135 million (the “Settlement Fund”); (2) NIC and NI will contribute $85 million to the Cash Fund, which will be used to pay all settlement fees and expenses, service awards, attorneys’ fees and costs, and cash payments to members of the settlement class; (3) NI will commit to make available rebates with a face value in the aggregate of $50 million to the Rebate Fund; and (4) the settlement class will release NIC and NI and their affiliates from all claims and potential claims arising from or related to the allegations in the U. S. Actions, except for claims for personal injury or damage to third-party property. The Settlement Agreement further provides that dollars or value remaining in either the Cash Fund or the Rebate Fund after claims are processed will be used to pay approved claims from the other fund if the other fund is oversubscribed (the “Waterfall”). Any Waterfall from the Rebate Fund to the Cash Fund is capped at $35 million. Finally, the Settlement Agreement states that NIC and NI deny all claims in the U.S. Actions, deny wrongdoing, liability or damage of any kind, and deny that NIC and NI acted improperly or wrongfully in any way.

35

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

The Settlement Agreement is subject to final approval by the court, including possible appeals. On June 12, 2019, the court preliminarily approved the settlement. Members of the class have been provided notice of the Settlement Agreement and an opportunity to object or opt out. Any members of the class who opt out will not receive any benefit from the Settlement Agreement or be bound by it. The court scheduled a fairness hearing for November 13, 2019 at which the court will determine whether the Settlement Agreement should be finally approved and whether the proposed Final Order and Judgment should be entered. Depending on opt out numbers and certain oversubscription numbers, NIC and NI or lead counsel for the class may have the option to withdraw from the Settlement Agreement.

On November 11, 2017, seven plaintiffs (the “Direct Action Plaintiffs”) in the MDL Action moved for a separate trial and discovery schedule independent of the class action schedule. On January 2, 2018, Judge Gottschall granted in part and denied in part the Direct Action Plaintiffs’ motion, allowing two of the Direct Action Plaintiffs to begin limited discovery on plaintiff-specific issues. The parties are currently engaged in discovery. One of the Direct Action Plaintiffs filed a motion for leave to file a First Amended Complaint on September 25, 2018 and that motion was granted by the court in a minute order dated December 13, 2018. The First Amended Complaint was filed on December 18, 2018 and our response was filed on January 8, 2019. A hearing is scheduled for September 24, 2019 in order to set a discovery plan for all Direct Action Plaintiffs.

There are also non-class action MaxxForce Advanced EGR engine lawsuits filed against the Company in various state courts. A number of non-class action lawsuits have been resolved in favor of the Company prior to trial or settled for immaterial amounts. Several cases have been resolved at trial with varying results. Approximately 40 state court non-class actions are pending at this time. One of the non-class action lawsuits ("Milan"), alleging violations of the Tennessee Consumer Protection Act and fraud and involving approximately 235 trucks, was tried in Tennessee state court in August 2017. On August 10, 2017, the Milan jury returned a verdict of approximately $31 million against the Company, including $20 million in punitive damages. On October 2, 2017, the Company filed various motions in the trial court challenging the verdict, including a Motion for Judgment Notwithstanding the Verdict or, in the Alternative, a New Trial and Motion to Disapprove of the Award of Punitive Damages.

The hearing on these motions was held on December 1, 2017 and the court denied the Company's motions, denied Milan’s motion for pre-judgment interest and granted Milan $1 million in fees and costs. On January 11, 2018, the Company filed a Notice of Appeal in the Tennessee Court of Appeals challenging the verdict. Briefing on the appeal was completed on March 18, 2019, and the Tennessee Court of Appeals heard oral arguments on June 19, 2019. In the third quarter of 2017, we recorded $31 million of charges in SG&A expenses in our Consolidated Statements of Operations.

On August 14, 2019, a three-judge panel of the Tennessee Court of Appeals issued a unanimous opinion reversing the $31 million judgment and $1 million of fees and costs for Milan. In addition, the Tennessee Court of Appeals affirmed the trial court’s judgment for Navistar on Milan’s warranty claims. Milan will have an opportunity to file an application for permission to appeal this ruling to the Tennessee Supreme Court. If Milan appeals this ruling, the Company will have 15 days to respond. The Tennessee Supreme Court will then decide whether or not to exercise its discretion to hear the appeal.

Based on our assessment of the facts underlying the claims in the above actions, the Company has recorded a charge in the Company’s fiscal second quarter ended April 30, 2019 in the amount of $159 million as a reserve for its expected obligations under the Settlement Agreement as well as for current period liabilities and potential future settlements with respect to certain other MaxxForce Advanced EGR engine lawsuits that are not included in the Settlement Agreement. In addition, the Company has released a liability of $32 million, related to the judgment reversal in the Milan case in the third quarter ended July 31, 2019. These impacts were recorded in SG&A expenses in our Consolidated Statements of Operations. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of these matters may impact our future consolidated financial condition, results of operations or cash flows.

EPA Clean Air Act Litigation

In February 2012, NI received a Notice of Violation ("NOV") from the United States Environmental Protection Agency (the "EPA") pertaining to certain heavy-duty diesel engines which, according to the EPA, were not completely assembled by NI until calendar year 2010 and, therefore, were not covered by NI's model year 2009 certificates of conformity. The NOV concluded that NI's introduction into commerce of each of these engines violated the Federal Clean Air Act.

On July 14, 2015, the Department of Justice ("DOJ"), on behalf of the EPA, filed a lawsuit against NIC and NI in the U.S. District Court for the Northern District of Illinois. Similar to the NOV, the lawsuit alleges that NIC and NI introduced into commerce approximately 7,749 heavy-duty diesel engines that were not covered by model year 2009 certificates of conformity because those engines were not completely assembled until calendar year 2010, resulting in violations of the Federal Clean Air Act. On July 16, 2015, the DOJ filed an Amended Complaint clarifying the amount of civil penalties being sought. The lawsuit requests injunctive relief and the assessment of civil penalties of up to $37,500 for each violation. On September 14, 2015, NIC and NI each filed an Answer and Affirmative Defenses to the Amended Complaint. We dispute the allegations in the lawsuit.

36

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Fact discovery for the liability phase commenced on December 9, 2015. Pursuant to the court's minute order entered on July 12, 2017, the fact discovery was completed as of November 9, 2017.

On May 13, 2016, the DOJ, on behalf of the EPA, filed a motion for summary judgment on liability. On June 30, 2016, NIC and NI opposed the EPA's motion for summary judgment, and NIC cross-moved for summary judgment against the EPA. On March 1, 2017, the court entered a Memorandum Opinion and Order (i) granting the DOJ’s motion for summary judgment on the issue of liability with respect to NI, (ii) denying the DOJ’s motion for summary judgment on the issue of liability with respect to NIC, and (iii) denying NIC’s motion for summary judgment.

On April 3, 2018, the parties jointly filed a stipulation of dismissal with prejudice for NIC only. The stipulation with prejudice has no effect on the claims made against NI. With the dismissal of NIC, the matter moved to the remedy phase with respect to NI. The court entered a scheduling order on May 3, 2018, setting a fact discovery deadline of May 22, 2019, expert report and deposition deadlines through November 7, 2019, and a deadline for submission of dispositive motions of December 9, 2019. As a result of the partial federal government shutdown, and subsequent motions by the parties, the deadline for fact discovery was August 3, 2019, expert report and expert deposition deadlines are through January 31, 2020 and a deadline for dispositive motions is scheduled for February 28, 2020.

Based on our assessment of the facts underlying the amended complaint above, potential charges to the Consolidated Statements of Operations and cash outlays in future periods could range from $2 million to $291 million related to the resolution of this matter. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.

Brazil Truck Dealer Disputes

In January 2014, IIAA initiated an arbitration proceeding under the International Chamber of Commerce rules seeking payment for goods sold and unpaid, in the amount of R$64 million (approximately US$17 million as of July 31, 2019), including penalties and interest, from a group of affiliated truck dealers in Brazil. The truck dealers are affiliated with each other, but not with us, and are collectively referred to as Navitrucks. In the proceeding, IIAA also seeks a declaration of fault against Navitrucks related to the termination of the truck dealer agreements between IIAA and Navitrucks. Navitrucks responded in part by submitting counterclaims against IIAA seeking the amount of R$128 million (approximately US$34 million as of July 31, 2019) for damages related to alleged unfulfilled promises and injury to Navitrucks’ reputation. In October 2014, Navitrucks amended their counterclaims by increasing the amount of damages. During a preliminary hearing before the arbitral tribunal on March 24, 2015, the parties agreed to submit all of the pending claims between the parties to the exclusive jurisdiction of the arbitral tribunal. Pursuant to the timetable issued in the arbitration proceeding, IIAA presented its complaint in July 2015, Navitrucks filed its answer and counterclaims on August 24, 2015, and IIAA filed its rebuttal and answer to Navitrucks’ counterclaims on October 22, 2015. On December 7, 2015, Navitrucks filed its rebuttal to IIAA’s answer to counterclaims. On June 13-15, 2016, the arbitral tribunal held hearings on the parties presenting witnesses and evidence.

On July 18, 2016, IIAA and Navitrucks presented additional documents and information related to the hearing held on June 13-15, 2016. On September 30, 2016, the parties presented their final allegations. On April 20, 2017, the arbitral tribunal issued a partial award (the "Initial Award") granting a portion of the relief sought by each of the parties. Specifically, the arbitral tribunal's Initial Award held that: (a) Navitrucks failed to pay certain amounts to IIAA for the purchase of vehicles under its agreements with IIAA, thereby breaching its contractual obligations; and (b) IIAA breached its contractual obligations under its agreements with Navitrucks due to its failure to fulfill its promises to invest in products, infrastructure, and a dealership network. Furthermore, the arbitral tribunal held that, due to the mutual breach of the agreements between IIAA and Navitrucks, the agreements should be deemed terminated.

On June 3, 2017, IIAA and Navitrucks filed an application to clarify certain interpretations of the Initial Award and to correct clerical errors in the Initial Award. IIAA also requested an award to (a) set the indisputable amount of the Initial Award, and (2) order Navitrucks to promptly pay such amount. On June 8, 2017, the arbitral tribunal invited IIAA and Navitrucks to present their respective comments on each other’s applications on or before June 27, 2017. On June 3, 2017 and June 27, 2017, IIAA and Navitrucks, respectively, filed their comments. On September 29, 2017, the arbitral tribunal issued a decision on the applications filed by both parties in which it rejected all of the requests made in the applications of both parties. On October 31, 2017, the arbitral tribunal issued a decision relating to the timeline for the production of technical evidence to be used in the calculation phase in which the actual monetary amount of the damages owed by each party to the other will be definitively determined.

37

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

As determined by the arbitral tribunal, IIAA (a) designated its expert assistant and disclosed the questions to be answered by the arbitral expert (official expert designated by the arbitral tribunal); (b) presented a summary of the amount that Navitrucks owes to IIAA in accordance with the previous calculation and related award issued on April 20, 2017; and (c) presented its replies to the Navitrucks' petitions.

On May 11, 2018, the arbitral tribunal issued a decision allowing the calculation to be made by the parties’ experts and scheduled the calculation phase hearing for August 16, 2018. On July 6, 2018, each party’s experts presented their reports indicating the calculation of the total amount due from each party to the other party. On August 6, 2018, the parties jointly filed a petition informing the arbitral tribunal that they reached an agreement as to the total amount due from each party to the other party. Pursuant to the agreement, Navitrucks agreed that it owes IIAA the total amount of R$107 million (approximately US$28 million as of July 31, 2019) after deducting the agreed amount of Navitrucks' claim against IIAA.

In addition, the parties requested: (a) the cancellation of the hearing scheduled for August 16, 2018; (b) a 15 day period for the parties to present their respective costs incurred in connection with the arbitral proceeding; and (c) the closure of the calculation phase with the final ruling of merits.

On August 13, 2018, the arbitral tribunal issued a decision canceling the hearing scheduled for August 16, 2018 and directed the parties to prove their respective incurred costs with the arbitral proceeding and to specify whether there were any additional productions of evidence or considerations by August 23, 2018.

On August 23, 2018, IIAA filed a petition indicating that its costs incurred in connection with the arbitral proceeding were R$6 million (approximately US$2 million as of July 31, 2019). On the same date, Navitrucks filed a petition indicating that its costs incurred in connection with the arbitral proceeding were R$3 million (approximately US$1 million as of July 31, 2019). On September 18, 2018, the arbitral tribunal issued a decision (i) declaring the end of the evidence phase, (ii) ordering the parties to present their closing arguments on or before October 31, 2018, and (iii) stating that the final decision on the merits will be issued on or before December 20, 2018. On October 31, 2018, the parties submitted their closing arguments.

On or about March 1, 2019, IIAA and Navitrucks received the award of the arbitral tribunal. The award orders the Navitrucks entities to pay IIAA a total of R$107 million (approximately US$28 million as of July 31, 2019), subject to inflation adjustment and default interest. In addition, the arbitral tribunal ordered the Navitrucks entities to reimburse IIAA in the amount of R$3 million (approximately US$1 million as of July 31, 2019) for a portion of IIAA’s costs incurred in the arbitration. The parties will have 30 days from the date of receipt of the award to apply for the correction of errors and/or clarifications related to the award. On March 29, 2019, IIAA filed an application for clarifications related to certain clerical errors in the award. On April 22, 2019, the arbitral tribunal issued a decision ordering Navitrucks to submit any comments regarding the application for clarifications filed by IIAA on or before April 25, 2019 and indicated that the arbitral tribunal will issue a final award with respect to IIAA’s application for clarifications by May 25, 2019.

On June 3, 2019, the arbitral tribunal issued the final award with an addendum to address the clarifications related to certain clerical errors in the award. The final award amount was noted as R$131 million (approximately US$35 million as of July 31, 2019) and Navitrucks was required to pay IIAA on or before July 15, 2019. Navitrucks did not make the required payment to IIAA on or before July 15, 2019 and IIAA is now permitted to commence an enforcement proceeding in the Brazilian civil court.

We have not recorded a receivable related to this matter in our consolidated financial statements.

In addition, two truck fleet owners in Brazil have a separate adversarial proceeding pending against IIAA that may have similar legal and factual issues as the Navitrucks claim. This claim is not material either individually or in the aggregate.

California Air Resources Board Notice of Violation

On March 28, 2019, Navistar received a notice of violation ("NOV") from the California Air Resources Board ("CARB"). In the NOV, CARB alleges that Navistar failed to disclose a running change to 1,385 engines including certain model year 2013 to 2015 N13 engines and 2014 to 2015 N9/10 engines. CARB alleges that the running change in question made modifications to the emissions control system such that the engines no longer conformed to the configuration as certified. In August 2019, the Company and CARB reached a tentative resolution of this matter for $2 million, subject to agreement on formal terms.

Based on our assessment of the facts underlying the claims in the above actions, the Company has recorded a charge in the third quarter ended July 31, 2019 in the amount of $2 million as a reserve for its expected obligations in Engineering and product development costs in our Consolidated Statements of Operations. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.

38

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

Other

U.S. Department of Defense Matter

In the third quarter of 2016, Navistar Defense, LLC ("NDLLC") received a subpoena from the United States Department of Defense Inspector General (the "DOD IG"). The subpoena requested documents relating to NDLLC's sale of its independent suspension systems ("ISS") for military vehicles to the government for the period from January 1, 2009 through December 31, 2010. On June 3, 2016, NDLLC met with government representatives, including representatives from the DOD IG and the DOJ to discuss the matter.

Since then, NDLLC has been in ongoing discussions with the DOD IG and the DOJ. NDLLC made submissions of documents responsive to the subpoena in June and August 2016 and completed its subpoena response. On May 1, 2017, NDLLC met with government representatives, including representatives from the DOD IG and the DOJ, to further discuss the matter, including assertions that NDLLC may have overcharged the United States for the ISS components. NDLLC agreed to provide additional information relating to the pricing of the ISS components. The parties met again on June 13, 2017. In August 2017, NDLLC received a letter from the DOJ claiming that NDLLC made false and misleading statements during the course of price negotiations and during the Defense Contract Audit Agency audit which resulted in NDLLC overcharging the United States for the ISS components by approximately $88 million and asking for treble damages and penalties for a total demand of approximately $264 million. NDLLC has responded to the DOJ’s demand letter explaining its position that it has no liability in this matter and outlining the bases for such position, and that NDLLC intends to vigorously defend its position. NDLLC and the DOJ communicated between October 5, 2017 and December 8, 2017 to discuss their respective positions on both liability and damages.

On December 8, 2017, NDLLC received another subpoena from the DOD IG which requested documents relating to NDLLC's pricing of the Mine Resistant Ambush Protected (“MRAP”) vehicle and its sale of parts to the government for the period from January 1, 2006 through December 31, 2013. NDLLC responded to the subpoena and made four productions of responsive documents.

On July 10, 2018, NDLLC received another subpoena from the DOD IG requesting additional custodian emails and documents related to the MRAP and ISS components. NDLLC is responding to the subpoena and has made four productions of responsive documents. Additionally, in September and October 2018 the DOJ conducted interviews of certain current and former employees and will likely conduct additional interviews in the future.

The parties currently are engaged in mediation, which began in February 2019.

At this time, we are unable to predict the outcome of these matters, including whether a settlement will be reached, or provide meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.

12. Segment Reporting

The following is a description of our four reporting segments:

• Our Truck segment manufactures and distributes Class 4 through 8 trucks and buses under the International and IC Bus ("IC") brands, and produces engines under our proprietary brand name.

This segment sells its products in the U.S., Canada, and Mexico markets, as well as through our export truck business. In an effort to strengthen and maintain our dealer network, this segment occasionally acquires and operates dealer locations for the purpose of transitioning ownership.

• Our Parts segment provides customers with proprietary products needed to support the International commercial truck, IC Bus, proprietary engine lines, and export parts business, as well as our other product lines. Our Parts segment also provides a wide selection of other standard truck, trailer, and engine aftermarket parts. Also included in the Parts segment are the operating results of BDP, which manages the sourcing, merchandising, and distribution of certain service parts we sell to Ford in North America.

• Our Global Operations segment primarily consists of Brazil engine operations which produce diesel engines under contract manufacturing arrangements, as well as under the MWM brand, for sale to original equipment manufacturers (OEMs) in South America. In addition, our Global Operations segment includes the operating results of our former joint venture in China with Anhui Jianghuai Automobile Co., Ltd ("JAC").

39

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

• Our Financial Services segment provides retail, wholesale, and lease financing of products sold by the Truck and Parts segments and their dealers within the U.S. and Mexico, as well as financing for wholesale accounts and selected retail accounts receivable. This segment also facilitates financing relationships in the U.S. and other countries to support our Manufacturing Operations.

Corporate contains those items that are not included in our four segments.

Segment Profit (Loss)

We define segment profit (loss) as net income (loss) attributable to NIC, excluding income tax benefit (expense). Selected financial information from our Consolidated Statements of Operations and our Consolidated Balance Sheets is as follows:

(in millions)	Truck		Parts		Global Operations		Financial Services(A)		Corporate and Eliminations			Total
Three Months Ended July 31, 2019
External sales and revenues, net	$	2,342	$	569	$	82	$	46	$	3		$	3,042
Intersegment sales and revenues	45		2		8		28		(83		)	—
Total sales and revenues, net	$	2,387	$	571	$	90	$	74	$	(80	)	$	3,042
Net income (loss) attributable to NIC	$	167	$	149	$	1	$	30	$	(191	)	$	156
Income tax expense	—		—		—		—		(29		)	(29		)
Segment profit (loss)	$	167	$	149	$	1	$	30	$	(162	)	$	185
Depreciation and amortization	$	26	$	1	$	3	$	16	$	1		$	47
Interest expense	—		—		—		27		49			76
Equity in income of non-consolidated affiliates	—		1		—		—		—			1
Capital expenditures(B)	17		2		1		—		4			24

(in millions)	Truck		Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Three Months Ended July 31, 2018
External sales and revenues, net	$	1,894	$	603	$	68		$	40	$	1		$	2,606
Intersegment sales and revenues	22		2		21			25		(70		)	—
Total sales and revenues, net	$	1,916	$	605	$	89		$	65	$	(69	)	$	2,606
Net income (loss) attributable to NIC	$	165	$	144	$	4		$	23	$	(166	)	$	170
Income tax expense	—		—		—			—		(3		)	(3		)
Segment profit (loss)	$	165	$	144	$	4		$	23	$	(163	)	$	173
Depreciation and amortization	$	31	$	2	$	3		$	14	$	1		$	51
Interest expense	—		—		—			22		60			82
Equity in income (loss) of non-consolidated affiliates	1		1		(2		)	—		—			—
Capital expenditures(B)	19		—		1			1		5			26

40

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

(in millions)	Truck		Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Nine Months Ended July 31, 2019
External sales and revenues, net	$	6,405	$	1,693	$	223		$	141	$	9		$	8,471
Intersegment sales and revenues	75		5		27			85		(192		)	—
Total sales and revenues, net	$	6,480	$	1,698	$	250		$	226	$	(183	)	$	8,471
Net income (loss) attributable to NIC	$	183	$	437	$	10		$	93	$	(604	)	$	119
Income tax expense	—		—		—			—		(9		)	(9		)
Segment profit (loss)	$	183	$	437	$	10		$	93	$	(595	)	$	128
Depreciation and amortization	$	78	$	4	$	7		$	48	$	7		$	144
Interest expense	—		—		—			83		160			243
Equity in income (loss) of non-consolidated affiliates	3		2		(1		)	—		—			4
Capital expenditures(B)	69		3		2			2		14			90

(in millions)	Truck			Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Nine Months Ended July 31, 2018
External sales and revenues, net	$	4,810		$	1,768	$	229		$	118	$	8		$	6,933
Intersegment sales and revenues	61			6		38			69		(174		)	—
Total sales and revenues, net	$	4,871		$	1,774	$	267		$	187	$	(166	)	$	6,933
Net income (loss) attributable to NIC	$	200		$	413	$	(2	)	$	62	$	(521	)	$	152
Income tax expense	—			—		—			—		(25		)	(25		)
Segment profit (loss)	$	200		$	413	$	(2	)	$	62	$	(496	)	$	177
Depreciation and amortization	$	100		$	5	$	8		$	41	$	6		$	160
Interest expense	—		—	—		—			64		176			240
Equity in income (loss) of non-consolidated affiliates	2			2		(4		)	—		—			—
Capital expenditures(B)	74			1		2			1		1			79

_________________________

(A) Total sales and revenues in the Financial Services segment include interest revenues of $53 million and $161 million for the three and nine months ended July 31, 2019, respectively, and $46 million and $131 million for the three and nine months ended July 31, 2018, respectively.

(B) Exclusive of purchases of equipment leased to others.

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Segment assets, as of:
July 31, 2019	$	1,942	$	686	$	322	$	3,010	$	1,334	$	7,294
October 31, 2018	2,085		636		331		2,648		1,530		7,230

41

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

13. Stockholders' Deficit

Accumulated Other Comprehensive Loss

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

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of April 30, 2019	$	(319	)	$	(1,467	)	$	(1,786	)
Other comprehensive income before reclassifications	9			—			9
Amounts reclassified out of accumulated other comprehensive loss	—			23			23
Net current-period other comprehensive income	9			23			32
Balance as of July 31, 2019	$	(310	)	$	(1,444	)	$	(1,754	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2018	$	(315	)	$	(1,605	)	$	(1,920	)
Other comprehensive income (loss) before reclassifications	5			(8		)	(3		)
Amounts reclassified out of accumulated other comprehensive loss	—			169			169
Net current-period other comprehensive income	5			161			166
Balance as of July 31, 2019	$	(310	)	$	(1,444	)	$	(1,754	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of April 30, 2018	$	(289	)	$	(1,865	)	$	(2,154	)
Other comprehensive loss before reclassifications	(13		)	—			(13		)
Amounts reclassified out of accumulated other comprehensive loss	—			29			29
Net current-period other comprehensive income (loss)	(13		)	29			16
Balance as of July 31, 2018	$	(302	)	$	(1,836	)	$	(2,138	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2017	$	(283	)	$	(1,928	)	$	(2,211	)
Other comprehensive loss before reclassifications	(19		)	(2		)	(21		)
Amounts reclassified out of accumulated other comprehensive loss	—			94			94
Net current-period other comprehensive income (loss)	(19		)	92			73
Balance as of July 31, 2018	$	(302	)	$	(1,836	)	$	(2,138	)

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

42

Navistar International Corporation and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

(Unaudited)

		Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	Location in Consolidated Statements of Operations	2019		2018		2019			2018
Defined benefit plans
Amortization of actuarial loss	Other expense, net	$	23	$	29	$	70		$	86
Settlements	Other expense, net	—		—		142			9
	Total before tax	23		29		212			95
	Income tax expense	—		—		(43		)	(1		)
Total reclassifications for the period, net of tax		$	23	$	29	$	169		$	94

14. Earnings Per Share Attributable to Navistar International Corporation

The following table presents the information used in the calculation of our basic and diluted earnings per share all attributable to NIC in our Consolidated Statements of Operations:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions, except per share data)	2019		2018		2019		2018
Numerator:
Net income attributable to Navistar International Corporation common stockholders	$	156	$	170	$	119	$	152
Denominator:
Weighted average shares outstanding:
Basic	99.4		99.0		99.2		98.8
Effect of dilutive securities	0.3		0.7		0.3		0.8
Diluted	99.7		99.7		99.5		99.6
Earnings per share attributable to Navistar International Corporation:
Basic	$	1.57	$	1.72	$	1.20	$	1.54
Diluted	1.56		1.71		1.20		1.53

The conversion rate on our 4.5% Senior Subordinated Convertible Notes due 2018 (the "2018 Convertible Notes") was 17.1233 shares of common stock per $1,000 principal amount of 2018 Convertible Notes, equivalent to an initial conversion price of approximately $58.40 per share of common stock. The 2018 Convertible Notes had an anti-dilutive effect when calculating diluted earnings per share when our average stock price was less than $58.40. The 2018 Convertible Notes were fully repaid upon maturity in October 2018, and none were converted into shares of our common stock.

The conversion rate on our 4.75% Senior Subordinated Convertible Notes due 2019 (the “2019 Convertible Notes”) was 18.4946 shares of common stock per $1,000 principal amount of 2019 Convertible Notes, equivalent to an initial conversion price of approximately $54.07 per share of common stock. The 2019 Convertible Notes had an anti-dilutive effect when calculating diluted earnings per share when our average stock price was less than $54.07. The 2019 Convertible Notes were fully repaid upon maturity in April 2019, and none were converted into shares of our common stock.

The computation of diluted earnings per share excludes outstanding options and other common stock equivalents in periods where inclusion of such potential common stock instruments would be anti-dilutive.

For the three and nine months ended July 31, 2018, certain securities have been excluded from the computation of earnings per share, as our average stock price during the period was less than their respective exercise prices. The aggregate shares not included were 13.2 million and 13.3 million, respectively, which was primarily comprised of 3.4 million shares related to the 2018 Convertible Notes and 7.6 million shares related to the 2019 Convertible Notes.

43

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide information that is supplemental to, and should be read together with, our consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended October 31, 2018. Information in MD&A is intended to assist the reader in obtaining an understanding of (i) our consolidated financial statements, (ii) the changes in certain key items within those financial statements from year-to-year, (iii) the primary factors that contributed to those changes, (iv) any changes in known trends or uncertainties from items disclosed within the MD&A of our Annual Report on Form 10-K for the year ended October 31, 2018 that we are aware of and that may have a material effect on our future performance, and (v) how certain accounting principles affect our consolidated financial statements. In addition, MD&A provides information about our business segments and how the results of those segments impact our results of operations and financial condition as a whole. Operating results for interim reporting periods are not necessarily indicative of annual operating results.

Executive Overview

Navistar is an international manufacturer of International® brand commercial trucks, proprietary brand diesel engines, and IC Bus® ("IC") brand school and commercial buses, as well as a provider of service parts for trucks and diesel engines. Our core business is conducted in the North American truck and parts markets, where we principally participate in the U.S. and Canada school bus and Class 6 through 8 medium and heavy truck markets (our "Core" markets). We also provide retail, wholesale, and lease financing services for our trucks and parts.

Third Quarter Summary

During the third quarter of 2019, we continued to take actions to build upon our 2018 and 2019 accomplishments. The areas of focus centered around: being responsive to our customers, driving operational excellence, improving on our Core business, business transformation, leveraging the TRATON Group strategic alliance, developing our team-based organization and our winning culture. We believe our strategy will enable us to be the number one and the most customer focused, innovative and value-creating truck and bus solution provider in the Americas.

We continue to take actions to improve on our Core business. In June 2019, we decided to make capital investments of approximately $125 million in new and expanded manufacturing facilities in the State of Alabama. The investment is expected to bring 145 additional jobs to our Huntsville facility.

We are committed to uptime to enhance customer value. In August 2019, we opened a parts distribution center in Olive Branch, Mississippi, to help respond to the growing demand for parts and quicker maintenance turnaround times. This is our seventh parts distribution center in the U.S. and tenth in North America. Our centralized location and proximity to the FedEx World Hub in Memphis, Tennessee enables us to deliver parts the next day to over 95% of our dealers’ service locations.

Financial Summary

Continuing Operations Results — In the third quarter of 2019, our consolidated net sales and revenues were $3.0 billion, a 17% increase compared to the prior year quarter. In the first nine months of 2019, our consolidated net sales and revenues were $8.5 billion, a 22% increase compared to the first nine months of 2018. The increase for both periods reflects higher volumes from our Truck segment.

In the third quarter and first nine months of 2019, we earned income before income tax of $190 million and $144 million, respectively, compared to $180 million and $197 million in the respective prior year periods. Our gross margin increased by $31 million and $180 million in the third quarter and first nine months of 2019, respectively, primarily due to the impact of higher volumes.

In the third quarter and first nine months of 2019, we recognized an income tax expense of $29 million and $9 million, respectively, compared to income tax expense of $3 million and $25 million in the respective prior year periods. The third quarter income tax expense increase is largely due to a mix of jurisdictions where income or loss is not benefited or expensed due to valuation allowances.  The decrease to income tax expense for the first nine months is largely the result of a $38 million benefit associated with a group annuity contract purchase for certain retired pension plan participants, recorded in the first quarter of 2019.  Other differences for the third quarter and first nine months of 2019 include the impact of earnings, geographical mix and certain discrete items.

In the third quarter and first nine months of 2019, after income taxes, we had net income attributable to Navistar International Corporation ("NIC") of $156 million and $119 million, or $1.56 and $1.20 per diluted share, respectively, compared to net income of $170 million and $152 million, or $1.71 and $1.53 per diluted share in the respective prior year periods.

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In the third quarter and first nine months of 2019, consolidated net income attributable to NIC, before manufacturing interest, taxes, depreciation and amortization expenses (“EBITDA”) was $281 million and $432 million, respectively, compared to $284 million and $513 million in the comparable prior year period. Excluding certain net impacts, adjusted EBITDA ("Adjusted EBITDA") in the third quarter and first nine months of 2019 was $266 million and $663 million, respectively, compared to $218 million and $504 million in the comparable prior year periods. In the third quarter and first nine months of 2019, adjusted consolidated net income attributable to NIC, excluding certain net impacts ("Adjusted Net Income"), was $147 million and $309 million, respectively, compared to $95 million and $138 million in the comparable prior year period. EBITDA, Adjusted EBITDA, and Adjusted Net Income are not determined in accordance with U.S. GAAP, nor are they presented as alternatives to U.S. GAAP measures. For more information regarding this non-GAAP financial information, see Non-GAAP Financial Performance Measures.

We ended the third quarter of 2019 with $1.2 billion of consolidated cash, cash equivalents and marketable securities, compared to $1.4 billion as of October 31, 2018. The decrease in consolidated cash, cash equivalents and marketable securities was primarily attributable to the repayment of our convertible notes, cash used for capital expenditures and an acceleration in the payment of a substantial portion of our 2019 minimum required funding of our pension plans, partially offset by cash generated from operations, proceeds from the sale of a majority interest in our former defense business, ND Holdings, LLC (“Navistar Defense”) and the sale of our joint venture in China with Anhui Jianghuai Automobile Co., Ltd ("JAC").

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Results of Operations

The following information summarizes our Consolidated Statements of Operations and illustrates the key financial indicators used to assess our consolidated financial results.

Results of Operations for the quarter ended July 31, 2019 as compared to the quarter ended July 31, 2018

	Three Months Ended July 31,											Nine Months Ended July 31,
(in millions, except per share data and % change)	2019			2018			Change			% Change		2019			2018			Change			% Change
Sales and revenues, net	$	3,042		$	2,606		$	436		17	%	$	8,471		$	6,933		$	1,538		22	%
Costs of products sold	2,501			2,096			405			19	%	6,973			5,615			1,358			24	%
Restructuring charges	—			1			(1		)	(100	)%	1			(1		)	2			200	%
Asset impairment charges	3			8			(5		)	(63	)%	6			11			(5		)	(45	)%
Selling, general and administrative expenses	167			222			(55		)	(25	)%	726			613			113			18	%
Engineering and product development costs	81			72			9			13	%	242			222			20			9	%
Interest expense	76			82			(6		)	(7	)%	243			240			3			1	%
Other expense (income), net	25			(55		)	80			145	%	140			36			104			289	%
Total costs and expenses	2,853			2,426			427			18	%	8,331			6,736			1,595			24	%
Equity in income of non-consolidated affiliates	1			—			1			100	%	4			—			4			100	%
Income before income tax	190			180			10			6	%	144			197			(53		)	(27	)%
Income tax expense	(29		)	(3		)	(26		)	(867	)%	(9		)	(25		)	16			(64	)%
Net income	161			177			(16		)	(9	)%	135			172			(37		)	22	%
Less: Net income attributable to non-controlling interests	5			7			(2		)	(29	)%	16			20			(4		)	(20	)%
Net income attributable to Navistar International Corporation	$	156		$	170		$	(14	)	(8	)%	$	119		$	152		$	(33	)	22	%
Diluted income per share(A)	$	1.56		$	1.71		$	(0.15	)	(9	)%	$	1.20		$	1.53		$	(0.33	)	22	%
Diluted weighted average shares outstanding	99.7			99.7			—			—	%	99.5			99.6			(0.1		)	—	%

_________________________

(A) Amounts attributable to NIC.

Sales and revenues, net    

Our sales and revenues, net, are principally generated via sales of products and services. Sales and revenues, net in our Consolidated Statements of Operations, by reporting segment were as follows:

	Three Months Ended July 31,											Nine Months Ended July 31,
(in millions, except % change)	2019			2018			Change			% Change		2019			2018			Change			% Change
Truck	$	2,387		$	1,916		$	471		25	%	$	6,480		$	4,871		$	1,609		33	%
Parts	571			605			(34		)	(6	)%	1,698			1,774			(76		)	(4	)%
Global Operations	90			89			1			1	%	250			267			(17		)	(6	)%
Financial Services	74			65			9			14	%	226			187			39			21	%
Corporate and Eliminations	(80		)	(69		)	(11		)	(16	)%	(183		)	(166		)	(17		)	(10	)%
Total	$	3,042		$	2,606		$	436		17	%	$	8,471		$	6,933		$	1,538		22	%

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In the third quarter and first nine months of 2019, our Truck segment net sales increased by $471 million and $1,609 million, or 25% and 33%, respectively. The increase is primarily due to higher volumes in our Core markets, an increase in sales of GM-branded units manufactured for GM, and an increase in Mexico sales, partially offset by the impact of the sale of a majority interest in Navistar Defense. In the third quarter of 2019, chargeouts from our Core markets increased by 28% compared to the third quarter of 2018. In the first nine months of 2019, chargeouts from our Core markets increased by 36% compared to the first nine months of 2018.

In the third quarter and first nine months of 2019, our Parts segment net sales decreased by $34 million and $76 million, or 6% and 4%, respectively. The decrease is primarily due to the impact of the new revenue standard as we are now an agent in certain direct shipment transactions that are recorded on a net basis and due to certain elements of core component transactions that are no longer recognized within revenue and lower BDP sales, partially offset by higher sales in our North American markets.

In the third quarter of 2019, our Global Operations segment net sales were comparable to prior period. In the first nine months of 2019, our Global Operations segment net sales decreased by $17 million, or 6%. The decrease in the first nine months of 2019 is primarily driven by economic conditions in our South America engine operations and the depreciation of the Brazilian real against the U.S. dollar as the average conversion rate weakened by 11% compared to the prior year period.

In the third quarter and first nine months of 2019, our Financial Services segment net revenues increased by $9 million and $39 million, or 14% and 21%, respectively. The increase is primarily driven by higher average finance receivables in the U.S., and higher operating lease balances in the U.S. and Mexico.

Costs of products sold

In the third quarter and first nine months of 2019, Costs of products sold increased by $405 million and $1,358 million, or 19% and 24%, respectively. The increase was primarily driven by the impact of higher volumes in our Core markets. The increase is partially offset by the impact of the new revenue standard as we are now an agent in certain direct shipment transactions that are recorded on a net basis and also due to certain elements of core component transactions that are no longer recognized within revenue.

In the third quarter and first nine months of 2019, we recorded charges of $5 million and $7 million, respectively, for adjustments to pre-existing warranties compared to a benefit of $4 million for both of the respective prior year periods. Pre-existing warranty expense during the period was primarily driven by proactive campaign actions on units built in prior years and was partially offset by a favorable warranty experience on both trucks and engines sold prior to fiscal year 2019.

SG&A expenses

In the third quarter and first nine months of 2019, SG&A expenses decreased by $55 million, or 25%, and increased by $113 million, or 18%, respectively. The changes were attributable to the release of a liability of $32 million recognized primarily in the third quarter of 2017 related to certain MaxxForce Advanced EGR engine product litigation and lower profit sharing accruals related to supplemental benefits for certain retirees. The increase in the first nine months of 2019 was also impacted by a MaxxForce Advanced EGR engine class action settlement and related litigation charges of $159 million in our Truck segment. For more information on our legal proceedings, see Note 11, Commitments and Contingencies, to the accompanying consolidated financial statements.

Engineering and product development costs

In the third quarter and first nine months of 2019, Engineering and product development costs increased by $9 million and $20 million, or 13% and 9%, respectively, compared to the prior year periods. This increase is primarily due to our development agreements with TRATON Group involving the expense of certain powertrain development costs.

Other expense, net

In the third quarter and first nine months of 2019, Other expenses increased by $80 million and $104 million, or 145% and 289%, respectively, compared to the prior year periods. The increase is primarily driven by a $70 million non-recurring gain from the settlement of a business economic loss claim relating to our Alabama engine manufacturing facility representing the net present value from the Deepwater Horizon Settlement Program recorded in the third quarter of 2018. The increase in the first nine months of the year was primarily driven by a group annuity contract purchase for certain retired pension plan participants which resulted in a plan remeasurement. As a result, we recorded pension settlement accounting charges of $142 million compared to $9 million in the prior year period. The increase was partially offset by a gain of $51 million related to the sale of a majority interest in Navistar Defense and a gain on sale of $5 million related to our joint venture in China with JAC. The increase was also partially offset by $46 million of non-recurring charges related to the extinguishment of unamortized debt issuance costs, discounts and tender premium payments associated with the repurchase of our previous 8.25% senior notes, due 2022 ("8.25% Senior Notes") and refinancing of our previous Senior Secured Term Loan Credit Facility ("Term Loan") in the first quarter of 2018.

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Income tax expense

In the third quarter and first nine months of 2019, our income tax expense increased by $26 million and decreased by $16 million, respectively. The third quarter income tax expense increase is largely due to a mix of jurisdictions where income or loss is not benefited or expensed due to valuation allowances.  The decrease to income tax expense for the first nine months is largely the result of a $38 million benefit associated with a group annuity contract purchase for certain retired pension plan participants, recorded in the first quarter of 2019. Other differences for the third quarter and first nine months of 2019 include the impact of earnings, geographical mix and certain discrete items.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests is the result of our consolidation of subsidiaries that we do not wholly own. Substantially all of the net income attributable to non-controlling interests in 2019 and 2018 relates to Ford Motor Company's non-controlling interest in BDP.

Segment Results of Operations

We define segment profit (loss) as net income (loss) attributable to NIC excluding income tax benefit (expense). The following sections analyze operating results as they relate to our four segments and do not include intersegment eliminations. For additional information concerning our segments, see Note 12, Segment Reporting, to the accompanying consolidated financial statements.

Truck Segment

	Three Months Ended July 31,								Nine Months Ended July 31,
(in millions, except % change)	2019		2018		Change		% Change		2019		2018		Change			% Change
Truck segment sales, net	$	2,387	$	1,916	$	471	25	%	$	6,480	$	4,871	$	1,609		33	%
Truck segment profit	167		165		2		1	%	183		200		(17		)	(9	)%

Segment sales

In the third quarter and first nine months of 2019, our Truck segment net sales increased by $471 million and $1,609 million, respectively, or 25% and 33%, respectively. The increase is primarily due to higher volumes in our Core markets, an increase in sales of GM-branded units manufactured for GM, and an increase in Mexico sales, partially offset by the impact of the sale of a majority interest in Navistar Defense.

In the third quarter of 2019, chargeouts from our Core markets increased by 28% compared to the third quarter of 2018, which is reflective of an improvement in Class 8 industry volumes and market share. The improvement represents a 42% increase in Class 8 severe service trucks, a 33% increase in medium trucks, a 31% increase in Class 8 heavy trucks, and a 5% increase in school buses.

In the first nine months of 2019, chargeouts from our Core markets increased by 36% compared to the first nine months of 2018, which is reflective of an improvement in Class 8 industry volumes and market share. The improvement represents a 50% increase in Class 8 heavy trucks, a 35% increase in Class 8 severe service trucks, a 34% increase in medium trucks, and a 14% increase in school buses.

Segment profit

In the third quarter of 2019, our Truck segment profit increased by $2 million, or 1%. In the first nine months of 2019, our Truck segment profit decreased by $17 million, or 9%. The results were primarily attributable to the impact of higher volumes in our Core markets, the release of a liability recognized in a prior quarter related to certain MaxxForce Advanced EGR engine litigation, partially offset by lower other income. The decrease in the first nine months of 2019 was also attributable to charges related to a MaxxForce Advanced EGR engine class action settlement of $159 million, partially offset by the impact of the sale of a majority interest in Navistar Defense.

In the first nine months of 2019, we recorded a gain of $51 million related to the sale of a 70% equity interest in Navistar Defense. In the third quarter of 2018, we recorded a non-recurring $70 million gain related to the settlement of a business economic loss claim. These impacts were recognized in Other expense, net in our Consolidated Statements of Operations.

In the third quarter and first nine months of 2019, we recorded charges of $5 million and $7 million, respectively, for adjustments to pre-existing warranties compared to a benefit of $4 million for the respective prior year periods. Pre-existing warranty expense during the period was primarily driven by proactive campaign actions on units built in prior years and was partially offset by a favorable warranty experience on both trucks and engines sold prior to fiscal year 2019.

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Parts Segment

	Three Months Ended July 31,									Nine Months Ended July 31,
(in millions, except % change)	2019		2018		Change			% Change		2019		2018		Change			% Change
Parts segment sales, net	$	571	$	605	$	(34	)	(6	)%	$	1,698	$	1,774	$	(76	)	(4	)%
Parts segment profit	149		144		5			3	%	437		413		24			6	%

Segment sales

In the third quarter and first nine months of 2019, our Parts segment net sales decreased by $34 million and $76 million, or 6% and 4%, respectively. The decrease is primarily due to the impact of the new revenue standard as we are now an agent in certain direct shipment transactions that are recorded on a net basis and also due to certain elements of core component transactions that are no longer recognized within revenue and lower BDP sales, partially offset by higher sales in our North American markets.

Segment profit

In the third quarter and first nine months of 2019, our Parts segment profit increased by $5 million and $24 million, or 3% and 6%, respectively, primarily due to higher U.S. margins and lower intercompany access fees, partially offset by lower BDP volumes. The first nine months of 2019 was also impacted by higher freight-related expenses.  Access fees are allocated to our Parts segment from our Truck segment, primarily for the development of new products, and consist of certain engineering and product development costs, depreciation expense, and SG&A expenses.

Global Operations Segment

	Three Months Ended July 31,									Nine Months Ended July 31,
(in millions, except % change)	2019		2018		Change			% Change		2019		2018			Change			% Change
Global Operations segment sales, net	$	90	$	89	$	1		1	%	$	250	$	267		$	(17	)	(6	)%
Global Operations segment profit (loss)	1		4		(3		)	(75	)%	10		(2		)	12			600	%

Segment sales

In the third quarter of 2019, our Global Operations segment net sales were comparable to prior period. In the first nine months of 2019, our Global Operations segment net sales decreased by $17 million, or 6%. The decrease in the first nine months of 2019 is primarily driven by economic conditions in our South America engine operations and the depreciation of the Brazilian real against the U.S. dollar as the average conversion rate weakened by 11% compared with the prior year period.

Segment results

In the third quarter of 2019, our Global Operations segment profit decreased by $3 million, or 75%. In the first nine months of 2019, our Global Operations segment results improved by $12 million, or 600%. In the third quarter of 2019, the decrease was primarily driven by the impact of a shift in product mix. In the first nine months of 2019, our Global Operations segment results improved due to lower SG&A expenses as a result of our prior restructuring efforts and higher other income of $5 million related to the sale of our former joint venture in China with JAC.

Financial Services Segment

	Three Months Ended July 31,								Nine Months Ended July 31,
(in millions, except % change)	2019		2018		Change		% Change		2019		2018		Change		% Change
Financial Services segment revenues, net	$	74	$	65	$	9	14	%	$	226	$	187	$	39	21	%
Financial Services segment profit	30		23		7		30	%	93		62		31		50	%

Segment revenues

In the third quarter and first nine months of 2019, our Financial Services segment net revenues increased by $9 million and $39 million, or 14% and 21%, respectively. The increase was primarily driven by higher average finance receivable balances in the U.S., and higher operating lease balances in the U.S. and Mexico.

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Segment profit

In the third quarter and first nine months of 2019, our Financial Services segment profit increased by $7 million and $31 million, or 30% and 50%, respectively. The increase was primarily driven by higher interest margins, higher other income from an intercompany loan from our Financial Services operations to our Manufacturing operations, and a non-recurring asset impairment charge from the prior year. The increase was partially offset by the write-off of debt issuance costs and higher depreciation expense on operating leases.

Supplemental Information

The following tables provide additional information on truck industry retail units, market share data, order units, backlog units, and chargeout units. These tables present key metrics and trends that provide quantitative measures of our performance.

Truck Industry Retail Deliveries

The following table summarizes approximate industry retail deliveries for our Core markets, categorized by relevant class, according to Wards Auto and IHS Markit ("Polk") and our Core retail deliveries:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in units)	2019	2018	Change		% Change		2019	2018	Change		% Change
Core markets (U.S. and Canada)
School buses(A)	6,200	6,500	(300	)	(5	)%	16,900	17,400	(500	)	(3	)%
Class 6 and 7 medium trucks	28,600	24,600	4,000		16	%	83,400	73,500	9,900		13	%
Class 8 heavy trucks	60,900	52,800	8,100		15	%	175,200	142,300	32,900		23	%
Class 8 severe service trucks	21,300	18,300	3,000		16	%	57,400	52,700	4,700		9	%
Total Core markets	117,000	102,200	14,800		14	%	332,900	285,900	47,000		16	%
Combined class 8 trucks	82,200	71,100	11,100		16	%	232,600	195,000	37,600		19	%
Navistar Core retail deliveries	21,300	15,900	5,400		34	%	59,900	45,500	14,400		32	%

_________________________

(A) The School bus retail market deliveries include buses classified as B, C, and D and are being reported on a one-month lag.

Truck Retail Delivery Market Share

The following table summarizes our approximate retail delivery market share percentages for the Class 6 through 8 U.S. and Canada truck markets, based on market-wide information from Wards Auto and Polk:

	Three Months Ended
	July 31, 2019		April 30, 2019		January 31, 2019		October 31, 2018		July 31, 2018
Core markets (U.S. and Canada)
Class 6 and 7 medium trucks	26.8	%	29.8	%	25.5	%	24.9	%	21.9	%
Class 8 heavy trucks	13.8	%	15.1	%	12.1	%	16.9	%	12.7	%
Class 8 severe service trucks	14.1	%	12.6	%	11.7	%	16.5	%	11.2	%
Combined class 8 trucks	13.9	%	14.5	%	12.0	%	16.8	%	12.3	%

Truck Orders, net

We define orders as written commitments received from customers and dealers during the year to purchase trucks. Net orders represent new orders received during the year less order cancellations made during the same year. Orders do not represent guarantees of purchases by customers or dealers and are subject to cancellation. Orders may be either sold orders, which will be built for specific customers, or stock orders, which will generally be built for dealer inventory for eventual sale to customers. These orders may be placed at our assembly plants in the U.S. and Mexico for destinations anywhere in the world and include trucks and buses. Historically, we have had an increase in net orders for stock inventory from our dealers at the end of the year due to a combination of demand and, from time to time, incentives to the dealers. Increases in stock orders typically translate to higher future chargeouts. The following table summarizes our approximate net orders for Core units:

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	Three Months Ended July 31,						Nine Months Ended July 31,
(in units)	2019	2018	Change		% Change		2019	2018	Change		% Change
Core markets (U.S. and Canada)
School buses	1,900	3,900	(2,000	)	(51	)%	11,400	11,000	400		4	%
Class 6 and 7 medium trucks	2,100	7,800	(5,700	)	(73	)%	21,100	23,900	(2,800	)	(12	)%
Class 8 heavy trucks	2,100	12,800	(10,700	)	(84	)%	21,600	31,800	(10,200	)	(32	)%
Class 8 severe service trucks	2,600	3,800	(1,200	)	(32	)%	9,400	9,800	(400	)	(4	)%
Total Core markets	8,700	28,300	(19,600	)	(69	)%	63,500	76,500	(13,000	)	(17	)%
Combined class 8 trucks	4,700	16,600	(11,900	)	(72	)%	31,000	41,600	(10,600	)	(25	)%

Truck Backlogs

We define order backlogs ("backlogs") as orders yet to be built as of the end of the period. Our backlogs do not represent guarantees of purchases by customers or dealers and are subject to cancellation. Although backlogs are one of many indicators of market demand, other factors such as changes in production rates, internal and supplier available capacity, new product introductions, and competitive pricing actions may affect point-in-time comparisons. Backlogs exclude units in inventory awaiting additional modifications or delivery to the end customer. The following table summarizes our approximate backlog for Core units:

	As of July 31,
(in units)	2019	2018	Change		% Change
Core markets (U.S. and Canada)
School buses	3,900	3,900	—		—	%
Class 6 and 7 medium trucks	11,800	10,700	1,100		10	%
Class 8 heavy trucks	15,700	18,700	(3,000	)	(16	)%
Class 8 severe service trucks	8,400	5,700	2,700		47	%
Total Core markets	39,800	39,000	800		2	%
Combined class 8 trucks	24,100	24,400	(300	)	(1	)%

Truck Chargeouts

We define chargeouts as trucks that have been invoiced to customers. The units held in dealer inventory represent the principal difference between retail deliveries and chargeouts. The following table summarizes our approximate worldwide chargeouts:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in units)	2019	2018	Change		% Change		2019	2018	Change		% Change
Core markets (U.S. and Canada)
School buses	3,900	3,700	200		5	%	9,700	8,500	1,200		14	%
Class 6 and 7 medium trucks	8,400	6,300	2,100		33	%	23,400	17,500	5,900		34	%
Class 8 heavy trucks	9,400	7,200	2,200		31	%	25,800	17,200	8,600		50	%
Class 8 severe service trucks	2,700	1,900	800		42	%	8,100	6,000	2,100		35	%
Total Core markets	24,400	19,100	5,300		28	%	67,000	49,200	17,800		36	%
Non "Core" defense	—	100	(100	)	(100	)%	100	500	(400	)	(80	)%
Other markets(A)	7,000	2,500	4,500		180	%	14,200	5,900	8,300		141	%
Total worldwide units	31,400	21,700	9,700		45	%	81,300	55,600	25,700		46	%
Combined class 8 trucks	12,100	9,100	3,000		33	%	33,900	23,200	10,700		46	%

_____________________________

(A) Other markets primarily consist of Class 4/5 vehicles, Export Truck, Mexico, and post-sale Navistar Defense. Other markets include certain Class 4/5 vehicle chargeouts of 3,300 and 6,000 General Motors ("GM")-branded units sold to GM three and nine months ended July 31, 2019, respectively.

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Liquidity and Capital Resources

Consolidated cash, cash equivalents, and marketable securities

	As of
(in millions)	July 31, 2019		October 31, 2018
Consolidated cash and cash equivalents	$	1,160	$	1,320
Consolidated marketable securities	3		101
Consolidated cash, cash equivalents, and marketable securities	$	1,163	$	1,421

	As of
(in millions)	July 31, 2019		October 31, 2018
Manufacturing operations	$	1,115	$	1,362
Financial Services operations	48		59
Consolidated cash, cash equivalents, and marketable securities	$	1,163	$	1,421

Manufacturing and Financial Services cash, cash equivalents, and marketable securities

Manufacturing cash, cash equivalents, and marketable securities, and Financial Services cash, cash equivalents and marketable securities are not presented in accordance with, and should not be viewed as an alternative to, U.S. GAAP. This non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. However, we believe that non-GAAP reporting provides meaningful information and therefore we use it to supplement our U.S. GAAP reporting by identifying items that may not be related to the core manufacturing business. We provide this information for an additional analysis of our ability to meet our operating requirements, capital expenditures, equity investments, and financial obligations. Manufacturing cash, cash equivalents, and marketable securities represent our consolidated cash, cash equivalents, and marketable securities, which excludes cash, cash equivalents, and marketable securities of our Financial Services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. Consolidated cash, cash equivalents, and marketable securities totaled $1.2 billion as of July 31, 2019.

Cash Requirements

We generate cash flows from operations from the sale of trucks, buses, diesel engines, and parts, as well as from product financing provided to our dealers and retail customers by our Financial Services operations. We fund our operations and strategic plans primarily with cash, cash generated from operations, debt and equity. It is our opinion that, in the absence of significant extraordinary cash demands, our: (i) level of cash, cash equivalents, and marketable securities, (ii) current and forecasted cash flow from our Manufacturing operations and Financial Services operations, (iii) availability under various funding facilities, (iv) current and forecasted availability from various funding alliances, and (v) access to capital in the capital markets, will provide sufficient funds to meet operating requirements, capital expenditures, investments, and financial obligations on both a short-term and long-term basis. Future Manufacturing operations debt obligations are expected to be met through a combination of cash generation from operations and refinancing activities. We also believe the quality of our underlying portfolio of receivables will ensure the ongoing funding from various sources and alliance partners and will permit our Financial Services operations to meet our financing requirements and those of our dealers, and retail customers.

We have capacity under our various debt arrangements to raise additional cash by incurring incremental debt. The covenants in all of our debt agreements permit us to refinance existing debt instruments as they mature. Our 4.75% Senior Subordinated Convertible Notes were fully repaid upon maturity in April 2019, with cash on hand.

In May 2019, NFC increased the capacity of its revolving bank credit facility from $269 million to $748 million and extended the maturity from September 2021 to May 2024. The additional capacity was used, in part, to fully repay the senior secured NFC Term Loan balance of $398 million.

In April 2019, we increased the capacity of our retail accounts funding facility from $100 million to $150 million. Also in April 2019, we temporarily increased the capacity of our wholesale variable funding facility from $350 million to $550 million until the issuance of $300 million of two-year investor notes in June 2019. The issuance replaced the $250 million of investor notes that matured in June 2019.

52

Our Manufacturing operations sold $7.5 billion of wholesale notes and accounts receivable to our Financial Services operations during the nine months ended July 31, 2019. The total outstanding balance of wholesale notes and accounts receivable purchased was $1.9 billion as of July 31, 2019. Total loans outstanding from our Financial Services operations to our Manufacturing operations were $207 million as of July 31, 2019.

Included in loans made from Financial Services operations to Manufacturing operations is an unsecured loan balance with NFC of $200 million and $150 million as of July 31, 2019 and October 31, 2018, respectively. Our Manufacturing operations also have an intercompany revolving loan agreement (the "Intercompany Revolving Loan") with our captive insurance company under our Financial Services segment. As of July 31, 2019 and October 31, 2018, our borrowings under the Intercompany Revolving Loan agreement remained at $7 million for both periods.

Our Financial Services operations in Mexico extend working capital loans to our Manufacturing operations in Mexico for orders received. As of July 31, 2019 and October 31, 2018, the borrowings of our Manufacturing operations in Mexico under these loan agreements were zero and $55 million, respectively.

As of July 31, 2019, the aggregate amount available to fund finance receivables under our Financial Services funding facilities was $368 million, and there were no borrowings under NI's $125 million asset-based credit facility which is partly used to secure outstanding letters of credit.

Cash Flow Overview

	Nine Months Ended July 31, 2019
(in millions)	Manufacturing Operations(A)			Financial Services Operations and Adjustments(A)			Condensed Consolidated Statement of Cash Flows
Net cash provided by (used in) operating activities	$	191		$	(87	)	$	104
Net cash provided by (used in) investing activities	109			(118		)	(9		)
Net cash provided by (used in) financing activities	(447		)	210			(237		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2		)	(5		)	(7		)
Decrease in cash, cash equivalents and restricted cash	(149		)	—			(149		)
Cash, cash equivalents and restricted cash at beginning of the period	1,295			150			1,445
Cash, cash equivalents and restricted cash at end of the period	$	1,146		$	150		$	1,296

	Nine Months Ended July 31, 2018
(in millions)	Manufacturing Operations(A)			Financial Services Operations and Adjustments(A)			Condensed Consolidated Statement of Cash Flows
Net cash used in operating activities	$	(154	)	$	(26	)	$	(180	)
Net cash provided by (used in) investing activities	133			(73		)	60
Net cash provided by financing activities	363			155			518
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(15		)	(1		)	(16		)
Increase in cash, cash equivalents and restricted cash	327			55			382
Cash, cash equivalents and restricted cash at beginning of the period	690			150			840
Cash, cash equivalents and restricted cash at end of the period	$	1,017		$	205		$	1,222

_________________________

(A) Manufacturing operations cash flows and Financial Services operations cash flows are not presented in accordance with, and should not be viewed as an alternative to, U.S. GAAP. This non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. However, we believe that non-GAAP reporting provides meaningful information and therefore we use it to supplement our U.S. GAAP reporting by identifying items that may not be related to the core manufacturing business. Management often uses this information to assess and measure the performance and liquidity of our operating segments. Our Manufacturing operations, for this purpose, include our Truck segment, Global Operations segment, Parts segment, and Corporate items which include certain eliminations. The reconciling differences between these non-GAAP financial measures and our U.S. GAAP consolidated financial statements in Item 1, Financial Statements and Supplementary Data, are our Financial Services operations and adjustments required to eliminate certain intercompany transactions between Manufacturing operations and Financial Services operations. Our Financial Services operations cash flows are presented consistent with their treatment in our Condensed Consolidated Statements of Cash Flows and may not be consistent with how they would be treated on a stand-alone basis. We have chosen to provide this supplemental information to allow additional analysis, to illustrate the respective cash flows giving effect to the equity basis cash flow shown above, and to provide an additional measure of performance and liquidity.

53

Manufacturing Operations

Manufacturing Operations Cash Flow from Operating Activities

Cash provided by operating activities was $191 million in the nine months ended July 31, 2019, compared to cash used in operating activities of $154 million in the nine months ending July 31, 2018. The higher generation of cash from operating activities in 2019 compared to 2018 was primarily attributable to a lower increase in inventories, higher collections of accounts receivable, and an increase in other current liabilities partially offset by an acceleration in the payment of a substantial portion of our 2019 minimum required funding of our pension plans, a lower increase in accounts payable and a decrease in intercompany liabilities with Financial Services.

Cash paid for interest, net of amounts capitalized, was $165 million and $181 million in the nine months ended July 31, 2019 and 2018, respectively.

Manufacturing Operations Cash Flow from Investing Activities

Cash provided by investing activities was $109 million and $133 million in the nine months ended July 31, 2019 and 2018, respectively. The decrease in cash flow from investing activities in 2019 compared to 2018 was primarily attributable to lower net liquidations of marketable securities and an increase in capital expenditures, partially offset by decreases in the purchase of marketable securities and equipment leased to others, higher maturities of marketable securities, proceeds from the sale of a majority interest in Navistar Defense, and the sale of our joint venture in China with JAC.

Manufacturing Operations Cash Flow from Financing Activities

Cash used in financing activities was $447 million in the nine months ended July 31, 2019, compared to cash provided by financing activities of $363 million in the nine months ended July 31, 2018. The net decrease in cash flow from financing activities in 2019 compared to 2018 was primarily attributable to the maturity and repayment of our 4.75% Senior Subordinated Convertible Notes in April 2019, lower proceeds from the issuance of long-term debt, lower proceeds from loans made from Financial Services operations to Manufacturing operations and lower proceeds from finance lease obligations, partially offset by lower payments on long-term debt and a decrease in the amount of debt issuance costs.

Financial Services Operations

Financial Services Operations and Adjustments to Cash Flow from Operating Activities

Cash used in operating activities was $87 million and $26 million in the nine months ended July 31, 2019 and 2018, respectively. The increase in cash used in operating activities compared to 2018 was primarily due to an increase in net originations of finance receivables partially offset by a decrease in net intercompany receivables with our Manufacturing operations.

Cash paid for interest, net of amounts capitalized, was $73 million and $55 million for the nine months ended July 31, 2019 and 2018, respectively.

Financial Services Operations and Adjustments to Cash Flow from Investing Activities

Cash used in investing activities was $118 million and $73 million in the nine months ended July 31, 2019 and 2018, respectively. The increase in cash used in investing activities was primarily due to an increase in purchases of equipment leased to others.

Financial Services Operations and Adjustments to Cash Flow from Financing Activities

Cash provided by financing activities was $210 million and $155 million in the nine months ended July 31, 2019 and 2018, respectively. The increase was primarily due to the increase in borrowings to fund the increase in net originations of finance receivables and the increase in purchases of equipment leased to others. The increase in borrowings was partially offset by the decrease in net intercompany receivables with our Manufacturing operations.

54

Non-GAAP Financial Performance Measures

EBITDA, Adjusted EBITDA and Adjusted Net Income, which exclude certain identified items that we do not consider to be part of our ongoing business, are not in accordance with, and should not be viewed as an alternative to, U.S. GAAP. This non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP.

We believe these non-GAAP measures provide meaningful information about the performance of our business and therefore we use them to supplement our U.S. GAAP reporting. We believe that they improve the comparability of year-to-year results and are representative of our underlying performance. Management uses this information to assess and measure the performance of our operating segments. We have chosen to provide this supplemental information for an additional analysis of our operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide additional measures of performance.

EBITDA reconciliation:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	2019			2018			2019			2018
Net income attributable to NIC	$	156		$	170		$	119		$	152
Plus:
Depreciation and amortization expense	47			51			144			160
Manufacturing interest expense(A)	49			60			160			176
Adjusted for:
Income tax expense	(29		)	(3		)	(9		)	(25		)
EBITDA	$	281		$	284		$	432		$	513

______________________

(A) Manufacturing interest expense is the net interest expense primarily generated for borrowings that support the Manufacturing and Corporate operations, adjusted to eliminate intercompany interest expense with our Financial Services segment. The following table reconciles Manufacturing interest expense to the consolidated interest expense:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	2019		2018		2019		2018
Interest expense	$	76	$	82	$	243	$	240
Less: Financial services interest expense	27		22		83		64
Manufacturing interest expense	$	49	$	60	$	160	$	176

Adjusted EBITDA Reconciliation:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	2019			2018			2019			2018
EBITDA (reconciled above)	$	281		$	284		$	432		$	513
Adjusted for significant items of:
Adjustments to pre-existing warranties(A)	5			(4		)	7			(4		)
Asset impairment charges(B)	3			8			6			11
Restructuring of manufacturing operations(C)	—			1			1			(1		)
MaxxForce Advanced EGR engine lawsuits(D)	(31		)	—			128			1
Gain on sales(E)	3			—			(56		)	—
Debt refinancing charges(F)	6			—			6			46
Pension settlement(G)	—			—			142			9
Settlement gain(H)	(1		)	(71		)	(3		)	(71		)
Total adjustments	(15		)	(66		)	231			(9		)
Adjusted EBITDA	$	266		$	218		$	663		$	504

55

Adjusted Net Income attributable to NIC:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	2019			2018			2019			2018
Net income attributable to NIC	$	156		$	170		$	119		$	152
Adjusted for significant items of:
Adjustments to pre-existing warranties(A)	5			(4		)	7			(4		)
Asset impairment charges(B)	3			8			6			11
Restructuring of manufacturing operations(C)	—			1			1			(1		)
MaxxForce Advanced EGR engine lawsuits(D)	(31		)	—			128			1
Gain on sales(E)	3			—			(56		)	—
Debt refinancing charges(F)	6			—			6			46
Pension settlement(G)	—			—			142			9
Settlement gain(H)	(1		)	(71		)	(3		)	(71		)
Total adjustments	(15		)	(66		)	231			(9		)
Tax effect (I)	6			(9		)	(41		)	(5		)
Adjusted net income attributable to NIC	$	147		$	95		$	309		$	138

_____________________

(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

(B) In the third quarter and first nine months of 2019, we recorded $3 million and $6 million, respectively, of asset impairment charges relating to certain assets under operating leases in our Truck segment. In the third quarter and first nine months of 2018, we recorded $8 million and $11 million, respectively, of asset impairment charges related to the sale of our railcar business in Cherokee, Alabama and certain assets under operating leases in our Truck segment.

(C) In the third quarter and first nine months of 2019, we recorded a restructuring charge of zero and $1 million, respectively, in our Truck segment. In the third quarter and first nine months of 2018, we recorded a charge of $1 million and a benefit of $1 million, respectively, related to adjustments for restructuring in our Truck, Global Operations and Corporate segments.

(D) In the third quarter and first nine months of 2019, we recognized a net benefit of $31 million primarily related to the MaxxForce engine EGR product litigation recorded during the third quarter of 2017 and a charge of $128 million related to MaxxForce Advanced EGR engine class action settlement and related litigation in our Truck segment. In the nine months ended July 31, 2018, we recognized a charge of $1 million for a jury verdict related to one of the MaxxForce Advanced EGR engine lawsuits in our Truck segment.

(E) In three months ended July 31, 2019, we recognized a charge of $3 million in our Truck segment for adjustments to the purchase price of the sale of a majority interest in the Navistar Defense business. In the first nine months of 2019, we recognized a gain of $51 million related to the sale of a majority interest in the Navistar Defense business in our Truck segment, and a gain of $5 million related to the sale of our joint venture in China with JAC in our Global Operations segment.

(F) In the third quarter and first nine months of 2019, we recorded a charge of $6 million for the write off of debt issuance costs and discounts associated with NFC Term Loan. In the first nine months of 2018, we recorded a charge of $46 million for the write off of debt issuance costs and discounts associated with the repurchase of our previously existing 8.25% Senior Notes and the refinancing of our previously existing Term Loan in Corporate.

(G) In the first nine months of 2019 and 2018, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. As a result, we recorded pension settlement accounting charges of $142 million and $9 million, respectively, in Other expense, net in Corporate.

(H) In the third quarter and first nine months of 2019, we recorded interest income of $1 million and $3 million, respectively, in Other expense, net derived from the prior year settlement of a business economic loss claim relating to our former Alabama engine manufacturing facility in Corporate.

(I) Tax effect is calculated by excluding the impact of the non-GAAP adjustments from the interim period tax provision calculations.

56

Pension and Other Postretirement Benefits

See the applicable section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended October 31, 2018. During the nine months ended July 31, 2019, there have been no material changes in our pension plan funding policies.

For the three and nine months ended July 31, 2019, we contributed $9 million and $140 million, respectively, to our pension plans (the "Plans") to meet regulatory funding requirements. During the first quarter of 2019, we accelerated the payment of a substantial portion of our 2019 minimum required funding. We currently anticipate no additional contributions to the Plans during the remainder of 2019. Future contributions are dependent upon a number of factors, principally the changes in values of plan assets, changes in interest rates, and the impact of any future funding relief. We currently expect that from 2020 through 2022, we will be required to contribute approximately $175 million to $200 million per year to the Plans, depending on asset performance and discount rates.

For more information, see Note 8, Postretirement Benefits, to the accompanying consolidated financial statements.

57

Other Information

Environmental Matters

We have been named a potentially responsible party ("PRP"), in conjunction with other parties, in a number of cases arising under an environmental protection law, the Comprehensive Environmental Response, Compensation, and Liability Act, popularly known as the "Superfund" law. These cases involve sites that allegedly received wastes from current or former Company locations. Based on information available to us which, in most cases, consists of data related to quantities and characteristics of material generated at current or former Company locations, material allegedly shipped by us to these disposal sites, 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 our share, if any, of the probable costs and accruals are recorded in our consolidated financial statements. These accruals are generally recognized no later than completion of the remedial feasibility study and are not discounted to their present value. We review all accruals on a regular basis and believe that, based on these calculations, our share of the potential additional costs for the cleanup of each site will not have a material effect on our financial condition, results of operations, or cash flows.

In addition, other sites formerly owned by us or where we are currently operating have been identified as having soil and groundwater contamination. While investigations and cleanup activities continue at these sites, we believe that we have appropriate accruals to cover costs to complete the cleanup of all sites.

Impact of Environmental Regulation

Government regulation related to climate change is under consideration at the U.S. federal and state levels. Because our products use fossil fuels, they may be impacted indirectly due to regulation, such as a cap and trade program, affecting the cost of fuels. The United States Environmental Protection Agency ("EPA") and National Highway Traffic Safety Administration ("NHTSA") issued final rules for greenhouse gas ("GHG") phase 1 emissions and fuel economy in 2011 and were fully implemented in model year 2017. We are complying with these rules through use of existing technologies and implementation of emerging technologies as they become available. The EPA and NHTSA adopted a final rule in October 2016 with the next phase of federal GHG emission and fuel economy regulations. This rule contains more stringent emissions levels for engines and vehicles and will take effect in model year 2021 and be implemented in three stages culminating in model year 2027. Canada has finalized a heavy duty phase 2 GHG rulemaking, which is substantially similar to EPA regulations with more stringent requirements for heavy haul tractors.

In December 2014, California adopted GHG emission rules for heavy duty vehicles equivalent to EPA phase 1 rules and is in the process of adopting its phase 2 equivalent rules. In 2014, California also adopted an optional lower emission standard for oxides of nitrogen ("NOx") in California. California has stated its intention to lower NOx standards for California-certified engines and has requested that the EPA lower its standards. In June 2016, several regional air quality management districts in California and other states, as well as the environmental agencies for several states, petitioned the EPA to adopt lower NOx emission standards for on-road heavy duty trucks and engines. The EPA responded to the petition in December 2016 stating that it would consider additional NOx regulations targeting model year 2024, but has not to date formally commenced any further NOx regulations. The EPA and the California Air Resources Board (CARB) may also consider other actions, including extended emission warranties. On April 18, 2019, CARB released a white paper providing an outline of measures it feels may be feasible, including lowered NOx and particular matter emission standards, changes in testing protocols, extended emission warranty periods, changes to durability demonstration periods, in-use testing and various other changes that are being considered for implementation between 2022 and 2027. However, CARB has not issued these as formal regulatory proposals. California is currently considering regulatory requirements to expand the zero emissions truck market, including the mandated sale of certain vehicles.

We expect that heavy duty vehicle and engine fuel economy and GHG emissions rules will be under consideration in other global jurisdictions in the future. The EPA also issued a final rule in October 2015 that lowered the National Ambient Air Quality Standard for ozone to 70 parts per billion. This rule could lead to future lower emission standards for substances that contribute to ozone depletion, including NOx from vehicles, at the federal and state levels. Our facilities may be subject to regulation related to climate change and climate change itself may also have some impact on our operations. However, these impacts are currently uncertain and we cannot predict the nature and scope of those impacts.

These standards will require significant investments of capital and will significantly increase costs of development for engines and vehicles and will require us to incur administrative costs arising from implementation of the standards.

58

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we use estimates and make judgments and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. Our assumptions, estimates, and judgments are based on historical experience, current trends, and other factors we believe are relevant at the time we prepare our consolidated financial statements.

Our significant accounting policies and critical accounting estimates are consistent with those discussed in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements and the MD&A section of our Annual Report on Form 10-K for the year ended October 31, 2018. During the nine months ended July 31, 2019, there were no significant changes in our application of our critical accounting policies.

To aid in fully understanding and evaluating our reporting results, we have identified the following accounting policies as our most critical because they require us to make difficult, subjective, and complex judgments:

• Pension and Other Postretirement Benefits

• Income Taxes

• Impairment of Long-Lived Assets

• Product Warranty

• Revenue

Recently Issued Accounting Standards

The information required to be set forth under this heading is incorporated by reference from Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements included in Part I, Item 1.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the year ended October 31, 2018. During the nine months ended July 31, 2019, there have been no material changes in our exposure to market risk.

Item 4.    Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended July 31, 2019, our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act that occurred during the quarter ended July 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

59

PART II

Item 1. Legal Proceedings

The information required to be set forth under this heading is incorporated by reference from Note 11, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1.

Item 1A. Risk Factors

During the nine months ended July 31, 2019, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for our year ended October 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit:	Description	Page
(10)	Material Contracts	E-1
(31.1)	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	E-2
(31.2)	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	E-3
(32.1)	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	E-4
(32.2)	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	E-5
(99.1)	Additional Financial Information (Unaudited)	E-6
(101.INS)	XBRL Instance Document	N/A
(101.SCH)	XBRL Taxonomy Extension Schema Document	N/A
(101.CAL)	XBRL Taxonomy Extension Calculation Linkbase Document	N/A
(101.LAB)	XBRL Taxonomy Extension Label Linkbase Document	N/A
(101.PRE)	XBRL Taxonomy Extension Presentation Linkbase Document	N/A
(101.DEF)	XBRL Taxonomy Extension Definition Linkbase Document	N/A

All exhibits other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information called for is shown in the consolidated financial statements and notes thereto in the Quarterly Report on Form 10-Q for the period ended July 31, 2019.

60

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NAVISTAR INTERNATIONAL CORPORATION

(Registrant)

/s/    SAMARA A. STRYCKER

Samara A. Strycker

Senior Vice President and Corporate Controller

(Principal Accounting Officer)

September 4, 2019

61

EX-10

EXHIBIT 10

NAVISTAR INTERNATIONAL CORPORATION

AND CONSOLIDATED SUBSIDIARIES

______________________________

MATERIAL CONTRACTS

The following document of Navistar International Corporation ("the Corporation") and its principal subsidiary, Navistar, Inc., is filed herewith:
10.99	Stipulation and Agreement of Settlement with certain named plaintiffs in the putative class action lawsuits pending in the United States that were previously consolidated in the United States District Court for the Northern District of Illinois (the “Court”) as In re Navistar MaxxForce Engines Marketing, Sales Practices and Products Liability Litigation, Case No. 1:14-cv-10318.
The following documents of Navistar Financial Corporation, Navistar Financial, S.A. de C.V. and Sociedad Financiera De Objeto Multiple, Entidad Regulada, indirect subsidiaries of Navistar International Corporation, and Navistar Financial Dealer Note Master Owner Trust II, an affiliated trust of the Corporation, are incorporated herein by reference:
10.100	Amendment No. 4, dated as of May 23, 2019, by and among Navistar Financial Corporation and Navistar Financial, S.A. de C.V., Sociedad Financiera De Objeto Multiple, Entidad Regulada, a Mexican corporation, as borrowers, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. Filed as Exhibit 10.1 to the Current Report on Form 8-K dated and filed on May 28, 2019. Commission File No. 001-09618.
10.101	Series 2019-1 Indenture Supplement to the Indenture, dated as of June 19, 2019, between Navistar Financial Dealer Note Master Owner Trust II, as issuing entity, and Citibank, N.A., as indenture trustee.  Filed as Exhibit 10.1 to the Current Report on Form 8-K dated and filed on June 20, 2019. Commission File No. 001-09618.

E-1

EX-10.99

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

IN RE NAVISTAR MAXXFORCE ENGINES

MARKETING, SALES PRACTICES AND

PRODUCTS LIABILITY LITIGATION

CASE NO. 1:14-cv-10318

STIPULATION AND AGREEMENT OF SETTLEMENT

This Settlement Agreement¹ is entered on this 28th day of May, 2019 by and among Named Plaintiffs Dulce Alvarez, representing the interests of A-Rapid Logistics/Alka Trucking, Inc.; Binder Trucking, Inc.; Carmichael Leasing Co., Inc.; Cesar Calderone, representing the interests of C & T Transport; Charles Keplinger; David A. Lord d/b/a Lord AG Transportation; Ferraro Foods, Inc.; Fike Logistics, Inc.; G&G Specialized Carriers LLC; GT Expedited, Inc./Go To Logistics, Inc./ToGo Express, Inc.; Jenkins Unlimited, Inc.; Joandnas Operations, Inc.; Killer B Trucking, LLC; Lance R. Edwards; Leonard Butler; Michael Jackson, Sr.; Peninsular Transfer Inc.; Phifer Trucking, Inc.; Randy Quick; Robert Constantine; Robert Grieser; Ronald L. Anderson/RLA Holdings, LLC/A&K Development Co.; Stephen Slough; Steven A. Hamilton; Storey Trucking Company, Inc./Lakeside Leasing, Inc.; The Cross Express; Two Star Trucking, Inc.; Deanna and Natlia Garcia, representing the interests of Vera Transport, LLC; and Victor Caballero, through their counsel; and Defendants Navistar International Corporation (“NIC”) and Navistar, Inc. (“Navistar”) (collectively “Defendants,” and, together with Named Plaintiffs and Co-Lead Class Counsel, the “Settling Parties”).

_______________________

¹This Agreement incorporates certain capitalized terms that are defined in Section I, infra.

1

RECITALS

WHEREAS, in 2014, certain plaintiffs, including Steven A. Hamilton and G&G Specialized Carriers LLC, filed class action complaints against Defendants in various jurisdictions throughout the United States involving claims that certain Navistar Advanced Exhaust Gas Recirculation MaxxForce truck engines are defective, allegedly resulting in repeated engine failures and frequent repairs;

WHEREAS, on December 17, 2014, the Judicial Panel on Multidistrict Litigation centralized these related actions and established In re Navistar MaxxForce Engines Marketing, Sales Practices and Products Liability Litigation, MDL No. 2590, before Judge Joan B. Gottschall in the United States District Court for the Northern District of Illinois;

WHEREAS, on March 5, 2015, the Court granted a motion for appointment of interim lead counsel and liaison counsel on behalf of a proposed class, consisting of a co-lead counsel structure of three (3) law firms - Adam J. Levitt (previously with Grant & Eisenhofer, P.A. and now with DiCello Levitt Gutzler LLC), Jonathan D. Selbin of Lieff Cabraser Heimann & Bernstein, LLP, and William M. Audet of Audet & Partners, LLP - with Laurel G. Bellows of The Bellows Law Group serving as Liaison Counsel;

WHEREAS, on April 9, 2015, the Court appointed Mark S. Mester as Lead Counsel for Defendants and Kathleen P. Lally as Liaison Counsel for Defendants;

WHEREAS, on May 11, 2015, plaintiffs filed their First Master Consolidated Class Action Complaint on behalf of twenty-six (26) then-named plaintiffs from fifteen (15) states, asserting claims for declaratory and/or injunctive relief, breach of express warranty, breach of implied warranty, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, fraudulent concealment, fraud in the inducement, unjust enrichment, negligence, and violations of certain consumer protection statutes and other federal, state, and local laws;

WHEREAS, on September 22, 2016, plaintiffs filed the First Amended Consolidated Class Action Complaint that both added and omitted certain named plaintiffs, and Defendants filed answers to that pleading on October 20, 2016;

WHEREAS, on January 9, 2018, plaintiffs filed the Second Amended Consolidated Class Action Complaint on behalf of thirty-seven (37) named plaintiffs from nineteen (19) states asserting claims for declaratory and/or injunctive relief, breach of express warranty, breach of implied warranty, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, fraudulent concealment, fraud in the inducement, unjust enrichment, negligence, and violations of certain consumer protection statutes and other federal, state, and local laws;

WHEREAS, the Second Amended Consolidated Class Action Complaint alleged that Defendants sold or leased vehicles equipped with a 2010-2013 model year MaxxForce 11- or 13-liter diesel engine equipped with a defective EGR emissions system and that if Named Plaintiffs had known of the defect, they would not have purchased or leased their vehicles or would have paid less for the vehicles than they did;

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WHEREAS, Defendants answered the Second Amended Consolidated Class Action Complaint on February 6, 2018;

WHEREAS, the Settling Parties engaged in extensive discovery and related motion practice, including production by Defendants of nearly 2 million documents, production by Named Plaintiffs of more than 1.45 million pages of documents, responses to several sets of written discovery requests including extensive requests for admission, depositions of twenty seven (27) fact witnesses, depositions of Named Plaintiffs, and inspections of the Named Plaintiffs’ vehicles;

WHEREAS, beginning in 2016, and most recently between June 2018 and March 2019, the Settling Parties participated in multiple mediation sessions with the Hon. Wayne Andersen (Ret.), who assisted the Settling Parties in arm’s-length negotiations concerning a proposed classwide settlement, including six (6) in-person negotiations in Chicago, dozens of hours on telephone conferences, and many dozens of email exchanges;

WHEREAS, Named Plaintiffs were prepared to file their motion for class certification and supporting expert reports in March 2019, however, prior to the March 26, 2019 deadline for the same, the Settling Parties reached a preliminary agreement in principle on the terms of a class settlement of this action, subject to negotiating the remaining settlement terms and negotiating a definitive written settlement agreement;

WHEREAS, Co-Lead Class Counsel conducted an exhaustive investigation and evaluation of the facts and law related to Named Plaintiffs’ claims in order to determine how best to serve the interests of the Named Plaintiffs and the Class;

WHEREAS, while the Named Plaintiffs and Co-Lead Class Counsel believe that the Litigation and the claims of Named Plaintiffs and the other Class members have merit, they recognize and acknowledge the expense and length of continued proceedings that would be necessary to prosecute the Litigation against Defendants through trial and any appeals and the value of providing timely benefits to the Class;

WHEREAS, the Named Plaintiffs and Co-Lead Class Counsel also have taken into account the uncertain outcome and risk of further litigation, as well as the difficulties and delays inherent in such litigation, including Defendants’ anticipated defense to class certification that trial of these claims would not be appropriate or otherwise manageable under Rule 23;

WHEREAS, the Named Plaintiffs and Co-Lead Class Counsel believe the proposed Settlement confers substantial benefits on the Class;

WHEREAS, based on their evaluation of the above factors, the Named Plaintiffs and Co-Lead Class Counsel have determined that the Settlement is in the best interests of the Class and represents a fair, reasonable, and adequate resolution of the Litigation;

WHEREAS, Defendants deny the claims in the Litigation, deny all allegations of wrongdoing, fault, liability or damage of any kind to Named Plaintiffs or the Class, deny that they acted improperly, or wrongfully in any way, and believe that the Litigation is without merit;

WHEREAS, Defendants further deny that the claims of the Named Plaintiffs are appropriate for class treatment; and

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WHEREAS, Defendants nevertheless recognize and acknowledge the expense and length of continued proceedings that would be necessary to defend the Litigation through trial and any appeals, and in agreeing to enter this Settlement have taken into account the uncertainties of further litigation, as well as the difficulties and delays inherent in such litigation;

NOW THEREFORE IT IS HEREBY STIPULATED AND AGREED, by and among the Settling Parties, subject to the approval of the Court, that the Litigation and the Released Claims shall be fully and finally compromised, settled, and released, and that the Litigation shall be dismissed with prejudice as set forth herein subject to and upon the terms and conditions described below.

I. DEFINITIONS

A. Attorneys’ Fees and Costs

“Attorneys’ Fees and Costs” means such funds as may be awarded by the Court to compensate any and all attorneys representing parties who have assisted in conferring benefits upon the Class under this Settlement Agreement, as described in Section V. All law firms receiving any Attorneys’ Fees and Costs shall be referred to as “Fee Recipients.”

B. Authorized Field Change/Future Authorized Field Change

“Authorized Field Change” means updates and changes that Navistar has released for Class Trucks (including but not limited to Misbuild Investigation Notices). “Future Authorized Field Change” means a modification to or new Primary Components or Secondary Components (or updated software related to same) released for proactive installation in Class Vehicles after the Effective Date.

C.     Authorized Navistar Dealer

“Authorized Navistar Dealer” means a dealer within Navistar’s independent dealer network authorized by Navistar to sell, lease, and service Navistar vehicles and MaxxForce brand diesel engines.

D. Cash Fund

“Cash Fund” means the eighty-five million ($85 million) cash portion of the common fund described in Section III, which will be used to pay Settlement Fees and Expenses, any Service Awards ordered by the Court, any Attorneys’ Fees and Costs ordered by the Court, and all cash payments to be paid to members of the Settlement Class under this Agreement.

E. Class

“Class” means, for the purposes of settlement only, all entities and natural persons who owned or leased a 2011-2014 model year vehicle equipped with a MaxxForce 11- or 13-liter engine certified to meet EPA 2010 emissions standards without selective catalytic reduction technology, provided that vehicle was purchased or leased in any of the fifty (50) States, the District of Columbia, Puerto Rico, and all other United States territories and/or possessions.

Excluded from the Class are: (1) all federal court judges who have presided over this Litigation and any members of their immediate families; (2) all entities and natural persons that have litigated claims involving Class Vehicles’ allegedly defective EGR

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emissions system against Navistar to final, nonappealable judgment (with respect to those vehicles only); (3) all entities and natural persons who, via a settlement or otherwise, delivered to Navistar releases of their claims involving Class Vehicles’ allegedly defective EGR emissions system (with respect to those vehicles only); (4) Defendants’ employees, officers, directors, agents, and representatives, and their family members; (5) any Authorized Navistar Dealer of new or used vehicles; (6) any person or entity that purchased a Class Vehicle solely for the purposes of resale (with respect to those vehicles only); (7) any person or entity that was a lessee of a Class Vehicle for fewer than thirty (30) days (with respect to those vehicles only); and (8) Idealease and Navistar Leasing Co. (lessees of Class Vehicles from these entities are part of the Class).

F. Class Member

“Class Member” means a member of the Class.

G. Class Notice

“Class Notice” means the notice of Settlement that will be provided to the Class, as set forth in Section IV below.

H.Class Vehicle(s)

“Class Vehicle(s)” means all 2011-2014 model year vehicles equipped with a MaxxForce 11- or 13-liter engine certified to meet EPA 2010 emissions standards without selective catalytic reduction technology.

I. Co-Lead Class Counsel

“Co-Lead Class Counsel” means Jonathan D. Selbin, Adam J. Levitt, and William M. Audet.

J. Court

“Court” means the United States District Court for the Northern District of Illinois.

K. Covered Event

“Covered Event” means (1) a service event for repair or replacement of a Primary Component or (2) a service event for repair or replacement of a Secondary Component that occurs within thirty (30) days of a service event for repair or replacement of a Primary Component. Covered Events do not include service events where the repair or replacement of a Primary Component was provided for by an Authorized Field Change or Misbuild Investigation

Notice.

1.Primary Components are:

▪EGR Cooler

▪EGR Valve

2.     Secondary Components are:

▪Lambda Sensor

▪Oxygen Sensor

▪Oil Centrifuge

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▪Valve/Seat (Intake) and Valve/Seat (Exhaust)

▪Valve Bridge

▪Cylinder Head (when accompanied by a Valve/Seat (Intake) and Valve Bridge repair)

•Turbochargers

▪Total Engine Replacement or Rebuild (must show a Turbochargers failure)

▪Diesel Particulate Filter

▪DOC/Pre-DOC

L. Covered Costs

“Covered Costs” means the following costs that were actually incurred as a result of a Covered Event, are established by reasonable contemporaneous or third-party documentation sufficient to establish the Covered Event and the Covered Cost, and for which the Class Member has not already been compensated:

1.Actual repair costs:

▪Parts and labor

▪Towing

2.    Rental trucks

3.    Lost revenue (from a particular load lost at time of Covered Event)

4.    Travel costs (hotel, airfare, meals, etc.)

5.    Employee wages (limited to five days)

6.    Permits

7.    Loading/unloading

All costs not expressly listed above are excluded, including opportunity costs (e.g., lost opportunity due to allegedly unreliable Class Vehicles) and the cost of replacing employees.

M. Defendants’ Counsel

“Defendants’ Counsel” means Mark S. Mester, Cary Perlman, Kathleen P. Lally, Robin

Hulshizer, and Kevin Jakopchek of Latham & Watkins LLP.

N.Effective Date of Settlement

“Effective Date of Settlement” means the first date after (1) the Court enters the Final Order and Judgment and (2) all appellate rights with respect to said Final Order and Judgment have expired or been exhausted in such a manner as to affirm the Final Order and Judgment.

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O. EGR

“EGR” means exhaust gas recirculation emissions technologies used by Navistar with certain 2011-2014 model year vehicles equipped with a MaxxForce 11- or 13-liter diesel engine that did not also include selective catalytic reduction technology.

P. Email Notice

“Email Notice” means the notice to be emailed the Settlement Class as described in Section IV and in substantially the same form as Exhibit A-4 to this Settlement Agreement.

Q. Escrow Account

“Escrow Account” means the bank account established to hold the Cash Fund as described in Section IV.

R. Fairness Hearing

“Fairness Hearing” means the final hearing, held after the Preliminary Approval Order is issued, in which the Court will determine whether this Settlement Agreement should be approved as fair, reasonable, and adequate, and whether the proposed Final Order and Judgment should be entered, and if so, to determine the amount of Attorneys’ Fees and Costs to be awarded to Co-Lead Class Counsel.

S. Final Order And Judgment

“Final Order and Judgment” means a final order entered by the Court after the Fairness Hearing, granting approval of the Settlement.

T.Liaison Counsel

“Liaison Counsel” means Laurel G. Bellows of the Bellows Law Group, P.C.

U. Litigation

“Litigation” means In re Navistar MaxxForce Engines Marketing, Sales Practices and Products Liability Litigation, No. 1:14-cv-10318, pending in the United States District Court for the Northern District of Illinois, and includes any and all actions that have been, or in the future are, transferred or related to that case.

V. Long Form Notice

“Long Form Notice” means the notice that will be posted to the Settlement Website as described in Section IV and in substantially the same form as Exhibit A-3 to this Settlement Agreement.

W. Named Plaintiffs

“Named Plaintiffs” means Plaintiffs Dulce Alvarez, representing the interests of A-Rapid Logistics/Alka Trucking, Inc.; Binder Trucking, Inc.; Carmichael Leasing Co., Inc.; Cesar Calderone, representing the interests of C & T Transport; Charles Keplinger; David A. Lord d/b/a Lord AG Transportation; Ferraro Foods, Inc.; Fike Logistics, Inc.; G&G Specialized Carriers LLC; GT Expedited, Inc./Go To Logistics, Inc./ToGo Express, Inc.; Jenkins Unlimited, Inc.; Joandnas Operations, Inc.; Killer B Trucking, LLC; Lance R. Edwards; Leonard Butler; Michael Jackson, Sr.; Peninsular Transfer Inc.; Phifer Trucking, Inc.; Randy Quick;

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Robert Constantine; Robert Grieser; Ronald L. Anderson/RLA Holdings, LLC/A&K Development Co.; Stephen Slough; Steven A. Hamilton; Storey Trucking Company, Inc./Lakeside Leasing, Inc.; The Cross Express; Two Star Trucking, Inc.; Deanna and Natali Garcia, representing the interests of Vera Transport, LLC; and Victor Caballero.

X.Opt Out

“Opt Out” means a member of the Settlement Class who properly and timely submits a request for exclusion from the Settlement Class as set forth in Section VI.

Y. Opt Out List

“Opt Out List” means the list compiled by the Settlement Administrator pursuant to Section VI, identifying those members of the Settlement Class who properly and timely submit a request for exclusion from the Settlement Class.

Z. Original Owner or Lessee

“Original Owner or Lessee” means those persons or entities who either (1) purchased a Class Vehicle new from Navistar directly or from an Authorized Navistar Dealer or (2) leased a new Class Vehicle from Navistar Leasing Co. directly.

AA. Preliminary Approval Order

“Preliminary Approval Order” means the order the Settling Parties will request to be entered by the Court preliminarily approving the Settlement as outlined in Section VI and substantially in the same form as Exhibit A-1 to this Settlement Agreement.

BB. Proof of Membership in the Class

“Proof of Membership in the Class” means information sufficient to establish that the claimant is a Class Member, including:

1.The VIN of the Class Vehicle for which a claim is being made; and

2. That the claimant purchased or leased the Class Vehicle for which a claim is being made in the United States.

To simplify the ability of persons known to Navistar to be Original Owners or Lessees to confirm their status as members of the Class, Navistar will, to the extent reasonably possible, provide to the Settlement Administrator the records in its possession, custody, and control identifying this information for Original Owners or Lessees.

CC. Proof of Ownership or Lease

“Proof of Ownership or Lease” means documentation establishing the time period during which a member of the Class (as demonstrated in the manner described in Section I.BB) owned or leased a Class Vehicle. “Proof of Ownership or Lease” shall be established through the submission of vehicle title, vehicle purchase agreement, vehicle lease agreement, dealer invoice, insurance documentation, financing documentation, or vehicle registration documents sufficient to identify the time period that a member of the Settlement Class has been or was the owner or lessee of the Class Vehicle. To simplify the ability of persons known to Navistar to be Original Owners or Lessees to establish Proof of Ownership or Lease, Navistar will, to the extent reasonably possible, provide

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to the Settlement Administrator the records in its possession, custody, or control identifying this information for Original Owners or Lessees.

DD. Rebate Fund

“Rebate Fund” means the commitment to make available rebates with a face value in the aggregate of fifty million dollars ($50 million) to the common fund described in Section III.

EE. Released Parties

“Released Parties” means Defendants and each of their past, present and future parents, predecessors, successors, spin-offs, assigns, holding companies, joint-ventures and joint-venturers, partnerships and partners, members, principals, divisions, stockholders, bondholders, shareholders, subsidiaries, related companies, affiliates, officers, directors, employees, associates, Authorized Navistar Dealers, representatives, suppliers, vendors, advertisers, service providers, distributors and sub-distributors, licensees, agents, insurers, co-insurers, re-insurers, underwriters, attorneys, administrators, and advisors.

FF. Release

“Release” means the release and waiver set forth in Section VII of this Agreement to be incorporated in the Final Order and Final Judgment.

GG. Service Award

“Service Award” means such funds as may be awarded by the Court to Named Plaintiffs to compensate them for their participation in the Litigation, as described in Section V.

HH. Settlement

“Settlement” means the settlement contemplated by this Stipulation and Agreement of Settlement.

II. Settlement Administrator

“Settlement Administrator” means JND Legal Administration, which has been selected by the Settling Parties and which the Settling Parties will ask the Court to appoint to administer Class Notice, administer the Settlement in accordance with this Settlement Agreement, and engage in any other tasks directed by the Court or jointly by Co-Lead Class Counsel and

Defendants’ Counsel.

JJ. Settlement Agreement

“Settlement Agreement” means this Stipulation and Agreement of Settlement.

KK. Settlement Class

“Settlement Class” means Named Plaintiffs and all members of the Class who are not Opt Outs.

LL. Settlement Fees and Expenses

“Settlement Fees and Expenses” means the authorized costs and expenses incurred by the Settlement Administrator in providing Class Notice in accordance with this Settlement Agreement and the anticipated Preliminary Approval Order and all

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authorized costs and expenses incurred by the Settlement Administrator in administering the Settlement Agreement, including but not limited to costs and expenses associated with assisting the Settlement Class, resolving claims made under the Individual Prove-Up Option, processing claims, escrowing funds, issuing and/or mailing awards, paying taxes and tax expenses, and other authorized fees and expenses of the Settlement Administrator.

MM. Short Form Notice

“Short Form Notice” means the notice to be mailed the Settlement Class as described in Section IV and in substantially the same form as Exhibit A-2 to this Settlement Agreement.

NN. Third Amended Consolidated Class Action Complaint

The “Third Amended Consolidated Class Action Complaint” is the pleading to be filed contemporaneously with the Motion for Preliminary Approval.

OO. VIN

“VIN” or “Vehicle Identification Number” means the unique 17-character number assigned to each vehicle by Navistar. Navistar will provide a substantially complete list of VINs to the Settlement Administrator for all Class Vehicles.

PP.     Other capitalized terms used in this Settlement Agreement but not defined in this Section shall have the meanings ascribed to them elsewhere in the Settlement Agreement.

QQ.    All terms defined in this Settlement Agreement have the definition asserted herein solely for the purposes of this Settlement Agreement.

RR.    The terms “he or she” and “his or her” include “it” or “its” where applicable.

SS.    The plural of any defined term includes the singular, and the singular of any defined term includes the plural, as the case may be.

II. PROPOSED CLASS FOR SETTLEMENT PURPOSES

A. Certification Of Class For Settlement Purposes

Pursuant to Fed. R. Civ. P. 23(e), the Settling Parties hereto agree to the entry of an order, certifying, for settlement purposes only, the following Class:

All entities and natural persons who purchased or leased a 2011-2014 model year vehicle equipped with a MaxxForce 11- or 13-liter engine certified to meet EPA 2010 emissions standards without selective catalytic reduction technology, provided that vehicle was purchased or leased in any of the fifty (50) States, the District of Columbia, Puerto Rico, and all other United States territories and/or possessions.

Excluded from the Class are: (1) all federal court judges who have presided over this Litigation and any members of their immediate families; (2) all entities and natural persons that have litigated claims involving Class Vehicles’ allegedly defective EGR emissions system against Navistar to final, nonappealable judgment (with respect to those vehicles only); (3) all entities and natural persons who, via a settlement or otherwise, delivered to Navistar releases of their claims involving Class Vehicles’ allegedly defective EGR emissions system (with respect to those vehicles only); (4) Navistar’s employees, officers, directors, agents, and representatives, and their family members; (5) any new or used Authorized Navistar Dealer; (6) any person or entity that purchased or leased a vehicle solely for the purposes of resale (with respect to those vehicles

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only); (7) any person or entity that leased vehicles for fewer than thirty (30) days (with respect to those vehicles only); and (8) Idealease and Navistar Leasing Co. (for the avoidance of doubt, lessees of Class Vehicles from these entities are part of the Class).

B. Class Counsel

Solely for the purpose of implementing this Settlement Agreement and effectuating the Settlement, the Settling Parties further agree to the entry of an order appointing Named Plaintiffs as representatives of the Class, appointing Co-Lead Class Counsel as counsel for the Class pursuant to Fed. R. Civ. P. 23(g), and finding that the Named Plaintiffs and Co-Lead Class Counsel are appropriate representatives of the Class.

III. SETTLEMENT CONSIDERATION AND COMPENSATION

In consideration of the Release provided for in Section VII and the dismissal of the Litigation with prejudice (as set forth in Section VI), and subject to the limits specified in this Section, Defendants agree to (1) make an all-inclusive common fund payment of eighty-five million dollars ($85,000,000) to the Cash Fund and (2) commit to making available to the Settlement Class in the Rebate Fund rebates with a face value in the aggregate of fifty million dollars ($50,000,000).

Defendants shall cause eighty-five million dollars ($85,000,000) (less any amounts for Settlement Fees and Expenses already paid) to be paid into the Escrow Account within thirty (30) days of the Final Order and Judgment, provided that Navistar will fund the Escrow Account by December 30, 2019 if Final Approval is granted on or before December 20, 2019.

A. Compensation

Members of the Settlement Class may submit a claim for only one of the following options of compensation for each Class Vehicle that members of the Settlement Class have owned or leased, subject to the limitations set forth in Section III.B.2 below for Class Vehicles that one Class Member leased to another:

1. Cash Option

This option provides for a payment based on months of ownership or lease of up to two thousand five hundred dollars ($2,500) per Class Vehicle. Each demonstrated month of ownership or lease through March 2019 is eligible (subject to the limitations set forth in Section

III.B) for the following amounts:

Class Vehicle Model Year	Monetary Amount
2011	$26.59/month
2012	$29.07/month
2013	$33.33/month
2014	$39.06/month

2. Rebate Option

For each Class Vehicle owned or leased by a member of the Settlement Class, such member of the Settlement Class may select a rebate based on months of ownership or lease worth up to ten thousand dollars ($10,000) towards the purchase of a new

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Navistar Class 8 heavy duty truck. The rebates are deducted from the best negotiated retail purchase price (not including sales taxes or delivery fees) and in addition to any other applicable promotion, rebate, or discount then in effect at the time of purchase and for which both the purchase and the purchaser would otherwise qualify. The rebates will expire eighteen (18) months after the date that the rebate certificates are sent to the members of the Settlement Class. The rebates are not transferable and not stackable. Each individual member of the Settlement Class may receive up to a maximum of ten (10) total rebates, regardless of the number of vehicles purchased or leased.

Each demonstrated month of ownership/lease through March 2019 is eligible (subject to the limitations set forth in Section III.B) for the following amounts:

Class Vehicle Model Year	Amount
2011	$106.36/month
2012	$116.28/month
2013	$133.32/month
2014	$156.24/month

3. Individual Prove-Up Option

For each Class Vehicle owned or leased by a member of the Settlement Class, such member of the Settlement Class may seek to prove up to fifteen thousand dollars ($15,000) of Covered Costs per Class Vehicle. Whether and what amount of Covered Costs should be awarded pursuant to this provision shall be determined by the Settlement Administrator consistent with this Settlement Agreement, subject to an appeal adjudicated by the Settlement Administrator. Defendants will not be entitled to assert any legal defenses to these Covered Costs, although Defendants may demonstrate that a claimant does not meet the requirements of this Settlement Agreement. Members of the Settlement Class opting for relief under this Section may, at any time prior to a final determination of their award, opt instead to receive the payment that he or she would be entitled to under III.A.1.

Notwithstanding the definition of Covered Costs, the recoverable cost of parts and labor incurred as a result of a Covered Event that occurred when the Class Vehicle had between 500,001 miles and 1,000,000 miles are capped at seven thousand five hundred dollars ($7,500) for all Covered Events. Parts and labor incurred as a result of a Covered Event that occurred when the Class Vehicle had 1,000,001 miles or more are not compensated. For the avoidance of doubt, total compensation for all Covered Costs for any member of the Settlement Class for a given Class Vehicle shall not exceed fifteen thousand dollars ($15,000).

All costs not expressly defined above as a Covered Cost are excluded, including opportunity costs (e.g., lost opportunity due to unreliable Class Vehicle) and the cost of replacing employees.

Members of the Settlement Class opting for relief under this Section must sign a certification stating under penalty of perjury: “I certify that the oil and filters were regularly changed on this vehicle within the timeframes recommended by Navistar.”

B. Compensation In Connection With Leased Class Vehicles

1. Leases From Navistar

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Any member of the Settlement Class who leased a Class Vehicle from Defendants, Defendants’ corporate affiliates, or an Authorized Navistar Dealer will recover on the same terms as owners of Class Vehicles.

2. Class Members Who Leased From Any Party Other Than Navistar

If a Class Member who owned a Class Vehicle leased that Class Vehicle for 30 days or less to another individual or entity, the owner, but not the lessee, may elect the Cash Option or the Rebate Option, or the Individual Prove-Up Option for Covered Costs paid by the owner, not the lessee, for the time period of the lease. The lessee of said lease of thirty (30) days or less is not a Class Member. If a Class Vehicle was leased for more than thirty (30) days, the Class Member who was the lessor and the Class Member who was the lessee of said Class Vehicle are each eligible, with sufficient Proof of Ownership or Lease, for half of the Cash Option or half the Rebate Option for the time period of the lease. Each lessor and lessee may instead independently elect the Individual Prove-Up Option. Co-Lead Class Counsel and Defendants’ Counsel agree to work in good faith to determine appropriate cash/rebate apportionment through the claims administration process in the unlikely event that there is some lessor-lessee arrangement that is not already expressly anticipated by this Settlement Agreement.

C. Allocation Of Funds In The Event Of Oversubscription Or Undersubscription

If either the Cash Fund or Rebate Fund is oversubscribed-i.e., more claims for that type of compensation are approved than dollars or value available in that fund-and the other fund is undersubscribed- i.e., fewer claims for that type of compensation are approved than dollars or value available in that fund-then the dollars or value remaining in the undersubscribed fund shall “waterfall” into the oversubscribed fund until all approved claims in the oversubscribed fund are paid or all dollars or value in the undersubscribed fund is spent. In no event, however, shall more than thirty-five million dollars ($35 million) of the Rebate Fund “waterfall” into the Cash Fund. Any remaining dollars within the Cash Fund after any necessary “waterfall” shall be reallocated pro rata within the original Cash Fund to previously-approved, valid claims within that Cash Fund. Any remaining rebate commitments within the Rebate Fund after any necessary “waterfall” (“Additional Rebates”) will be issued to certain members of the Settlement Class (“Rebate Claimants”) who initially elected and qualified for a rebate under Section III.A.2 above

(“Initial Rebate”). Additional Rebates will be subject to the same terms and conditions as Initial Rebates. They will not be transferable or stackable, including with Initial Rebates. The assumed value of a Rebate Claimant’s Additional Rebate(s) will be the average value of the Initial Rebate(s) (“Initial Rebate Value”) received by the particular Rebate Claimant. Additional Rebates will be issued sequentially to eligible Rebate Claimants in ascending order of Initial Rebate Value, until the Rebate Fund is exhausted. No member of the Settlement Class may be issued more than ten (10) rebates of any kind. Should this limitation prevent the exhaustion of the Rebate Fund, then the Parties agree that the Honorable Wayne Andersen (retired) shall have sole and final authority to order a fair distribution of the remainder of the Rebate Fund in the form of Additional Rebates or pro rata increases in Initial Rebates, so long as the net result is that Defendants pay the full one-hundred thirty-five million dollars ($135 million) in cash payments and rebates to the Class, including Attorneys’ Fees, Costs, Service Awards, and Settlement Fees and Expenses.

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If, after any applicable “waterfall”, one or both funds are oversubscribed, then claims within any oversubscribed fund will be reduced pro rata. In the Rebate Fund, that means that each rebate will be reduced by an equal amount until the fund is no longer oversubscribed. In the Cash Fund, that means that each cash award will be reduced by an equal percentage until the fund is no longer oversubscribed.

IV. ADMINISTRATION OF THE SETTLEMENT

A. Establishment And Administration Of The Cash Fund As A Qualified Settlement Fund

Within thirty (30) days after the entry of the Final Order and Judgment (provided that Navistar will fund the Escrow Account by December 30, 2019 if Final Approval is granted on or before December 20, 2019), Defendants shall pay the total sum of the Cash Fund (less any costs and expenses related to Settlement Fees and Expenses already paid by Defendants) into the Escrow Account to be held in escrow by the Settlement Administrator with Signature Bank (the “Bank”) to be chosen by Co-Lead Class Counsel and subject to approval by Defendants, which approval shall not be unreasonably withheld. The Cash Fund shall be established as a Qualified Settlement Fund (“QSF”) within the meaning of Treasury Regulation Section 1.468B-1, pursuant to the subject matter jurisdiction of the Court under Treasury Regulation Section 1.468Bl(c)(1) and an order to be entered by the Court establishing a QSF within the meaning of Treasury Regulation Section 1.468B-1. After the Cash Fund has been paid into the Escrow Account, the Parties and the Settlement Administrator agree to treat the Cash Fund as a QSF within the meaning of Treas. Reg. § 1.468B-1. All provisions of this Settlement shall be interpreted in a manner that is consistent with the Cash Fund being a QSF within the meaning of Treasury Regulation § 1.468B-1.

1.The Bank

The Cash Fund shall be held at the Bank, which financial institution shall be responsible for any and all investment-related decisions, following the Settlement Administrator’s investment policy for fiduciaries, which is based on safety of principal, no bank balance sheet exposure, and zero sweep accounts for distributions to Plaintiffs once authorized. The Bank shall be responsible for the issuance of any checks and/or wire transfers from the Cash Fund once authorized. Fees and costs for all service related to the Fund shall not exceed $10,000 except by agreement of the Parties.

2.Cash Fund, Distributions And Expenses

No portion of the Cash Fund shall be made available to the Settlement Class except as specifically set forth in this Settlement Agreement. Until such time as the Cash Fund is distributed, the Settlement Class shall not possess any rights to demand or receive any portion of the monies or the escrowed monies or to mortgage, pledge, or encumber the same in any manner. To the extent possible, the terms of the Settlement Agreement shall be construed so as to prevent Plaintiffs from being in constructive receipt, as determined under federal income tax principles, of the Cash Fund. All expenses incurred in administering the Cash Fund, including without limitation, the fees and expenses of the Bank and Settlement Administrator, shall be paid from the Cash Fund.

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If this Settlement Agreement does not for any reason become final or effective or is otherwise rescinded, withdrawn, or abrogated before the Effective Date of the Settlement, then all amounts that have been paid by Defendants into the Escrow Account shall be returned to Defendants.

3.Administrator Of The Cash Fund

For the purposes of Section 468B of the Internal Revenue Code of 1986, as amended, and Treas. Reg. § 1.468B as promulgated thereunder, the “administrator” shall be the Settlement Administrator or its successors. The Settlement Administrator shall have the authority to conduct any and all activities necessary to administer the Cash Fund. The Settlement Administrator shall submit personally to the jurisdiction of the Court. The Settlement Administrator shall be indemnified and held harmless by Plaintiffs and the Settlement Class from any claims made by any alleged lien holder or other person or entity that attempts to assert a right of payment, reimbursement, or garnishment against the Cash Fund.

4.QSF-Related Duties Of The Settlement Administrator

The Settlement Administrator shall timely and properly file, or cause to be filed, all federal, state, or local tax returns and information returns (together, “Tax Returns”) necessary or advisable with respect to the earnings on the funds deposited in the Cash Fund (including without limitation the returns described in Treas. Reg. § 1.468B-2(k)). Such Tax Returns shall be consistent with this subparagraph and in all events shall reflect that all taxes (including any estimated taxes, earnings, or penalties) on the income earned on the funds deposited in the Cash Fund shall be paid out of such funds as provided herein.

In all events, Defendants and Defendants’ Counsel shall have no liability or responsibility whatsoever for the taxes or the filing of any Tax Return or other document with the Internal Revenue Service or any other state or local taxing authority. Defendants and Defendants’ Counsel shall have no liability or responsibility for the taxes of the Cash Fund with respect to the Cash Fund Amount nor the filing of any Tax Returns or other documents with the Internal Revenue Service or any other taxing authority, nor any expenses associated therewith (beyond those expenses being paid from the Cash Fund as provided herein). In the event any taxes are owed by any of the Defendants or Defendants’ Counsel on any earnings on the funds on deposit in the Cash Fund, such amounts shall also be paid out of the Cash Fund.

Taxes with respect to the Cash Fund shall be treated as, and considered to be, a cost of administration of the Settlement and shall be timely paid, or caused to be paid, by the Settlement Administrator out of the Cash Fund without prior order from the Court or approval by Defendants. The Settlement Administrator shall be obligated (notwithstanding anything herein to the contrary) to withhold from distribution to the Settlement Class any funds necessary to pay such amounts (as well as any amounts that may be required to be withheld under Treas. Reg. § 1.468B-2(l)(2)). The Parties agree to cooperate with each other, and their tax attorneys and accountants to the extent reasonably necessary, to carry out these provisions.

The Settlement Administrator shall obtain a Federal Taxpayer Identification Number for the Cash Fund upon the execution of an order by the Court establishing the Cash Fund. The Settlement Administrator is authorized, upon final distribution of all

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monies paid into the Cash Fund, to take appropriate steps to wind down the Cash Fund and thereafter the Settlement Administrator is discharged from any further responsibility with respect to the Cash Fund.

B. Duties Of The Settlement Administrator

Promptly after Preliminary Approval, the Parties will direct the Settlement Administrator to issue Class Notice, receive and appropriately respond to all claims submitted by a member of the Settlement Class, and to otherwise administer the Settlement Agreement. The Settlement Administrator will (1) assign personnel to manage the settlement implementation process, including Class Notice, (2) establish a toll-free telephone number that members of the Class may call to obtain information, (3) establish a mailing address to which members of the Settlement Class can send claims for reimbursement and (4) create a Settlement Website containing information about the Settlement, including claim forms for download or electronic submission. All costs and expenses related to the administration of this Settlement, whenever paid by

Defendants, will be deducted from the Cash Fund.

C. Notice To Members Of The Settlement Class

The cost of Class Notice and other Settlement Fees and Expenses, as agreed to by the Settling Parties, will be paid from the Cash Fund. Prior to the funding of the Cash Fund, Defendants will make payments necessary to cover the costs of Class Notice and other Settlement Fees and Expenses. Such pre-payments will be deducted from the amount ultimately contributed to the Cash Fund following the Effective Date.

1. Components And Timing Of Class Notice

Class Notice will be accomplished through a combination of the Short Form Notice, Email Notice, notice through the Settlement Website, and Long Form Notice, each of which is described below, as specified in the anticipated Preliminary Approval Order and this Settlement Agreement and in order to comply with all applicable laws, including but not limited to, Fed. R. Civ. P. 23, the Due Process Clause of the United States Constitution, and any other applicable statute, law, or rule.

As soon as practicable after the Preliminary Approval Order, the Settlement Administrator will obtain the name, last known address, and email address of each potential member of the Settlement Class, to the extent such information is reasonably available in Navistar’s records and/or public records. If contact information is not available in the Defendants’ records, the Settlement Administrator will seek contact and vehicle information from public records, including records obtained from the Department of Motor Vehicles, for all fifty (50) States, the District of Columbia, Puerto Rico, and all other United States territories and/or possessions. Vehicle information includes, but is not limited to, the inferred date of purchase, lease information, new/used purchase information, and year, make, and model of the vehicle. Thereafter, the Settlement Administrator shall substantially complete initial dissemination of notice in the manner described below with the intention of substantially completing initial notice within eight (8) weeks after the entry of the Preliminary Approval Order.

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2. Short Form Notice

The Settlement Administrator shall send the Short Form Notices, substantially in the form attached hereto as Exhibit A-2, by First Class U.S. Mail, proper postage prepaid, to members of the Settlement Class. In addition, the Settlement Administrator shall: (a) re-mail any notices returned by the United States Postal Service with a forwarding address as soon as practicable; and (b) by itself or using one or more address research firms, as soon as practicable following receipt of any returned notices that do not include a forwarding address, research such returned mail for more accurate addresses and promptly mail copies of the applicable notice to any more accurate addresses so found.

3. Email Notice

The Settlement Administrator shall send the Email Notices, substantially in the form attached hereto as Exhibit A-4, by email to members of the Settlement Class for whom an email address was located.

4. Settlement Website And Long Form Notice

The Settlement Administrator shall establish a Settlement Website that will inform members of the Settlement Class of the terms of the Settlement Agreement, their rights, dates and deadlines, and related information. The Settlement Website shall include, in .pdf format, materials agreed upon by the Parties and/or required by the Court, including the Long Form Notice. The Settlement Website shall also allow Class Members, upon entry of their information, to receive preliminary calculations of the “up to” compensation amount they could receive under the Cash Option or the Rebate Option if Class Members submit valid claims. Class Members would then be able to continue to submit a claim with that information online or in hard copy. The Settlement Website will “pre-populate” claims information to the extent the Settlement Administrator possesses it.

The Settlement Administrator will send, via First Class U.S. Mail, the Long Form Notice to those persons who request it.

5. Class Action Fairness Act Notice

In compliance with the attorney general notification provision of the Class Action Fairness Act, 28 U.S.C. § 1715, within ten (10) days after the motion for Preliminary Approval is filed, the Settlement Administrator shall provide notice of this proposed Settlement, as well as all other documents required by the Class Action Fairness Act, to the Attorney General of the United States, and to the attorneys general of each state or territory in which a Class Member may reside. The Settlement Administrator will provide copies of such notifications to Co-Lead Class Counsel and Defendants’ Counsel at the time of their submission to the attorneys general.

D. Submission Of Claims

To obtain compensation under Section III, a member of the Settlement Class must submit a timely claim to the Settlement Administrator. Co-Lead Class Counsel and Defendants’ Counsel will participate in the design of the claims administration process and will receive periodic information about the Settlement Administrator’s handling of claims, including but not limited to information identifying the claims and claimants, sufficient to let them comment upon and/or raise objections to how it is being

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performed. Co-Lead Class Counsel will work continuously with Defendants’ Counsel throughout the claims administration process to ensure that the claims process is fair and that the number of valid claims is maximized.

1. Deadline To Submit Claims

The Settlement Administrator will not review or pay any claims for monetary compensation submitted by a member of the Settlement Class more than one-hundred-eighty (180) calendar days after the Fairness Hearing. The Settling Parties reserve the right to jointly move the Court to permit late-filed claims.

2. Content Of And Support For Claims

a. Identification Of Benefit Sought

All claims for monetary compensation must indicate whether the claimant is submitting a claim for one of the options in Section III.A, and which option is being selected. These options will be readily apparent on the Settlement Website.

b. Proof Of Membership In The Class

All claims for compensation must include Proof of Membership in the Class. Co-Lead Class Counsel and Defendants will work in good faith with the Settlement Administrator when designing the claims-submission feature of the Settlement Website to simplify the ability of persons known to Navistar to be Original Owners or Lessees of Class Vehicles to confirm their status as Class Members without needing to independently submit all of the information otherwise required to show Proof of Membership in the Class.

3. Rejected Claims/Opportunity To Cure Deficiencies

The Settlement Administrator may reject any claim that does not include the required information, documentation, or certification specified in the previous subsection. The Settlement Administrator may investigate any claim, including by requesting from the member of the Settlement Class additional documentation to determine whether the claim is valid. If the Settlement Administrator rejects a claim, it will advise the member of the Settlement Class who submitted the claim of the reason(s) for the rejection (e.g., missing information, documentation, or certification, ineligibility to submit a claim, claim does not involve a Class Vehicle). If a claim is rejected due to missing information or documentation, the Settlement Administrator will give the member of the Settlement Class thirty (30) days to resubmit that claim along with additional information, so long as the claim was originally submitted by the deadline to submit the claim. The Settlement Administrator will copy Co-Lead Class Counsel and Defendants’

Counsel on all rejected claims.

4. Disputed Claims

If a member of the Settlement Class disputes either the Settlement Administrator’s rejection of a claim or the amount to be reimbursed pursuant to a claim, the member of the Settlement Class may appeal the Settlement Administrator’s decision by submitting the claim, the Settlement Administrator’s decision on the claim, and an explanation of the Settlement Administrator’s alleged error to the Settlement Administrator within thirty (30) days of the postmark date on the envelope, or the date of the email,

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in which the Settlement Administrator sent its decision to the member of the Settlement Class. The Settlement Administrator will share all appeals received with Co-Lead Class Counsel and Defendants’ Counsel, and shall make a final, binding determination of the appeal following its receipt of the Settlement Parties’ responses to the appeal.

V. ATTORNEYS’ FEES AND COSTS AND SERVICE AWARDS

A. Attorneys’ Fees And Costs

All Attorneys’ Fees and Costs shall be paid out of the Cash Fund in an amount to be awarded by the Court. Co-Lead Class Counsel will apply to the Court on behalf of themselves and other counsel for members of the Class for an award of Attorneys’ Fees and Costs. Co-Lead Class Counsel’s request for Attorneys’ Fees and Costs will not exceed forty million dollars ($40 million) in aggregate fees and costs. Co-Lead Class Counsel shall be entitled to the Attorneys’ Fees and Costs awarded by the Court (subject to the limitations of this Section) immediately upon funding of the Escrow Account, and all such amounts will be paid from the Cash Fund. Co-Lead Class Counsel, along with Liaison Counsel Laurel Bellows, shall have the authority to determine and make an allocation of Attorneys’ Fees and Costs to any counsel representing any member of the Class who claims an entitlement to share in any fees or costs approved by the Court. Any disputes regarding such allocation shall be resolved by the Court and shall not be considered a basis for withdrawal from the settlement as described below in Section VI.E.

Any payment of Attorneys’ Fees and Costs made pursuant to this Section shall be subject to the joint and several obligation of Fee Recipients to make refunds or repayments to the Cash Fund of any paid amounts, plus accrued earnings at the same net rate as is earned by the Cash Fund, if the Settlement is terminated pursuant to the terms of this Settlement Agreement or fails to become effective for any reason, or if, as a result of any appeal or further proceedings on remand or successful collateral attack, the award of Attorneys’ Fees and Costs is reduced or reversed by court order. Fee Recipients shall make the appropriate refund or repayment in full no later than thirty (30) calendar days after receiving notice of the termination of the Settlement, notice from a court of appropriate jurisdiction of the disapproval of the Settlement by court order or notice of any reduction or reversal of the award of Attorneys’ Fees and Costs by court order. Each Fee Recipient, on behalf of itself and each partner and/or shareholder of such firm, agrees that (i) it and each of its partners and/or shareholders are subject to the jurisdiction of the Court for the purpose of enforcing this provision, (ii) it and its partners and/or shareholders shall be jointly and severally liable for the repayment of all Attorneys’ Fees and Costs awarded by the Court and paid by the Cash Fund, as well as accrued interest and (iii) the Court may, upon application of Defendants or Defendants’ counsel, summarily issue orders, including, without limitation, judgments and attachment orders, and may make appropriate findings of or sanctions for contempt against any law firm or any of its partners and/or shareholders should such law firm fail to timely repay Attorneys’ Fees and Costs pursuant to this paragraph. Fee Recipients further agree that in the event the full amount paid by the Cash Fund to Fee Recipients plus accrued interest is not repaid within the time frame required by this paragraph, Fee Recipients shall be responsible for all fees and costs incurred by Defendants in seeking and obtaining from Fee Recipients such sums that remain unpaid.

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B. Service Awards For Named Plaintiffs

As part of their motion seeking final approval of the Settlement to be considered at the Fairness Hearing, and in recognition for the Named Plaintiffs’ work on behalf of the class, Co-Lead Class Counsel will submit to the Court an application for a twenty-five thousand dollar ($25,000) Service Award for each of the Named Plaintiffs. Any set of Named Plaintiffs with overlapping ownership shall be entitled to only one such Service Award. Any Service Awards ordered by the Court will be paid out of the Cash Fund within forty-five (45) days of the Effective Date, provided that Co-Lead Class Counsel have provided to the Settlement Administrator completed W-9 forms for the Named Plaintiffs at least twenty-one (21) days before payment. Any Service Awards are in addition to other payments under the Settlement.

VI. SETTLEMENT APPROVAL PROCESS

A. Preliminary Approval of Settlement

Promptly after execution of the Settlement Agreement, Co-Lead Class Counsel will present the Settlement Agreement to the Court, along with a motion requesting that the Court issue a Preliminary Approval Order substantially in the form attached as Exhibit A-1, which will include, among other things:

• A finding that the Court will likely be able to approve the Settlement under Fed. R. Civ. P. 23(e)(2);

• A finding that the Court will likely be able to certify the Class for settlement purposes;

• Approval of the Class Notice substantially in the same form as Exhibits A-2, A-3, and A-4 for distribution to the Class;

• A direction that the Settlement Administrator, through data aggregators or otherwise, is authorized to request and receive contact and vehicle information from the Department of Motor Vehicles for all fifty (50) States, the District of Columbia, Puerto Rico, and all other United States territories and/or possessions for all VINs for Class Vehicles.

• A direction that each potential member of the Class who wishes to be excluded from the Settlement Class must respond to the Class Notice in writing in accordance with the instructions set forth in the Class Notice and that their responses must be received by the date set forth in the Preliminary Approval Order;

• A finding that the Class Notice constitutes the best practicable notice under the circumstances, including individual notice to all Class Members who can be identified with reasonable effort, and constitutes valid, due, and sufficient notice to Class Members in full compliance with the requirements of applicable law, including the Due Process Clause of the United States Constitution;

• A direction that, pending final determination of the application for approval of this Settlement Agreement, all proceedings in the Litigation other than settlement approval proceedings shall be stayed and all Class Members who do not validly request exclusion from the Class shall be enjoined from commencing or prosecuting any Released Claim in any court or before any tribunal;

• A direction that any Class Member who does not properly and timely request exclusion from the Class will be bound by the Final Order and Judgment;

• The scheduling of a Fairness Hearing;

• A direction that the Settlement Administrator shall provide the Opt Out List to the Court and to Defendants’ Counsel and Co-Lead Class Counsel no less than twenty-one (21) days before the Fairness Hearing. If further requests for exclusion be received after that date, the Settlement

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Adminsitrator shall provide an updated Opt Out List no later than nine (9) days after providing the first Opt Out List;

• A direction that Co-Lead Class Counsel shall file a motion for Attorneys’ Fees and Costs and Named Plaintiffs’ Service Awards at least thirty (30) days prior to the date set forth in the Preliminary Approval Order as the deadline for the objections, and any supplemental brief in support of final approval of the Settlement Agreement no later than seven (7) days prior to the Fairness Hearing;

• A direction that any member of the Settlement Class who wishes to object to the proposed Settlement, the proposed Final Order and Judgment, the motion for Attorneys’ Fees and Costs and/or Named Plaintiffs’ Service Awards must file and serve such objections no later than the date set forth in the Preliminary Approval Order, which shall be approximately twenty-four (24) days before the Fairness Hearing, together with copies of all papers in support of his or her position as provided in Section VI.B.1 of the Settlement Agreement.

B. Response To Notice

1. Objections To Settlement

Any member of the Settlement Class who intends to object to this Settlement Agreement or the Settlement contained therein must, by the date specified in the anticipated Preliminary

Approval Order and recited in the Class Notice, file any such objection with the Court, and provide copies of the objection to: (1) Adam J. Levitt of DiCello Levitt Gutzler (Co-Lead Class

Counsel), Ten North Dearborn Street, Eleventh Floor, Chicago, Illinois 60602; and (2) Mark S.

Mester and Kathleen P. Lally of Latham & Watkins, LLP (Defendants’ Counsel), 330 North Wabash Avenue, Suite 2800, Chicago, Illinois 60611.

Any objection to the Settlement Agreement must be individually and personally signed by the member of the Settlement Class submitting it. If the member of the Settlement Class is an entity and not an individual, the objection must be signed by an officer or director of the entity and include an affidavit that attests to that person’s ability to act on behalf of that entity. If the member of the Settlement Class is represented by counsel, the objection must also be signed by such counsel. Any objection must include:

• The objecting member of the Settlement Class’s full name, address, and telephone number;

• The model, model year, and VIN of the objecting member of the Settlement Class’s Class Vehicle(s), along with Proof of Membership in the Class;

• A written statement of all grounds for the objection, accompanied by any legal support for the objection;

• Copies of any papers, briefs, or other documents upon which the objection is based;

• A list of all cases in which the member of the Settlement Class and/or member of the Settlement Class’s counsel filed or in any way participated-financially or otherwise-the filing of an objection to a class settlement during the preceding five years;

• The name, address, email address, and telephone number of every attorney representing or assisting the objector; and

• A statement indicating whether the objector and/or his or her counsel intends to appear at the Fairness Hearing and, if so, a list of all persons, if any, who will be called to testify in support of the objection.

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Any Class Member who does not file a timely written objection to the Settlement and notice of his or her intent/non-intent to appear at the Fairness Hearing, or who otherwise fails to comply with the requirements of this Section shall be foreclosed from seeking any adjudication or review of the Settlement by appeal or otherwise.

2. Request For Exclusion

Any Class Member who wishes to be excluded from the Class and to become an Opt Out must submit a request for exclusion to the Settlement Administrator at the address specified in the Class Notice by the date specified in the anticipated Preliminary Approval Order and recited in the Class Notice. Class Members who wish to be excluded from the Settlement Class must do so with respect to all Class Vehicles they own(ed) or lease(d). Class Members may not exclude themselves from the Class with respect to one or more Class Vehicles while seeking relief through the Settlement with respect to other Class Vehicles. To be effective, the request for exclusion must be sent via First Class U.S. Mail to the address specified in the Class Notice and:

• Include the Class Member’s full name, address, and telephone number;

• Identify the model, model year, and VIN of the Class Member’s Class Vehicle(s);

• Explicitly and unambiguously state his, her, or its desire to be excluded from the Settlement Class in In re Navistar MaxxForce Engines Marketing, Sales Practices and Products Liability Litigation; and

• Be individually and personally signed by the Class Member. If the Class Member is an entity and not an individual, the objection must be signed by an officer or director of the entity and include an affidavit that attests to that person’s ability to act on behalf of that entity.

Any Class Member who fails to submit a timely and complete request for exclusion sent to the proper address shall be subject to and bound by this Settlement and every order or judgment entered pursuant to this Settlement. Any purported request for exclusion or other communication sent to such address that is unclear or internally inconsistent with respect to the Class Member’s desire to be excluded from the Settlement Class will be deemed invalid unless determined otherwise by the Court. Requests for exclusion can only be submitted on behalf of each Class Vehicle(s) owned or leased by a particular Class Member. For example, mass-opt outs and class requests for exclusion that are not signed by each Class Member in the manner described above shall not be permitted. Requests for Exclusion signed only by counsel or other representative shall also not be permitted.

The Settlement Administrator will receive requests for exclusion and will follow guidelines developed jointly by Co-Lead Class Counsel and Defendants’ Counsel for determining in the first instance whether they meet the requirements for Opting Out. Any communications from Class Members (whether styled as an exclusion request, an objection, or a comment) as to which it is not readily apparent that the Class Member meant to exclude himself, herself, or itself from the Class will be evaluated jointly by Co-Lead Class Counsel and Defendants’ Counsel, who will make a good faith evaluation, if possible, of the Class Member’s intentions. Any uncertainties about whether a Class Member is requesting exclusion from the Settlement Class will ultimately be resolved by the Court.

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The Settlement Administrator will maintain a list of all Opt Outs. The Settlement Administrator shall report the names and addresses of all such entities and natural persons requesting exclusion-the Opt Out List-to the Court, Co-Lead Class Counsel, and Defendants’ Counsel no less than twenty-one (21) days prior to the Fairness Hearing, and the Settling Parties will request that the Court attach this Opt Out List as an exhibit to the Final Order and Judgment.

C. Fairness Hearing

On the date set forth in the anticipated Preliminary Approval Order, a Fairness Hearing will be held at which the Court will: (1) decide whether to approve the Settlement Agreement as fair, reasonable, and adequate; (2) decide whether to approve the application for a Service Award for the Named Plaintiffs; (3) decide whether to approve Co-Lead Class Counsel’s motion for Attorneys’ Fees and Costs; and (4) decide whether to certify the Class. The Settling Parties will request that the Court hold the Fairness Hearing approximately twenty-one (21) days after the deadline for submitting objections and requests for exclusion.     

D. Final Order And Judgment

If the Court grants final approval to this Settlement Agreement, the Settling Parties will request that the Court issue a Final Order and Judgment directing the entry of judgment pursuant to Fed. R. Civ. P. 54(b) ordering the following:

• Certifying the Class;

• Approving the Settlement as fair, reasonable, and adequate as it applies to the Class;

• Declaring the Settlement to be binding on the Settling Parties and Settlement Class;

• Dismissing on the merits and with prejudice all cases underlying the multidistrict litigation In re Navistar MaxxForce Engines Marketing, Sales Practices and Products Liability Litigation other than those in which named or individual plaintiffs have Opted Out;

• Forever discharging the Released Parties from all Released Claims;

• Indicating the amount of the Service Award for the Named Plaintiffs;

• Indicating the amount of Attorneys’ Fees and Costs to be awarded to Co-Lead Class Counsel; and

• Providing that all Class Members who did not Opt Out be permanently enjoined from commencing or prosecuting any action, suit, proceeding, claim, or cause of action asserting the Released Claims in any court or before any tribunal.

E. Withdrawal From Settlement

1. Withdrawal Rights Of Any Of The Settlement Parties

Any of the Settling Parties shall have the option to withdraw from this Settlement Agreement, and to render it null and void, if any of the following occurs:

a.    Any objections to the proposed Settlement are sustained and such objection results in Court-ordered changes to the Settlement Agreement that the withdrawing party deems to be material (e.g., because it increases the cost of the settlement, delays approval and/or implementation of the Settlement, or deprives the withdrawing party of a benefit of the Settlement);

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b.    Any attorney general is allowed to intervene in the action and such intervention results in Court-ordered changes to the agreement that the withdrawing party deems to be material (e.g., because it increases the cost of the Settlement, delays approval and/or implementation of the Settlement, or deprives the withdrawing party of a benefit of the Settlement);

c.    The preliminary or final approval of the Settlement Agreement is not obtained without modification to the proposed preliminary approval order attached as Exhibit A-1 to this Settlement Agreement or the proposed final order to be filed in support of final approval, and any modification to such orders requested or stated by the Court as a condition for approval is deemed to be material and is not agreed to by the withdrawing party (e.g., because it increases the cost of the Settlement, delays approval and/or implementation of the Settlement, narrows the definition of or refuses to certify the Settlement Class, or deprives the withdrawing party of a benefit of the Settlement);

d.    Entry of the Final Order and Judgment described in this Settlement is reversed or modified by an appellate court in a manner that the withdrawing party deems to be material.

For the purposes of this Section, any reduction in the amount of Attorneys’ Fees and Costs or Service Award requested shall not be deemed a material change to the Settlement Agreement.

2. Withdrawal Rights Of Defendants

Defendants shall have the option to withdraw from this Settlement Agreement and to render it null and void based on a certain number of Opt Outs. The Parties have reached a separate agreement about when and how Defendants may assert such rights, which they will seek leave to file under seal.

3. Withdrawal Rights Of Co-Lead Class Counsel

Co-Lead Class Counsel shall have the option to withdraw from this Settlement Agreement on behalf of Named Plaintiffs and the Settlement Class and to render it null and void based on the oversubscription of both the Cash Fund and the Rebate Fund under certain circumstances. The Parties have reached a separate agreement about when and how Co-Lead

Class Counsel may assert such rights, which they will seek leave to file under seal.

4. Procedures For Withdrawal

The Settling Parties must follow the following procedures in order to withdraw from the Settlement:

a.     In order to elect to withdraw from the Settlement and terminate the Settlement Agreement on the basis set forth in Section VI.E.2, Defendants must notify Co-Lead Class Counsel in writing of their election to do so within ten (10) days after the Opt Out List has been served on the parties. If the first Opt Out List circulated by the Settlement Administrator does not contain sufficient Opt Outs to trigger Defendants’ right to withdraw, but the Settlement Administrator subsequently provides an updated Opt Out List containing sufficient Opt Outs to trigger

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Defendants’ right to withdraw, then Defendants shall have ten (10) days from the circulation of the updated Opt Out List to exercise that right, and the Settling Parties shall have the right at either’s discretion to request that the Court postpone the Fairness Hearing by the number of days between the provision of the initial and updated Opt Out Lists. In the event that Defendants exercise their right to withdraw under Section VI.E.2, Co-Lead Class Counsel shall have, at their discretion, ten (10) days or such longer period as agreed to by the Settling Parties to address the concerns of the Opt Outs. If through such efforts the total number on the Opt Out List subsequently becomes and remains fewer than the number submitted pursuant to Section VI.E.2, Defendants shall withdraw their election to withdraw from the Settlement and terminate the Settlement Agreement. In no event, however, shall Defendants have any further obligation under this Agreement to any Opt Out unless he or she withdraws his or her request for exclusion.

b.    In order to elect to withdraw from the Settlement and terminate the Settlement Agreement on the basis set forth in Section VI.E.3, Co-Lead Class Counsel must notify Defendants’ Counsel in writing of their election to do so within ten (10) days after the close of the deadline to submit claims. In the event that Co-Lead Class Counsel exercise their right to withdraw under Section VI.E.3, Defendants shall have, at their discretion, ten (10) days or such longer period as agreed to by the Settling Parties to address the concern of the oversubscription. If through such efforts the issue of the oversubscription is addressed in a manner that does not require a pro rata reduction of the claims of the members of the Settlement Class, Co-Lead Class Counsel shall withdraw their election to withdraw from the Settlement and terminate the Settlement Agreement.

c.    To withdraw from the Settlement Agreement under any other provision of this Section, the withdrawing party must provide written notice of withdrawal to the other party’s lead counsel and to the Court.

In the event either party withdraws from the Settlement, this Settlement Agreement shall be null and void, shall have no further force and effect with respect to any party in the Litigation, and shall not be offered in evidence or used in any litigation for any purpose, including the existence, certification, or maintenance of any purported class. In the event of such withdrawal, this Settlement Agreement and all negotiations, proceedings, documents prepared, and statements made in connection herewith shall be without prejudice to the Settling Parties, and shall not be deemed or construed to be an admission or confession by any party of any fact, matter, or proposition of law, and shall not be admitted into evidence or otherwise used in any manner for any purpose, and all parties to the Litigation shall stand in the same position as if this Settlement Agreement had not been negotiated, made, or filed with the Court. Without limiting the foregoing, this Settlement Agreement and the fact of the Settlement shall not be used or relied upon in this or any other proceeding as evidence of the suitability of Named Plaintiffs’ claims, or any claims related to EGR, for class treatment under Fed. R. Civ. P. 23 or any other rule or statute. Upon withdrawal, either party may elect to move the Court to vacate any and all orders entered pursuant to the provisions of this Settlement Agreement.

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VII. RELEASE OF SETTLEMENT CLASS CLAIMS

The Settling Parties agree to the following Release, which shall take effect upon the Effective Date:

A. Release

In consideration of the Settlement, the Named Plaintiffs and each member of the Settlement Class, on behalf of themselves and any other legal or natural persons who may claim by, through, or under them, agree to fully, finally, and forever release, relinquish, acquit, discharge, and hold harmless the Released Parties from any and all claims, demands, suits, petitions, liabilities, causes of action, rights, and damages of any kind and/or type regarding the subject matter of the Litigation, including, but not limited to, compensatory, exemplary, punitive, and expert and/or attorneys’ fees or by multipliers, whether past, present, or future, mature, or not yet mature, known or unknown, suspected or unsuspected, contingent or non-contingent, derivative or direct, asserted or un-asserted, whether based on federal, state or local law, statute, ordinance, regulation, code, contract, common law, or any other source, or any claim of any kind arising from, related to, connected with, and/or in any way involving the Litigation or the Class

Vehicles in any manner that are defined, alleged, included, or described in the Second or Third Amended Consolidated Class Action Complaint, the Litigation, or any amendments of the Litigation (collectively, the “Released Claims”).

In connection with this Settlement Agreement, the Named Plaintiffs and members of the Settlement Class acknowledge that they may hereafter discover claims presently unknown or unsuspected, or facts in addition to or different from those that they now know or believe to be true concerning the subject matter of the Litigation and/or the Release herein. Nevertheless, it is the intention of Co-Lead Class Counsel and the members of the Settlement Class in executing this Settlement Agreement to fully, finally, and forever settle, release, discharge, and hold harmless all such matters, and all claims relating thereto which exist, hereafter may exist, or might have existed (whether or not previously or currently asserted in any action or proceeding) with respect to the Litigation, except as otherwise stated in the Settlement Agreement.

The Named Plaintiffs expressly understand and acknowledge, and all Named Plaintiffs and members of the Settlement Class will be deemed by the Final Order and Judgment to acknowledge and waive, Section 1542 of the Civil Code of the State of California, which provides that:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

The Named Plaintiffs and members of the Settlement Class expressly waive and relinquish any and all rights and benefits that they may have under, or that may be conferred upon them by, the provisions of Section 1542 of the California Civil Code, or any other law of any state or territory that is similar, comparable, or equivalent to Section 1542, to the fullest extent they may lawfully waive such rights.

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Defendants release Named Plaintiffs and Co-Lead Class Counsel from any potential claims, counter-claims, or other relief (including the ability to seek a bill of costs under the Federal Rules of Civil Procedure) arising from the Litigation and that could have been asserted against Named Plaintiffs or Co-Lead Class Counsel as of the date of this Settlement Agreement.

B. Named Plaintiffs’ Release

In addition, the Named Plaintiffs will execute individual releases and waivers in the form attached hereto as Exhibit A-5, releasing all claims of any kind arising from, related to, in connection with, or in any way involving the allegations in the Second or Third Amended Consolidated Class Action Complaint, their individual or separate class complaints, the Litigation, or the Class Vehicles.

C. Limitation On Release

Nothing in this Agreement or Release shall be interpreted to modify or diminish the manufacturer’s limited, written warranty with respect to a Class Vehicle.

Nothing in this Release shall affect any lease, loan, or purchase payments due Defendants or their affiliates.

Members of the Settlement Class are not releasing any entitlement to Future Authorized Field Changes.

Members of the Settlement Class (other than Named Plaintiffs) are not releasing any claims for personal injury or damage to property other than the Class Vehicle and Covered Costs, and such claims are not included in the Release. The Final Order and Final Judgment will reflect these terms.

D. Preclusion Of Future Claims

The Named Plaintiffs and members of the Settlement Class expressly agree that the Final Order and Judgment is, will be, and may be raised as a complete defense to, and will preclude any action or proceeding encompassed by this Release.

The Named Plaintiffs and members of the Settlement Class shall not now or hereafter institute, maintain, prosecute, assert, and/or cooperate in the institution, commencement, filing, or prosecution of any suit, action, and/or proceeding, against the Released Parties, either directly or indirectly, on their own behalf, on behalf of a class, or on behalf of any other person or entity with respect to the claims, causes of action and/or any other matters released through this Settlement.

Nothing in this Release shall preclude any action to enforce the terms of the Agreement, including participation in any of the processes detailed herein.

E. Representations And Warranties

The Named Plaintiffs represent and warrant that they are the sole and exclusive owners of all claims that they are releasing under this Settlement Agreement. Named Plaintiffs further represent and warrant that they have not assigned, pledged, or in any manner whatsoever, sold, transferred, assigned, or encumbered any right, title, interest, or claim arising out of or in any way whatsoever pertaining to the Litigation, including without limitation, any claim for benefits, proceeds, or value under the Litigation

27

and that Named Plaintiffs are not aware of anyone other than themselves claiming any interest, in whole or in part, in the Litigation or in any benefits, proceeds, or values under the Litigation.

Without in any way limiting its scope, and, except to the extent otherwise specified in the Settlement Agreement, this Release covers by example and without limitation, any and all claims for attorneys’ fees, attorneys’ liens, costs, expert fees, consultant fees, interest, litigation fees or costs, or any other fees, costs, and/or disbursements incurred by any attorneys, Co-Lead Class Counsel, Named Plaintiffs, or the Settlement Class who claim to have provided assistance or legal services to the Class or any member of the Class relating in any way to this Litigation, the claims asserted in this Litigation, and/or the Class Vehicles.

Named Plaintiffs and Co-Lead Class Counsel hereby agree and acknowledge that the provisions of this Release together constitute an essential and material term of the Agreement and shall be included in any Final Order and Judgment entered by the Court.

VIII. MISCELLANEOUS PROVISIONS

A. Effect of Exhibits

The exhibits to this Settlement Agreement are an integral part of the Settlement and are expressly incorporated and made a part of this Settlement Agreement.

B. No Admission

This Settlement Agreement is for settlement purposes only. Neither the fact of, nor any provision contained in this Settlement Agreement, nor any action taken hereunder, shall constitute, or be construed as, any admission of the validity of any claim or any fact alleged in the Litigation or of any wrongdoing, fault, violation of law, or liability of any kind on the part of Defendants or any admissions by Defendants of any claim or allegation made in any action or proceeding against Defendants. Nor shall it constitute, or be construed as, any admission or concession by Defendants that the Court’s orders in the Litigation are correctly decided. This Settlement Agreement shall not be offered or be admissible in evidence against Defendants or cited or referred to in any action or proceeding, except in an action or proceeding brought to enforce its terms.

C. Entire Agreement

This Settlement Agreement represents the entire agreement and understanding among the Settling Parties and supersedes all prior proposals, negotiations, agreements, and understandings relating to the subject matter of this Settlement Agreement. The Settling Parties acknowledge, stipulate, and agree that no covenant, obligation, condition, representation, warranty, inducement, negotiation, or understanding concerning any part or all of the subject matter of this Settlement Agreement has been made or relied on except as expressly set forth in this Settlement Agreement. No modification or waiver of any provisions of this Settlement Agreement shall in any event be effective unless the same shall be in writing and signed by the person against whom enforcement of the Settlement Agreement is sought.

28

D. Counterparts

This Settlement Agreement may be executed in one or more counterparts, each of which shall be deemed an original as against any party who has signed it, and all of which shall be deemed a single agreement.

E. Arm’s-Length Negotiations

The Settling Parties have negotiated all of the terms and conditions of this Settlement Agreement at arm’s length, and under the supervision of a mediator, Hon. Wayne Andersen (Ret.). All terms, conditions, and exhibits in their exact form are material and necessary to this Settlement Agreement and have been relied upon by the Settling Parties in entering into this Settlement Agreement. All Settling Parties, through counsel, have participated in the drafting of this agreement and it is not to be construed in favor of or against any of the Settling Parties.

F. Dispute Resolution

Any dispute, challenge, question, or the like relating to this Settlement Agreement (other than those which this Settlement Agreement provides shall be resolved otherwise) shall be heard only by this Court.

G. Continuing Jurisdiction

The Court shall retain continuing and exclusive jurisdiction over the parties to this Settlement Agreement, including all Class Members, for the purpose of the administration and enforcement of this Settlement Agreement.

H. Choice of Law

This Settlement Agreement and any amendments thereto shall be governed by and interpreted according to the law of the State of Illinois notwithstanding its conflict of law provisions.

I. Binding Effect of Settlement Agreement

This Settlement Agreement shall be binding upon and inure to the benefit of the Settling Parties and their representatives, heirs, successors, and assigns.

J. Nullification

In the event any one or more of the provisions contained in this Settlement Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect other provisions only if Defendants and Co-Lead Class Counsel mutually elect to proceed as if such invalid, illegal, or unenforceable provision had never been included in this Settlement Agreement.

K. Extensions of Time

The Settling Parties may agree upon a reasonable extension of time for deadlines and dates reflected in this Settlement Agreement, without further notice to Class Members (subject to Court approval as to Court dates).

29

L. Cooperation

The Settling Parties, their successors and assigns, and their counsel agree to cooperate fully with one another in seeking Court approval of this Settlement Agreement and to use their best efforts to effect the prompt consummation of this Settlement Agreement and the proposed Settlement.

M. Service or Notice

Whenever, under the terms of this Settlement Agreement, a person is required to provide service or written notice to Defendants or Co-Lead Class Counsel, such service or notice shall be directed to the individuals and addresses specified below, unless those individuals or their successors give notice to the other Settling Parties in writing:

As to the Named Plaintiffs:

Jonathan D. Selbin	Adam J. Levitt
Kenneth S. Byrd	John E. Tangren
Jason L. Lichtman	Amy E. Keller
Andrew R. Kaufman	Adam Prom
Avery S. Halfon
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP	DICELLO LEVITT GUTZLER LLC
250 Hudson Street, 8th Floor	Ten North Dearborn Street, Eleventh Floor
New York, New York 10013	Chicago, Illinois 60602
Telephone: (212) 355-9500	Telephone: (312) 214-7900
Email:    jselbin@lchb.com	Email:     alevitt@dicellolevitt.com
kbyrd@lchb.com	jtangren@dicellolevitt.com
jlichtman@lchb.com	akeller@dicellolevitt.com
akaufman@lchb.com	aprom@dicellolevitt.com
ahalfon@lchb.com	Co-Lead Class Counsel
Co-Lead Class Counsel
William M. Audet	Laurel G. Bellows
Steven Weinmann
AUDET & PARTNERS LLP	THE BELLOWS LAW GROUP, P.C.
711 Van Ness Avenue, Suite 500	209 South LaSalle Street, #800
San Francisco, California 94102	Chicago, Illinois 60604
Telephone: (415) 568-2555	Telephone: (312) 332-3340
Email:     waudet@audetlaw.com	Email:     lbellows@bellowslaw.com
sweinmann@audetlaw.com	Liaison Counsel
Co-Lead Class Counsel

30

As to Defendants:

Cary R. Perlman

Robin M. Hulshizer

Mark S. Mester

Kathleen P. Lally

Kevin Jakopcheck

LATHAM & WATKINS LLP

330 North Wabash Avenue, Suite 2800

Chicago, Illinois 60611

Telephone: (312) 876-7700

Email:     cary.perlman@lw.com     

robin.hulshizer@lw.com     

mark.mester@lw.com     

kathleen.lally@lw.com     

kevin.jakopchek@lw.com

N. Authority to Execute Settlement Agreement

Each counsel or other person executing this Settlement Agreement or any of its exhibits on behalf of any party hereto warrants that such person has the authority to do so.

* * *

IN WITNESS HEREOF, the Settling Parties have caused this Settlement Agreement to be executed by their duly authorized attorneys, as of May 28, 2019.

ON BEHALF OF DEFENDANTS

By:	/s/ Mark S. Mester
Name:	Mark S Mester
Date:	May 28, 2019

ON BEHALF OF PLAINTIFFS

By:	/s/ Jonathan D. Selbin
Name:	Jonathan D. Selbin
Date:	May 28, 2019
By:	/s/ Adam J. Levitt
Name:	Adam J. Levitt
Date:	May 28, 2019
By:	/s/ Avery Halfon for William M Audet
Name:	William M Audet
Date:	May 28, 2019

Interim Co-Lead Class Counsel

31

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Troy A. Clarke, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Navistar International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 4, 2019

/s/     TROY A. CLARKE

Troy A. Clarke

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

E-2

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Walter G. Borst, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Navistar International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 4, 2019

/s/     WALTER G. BORST        

Walter G. Borst

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

E-3

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Navistar International Corporation (the “Company”) on Form 10-Q for the period ended July 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Troy A. Clarke, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: September 4, 2019

/s/     TROY A. CLARKE

Troy A. Clarke

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification shall also not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.

E-4

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Navistar International Corporation (the “Company”) on Form 10-Q for the period ended July 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Walter G. Borst, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: September 4, 2019

/s/ WALTER G. BORST

Walter G. Borst

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification shall also not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.

E-5

EX-99.1

EXHIBIT 99.1

Additional Financial Information (Unaudited)

The following additional financial information is provided based upon the continuing interest of certain stockholders and creditors to assist them in understanding our core Manufacturing operations and our Financial Services operations on an after-tax equity basis. Our Manufacturing operations, for this purpose, include our Truck segment, Parts segment, Global Operations segment, and Corporate items. The Manufacturing operations financial information represents non-GAAP financial measures. These non-GAAP financial measures should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. The reconciling differences between these non-GAAP financial measures and our U.S. GAAP condensed consolidated financial statements in Item 1, Financial Statements, are our Financial Services operations, which are included on an after-tax equity basis. Certain of our subsidiaries in our Manufacturing operations have debt outstanding with our Financial Services operations (“intercompany debt”). In the condensed statements of assets, liabilities, and stockholders' equity (deficit), the intercompany debt is reflected as accounts payable. The change in the intercompany debt is reflected in Net cash provided by (used in) operating activities in the condensed statements of cash activity.

Condensed Statements of Revenues and Expenses

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	For the Three Months Ended July 31, 2019
(in millions)	Manufacturing Operations			Financial Services Operations			Adjustments			Consolidated Statement of Operations
Sales of manufactured products	$	2,996		$	—		$	—		$	2,996
Finance revenues	—			74			(28		)	46
Sales and revenues, net	2,996			74			(28		)	3,042
Costs of products sold	2,501			—			—			2,501
Restructuring charges	—			—			—			—
Asset impairment charges	3			—			—			3
Selling, general and administrative expenses	145			22						167
Engineering and product development costs	81			—			—			81
Interest expense	49			27			—			76
Other expense (income), net	58			(5		)	(28		)	25
Total costs and expenses	2,837			44			(28		)	2,853
Equity in income of non-consolidated affiliates	1			—			—			1
Income before equity income from financial services operations and income taxes	160			30			—			190
Equity income from financial services operations	26			—			(26		)	—
Income (loss) before income tax	186			30			(26		)	190
Income tax benefit (expense)	(25		)	(4		)	—			(29		)
Net income (loss)	161			26			(26		)	161
Less: Net income attributable to non-controlling interests	5			—			—			5
Net income (loss) attributable to Navistar International Corporation	$	156		$	26		$	(26	)	$	156

E-6

Condensed Statements of Revenues and Expenses

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	For the Nine Months Ended July 31, 2019
(in millions)	Manufacturing Operations		Financial Services Operations			Adjustments			Consolidated Statement of Operations
Sales of manufactured products	$	8,330	$	—		$	—		$	8,330
Finance revenues	—		226			(85		)	141
Sales and revenues, net	8,330		226			(85		)	8,471
Costs of products sold	6,973		—			—			6,973
Restructuring charges	1		—			—			1
Asset impairment charges	6		—			—			6
Selling, general and administrative expenses	654		73			(1		)	726
Engineering and product development costs	242		—			—			242
Interest expense	160		83			—			243
Other expense (income), net	247		(23		)	(84		)	140
Total costs and expenses	8,283		133			(85		)	8,331
Equity in income of non-consolidated affiliates	4		—			—			4
Income before equity income from financial services operations and income taxes	51		93			—			144
Equity income from financial services operations	74		—			(74		)	—
Income (loss) before income tax	125		93			(74		)	144
Income tax benefit (expense)	10		(19		)	—			(9		)
Net income (loss)	135		74			(74		)	135
Less: Net income attributable to non-controlling interests	16		—			—			16
Net income (loss) attributable to Navistar International Corporation	$	119	$	74		$	(74	)	$	119

E-7

Condensed Statements of Revenues and Expenses

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	For the Three Months Ended July 31, 2018
(in millions)	Manufacturing Operations			Financial Services Operations			Adjustments			Consolidated Statement of Operations
Sales of manufactured products	$	2,566		$	—		$	—		$	2,566
Finance revenues	—			65			(25		)	40
Sales and revenues, net	2,566			65			(25		)	2,606
Costs of products sold	2,096			—			—			2,096
Restructuring charges	1			—			—			1
Asset impairment charges	7			1			—			8
Selling, general and administrative expenses	199			23			—			222
Engineering and product development costs	72			—			—			72
Interest expense	60			22			—			82
Other expense (income), net	(26		)	(4		)	(25		)	(55		)
Total costs and expenses	2,409			42			(25		)	2,426
Income before equity income from financial services operations and income taxes	157			23			—			180
Equity income from financial services operations	17			—			(17		)	—
Income (loss) before income tax	174			23			(17		)	180
Income tax benefit (expense)	3			(6		)	—			(3		)
Net income (loss)	177			17			(17		)	177
Less: Net income attributable to non-controlling interests	7			—			—			7
Net income (loss) attributable to Navistar International Corporation	$	170		$	17		$	(17	)	$	170

E-8

Condensed Statements of Revenues and Expenses

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	For the Nine Months Ended July 31, 2018
(in millions)	Manufacturing Operations			Financial Services Operations			Adjustments			Consolidated Statement of Operations
Sales of manufactured products	$	6,815		$	—		$	—		$	6,815
Finance revenues	—			187			(69		)	118
Sales and revenues, net	6,815			187			(69		)	6,933
Costs of products sold	5,615			—			—			5,615
Restructuring charges	(1		)	—			—			(1		)
Asset impairment charges	10			1			—			11
Selling, general and administrative expenses	546			68			(1		)	613
Engineering and product development costs	222			—			—			222
Interest expense	176			64			—			240
Other expense (income), net	112			(8		)	(68		)	36
Total costs and expenses	6,680			125			(69		)	6,736
Income before equity income from financial services operations and income taxes	135			62			—			197
Equity income from financial services operations	49			—			(49		)	—
Income (loss) before income tax	184			62			(49		)	197
Income tax benefit (expense)	(12		)	(13		)	—			(25		)
Net income (loss)	172			49			(49		)	172
Less: Net income attributable to non-controlling interests	20			—			—			20
Net income (loss) attributable to Navistar International Corporation	$	152		$	49		$	(49	)	$	152

E-9

Condensed Statements of Assets, Liabilities, and Stockholders' Equity (Deficit)

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	As of July 31, 2019
(in millions)	Manufacturing Operations			Financial Services Operations		Adjustments			Consolidated Balance Sheet
Assets
Cash and cash equivalents	$	1,112		$	48	$	—		$	1,160
Marketable securities	3			—		—			3
Restricted cash and cash equivalents	34			102		—			136
Finance and other receivables, net	441			2,518		(56		)	2,903
Inventories	1,187			8		—			1,195
Goodwill	38			—		—			38
Property and equipment, net	924			366		—			1,290
Investments in and advances to financial services operations	663			—		(663		)	—
Investments in non-consolidated affiliates	33			—		—			33
Deferred taxes, net	123			1		—			124
Other assets	388			24		—			412
Total assets	$	4,946		$	3,067	$	(719	)	$	7,294
Liabilities and stockholders' equity (deficit)
Accounts payable	$	1,793		$	69	$	(56	)	$	1,806
Debt	2,929			2,275		—			5,204
Postretirement benefits liabilities	1,929			—		—			1,929
Other liabilities	1,955			60		—			2,015
Total liabilities	8,606			2,404		(56		)	10,954
Stockholders' equity attributable to non-controlling interest	3			—		—			3
Stockholders' equity (deficit) attributable to controlling interest	(3,663		)	663		(663		)	(3,663		)
Total liabilities and stockholders' equity (deficit)	$	4,946		$	3,067	$	(719	)	$	7,294

E-10

Condensed Statements of Assets, Liabilities, and Stockholders' Equity (Deficit)

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	As of October 31, 2018
(in millions)	Manufacturing Operations			Financial Services Operations		Adjustments			Consolidated Balance Sheet
Assets
Cash and cash equivalents	$	1,261		$	59	$	—		$	1,320
Marketable securities	101			—		—			101
Restricted cash and cash equivalents	34			91		—			125
Finance and other receivables, net	505			2,259		(101		)	2,663
Inventories	1,102			8		—			1,110
Goodwill	38			—		—			38
Property and equipment, net	1,060			310		—			1,370
Investments in and advances to financial services operations	581			—		(581		)	—
Investments in non-consolidated affiliates	50			—		—			50
Deferred taxes, net	117			4		—			121
Other assets	314			18		—			332
Total assets	$	5,163		$	2,749	$	(682	)	$	7,230
Liabilities and stockholders' equity (deficit)
Accounts payable	$	1,664		$	43	$	(101	)	$	1,606
Debt	3,426			2,041		—			5,467
Postretirement benefits liabilities	2,097			—		—			2,097
Other liabilities	1,902			84		—			1,986
Total liabilities	9,089			2,168		(101		)	11,156
Stockholders' equity attributable to non-controlling interest	5			—		—			5
Stockholders' equity (deficit) attributable to controlling interest	(3,931		)	581		(581		)	(3,931		)
Total liabilities and stockholders' equity (deficit)	$	5,163		$	2,749	$	(682	)	$	7,230

E-11

Condensed Statements of Cash Flows

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	For the Nine Months Ended July 31, 2019
(in millions)	Manufacturing Operations			Financial Services Operations			Adjustments			Condensed Consolidated Statement of Cash Flows
Cash flows from operating activities
Net income (loss)	$	135		$	74		$	(74	)	$	135
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization	98			1			—			99
Depreciation of equipment leased to others	(2		)	47			—			45
Amortization of debt issuance costs and discount	9			6			—			15
Deferred income taxes	(46		)	5			—			(41		)
Asset impairment charges	6			—			—			6
Gain on sales of investments and businesses, net	(56		)	—			—			(56		)
Equity in income of non-consolidated affiliates	(4		)	—			—			(4		)
Equity in income of financial services affiliates	(74		)	—			74			—
Dividends from non-consolidated affiliates	1			—			—			1
Change in intercompany receivables and payables	(43		)	43			—			—
Other, net	167			(263		)	—			(96		)
Net cash provided by (used in) operating activities	191			(87		)	—			104
Cash flows from investing activities
Purchases of marketable securities	—			—			—			—
Sales of marketable securities	—			—			—			—
Maturities of marketable securities	98			—			—			98
Capital expenditures	(88		)	(2		)	—			(90		)
Purchase of equipment leased to others	(3		)	(127		)	—			(130		)
Other investing activities	102			11			—			113
Net cash provided by (used in) investing activities	109			(118		)	—			(9		)
Net cash provided by (used in) financing activities	(447		)	210			—			(237		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2		)	(5		)	—			(7		)
Decrease in cash, cash equivalents and restricted cash	(149		)	—			—			(149		)
Cash, cash equivalents and restricted cash at beginning of the period	1,295			150			—			1,445
Cash, cash equivalents and restricted cash at end of the period	$	1,146		$	150		$	—		$	1,296

E-12

Condensed Statements of Cash Flows

Navistar International Corporation

(Manufacturing operations with financial services operations on an after-tax equity basis)

	For the Nine Months Ended July 31, 2018
(in millions)	Manufacturing Operations			Financial Services Operations			Adjustments			Condensed Consolidated Statement of Cash Flows
Cash flows from operating activities
Net income (loss)	$	172		$	49		$	(49	)	$	172
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization	106			1			—			107
Depreciation of equipment leased to others	13			40			—			53
Amortization of debt issuance costs and discount	16			7			—			23
Deferred income taxes	(3		)	—			—			(3		)
Asset impairment charges	10			1			—			11
Equity in income of financial services affiliates	(49		)	—			49			—
Dividends from non-consolidated affiliates	4			—			—			4
Change in other intercompany receivables and payables	49			(49		)	—			—
Other, net	(472		)	(75		)	—			(547		)
Net cash used in operating activities	(154		)	(26		)	—			(180		)
Cash flows from investing activities
Purchases of marketable securities	(214		)	—			—			(214		)
Sales of marketable securities	460			—			—			460
Maturities of marketable securities	29			—			—			29
Capital expenditures	(78		)	(1		)	—			(79		)
Purchase of equipment leased to others	(62		)	(80		)	—			(142		)
Other investing activities	(2		)	8			—			6
Net cash provided by (used in) investing activities	133			(73		)	—			60
Net cash provided by financing activities	363			155			—			518
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(15		)	(1		)	—			(16		)
Increase in cash, cash equivalents and restricted cash	327			55			—			382
Cash, cash equivalents and restricted cash at beginning of the period	690			150			—			840
Cash, cash equivalents and restricted cash at end of the period	$	1,017		$	205		$	—		$	1,222

E-13

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Postretirement Benefits - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Nov. 01, 2018	Oct. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Net Periodic Defined Benefits Expense (Reversal of Expense), Excluding Service Cost Component		$ 22		$ 73
Defined Benefit Plan, Benefit Obligation, Actuarial Gain (Loss)			$ 11	2
Defined Contribution Plan, Administrative Expense			142	9
Liabilities	$ 10,954		10,954		$ 11,074	$ 11,156
Employer contributions	9	25	140	78
Income Tax Expense (Benefit)	29	3	9	25
Liability, Defined Benefit Plan, Noncurrent	1,929		1,929			$ 2,097
Defined Contribution Plan, Cost	$ 8	$ 7	$ 28	$ 25

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Allowance for Doubtful Accounts - Narrative (Details) $ in Millions	9 Months Ended
	Jul. 31, 2019 USD ($) segments class	Jul. 31, 2018 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Portfolio Segments for Finance Receivables | segments	2
Classes Of Receivables In Each Portfolio | class	1
Retail Portfolio [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Average Recorded Investment | $	$ 21	$ 19

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Stockholders' Deficit (Tables) (Tables)

9 Months Ended

Jul. 31, 2019

Accumulated Other Comprehensive Income (Loss) [Line Items]

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

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

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of April 30, 2019	$	(319	)	$	(1,467	)	$	(1,786	)
Other comprehensive income before reclassifications	9			—			9
Amounts reclassified out of accumulated other comprehensive loss	—			23			23
Net current-period other comprehensive income	9			23			32
Balance as of July 31, 2019	$	(310	)	$	(1,444	)	$	(1,754	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2018	$	(315	)	$	(1,605	)	$	(1,920	)
Other comprehensive income (loss) before reclassifications	5			(8		)	(3		)
Amounts reclassified out of accumulated other comprehensive loss	—			169			169
Net current-period other comprehensive income	5			161			166
Balance as of July 31, 2019	$	(310	)	$	(1,444	)	$	(1,754	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of April 30, 2018	$	(289	)	$	(1,865	)	$	(2,154	)
Other comprehensive loss before reclassifications	(13		)	—			(13		)
Amounts reclassified out of accumulated other comprehensive loss	—			29			29
Net current-period other comprehensive income (loss)	(13		)	29			16
Balance as of July 31, 2018	$	(302	)	$	(1,836	)	$	(2,138	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2017	$	(283	)	$	(1,928	)	$	(2,211	)
Other comprehensive loss before reclassifications	(19		)	(2		)	(21		)
Amounts reclassified out of accumulated other comprehensive loss	—			94			94
Net current-period other comprehensive income (loss)	(19		)	92			73
Balance as of July 31, 2018	$	(302	)	$	(1,836	)	$	(2,138	)

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

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

		Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	Location in Consolidated Statements of Operations	2019		2018		2019			2018
Defined benefit plans
Amortization of actuarial loss	Other expense, net	$	23	$	29	$	70		$	86
Settlements	Other expense, net	—		—		142			9
	Total before tax	23		29		212			95
	Income tax expense	—		—		(43		)	(1		)
Total reclassifications for the period, net of tax		$	23	$	29	$	169		$	94

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Summary of Significant Accounting Policies - Product Warranty Liability (Details) - USD ($) $ in Millions	9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jan. 31, 2019	Oct. 31, 2018	Oct. 31, 2017
Product Liability Contingency [Line Items]
Standard and Extended Product Warranty Accrual	$ 522	$ 531		$ 529	$ 629
Document Type	10-Q
Product Warranty Accrual, Warranties Issued	$ 182	139
Accrued Product Warranty And Deferred Warranty Revenue, Standard And Extended Warranty Programs, Roll Forward:
Adjustments to pre-existing warranties(A)(B)	7	(4)
Extended Warranty Program:
Product Warranty Accrual, Payments	(208)	(233)
standard and extended product warranty other adjustments	12	0
Product Warranty Accrual, Current	247	254
Product Warranty Accrual, Noncurrent	$ 275	$ 277
increase in deferred revenue due to adoption of 606 [Domain]
Extended Warranty Program:
Extended Product Warranty Accrual			$ 14

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Debt

9 Months Ended

Jul. 31, 2019

Debt Disclosure [Abstract]

Debt

Debt

The following tables present the components of Notes payable and current maturities of long-term debt and Long-term debt in our Consolidated Balance Sheets:

(in millions)	July 31, 2019		October 31, 2018
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $6 and $7, respectively, and unamortized debt issuance costs of $10 and $11, respectively	$	1,560	$	1,570
6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $15 and $17, respectively	1,085		1,083
4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $5 and unamortized debt issuance costs of $1	—		405
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates	220		220
Financed lease obligations	54		122
Other	10		26
Total Manufacturing operations debt	2,929		3,426
Less: Current portion	30		461
Net long-term Manufacturing operations debt	$	2,899	$	2,965

(in millions)	July 31, 2019		October 31, 2018
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2023, net of unamortized debt issuance costs of $5 and $4, respectively	$	1,102	$	948
Senior secured NFC Term Loan, due 2025, net of unamortized discount of $2 and unamortized debt issuance costs of $4	—		394
Bank credit facilities, at fixed and variable rates, due dates from 2019 through 2025, net of unamortized debt issuance costs of zero and $2, respectively	1,000		519
Commercial paper, at variable rates, program matures in 2022	71		75
Borrowings secured by operating and finance leases, at various rates, due serially through 2024	102		105
Total Financial Services operations debt	2,275		2,041
Less: Current portion	646		485
Net long-term Financial Services operations debt	$	1,629	$	1,556

Manufacturing Operations

4.75% Senior Subordinated Convertible Notes

The 4.75% Senior Subordinated Convertible Notes were fully repaid upon maturity in April 2019, and none were converted into our common stock.

Financial Services Operations

Asset-backed Debt

In November 2018, the maturity of our wholesale variable funding notes ("VFN") facility was extended from December 2018 to May 2020. In April 2019, the VFN facility capacity was temporarily increased from $350 million to $550 million until the earlier of June 28, 2019, or the completion of a qualifying wholesale asset-backed term transaction. In June, the capacity decreased from $550 million to $350 million, upon the issuance of $300 million of two-year investor notes by Navistar Financial Securities Corporation secured by assets of the wholesale note owner trust. Proceeds were used, in part, to replace the $250 million of investor notes that matured in June 2019.

In December 2018, the maturity of our Truck Retail Accounts Corporation ("TRAC") funding facility was extended from January 2019 to January 2020. In April 2019, the maximum capacity of the TRAC funding facility was increased from $100 million to $150 million.

NFC Term Loan and Bank Credit Facility

In May 2019, NFC increased the capacity of its revolving bank credit facility from $269 million to $748 million and extended the maturity from September 2021 to May 2024. The additional capacity was used to fully repay the senior secured NFC Term Loan balance of $398 million. The early repayment of the senior secured NFC Term Loan resulted in the write off of unamortized debt issuance costs and discount of $6 million which was recorded in Other expense (income), net in our Consolidated Statements of Operations.

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Restructuring and Impairments

9 Months Ended

Jul. 31, 2019

Restructuring and Related Activities [Abstract]

Restructurings and Impairments

Restructuring, Impairments and Divestitures

Restructuring charges are recorded based on restructuring plans that have been committed to by management and are, in part, based upon management's best estimates of future events. Changes to the estimates may require future adjustments to the restructuring liabilities.

Manufacturing Restructuring Activities

We continue to focus on our core Truck and Parts businesses and evaluate our portfolio of assets to validate their strategic and financial fit. This allows us to close or divest non-strategic businesses and identify opportunities to restructure our business and rationalize our Manufacturing operations in an effort to optimize our cost structure.

For those areas that fall outside our strategic businesses, we evaluate alternatives which could result in additional restructuring and other related charges in the future, including but not limited to: (i) impairments, (ii) costs for employee and contractor termination and other related benefits, and (iii) charges for pension and other postretirement contractual benefits and curtailments. These charges could be significant.

Global operations employee separation actions

In the fourth quarter of 2017, we initiated cost-reduction actions impacting our workforce in Brazil. As a result of these actions, we recognized restructuring charges of $6 million in personnel costs for employee separation and related benefits. In the first nine months of 2018, we recognized a benefit of $1 million upon the completion of these separation actions. This benefit was recorded in our Global operations segment within Restructuring charges in our Consolidated Statements of Operations.

Melrose Park Facility restructuring activities

In the third quarter of 2017, we committed to a plan to cease engine production at our plant in Melrose Park, Illinois (“Melrose Park Facility”) in the third quarter of fiscal year 2018. As a result, in the third quarter of 2017, we recognized charges of $41 million in our Truck segment. The charges include $23 million related to pension and other post-employment benefits ("OPEB") liabilities and $8 million for severance pay recorded in Restructuring charges in our Consolidated Statements of Operations. We also recorded $10 million of inventory reserves and other related charges in Costs of products sold in our Consolidated Statements of Operations. In the first nine months of 2018, we recognized a benefit of $2 million related to the finalized cessation of the production agreement. This benefit was recorded in our Truck segment within Restructuring charges in our Consolidated Statements of Operations. Production at the Melrose Park Facility ceased on May 17, 2018.

Asset Impairments

In the three and nine months ended July 31, 2019 and 2018, we concluded that we had triggering events related to certain assets under operating lease. As a result, we recorded charges in our Truck segment of $3 million and $6 million, respectively, compared to $1 million and $2 million, in the respective prior year periods.

In the nine months ended July 31, 2018, we concluded that we had triggering events related to the sale of our railcar business in Cherokee, Alabama requiring the impairment of certain long-lived assets. As a result, we recorded a charge of $2 million in our Truck segment. In February 2018, we completed the sale of the business. We also concluded that we had triggering events related to other certain long-lived assets, and recorded additional charges of $6 million in our Truck segment and a charge of $1 million in our Financial Services segment.

These charges were recorded in Asset impairment charges in our Consolidated Statements of Operations.

See Note 10, Fair Value Measurements, for information on the valuation of impaired operating leases and other assets.

Navistar Defense Divestiture

In December 2018, we completed the sale of a 70% equity interest in Navistar Defense, to an affiliate of Cerberus Capital Management, L.P. In connection with the closing of the transaction, we entered into an exclusive long-term agreement to supply military and commercial parts and chassis to Navistar Defense. We also entered into an intellectual property agreement and a transition services agreement concurrent with the sale.

The Navistar Defense purchase price, adjusted for certain calendar year 2018 chargeouts, was approximately $140 million, which is subject to additional adjustments for working capital, transfers of certain liabilities and commitments, and other items. The transaction also includes potential additional consideration of up to $17 million, not included in the gain on the sale, based on cash proceeds from certain contracts which exceed defined thresholds.

During the first quarter of 2019, we recognized a gain on the sale in our Truck segment of $54 million in Other expense, net in our Consolidated Statements of Operations. During the third quarter of 2019, we recognized a charge of $3 million in our Truck segment related to adjustments to the purchase price within Other expense, net in our Consolidated Statements of Operations.

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Commitments and Contingencies

9 Months Ended

Jul. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Guarantees

We occasionally provide guarantees that could obligate us to make future payments if the primary entity fails to perform under its contractual obligations. We have recognized liabilities for some of these guarantees in our Consolidated Balance Sheets as they meet the recognition and measurement provisions of U.S. GAAP. In addition to the liabilities that have been recognized, we are contingently liable for other potential losses under various guarantees. We do not believe that claims that may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash flows.

Under the terms of the Navistar Capital Operating Agreement, Navistar Capital (a program of BMO Harris Bank N.A. and Bank of Montreal (together "BMO")) is our third-party preferred source of retail and lease customer financing for equipment offered by us and our dealers in the U.S. We refer to this alliance as "Navistar Capital." The Navistar Capital Operating Agreement, as amended, contains a loss sharing arrangement under which we generally reimburse BMO for excess credit losses as defined in the arrangement. Our exposure to loss is mitigated because contracts under the Navistar Capital Operating Agreement are secured by the financed equipment. There were $1.6 billion and $1.5 billion of outstanding loan principal and operating lease payments receivable at July 31, 2019 and October 31, 2018, respectively, financed through the Navistar Capital Operating Agreement and subject to the loss sharing arrangements in the U.S. The related financed values of these outstanding contracts were $2.6 billion and $2.5 billion at July 31, 2019 and October 31, 2018, respectively. We have recognized a guarantee liability for our portion of estimated Navistar Capital credit losses. Generally, we do not carry the contracts under the Navistar Capital Operating Agreement on our Consolidated Balance Sheets. However, for certain Navistar Capital financed contracts which we have accounted for as borrowings, we have recognized equipment leased to others of $46 million and $104 million and financed lease obligations of $54 million and $122 million, in our Consolidated Balance Sheets as of July 31, 2019 and October 31, 2018, respectively.

We also have issued a limited number of residual value guarantees, for which losses are generally capped. If control has not transferred, we account for these arrangements as operating leases and revenue is recognized on a straight-line basis over the term of the lease. If control has transferred, revenue is recognized upon sale and the amounts of the guarantees are estimated and recorded. Our guarantees are contingent upon the fair value of the leased assets at the end of the lease term. We have recognized liabilities for some of these guarantees in our Consolidated Balance Sheets as they meet recognition and measurement provisions. In addition to the liabilities that have been recognized, we are contingently liable for other potential losses under various guarantees that are not recognized in our Consolidated Balance Sheets. We do not believe claims that may be made under such guarantees would have a material effect on our financial condition, results of operations, or cash flows.

We obtain certain stand-by letters of credit and surety bonds from third-party financial institutions in the ordinary course of business when required under contracts or to satisfy insurance-related requirements. As of July 31, 2019, the amount of stand-by letters of credit and surety bonds issued was $129 million.

In addition, as of July 31, 2019, we have $125 million of outstanding purchase commitments and contracts with $29 million of cancellation fees with expiration dates through 2025.

In the ordinary course of business, we also provide routine indemnifications and other guarantees, the terms of which range in duration and often are not explicitly defined. We do not believe these will result in claims that would have a material impact on our financial condition, results of operations, or cash flows.

Environmental Liabilities

We have been named a potentially responsible party ("PRP"), in conjunction with other parties, in a number of cases arising under an environmental protection law, the Comprehensive Environmental Response, Compensation, and Liability Act, popularly known as the "Superfund" law. These cases involve sites that allegedly received wastes from current or former Company locations. Based on information available to us which, in most cases, consists of data related to quantities and characteristics of material generated at current or former Company locations, material allegedly shipped by us to these disposal sites, 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 our share of the probable costs, if any, and accruals are recorded in our consolidated financial statements. These accruals are generally recognized no later than upon completion of the remedial feasibility study and are not discounted to their present value. We review all accruals on a regular basis and believe that, based on these calculations, our share of the potential additional costs for the cleanup of each site will not have a material effect on our financial condition, results of operations, or cash flows.

In addition, other sites formerly owned by us or where we are currently operating have been identified as having soil and groundwater contamination. While investigations and cleanup activities continue at these sites, we believe that we have appropriate accruals to cover costs to complete the cleanup of all sites.

We have accrued $20 million for these and other environmental matters, which are included within Other current liabilities and Other noncurrent liabilities, as of July 31, 2019. The majority of these accrued liabilities are expected to be paid subsequent to 2020.

Along with other vehicle manufacturers, we have been subject to an increased number of asbestos-related claims in recent years. In general, these claims relate to illnesses alleged to have resulted from asbestos exposure from component parts found in older vehicles, although some cases relate to the alleged presence of asbestos in our facilities. In these claims, we are generally not the sole defendant, and the claims name as defendants numerous manufacturers and suppliers of a wide variety of products allegedly containing asbestos. We have strongly disputed these claims, and it has been our policy to defend against them vigorously. Historically, the actual damages paid out to claimants have not been material in any year to our financial condition, results of operations, or cash flows. It is possible that the number of these claims will continue to grow, and that the costs for resolving asbestos related claims could become significant in the future.

Legal Proceedings

Overview

We are subject to various claims arising in the ordinary course of business and are party to various legal proceedings that constitute ordinary, routine litigation incidental to our business. The majority of these claims and proceedings relate to commercial, product liability, and warranty matters. In addition, from time to time we are subject to various claims and legal proceedings related to employee compensation, benefits, and benefits administration including, but not limited to, compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Department of Labor requirements.

In our opinion, apart from the actions set forth below, the disposition of these proceedings and claims, after taking into account recorded accruals and the availability and limits of our insurance coverage, will not have a material adverse effect on our business or our financial condition, results of operations, or cash flows.

Profit Sharing Disputes

Pursuant to the 1993 Settlement Agreement, the program administrator and named fiduciary of the Supplemental Benefit Program is the Supplemental Benefit Program Committee (the "Committee"), composed of individuals not appointed by NI or NIC. In August 2013, the Committee filed a motion for leave to amend its February 2013 complaint (which sought injunctive relief for the Company to provide certain information to which it was allegedly entitled under the Supplemental Benefit Trust Profit Sharing Plan) and a proposed amended complaint (the "Profit Sharing Complaint") in the U.S. District Court for the Southern District of Ohio (the "Court"). Leave to file the Profit Sharing Complaint was granted by the Court in October 2013. In its Profit Sharing Complaint, the Committee alleged the Company breached the 1993 Settlement Agreement and violated ERISA by failing to properly calculate profit sharing contributions due under the Supplemental Benefit Trust Profit Sharing Plan. The Committee seeks damages in excess of $50 million, injunctive relief and reimbursement of attorneys' fees and costs. Following the resolution of a procedural dispute by the U.S. Court of Appeals for the 6th Circuit, in May 2015, the Court ordered that the claims in the Profit Sharing Complaint be arbitrated pursuant to the dispute resolution procedures in the Supplemental Benefit Trust Profit Sharing Plan. In November 2015, the Company and the Committee selected an arbitrator. The arbitration discovery process commenced and on August 1, 2016, the parties submitted briefs on issues related to the scope of the arbitration. On June 29, 2017, the arbitrator ruled, among other things, that the arbitration will include Supplemental Benefit Trust Profit Sharing Plan calculations for the years ending October 31, 2001 through October 31, 2014. On September 21, 2018, the arbitrator set a schedule to rule on all issues and determine final calculations by April 15, 2020. On April 29, 2019, the arbitrator ordered a new schedule for arbitration, and the arbitrator's final determination is expected by April 30, 2020.

By letter dated February 14, 2019, the Committee indicated the Company’s Supplemental Benefit Trust Profit Sharing Plan calculation for the Plan year ending October 31, 2018 reflects numerous positions that have caused the Committee to dispute the Supplemental Benefit Trust Profit Sharing Plan calculations in the past, and on that basis the Committee disagrees with the 2018 calculation. In the February 14, 2019 letter, the Committee also requested information about the 2018 calculation. On March 12, 2019, the Committee filed in the Court a motion to enforce the 1993 Settlement Agreement for the Company’s failure to respond to the Committee’s February 14, 2019 information requests. On May 15, 2019, the Company responded to the information requests, and the motion is pending with the Court.

As noted under “Retiree Health Care Litigation” below, on August 14, 2018, the Company filed a motion to schedule a status hearing, in which the Company requested an in-person hearing to discuss the possibility of a global resolution of various disputes under the 1993 Settlement Agreement, including the pending Profit Sharing Complaint. As a result, in-person hearings were held on November 2, 2018 and February 22, 2019. Additional hearings may be scheduled in the future.

In addition, various local bargaining units of the UAW have filed separate grievances pursuant to the profit sharing plans under various collective bargaining agreements in effect between the Company and the UAW that may have similar legal and factual issues as the Profit Sharing Complaint.

Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.

Retiree Health Care Litigation

On October 21, 2016, two lawsuits were filed in the U.S. District Court for the Southern District of Ohio relating to postretirement healthcare and life insurance obligations under the 1993 Settlement Agreement. The first lawsuit (the “Committee’s Complaint”) was filed by the Committee. 

The Committee’s Complaint was filed against NIC, NI, NFC and a former affiliate, all of which are parties to the 1993 Settlement Agreement. Since January 1, 2012, the Navistar, Inc. Retiree Health Benefit Trust, created pursuant to the 1993 Settlement Agreement (the “Base Trust”), has received certain Medicare Part D subsidies from the federal Centers for Medicare and Medicaid Services that were made available for prescription drug benefits provided to Medicare-eligible seniors pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and has also received certain Medicare Part D coverage-gap discounts from prescription drug manufacturers that were made available to eligible seniors pursuant to the Patient Protection and Affordable Care Act (collectively, the “Subsidies”). 

The Committee alleges, among other things, that the defendants breached the 1993 Settlement Agreement since January 1, 2012 by causing the Base Trust to allocate the Subsidies in a manner that improperly decreased the defendants’ contributions to the Base Trust and increased retiree contributions. The Committee seeks damages, attorneys’ fees and costs for all alleged violations of the 1993 Settlement Agreement, including approximately $26 million which the Committee alleges is the eligible retirees’ “fair share” of the Subsidies that were allegedly misappropriated by the defendants from January 2012 through April 2015. 

The second lawsuit was filed by two individual members of the Committee (the “Committee Members”) who are retirees and participants in the Navistar, Inc. Health Benefit and Life Insurance Plan (the “Plan”) created pursuant to the 1993 Settlement Agreement. The Committee Members’ complaint (the “Committee Members’ Complaint”) was filed against NIC, NI, NFC and certain other former or current affiliates, all of which are parties or employers as defined in the 1993 Settlement Agreement. The Committee Members allege, among other things, that the Company violated the terms of the Plan, breached a fiduciary duty under ERISA, and engaged in ERISA-prohibited transactions by improperly using the Plan’s assets (a portion of the Subsidies) for the Company’s benefit. The Committee Members request that the court order the defendants to restore all losses to the Base Trust, including approximately $26 million, which the Committee Members allege is the Plan participants’ “fair share” of the Subsidies that were allegedly misappropriated by the defendants from January 2012 through April 2015. The Committee Members also request that the court enjoin the defendants from alleged future violations of the Plan and ERISA with respect to treatment of the Subsidies, order the defendants to remedy all alleged ERISA-prohibited transactions and pay the Committee Members’ attorneys’ fees and costs.

The defendants filed motions to dismiss each respective complaint on January 10, 2017. On May 10, 2017, the court dismissed the Committee's Complaint with prejudice, stating that the Committee lacked standing to bring its claims. With respect to the Committee Members’ Complaint, the court declined to dismiss the complaint, but ordered the parties to conduct discovery regarding whether the Committee Members’ Complaint is barred by the applicable statute of limitations and to file a motion for summary judgment thereafter on that issue of timeliness. The defendants filed their motion for summary judgment on September 21, 2017, the Committee Members’ filed their opposition on November 2, 2017, and the defendants filed their reply on November 22, 2017. On June 26, 2018, the court conditionally overruled the defendants’ motion for summary judgment. The court bifurcated the case and in September 2018 the court conducted a trial on the issue of whether the Committee Members’ Complaint is barred by the applicable statute of limitations. On November 20, 2018, the Committee Members filed a motion for sanctions, alleging various discovery and trial misconduct by the defendants and requesting that the court enter judgment in favor of the Committee Members with respect to the statute of limitations issue and award attorneys’ fees to the Committee Members. On December 11, 2018, the defendants filed their opposition to the Committee Members’ motion for sanctions. On March 26, 2019, the court granted the Committee Members’ motion for sanctions and ordered that discovery related to the statute of limitations be re-opened through May 28, 2019, and the court subsequently extended the statute of limitations discovery period to October 7, 2019. The court set a hearing for October 7, 2019 to complete the record on the statute of limitations defense. The court also ordered the Company to pay certain of the Committee Members legal and other costs to file the motion for sanctions and to conduct additional discovery related to the statute of limitations issue.

On August 14, 2018, under the original Shy et. al. v. Navistar International Corporation, Civil Action No. 3:92-CV-333 (S.D. Ohio 1992), the Company filed a motion to schedule a status hearing to request an in-person hearing to discuss the possibility of a global resolution of various disputes under the 1993 Settlement Agreement, including but not limited to resolving the pending Profit Sharing Complaint and Committee Members’ Complaint described above. As a result, in-person hearings were held on November 2, 2018 and February 22, 2019. Additional hearings may be scheduled in the future.

Based on our assessment of the facts underlying the claims in the above actions, we are unable to provide meaningful quantification of how the final resolution of these claims may impact our future consolidated financial condition, results of operations, or cash flows.

FATMA Notice

International Indústria Automotiva da América do Sul Ltda. ("IIAA"), formerly known as Maxion International Motores S/A ("Maxion"), now a wholly owned subsidiary of the Company, received a notice (the “FATMA Notice”) in July 2010 from the State of Santa Catarina Environmental Protection Agency ("FATMA") in Brazil. The FATMA Notice alleged that Maxion sent waste to a facility owned and operated by a company known as Natureza (the “Natureza Facility”) and that soil and groundwater contamination had occurred at the Natureza Facility.

The FATMA Notice asserted liability against Maxion and assessed an initial penalty in the amount of R$2 million (approximately US$1 million as of July 31, 2019), which is not due and final until all administrative appeals are exhausted. Maxion was one of numerous companies that received similar notices. IIAA filed an administrative defense in August 2010 and has not yet received a decision following that filing.

In addition to the matter described above, there is a suit pending in the federal court of Brazil in which the federal district attorney has sued (a) FATMA, for claims related to FATMA’s actions in connection with licensing and inspection procedures related to the Natureza Facility, and (b) Selamix, as the current owner of the Natureza Facility. In this federal suit, Selamix was found liable for the contamination at the Natureza Facility due to it being the successor owner of the facility. However, the federal court’s decision does not prohibit Selamix from seeking to recover its damages from third parties that contributed to the contamination at the Natureza Facility.

In connection with the FATMA Notice, IIAA presented a motion to the district attorney of the State of Santa Catarina (the “SC District Attorney”) to set forth its defenses and correct inaccuracies in the FATMA Notice in August 2017. In September 2017, the SC District Attorney informed IIAA that it intended to present a Consent Agreement to all of the companies that sent waste to Natureza to determine the allocation of the liability for generating the waste which led to the contamination of the Natureza Facility. IIAA then filed a motion requesting that the SC District Attorney consider certain facts and circumstances prior to presenting the Consent Agreement.

In January 2018, the SC District Attorney, local and state authorities, Selamix, IIAA and the 14 other companies (together, the "Companies") that are alleged to have significantly contributed to the contamination met to discuss the matter. Selamix then presented three proposals for conducting a preliminary environmental assessment in the area to determine the allocation of liability among the Companies. In March 2018, Selamix informed the SC District Attorney that it would voluntarily conduct a preliminary environmental study at the Natureza Facility in an attempt to determine and allocate the liability for the contamination pursuant to an agreement with the Companies after the study is completed. The SC District Attorney agreed to suspend further inquiry into the matter until Selamix’s study had been completed. The Companies (other than Selamix) have expressed an interest in having an independent environmental study conducted. The SC District Attorney has indicated that it may consider requiring an independent environmental study after Selamix’s environmental study is completed.

In June 2018, Selamix presented its Environmental Preliminary Assessment Report to the SC District Attorney and the Companies alleged to have contributed to the contamination and the report indicated that the entire property should be subject to further studies to confirm the type and extent of the contamination due to signs of buried residues in several areas. Selamix also presented commercial proposals from two additional companies specializing in environmental studies to perform the next steps of the technical work. The SC District Attorney then requested a third commercial proposal which was to be presented and paid for by Selamix. One of the commercial proposals included an Environmental Preliminary Assessment Report ("Phase 1 Study") and indicated that a Phase 2 assessment should be performed to include: (i) geophysical investigations to identify buried drums; (ii) investigations to verify and delimitate the volume and size of the contamination; and (iii) sample collection and analysis of soil and water. In July 2019, the SC District Attorney requested that each of the Companies (including IIAA) inform the SC District Attorney of whether they intend to contribute to the costs of the portion of the Phase 2 assessment related to geophysical investigations to identify buried drums at the Natureza Facility. The request did not include any information related to the potential range of the associated costs or indicate whether contributions for the cost of the other portions of the Phase 2 assessment would be sought from the Companies (including IIAA). IIAA responded to the request indicating that it would not contribute to the cost of the Phase 2 assessment related to geophysical investigations and requested a meeting with the SC District Attorney to discuss the next steps in the process.

IIAA continues to dispute the allegations in the FATMA Notice and intends to continue to vigorously defend itself. Currently, no demands or offers are outstanding.

Sao Paulo Groundwater Notice

In March 2014, IIAA, along with other nearby companies, received from the Sao Paulo District Attorney (the "District Attorney") a notice and proposed Consent Agreement relating to alleged neighborhood-wide groundwater contamination at or around its Sao Paulo manufacturing facility. The proposed Consent Agreement sought certain groundwater investigations and other technical relief and proposed sanctions in the amount of R$3 million (approximately US$1 million as of July 31, 2019). In November 2014, IIAA extended a settlement offer. The parties remained in discussions and IIAA’s settlement offer was never accepted, rejected or countered by the District Attorney.

On August 31, 2016, the District Attorney filed civil actions against IIAA and other companies in the Central Forum of the capital of the State of Sao Paulo seeking soil and groundwater investigation and remediation, together with monetary payment in an unspecified amount. IIAA filed its defense to the civil action on January 26, 2017, alleging that IIAA has made all necessary investigations and has taken remedial measures to address the contamination and that Companhia Ambiental do Estado de Sao Paulo ("CETESB"), the environmental agency of Sao Paulo State, has agreed to the remedial measures taken by IIAA. On June 20, 2017, IIAA presented a petition requesting a 90-day suspension of the lawsuit. IIAA has since held and is currently engaged in discussions with the District Attorney regarding settlement of this matter. The District Attorney agreed to an initial suspension on June 30, 2017 and a subsequent suspension for an additional 90 days which ended on July 9, 2018.

A new district attorney (the “New District Attorney”) assumed responsibility for the case in February 2018. The New District Attorney would like the companies involved to try to reach a settlement agreement as to the remediation efforts to be taken after having discussions and negotiations with the New District Attorney’s technical experts. IIAA attempted to schedule a meeting with the New District Attorney’s technical experts. IIAA met with the New District Attorney on July 25, 2018. The New District Attorney has indicated that he will request information related to the status of the current remediation from CETESB. After receiving that information, the New District Attorney indicated that he will schedule a meeting with IIAA to discuss the proposed terms of a potential settlement agreement and granted a third suspension on August 14, 2018 which ended on November 14, 2018. Although the suspension was technically terminated, the New District Attorney continued to evaluate the possibility of settlement. The New District Attorney requested a suspension, which was granted by the court and technically ended on August 26, 2019. In the event that the New District Attorney does not request a further suspension, the proceedings will continue and the parties will begin discovery and evidence production.

There are no current demands or offers outstanding.

MaxxForce Engine EGR Warranty Litigation

On June 24, 2014, N&C Transportation Ltd. ("N&C") filed a putative class action lawsuit against NIC, NI, Navistar Canada Inc., and Harbour International Trucks in Canada in the Supreme Court of British Columbia (the "N&C Action"). Subsequently, seven additional, similar putative class action lawsuits have been filed in Canada (together with the N&C Action, the "Canadian Actions").

From June 13-17, 2016, the court conducted a certification hearing in the N&C Action. On November 16, 2016, the court certified a Canada-wide class comprised of persons who purchased heavy-duty trucks equipped with Advanced EGR MaxxForce 11, MaxxForce 13, and MaxxForce 15 engines designed to meet 2010 EPA regulations. The court in the N&C Action denied certification to persons who operated but did not buy the trucks in question. On November 2, 2017, NIC, NI, Navistar Canada Inc. and Harbour International Trucks filed a notice of appeal. On December 8, 2017, the plaintiff filed a notice of cross-appeal. Both the appeal and cross-appeal were heard by the British Columbia Court of Appeal on February 9, 2018. On August 1, 2018, the appellate court denied our appeal and granted, in part, N&C's cross-appeal and as such certified three narrow issues on whether misrepresentations were made in Navistar's advertising materials. On September 28, 2018, Navistar sought leave to appeal the certification decision to the Supreme Court of Canada, but leave was denied on March 28, 2019. The next step will be an attendance before the case management judge regarding the details of the notice of certification to be given to the class. No date for this attendance has been set.

On June 5, 2017, a hearing was held in the Quebec putative class action lawsuit captioned 4037308 Canada Inc. v. Navistar Canada Inc., NI, and NIC. At that hearing, the court ruled on certain motions regarding evidence related to certification but deferred a ruling on plaintiff’s proposed amendment to narrow the proposed class to Quebec-only purchasers and lessees of model year 2010-13 vehicles containing MaxxForce 11, 13, and 15 liter engines. On November 23, 2017, we filed a motion to stay the Quebec case until the British Columbia Court of Appeal rules on the certification order in the N&C Action. The stay motion was granted on December 7, 2017. The decision of the British Columbia Court of Appeal was provided to the Quebec court. On September 6, 2018, the stay was extended until the Supreme Court of Canada decides the application for leave to appeal in the N&C Action. The stay has since been removed, but no hearing date or certification schedule has been set.

In the Manitoba putative class action lawsuit captioned Vern Brown v. Navistar International Corporation and Navistar Canada, Inc., the court held a case management conference on June 29, 2018, after the plaintiff failed to file a complete certification record by the previously court-ordered due date. The plaintiff advised that it expected to file its remaining certification affidavits by August 31, 2018, and the court suspended certification scheduling in the interim. The plaintiff filed an additional affidavit on July 5, 2018. On September 5, 2018, the court adjourned the certification application indefinitely to allow the plaintiff to obtain an expert report. On July 30, 2019, the plaintiff served an expert report and wrote to the court seeking a case management conference. There are no certification or other hearings scheduled in any of the other Canadian Actions at this time.

On July 7, 2014, Par 4 Transport, LLC filed a putative class action lawsuit against NI in the United States District Court for the Northern District of Illinois (the "Par 4 Action"). Subsequently, seventeen additional putative class action lawsuits were filed in various United States district courts, including the Northern District of Illinois, the Eastern District of Wisconsin, the Southern District of Florida, the Middle District of Pennsylvania, the Southern District of Texas, the Western District of Kentucky, the District of Minnesota, the Northern District of Alabama, and the District of New Jersey (together with the Par 4 Action, the "U.S. Actions"). Some of the U.S. Actions name both NIC and NI, and allege matters substantially similar to the Canadian Actions. More specifically, one or more of the Canadian Actions and the U.S. Actions (collectively, the "EGR Class Actions") seek to certify a class of persons or entities in Canada or the United States who purchased and/or leased a ProStar or other Navistar vehicle equipped with a model year 2008-2013 MaxxForce Advanced EGR engine.

In substance, the EGR Class Actions allege that the MaxxForce Advanced EGR engines are defective and that the Company and NI failed to disclose and correct the alleged defect. The EGR Class Actions assert claims based on theories of contract, breach of warranty, consumer fraud, unfair competition, misrepresentation and negligence. The EGR Class Actions seek relief in the form of monetary damages, punitive damages, declaratory relief, interest, fees, and costs.

On October 3, 2014, NIC and NI filed a motion before the United States Judicial Panel on Multidistrict Litigation (the "MDL Panel") seeking to transfer and consolidate before Judge Joan B. Gottschall of the United States District Court for the Northern District of Illinois all of the then-pending U.S. Actions, as well as certain non-class action MaxxForce Advanced EGR engine lawsuits pending in various federal district courts.

On December 17, 2014, Navistar's motion to consolidate the U.S. Actions and certain other non-class action lawsuits was granted. The MDL Panel issued an order consolidating all of the U.S. Actions that were pending on the date of Navistar’s motion before Judge Gottschall in the United States District Court for the Northern District of Illinois (the "MDL Action").

The MDL Panel also consolidated into the MDL Action certain non-class action MaxxForce Advanced EGR engine lawsuits pending in the various federal district courts. Non-class federal lawsuits presenting pre-trial issues similar to the MDL Action continue to be transferred to the MDL Action. Approximately 28 such actions are currently pending.

On March 5, 2015, Judge Gottschall entered an order in the MDL Action appointing interim lead counsel and interim liaison counsel for the plaintiffs. On May 11, 2015, lead counsel for the plaintiffs filed a First Master Consolidated Class Action Complaint ("Consolidated Complaint"). The parties to the MDL Action exchanged initial disclosures on May 29, 2015. The Company answered the Consolidated Complaint on July 13, 2015. On September 22, 2016, lead counsel for the plaintiffs filed a First Amended Consolidated Class Action Complaint (the “Amended Consolidated Complaint”). The Amended Consolidated Complaint added 25 additional named plaintiffs. NI and NIC answered the Amended Consolidated Complaint on October 20, 2016.

On October 13, 2017, lead counsel for the plaintiffs filed a Motion for Leave to File a Second Amended Consolidated Class Action Complaint, as well as a Motion for Voluntary Dismissal of Claims without Prejudice relating to 15 previously named plaintiffs. On January 4, 2018, Judge Gottschall granted both motions. On January 9, 2018, the plaintiffs filed a Second Amended Consolidated Class Action Complaint. The Second Amended Consolidated Class Action Complaint removed 15 named plaintiffs and substituted in 8 new named plaintiffs. Three class action cases were dismissed without prejudice because there were no longer any remaining plaintiffs in those cases. On May 30, 2019, the court granted plaintiffs leave to file a Third Amended Consolidated Class Action Complaint. The Third Amended Consolidated Class Action Complaint removed 2 named plaintiffs. NI and NIC answered the Third Amended Consolidated Class Action Complaint on June 16, 2019.

On August 16, 2018, Judge Gottschall entered a minute order setting a status hearing for September 26, 2018 in light of the ongoing settlement efforts of the parties. During the September 26, 2018 status hearing, the parties advised the court that additional settlement discussions were scheduled. Accordingly, on September 27, 2018 Judge Gottschall entered a minute order extending class plaintiffs' deadline to file a motion for class certification and supporting expert reports until November 16, 2018.  Since September 2018, Judge Gottschall has extended the deadlines for class certification briefing several times to allow for settlement discussions. On May 28, 2019, NIC and NI entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”) with certain named plaintiffs to settle the class actions consolidated in the U.S. Actions. On May 28, 2019, plaintiffs submitted the Settlement Agreement to the court for preliminary approval. The Settlement Agreement class consists of entities and natural persons who owned or leased a 2011-2014 model year vehicle equipped with a MaxxForce 11 or 13 liter engine certified to meet EPA 2010 emissions standards without selective catalytic reduction technology, provided that vehicle was purchased or leased in the U.S.

Pursuant to the Settlement Agreement, among other things, (1) the parties will establish a non-reversionary common fund consisting of cash (the “Cash Fund”) and rebates (the “Rebate Fund”) with a total value of $135 million (the “Settlement Fund”); (2) NIC and NI will contribute $85 million to the Cash Fund, which will be used to pay all settlement fees and expenses, service awards, attorneys’ fees and costs, and cash payments to members of the settlement class; (3) NI will commit to make available rebates with a face value in the aggregate of $50 million to the Rebate Fund; and (4) the settlement class will release NIC and NI and their affiliates from all claims and potential claims arising from or related to the allegations in the U. S. Actions, except for claims for personal injury or damage to third-party property. The Settlement Agreement further provides that dollars or value remaining in either the Cash Fund or the Rebate Fund after claims are processed will be used to pay approved claims from the other fund if the other fund is oversubscribed (the “Waterfall”). Any Waterfall from the Rebate Fund to the Cash Fund is capped at $35 million. Finally, the Settlement Agreement states that NIC and NI deny all claims in the U.S. Actions, deny wrongdoing, liability or damage of any kind, and deny that NIC and NI acted improperly or wrongfully in any way.

The Settlement Agreement is subject to final approval by the court, including possible appeals. On June 12, 2019, the court preliminarily approved the settlement. Members of the class have been provided notice of the Settlement Agreement and an opportunity to object or opt out. Any members of the class who opt out will not receive any benefit from the Settlement Agreement or be bound by it. The court scheduled a fairness hearing for November 13, 2019 at which the court will determine whether the Settlement Agreement should be finally approved and whether the proposed Final Order and Judgment should be entered. Depending on opt out numbers and certain oversubscription numbers, NIC and NI or lead counsel for the class may have the option to withdraw from the Settlement Agreement.

On November 11, 2017, seven plaintiffs (the “Direct Action Plaintiffs”) in the MDL Action moved for a separate trial and discovery schedule independent of the class action schedule. On January 2, 2018, Judge Gottschall granted in part and denied in part the Direct Action Plaintiffs’ motion, allowing two of the Direct Action Plaintiffs to begin limited discovery on plaintiff-specific issues. The parties are currently engaged in discovery. One of the Direct Action Plaintiffs filed a motion for leave to file a First Amended Complaint on September 25, 2018 and that motion was granted by the court in a minute order dated December 13, 2018. The First Amended Complaint was filed on December 18, 2018 and our response was filed on January 8, 2019. A hearing is scheduled for September 24, 2019 in order to set a discovery plan for all Direct Action Plaintiffs.

There are also non-class action MaxxForce Advanced EGR engine lawsuits filed against the Company in various state courts. A number of non-class action lawsuits have been resolved in favor of the Company prior to trial or settled for immaterial amounts. Several cases have been resolved at trial with varying results. Approximately 40 state court non-class actions are pending at this time. One of the non-class action lawsuits ("Milan"), alleging violations of the Tennessee Consumer Protection Act and fraud and involving approximately 235 trucks, was tried in Tennessee state court in August 2017. On August 10, 2017, the Milan jury returned a verdict of approximately $31 million against the Company, including $20 million in punitive damages. On October 2, 2017, the Company filed various motions in the trial court challenging the verdict, including a Motion for Judgment Notwithstanding the Verdict or, in the Alternative, a New Trial and Motion to Disapprove of the Award of Punitive Damages.

The hearing on these motions was held on December 1, 2017 and the court denied the Company's motions, denied Milan’s motion for pre-judgment interest and granted Milan $1 million in fees and costs. On January 11, 2018, the Company filed a Notice of Appeal in the Tennessee Court of Appeals challenging the verdict. Briefing on the appeal was completed on March 18, 2019, and the Tennessee Court of Appeals heard oral arguments on June 19, 2019. In the third quarter of 2017, we recorded $31 million of charges in SG&A expenses in our Consolidated Statements of Operations.

On August 14, 2019, a three-judge panel of the Tennessee Court of Appeals issued a unanimous opinion reversing the $31 million judgment and $1 million of fees and costs for Milan. In addition, the Tennessee Court of Appeals affirmed the trial court’s judgment for Navistar on Milan’s warranty claims. Milan will have an opportunity to file an application for permission to appeal this ruling to the Tennessee Supreme Court. If Milan appeals this ruling, the Company will have 15 days to respond. The Tennessee Supreme Court will then decide whether or not to exercise its discretion to hear the appeal.

Based on our assessment of the facts underlying the claims in the above actions, the Company has recorded a charge in the Company’s fiscal second quarter ended April 30, 2019 in the amount of $159 million as a reserve for its expected obligations under the Settlement Agreement as well as for current period liabilities and potential future settlements with respect to certain other MaxxForce Advanced EGR engine lawsuits that are not included in the Settlement Agreement. In addition, the Company has released a liability of $32 million, related to the judgment reversal in the Milan case in the third quarter ended July 31, 2019. These impacts were recorded in SG&A expenses in our Consolidated Statements of Operations. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of these matters may impact our future consolidated financial condition, results of operations or cash flows.

EPA Clean Air Act Litigation

In February 2012, NI received a Notice of Violation ("NOV") from the United States Environmental Protection Agency (the "EPA") pertaining to certain heavy-duty diesel engines which, according to the EPA, were not completely assembled by NI until calendar year 2010 and, therefore, were not covered by NI's model year 2009 certificates of conformity. The NOV concluded that NI's introduction into commerce of each of these engines violated the Federal Clean Air Act.

On July 14, 2015, the Department of Justice ("DOJ"), on behalf of the EPA, filed a lawsuit against NIC and NI in the U.S. District Court for the Northern District of Illinois. Similar to the NOV, the lawsuit alleges that NIC and NI introduced into commerce approximately 7,749 heavy-duty diesel engines that were not covered by model year 2009 certificates of conformity because those engines were not completely assembled until calendar year 2010, resulting in violations of the Federal Clean Air Act. On July 16, 2015, the DOJ filed an Amended Complaint clarifying the amount of civil penalties being sought. The lawsuit requests injunctive relief and the assessment of civil penalties of up to $37,500 for each violation. On September 14, 2015, NIC and NI each filed an Answer and Affirmative Defenses to the Amended Complaint. We dispute the allegations in the lawsuit.

Fact discovery for the liability phase commenced on December 9, 2015. Pursuant to the court's minute order entered on July 12, 2017, the fact discovery was completed as of November 9, 2017.

On May 13, 2016, the DOJ, on behalf of the EPA, filed a motion for summary judgment on liability. On June 30, 2016, NIC and NI opposed the EPA's motion for summary judgment, and NIC cross-moved for summary judgment against the EPA. On March 1, 2017, the court entered a Memorandum Opinion and Order (i) granting the DOJ’s motion for summary judgment on the issue of liability with respect to NI, (ii) denying the DOJ’s motion for summary judgment on the issue of liability with respect to NIC, and (iii) denying NIC’s motion for summary judgment.

On April 3, 2018, the parties jointly filed a stipulation of dismissal with prejudice for NIC only. The stipulation with prejudice has no effect on the claims made against NI. With the dismissal of NIC, the matter moved to the remedy phase with respect to NI. The court entered a scheduling order on May 3, 2018, setting a fact discovery deadline of May 22, 2019, expert report and deposition deadlines through November 7, 2019, and a deadline for submission of dispositive motions of December 9, 2019. As a result of the partial federal government shutdown, and subsequent motions by the parties, the deadline for fact discovery was August 3, 2019, expert report and expert deposition deadlines are through January 31, 2020 and a deadline for dispositive motions is scheduled for February 28, 2020.

Based on our assessment of the facts underlying the amended complaint above, potential charges to the Consolidated Statements of Operations and cash outlays in future periods could range from $2 million to $291 million related to the resolution of this matter. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.

Brazil Truck Dealer Disputes

In January 2014, IIAA initiated an arbitration proceeding under the International Chamber of Commerce rules seeking payment for goods sold and unpaid, in the amount of R$64 million (approximately US$17 million as of July 31, 2019), including penalties and interest, from a group of affiliated truck dealers in Brazil. The truck dealers are affiliated with each other, but not with us, and are collectively referred to as Navitrucks. In the proceeding, IIAA also seeks a declaration of fault against Navitrucks related to the termination of the truck dealer agreements between IIAA and Navitrucks. Navitrucks responded in part by submitting counterclaims against IIAA seeking the amount of R$128 million (approximately US$34 million as of July 31, 2019) for damages related to alleged unfulfilled promises and injury to Navitrucks’ reputation. In October 2014, Navitrucks amended their counterclaims by increasing the amount of damages. During a preliminary hearing before the arbitral tribunal on March 24, 2015, the parties agreed to submit all of the pending claims between the parties to the exclusive jurisdiction of the arbitral tribunal. Pursuant to the timetable issued in the arbitration proceeding, IIAA presented its complaint in July 2015, Navitrucks filed its answer and counterclaims on August 24, 2015, and IIAA filed its rebuttal and answer to Navitrucks’ counterclaims on October 22, 2015. On December 7, 2015, Navitrucks filed its rebuttal to IIAA’s answer to counterclaims. On June 13-15, 2016, the arbitral tribunal held hearings on the parties presenting witnesses and evidence.

On July 18, 2016, IIAA and Navitrucks presented additional documents and information related to the hearing held on June 13-15, 2016. On September 30, 2016, the parties presented their final allegations. On April 20, 2017, the arbitral tribunal issued a partial award (the "Initial Award") granting a portion of the relief sought by each of the parties. Specifically, the arbitral tribunal's Initial Award held that: (a) Navitrucks failed to pay certain amounts to IIAA for the purchase of vehicles under its agreements with IIAA, thereby breaching its contractual obligations; and (b) IIAA breached its contractual obligations under its agreements with Navitrucks due to its failure to fulfill its promises to invest in products, infrastructure, and a dealership network. Furthermore, the arbitral tribunal held that, due to the mutual breach of the agreements between IIAA and Navitrucks, the agreements should be deemed terminated.

On June 3, 2017, IIAA and Navitrucks filed an application to clarify certain interpretations of the Initial Award and to correct clerical errors in the Initial Award. IIAA also requested an award to (a) set the indisputable amount of the Initial Award, and (2) order Navitrucks to promptly pay such amount. On June 8, 2017, the arbitral tribunal invited IIAA and Navitrucks to present their respective comments on each other’s applications on or before June 27, 2017. On June 3, 2017 and June 27, 2017, IIAA and Navitrucks, respectively, filed their comments. On September 29, 2017, the arbitral tribunal issued a decision on the applications filed by both parties in which it rejected all of the requests made in the applications of both parties. On October 31, 2017, the arbitral tribunal issued a decision relating to the timeline for the production of technical evidence to be used in the calculation phase in which the actual monetary amount of the damages owed by each party to the other will be definitively determined.

As determined by the arbitral tribunal, IIAA (a) designated its expert assistant and disclosed the questions to be answered by the arbitral expert (official expert designated by the arbitral tribunal); (b) presented a summary of the amount that Navitrucks owes to IIAA in accordance with the previous calculation and related award issued on April 20, 2017; and (c) presented its replies to the Navitrucks' petitions.

On May 11, 2018, the arbitral tribunal issued a decision allowing the calculation to be made by the parties’ experts and scheduled the calculation phase hearing for August 16, 2018. On July 6, 2018, each party’s experts presented their reports indicating the calculation of the total amount due from each party to the other party. On August 6, 2018, the parties jointly filed a petition informing the arbitral tribunal that they reached an agreement as to the total amount due from each party to the other party. Pursuant to the agreement, Navitrucks agreed that it owes IIAA the total amount of R$107 million (approximately US$28 million as of July 31, 2019) after deducting the agreed amount of Navitrucks' claim against IIAA.

In addition, the parties requested: (a) the cancellation of the hearing scheduled for August 16, 2018; (b) a 15 day period for the parties to present their respective costs incurred in connection with the arbitral proceeding; and (c) the closure of the calculation phase with the final ruling of merits.

On August 13, 2018, the arbitral tribunal issued a decision canceling the hearing scheduled for August 16, 2018 and directed the parties to prove their respective incurred costs with the arbitral proceeding and to specify whether there were any additional productions of evidence or considerations by August 23, 2018.

On August 23, 2018, IIAA filed a petition indicating that its costs incurred in connection with the arbitral proceeding were R$6 million (approximately US$2 million as of July 31, 2019). On the same date, Navitrucks filed a petition indicating that its costs incurred in connection with the arbitral proceeding were R$3 million (approximately US$1 million as of July 31, 2019). On September 18, 2018, the arbitral tribunal issued a decision (i) declaring the end of the evidence phase, (ii) ordering the parties to present their closing arguments on or before October 31, 2018, and (iii) stating that the final decision on the merits will be issued on or before December 20, 2018. On October 31, 2018, the parties submitted their closing arguments.

On or about March 1, 2019, IIAA and Navitrucks received the award of the arbitral tribunal. The award orders the Navitrucks entities to pay IIAA a total of R$107 million (approximately US$28 million as of July 31, 2019), subject to inflation adjustment and default interest. In addition, the arbitral tribunal ordered the Navitrucks entities to reimburse IIAA in the amount of R$3 million (approximately US$1 million as of July 31, 2019) for a portion of IIAA’s costs incurred in the arbitration. The parties will have 30 days from the date of receipt of the award to apply for the correction of errors and/or clarifications related to the award. On March 29, 2019, IIAA filed an application for clarifications related to certain clerical errors in the award. On April 22, 2019, the arbitral tribunal issued a decision ordering Navitrucks to submit any comments regarding the application for clarifications filed by IIAA on or before April 25, 2019 and indicated that the arbitral tribunal will issue a final award with respect to IIAA’s application for clarifications by May 25, 2019.

On June 3, 2019, the arbitral tribunal issued the final award with an addendum to address the clarifications related to certain clerical errors in the award. The final award amount was noted as R$131 million (approximately US$35 million as of July 31, 2019) and Navitrucks was required to pay IIAA on or before July 15, 2019. Navitrucks did not make the required payment to IIAA on or before July 15, 2019 and IIAA is now permitted to commence an enforcement proceeding in the Brazilian civil court.

We have not recorded a receivable related to this matter in our consolidated financial statements.

In addition, two truck fleet owners in Brazil have a separate adversarial proceeding pending against IIAA that may have similar legal and factual issues as the Navitrucks claim. This claim is not material either individually or in the aggregate.

California Air Resources Board Notice of Violation

On March 28, 2019, Navistar received a notice of violation ("NOV") from the California Air Resources Board ("CARB"). In the NOV, CARB alleges that Navistar failed to disclose a running change to 1,385 engines including certain model year 2013 to 2015 N13 engines and 2014 to 2015 N9/10 engines. CARB alleges that the running change in question made modifications to the emissions control system such that the engines no longer conformed to the configuration as certified. In August 2019, the Company and CARB reached a tentative resolution of this matter for $2 million, subject to agreement on formal terms.

Based on our assessment of the facts underlying the claims in the above actions, the Company has recorded a charge in the third quarter ended July 31, 2019 in the amount of $2 million as a reserve for its expected obligations in Engineering and product development costs in our Consolidated Statements of Operations. Other than the aforementioned, we are unable to provide further meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.

Other

U.S. Department of Defense Matter

In the third quarter of 2016, Navistar Defense, LLC ("NDLLC") received a subpoena from the United States Department of Defense Inspector General (the "DOD IG"). The subpoena requested documents relating to NDLLC's sale of its independent suspension systems ("ISS") for military vehicles to the government for the period from January 1, 2009 through December 31, 2010. On June 3, 2016, NDLLC met with government representatives, including representatives from the DOD IG and the DOJ to discuss the matter.

Since then, NDLLC has been in ongoing discussions with the DOD IG and the DOJ. NDLLC made submissions of documents responsive to the subpoena in June and August 2016 and completed its subpoena response. On May 1, 2017, NDLLC met with government representatives, including representatives from the DOD IG and the DOJ, to further discuss the matter, including assertions that NDLLC may have overcharged the United States for the ISS components. NDLLC agreed to provide additional information relating to the pricing of the ISS components. The parties met again on June 13, 2017. In August 2017, NDLLC received a letter from the DOJ claiming that NDLLC made false and misleading statements during the course of price negotiations and during the Defense Contract Audit Agency audit which resulted in NDLLC overcharging the United States for the ISS components by approximately $88 million and asking for treble damages and penalties for a total demand of approximately $264 million. NDLLC has responded to the DOJ’s demand letter explaining its position that it has no liability in this matter and outlining the bases for such position, and that NDLLC intends to vigorously defend its position. NDLLC and the DOJ communicated between October 5, 2017 and December 8, 2017 to discuss their respective positions on both liability and damages.

On December 8, 2017, NDLLC received another subpoena from the DOD IG which requested documents relating to NDLLC's pricing of the Mine Resistant Ambush Protected (“MRAP”) vehicle and its sale of parts to the government for the period from January 1, 2006 through December 31, 2013. NDLLC responded to the subpoena and made four productions of responsive documents.

On July 10, 2018, NDLLC received another subpoena from the DOD IG requesting additional custodian emails and documents related to the MRAP and ISS components. NDLLC is responding to the subpoena and has made four productions of responsive documents. Additionally, in September and October 2018 the DOJ conducted interviews of certain current and former employees and will likely conduct additional interviews in the future.

The parties currently are engaged in mediation, which began in February 2019.

At this time, we are unable to predict the outcome of these matters, including whether a settlement will be reached, or provide meaningful quantification of how the final resolution of this matter may impact our future consolidated financial condition, results of operations or cash flows.

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Finance Receivables (Tables)

9 Months Ended

Jul. 31, 2019

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Our Finance receivables, net in our Consolidated Balance Sheets consist of the following:

(in millions)	As of July 31, 2019		As of October 31, 2018
Retail portfolio	$	851	$	720
Wholesale portfolio	1,635		1,460
Total finance receivables	2,486		2,180
Less: Allowance for doubtful accounts	24		22
Total finance receivables, net	2,462		2,158
Less: Current portion, net(A)	2,187		1,898
Noncurrent portion, net	$	275	$	260

_________________________

(A)

The current portion of finance receivables is computed based on contractual maturities. Actual cash collections typically vary from the contractual cash flows because of prepayments, extensions, delinquencies, credit losses, and renewals.

Finance Revenues Derived From Receivables [Table Text Block]

The following table presents the components of our Finance revenues in our Consolidated Statements of Operations:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	2019		2018		2019		2018
Retail notes and finance leases revenue	$	16	$	12	$	45	$	36
Wholesale notes interest	31		26		93		75
Operating lease revenue	19		19		62		54
Retail and wholesale accounts interest	8		8		26		22
Gross finance revenues	74		65		226		187
Less: Intercompany revenues	28		25		85		69
Finance revenues	$	46	$	40	$	141	$	118

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Jul. 31, 2019

Inventory [Line Items]

Product Warranty Disclosure [Text Block]

Product Warranty Liability

The following table presents accrued product warranty and deferred warranty revenue activity:

	Nine Months Ended July 31,
(in millions)	2019			2018
Balance at beginning of period	$	529		$	629
Costs accrued and revenues deferred	182			139
Adjustments to pre-existing warranties(A)	7			(4		)
Payments and revenues recognized	(208		)	(233		)
Other adjustments(B)	12			—
Balance at end of period	522			531
Less: Current portion	247			254
Noncurrent accrued product warranty and deferred warranty revenue	$	275		$	277

_________________________

(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior fiscal periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

(B)

Other adjustments include a $14 million increase in revenues deferred in connection with the adoption of the new revenue standard (as defined below regarding Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606), partially offset by a $2 million reduction in liability related to the sale of a majority interest in our defense business, ND Holdings, LLC ("Navistar Defense")..

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations and our Financial Services operations, including VIEs of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.

We prepared the accompanying unaudited consolidated financial statements in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for comprehensive annual financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended October 31, 2018, which should be read in conjunction with the disclosures therein. In our opinion, these interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.

Variable Interest Entities

Variable Interest Entities

We have an interest in several VIEs, primarily joint ventures, established to manufacture or distribute products and enhance our operational capabilities. We have determined for certain of our VIEs that we are the primary beneficiary because we have the power to direct the activities of the VIE that most significantly impact its economic performance and we have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Accordingly, we include in our consolidated financial statements the assets and liabilities and results of operations of those entities, even though we may not own a majority voting interest. The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather they represent claims against the specific assets of these VIEs. Assets of these entities are not readily available to satisfy claims against our general assets.

We are the primary beneficiary of our Blue Diamond Parts, LLC ("BDP") joint venture with Ford Motor Company ("Ford"). As a result, our Consolidated Balance Sheets include assets of $28 million and $39 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $3 million and $4 million, at each date. As of July 31, 2019 and October 31, 2018, assets include $3 million and $4 million of cash and cash equivalents, respectively, which are not readily available to satisfy claims against our general assets. The creditors of BDP do not have recourse to our general credit.

Our Financial Services segment consolidates several VIEs. As a result, our Consolidated Balance Sheets include secured assets of $1.1 billion and $994 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $956 million and $852 million as of July 31, 2019 and October 31, 2018, respectively, all of which are involved in securitizations that are treated as asset-backed debt. In addition, our Consolidated Balance Sheets include secured assets of $465 million and $370 million as of July 31, 2019 and October 31, 2018, respectively, and corresponding liabilities of $253 million and $205 million, at the respective dates, which are related to other secured transactions that do not qualify for sale accounting treatment, and, therefore, are treated as borrowings secured by operating and finance leases. Investors that hold securitization debt have a priority claim on the cash flows generated by their respective securitized assets to the extent that the related VIEs are required to make principal and interest payments. Investors in securitizations of these entities have no recourse to our general credit.

We also have an interest in other VIEs, which we do not consolidate because we are not the primary beneficiary. Our financial support and maximum loss exposure relating to these non-consolidated VIEs are not material to our financial condition, results of operations, or cash flows.

We use the equity method to account for our investments in entities that we do not control under the voting interest or variable interest models, but where we have the ability to exercise significant influence over operating and financial policies. Equity in income of non-consolidated affiliates includes our share of the net income of these entities.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, pension and other postretirement benefits, allowance for doubtful accounts, tax contingency accruals and valuation allowances, product warranty accruals, asbestos and other product liability accruals, asset impairment charges, restructuring charges and litigation-related accruals. Actual results could differ from our estimates.

Concentration Risk Disclosure [Text Block]

Concentration Risks

Our financial condition, results of operations, and cash flows are subject to concentration risks related to our significant unionized workforce. As of July 31, 2019, approximately 8,300, or 98%, of our hourly workers and approximately 700, or 13%, of our salaried workers, are represented by labor unions and are covered by collective bargaining agreements. In January 2019, certain of our United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") represented employees executed a new six-year master collective bargaining agreement with a ratification date of December 17, 2018 that replaced the prior agreement which expired in October 2018. Our future operations may be affected by changes in governmental procurement policies, budget considerations, changing national defense requirements, and political, regulatory and economic developments in the U.S. and certain foreign countries (primarily Canada, Mexico, and Brazil).

Inventory, Policy [Policy Text Block]

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is principally determined using the first-in, first-out method. Our gross used truck inventory was $251 million at July 31, 2019 compared to $154 million at October 31, 2018, offset by reserves of $55 million and $31 million, respectively.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

On November 1, 2018, we adopted the new accounting standard ASC 606, "Revenue from Contracts with Customers" and all the related amendments (“new revenue standard”) using the modified retrospective method to all contracts. Based on our assessment, the cumulative effect adjustment upon adoption of the new revenue standard had a $27 million impact on our Accumulated deficit. The primary impacts include an increase in Accumulated deficit due to an increase in the refund liability owed to our customers for future returns of core components. Previously our refund liability was recorded net of our future trade-in value to our suppliers. Under the new revenue standard, we record a liability for the amounts owed to our customers and a deposit asset for the amount we are currently eligible to receive from our suppliers. An additional increase relates to a change in the recognition pattern of revenue for extended warranty contracts. Revenue from these contracts was recognized on a straight-line basis over the life of the contract. Under the new revenue standard, revenue for extended warranty contracts is recorded in proportion to the costs expected to be incurred in satisfying the obligations based on historical cost patterns over the life of similar contracts.

The increase in Accumulated deficit is partially offset by certain contracts where revenue recognition occurred as units were delivered and accepted. Under the new revenue standard, when the contract transfers control of a good to a customer as services or production occurs, revenue is recognized over time. An additional decrease in Accumulated deficit relates to certain sales that were recorded as leases or borrowings as we retained substantial risks of ownership. Under the new revenue standard, revenue is recognized upon transfer of control for these transactions, less the value of any guarantees provided to the customer. The adoption of the new revenue standard resulted in changes in the classification of Sales and revenues, net and Costs of products sold in our Consolidated Statements of Operations. The new revenue standard also resulted in changes in the classification of certain assets and liabilities in our Consolidated Balance Sheets.

We have revised our relevant policy and procedures and provided expanded revenue recognition disclosures based on the new qualitative and quantitative disclosure requirements of the standard in Note 2, Revenue.

The cumulative effects of the adjustments made to our November 1, 2018 Consolidated Balance Sheet for the adoption of the new revenue standard were as follows:

(in millions)	Balance at October 31, 2018			Change Due to New Standard			Balance at November 1, 2018
ASSETS
Current assets
Trade and other receivables, net	$	456		$	(8	)	$	448
Inventories, net	1,110			(91		)	1,019
Other current assets	189			101			290
Total current assets	5,136			2			5,138
Property and equipment, net	1,370			(109		)	1,261
Deferred taxes, net	121			1			122
Other noncurrent assets	113			(3		)	110
Total assets	$	7,230		$	(109	)	$	7,121
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	946		$	(15	)	$	931
Other current liabilities	1,255			13			1,268
Total current liabilities	3,807			(2		)	3,805
Long-term debt	4,521			(58		)	4,463
Other noncurrent liabilities	731			(22		)	709
Total liabilities	11,156			(82		)	11,074
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,931		)	(27		)	(3,958		)
Total liabilities and stockholders’ deficit	$	7,230		$	(109	)	$	7,121

The following reconciles amounts as they would have been reported under the prior standard to current reporting:

	Three months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	2,998		$	(2	)	$	2,996
Costs of products sold	2,504			(3		)	2,501
Interest expense	77			(1		)	76
Income before income tax	188			2			190
Income tax expense	(29		)	—			(29		)
Net income	$	159		$	2		$	161

	Nine months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	8,307		$	23		$	8,330
Costs of products sold	6,965			8			6,973
Interest expense	246			(3		)	243
Income before income tax	126			18			144
Income tax expense	(6		)	(3		)	(9		)
Net income	$	120		$	15		$	135

______________________

(A) Our Consolidated Statements of Operations for the nine months ended July 31, 2019 includes two months of the operating activity of Navistar Defense prior to the sale of a majority interest in our former defense business. See Note 3 Restructuring, Impairments and Divestitures for additional information.

	As of July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
ASSETS
Current assets
Trade and other receivables, net	$	432		$	(3	)	$	429
Inventories, net	1,248			(53		)	1,195
Other current assets	210			63			273
Total current assets	5,319			7			5,326
Property and equipment, net	1,485			(195		)	1,290
Deferred taxes, net	126			(2		)	124
Other noncurrent assets	120			(8		)	112
Total assets	$	7,492		$	(198	)	$	7,294
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	689		$	(13	)	$	676
Other current liabilities	1,305			18			1,323
Total current liabilities	3,800			5			3,805
Long-term debt	4,577			(49		)	4,528
Other noncurrent liabilities	824			(132		)	692
Total liabilities	11,130			(176		)	10,954
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,641		)	(22		)	(3,663		)
Total liabilities and stockholders’ deficit	$	7,492		$	(198	)	$	7,294

_________________________

(A) Our Consolidated Balance Sheet as of July 31, 2019 does not include the impact of Navistar Defense due to the sale of a majority interest in our former defense business. See Note 3, Restructuring, Impairments and Divestitures for additional information.

Recently Issued Accounting Standards

In August 2018, the FASB issued Accounting Standard Update ("ASU") No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". This ASU provides guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) and determining when the arrangement includes a software license. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2021. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)". This ASU provides guidance on a reclassification from accumulated other comprehensive income to retained earnings for the effect of the tax rate change resulting from the Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (Topic 326), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-13. This ASU sets forth an expected credit loss model which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, and certain off-balance sheet credit exposures. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Adoption will require a modified retrospective transition. This ASU is effective for us in the first quarter of fiscal 2021. The impact of this ASU on our consolidated financial statements will primarily result from our Financial Services operations and certain financial guarantees, and will largely depend on economic conditions and forecasts existing at the time of adoption.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-02. This ASU requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. The accounting by lessors will remain largely unchanged. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We expect to adopt this ASU in the first quarter of fiscal 2020 on a modified retrospective basis by which the cumulative effect adjustment will be recognized in Accumulated deficit as of November 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also expect to elect the practical expedient related to land easements, but do not expect to elect the use-of-hindsight. We are currently evaluating our lease population to assess the effect of the guidance on our consolidated financial statements, but expect to record lease liabilities and right-of-use assets for operating leases related to certain property and equipment. We have selected our software and service providers and are focused on designing new processes and controls to assist with the implementation of the standard. We continue to evaluate the impact of this ASU on our consolidated financial statements.

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Segment Reporting - Narrative (Details) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019 USD ($) segments	Jul. 31, 2018 USD ($)	Jul. 31, 2019 USD ($) segments	Jul. 31, 2018 USD ($)
Segment Reporting Information [Line Items]
Number Of Segments | segments	4		4
Intersegment sales and revenues	$ 0	$ 0	$ 0	$ 0
Sales and revenues, net	3,042	2,606	8,471	6,933
Financial Services Operations
Segment Reporting Information [Line Items]
Intersegment sales and revenues	28	25	85	69
Sales and revenues, net	46		141
North America Truck [Member]
Segment Reporting Information [Line Items]
Intersegment sales and revenues	45	22	75	61
Sales and revenues, net	2,342		6,405
North America Parts [Member]
Segment Reporting Information [Line Items]
Intersegment sales and revenues	2	2	5	6
Sales and revenues, net	569		1,693
Corporate And Eliminations [Member]
Segment Reporting Information [Line Items]
Intersegment sales and revenues	(83)	$ (70)	(192)	$ (174)
Sales and revenues, net	$ 3		$ 9

XML

Fair Value Measurements - Level 3 Reconciliation (Details) - Guarantees [Member] - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Fair Value Assets And Liablities Measured On Recurring Basis Unobservable Input Reconciliation [Line Items]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset (Liability) Beginning Value	$ (22)	$ (27)	$ (24)	$ (21)
Issuances	(4)	7	(3)	(1)
Settlements	0	0	1	2
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset (Liability) Ending Value	$ (26)	$ (20)	$ (26)	$ (20)

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Consolidated Statements of Stockholders' Deficit - USD ($) $ in Millions	Total	Convertible Junior Preference Stock Series D [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]
Stockholders' Equity balance at beginning of period at Oct. 31, 2017	$ (4,574)	$ 2	$ 10	$ 2,733	$ (4,933)	$ (2,211)	$ (179)	$ 4
Net income (loss)	172	0	0	0	152	0	0	20
Total other comprehensive income	73	0	0	0	0	73	0	0
Stock-based compensation	9	0	0	9	0	0	0	0
Stock ownership programs	6	0	0	10	0	0	16	0
Dividends paid by subsidiaries to non-controlling interest	(19)	0	0	0	0	0	0	(19)
Stock Deferral and Issuance to Directors	(1)	0	0	(1)	0	0	0	0
Stockholders' Equity balance at end of period at Jul. 31, 2018	(4,334)	2	10	2,731	(4,781)	(2,138)	(163)	5
Stockholders' Equity balance at beginning of period at Oct. 31, 2018	(3,926)	2	10	2,731	(4,593)	(1,920)	(161)	5
Net income (loss)	135	0	0	0	119	0	0	16
Total other comprehensive income	166	0	0	0	0	166	0	0
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification	(27)	0	0	0	(27)	0	0	0
Stock-based compensation	9	0	0	9	0	0	0	0
Stock ownership programs	1	0	0	10	0	0	11	0
Dividends paid by subsidiaries to non-controlling interest	(18)	0	0	0	0	0	0	(18)
Stockholders' Equity balance at end of period at Jul. 31, 2019	$ (3,660)	$ 2	$ 10	$ 2,730	$ (4,501)	$ (1,754)	$ (150)	$ 3

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Stockholders' Deficit Accumulated Other Comprehensive Income (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended			9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2017	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Accumulated Other Comprehensive Loss, Beginning Balance	$ (1,786)	$ (2,154)		$ (1,920)	$ (2,211)
Other comprehensive loss before reclassifications	9	(13)		(3)	(21)
Amounts reclassified out of accumulated other comprehensive loss	23	29		169	94
Net current-period other comprehensive income (loss)	32	16		166	73
Accumulated Other Comprehensive Loss, Ending Balance	(1,754)	(2,138)	$ (2,211)	(1,754)	(2,138)
Reclassification from Accumulated Other Comprehensive Income, Current Period, Net of Tax [Abstract]
Restructuring Charges	0	1	6	1	1
Other Comprehensive Income (Loss), Defined Benefit Plan, Settlement and Curtailment Gain (Loss), before Tax	0	0
Tax expense	(29)	(3)		(9)	(25)
Net income (loss) attributable to Navistar International Corporation	$ 156	170		$ 119	152
Common stock, shares authorized	220			220		220
Common stock, par value	$ 0.1			$ 0.1		$ 0.10
Accumulated Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Accumulated Other Comprehensive Loss, Beginning Balance	$ (319)	(289)		$ (315)	(283)
Other comprehensive loss before reclassifications	9	(13)		5	(19)
Amounts reclassified out of accumulated other comprehensive loss	0	0		0	0
Net current-period other comprehensive income (loss)	9	(13)		5	(19)
Accumulated Other Comprehensive Loss, Ending Balance	(310)	(302)	(283)	(310)	(302)
Pension Benefits
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Accumulated Other Comprehensive Loss, Beginning Balance	(1,467)	(1,865)		(1,605)	(1,928)
Other comprehensive loss before reclassifications	0	0		(8)	(2)
Amounts reclassified out of accumulated other comprehensive loss	23	29		169	94
Net current-period other comprehensive income (loss)	23	29		161	92
Accumulated Other Comprehensive Loss, Ending Balance	(1,444)	(1,836)	$ (1,928)	(1,444)	(1,836)
Reclassification from Accumulated Other Comprehensive Income, Current Period, Net of Tax [Abstract]
Amortization of actuarial loss	23	29		70	86
Reclassification out of Accumulated Other Comprehensive Income [Member] | Pension Benefits
Reclassification from Accumulated Other Comprehensive Income, Current Period, Net of Tax [Abstract]
Amortization of actuarial loss				142	9
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest	(23)	(29)		(212)	(95)
Tax expense	0	0		(43)	(1)
Reclassification from AOCI, Current Period, Net of Tax, Attributable to Parent	$ 23	$ 29		$ 169	$ 94

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Consolidated Statements of Comprehensive Loss - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 161	$ 177	$ 135	$ 172
Other comprehensive income (loss):
Foreign currency translation adjustment	9	(13)	5	(19)
Defined benefit plans, net of tax	23	29	161	92
Total other comprehensive income	32	16	166	73
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	193	193	301	245
Less: Net income attributable to non-controlling interests	5	7	16	20
Total comprehensive income attributable to Navistar International Corporation	$ 188	$ 186	$ 285	$ 225

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Restructuring and Impairments - Narrative (Details) - USD ($)	1 Months Ended	3 Months Ended				9 Months Ended
	Dec. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2017	Jul. 31, 2017	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Restructuring Cost and Reserve [Line Items]
Restructuring charges		$ 0	$ 1,000,000	$ 6,000,000		$ 1,000,000	$ 1,000,000
Liability, Defined Benefit Plan, Noncurrent		1,929,000,000				1,929,000,000		$ 2,097,000,000
Asset impairment charges		3,000,000	8,000,000			6,000,000	11,000,000
Goodwill		38,000,000				38,000,000		$ 38,000,000
Gain (Loss) on Sales of Investments and Businesses, Net						56,000,000	0
Navistar Defense [Member]
Restructuring Cost and Reserve [Line Items]
Proceeds from Divestiture of Businesses	$ 140,000,000
Potential Additional Consideration	$ 17,000,000
Equity Interest, Percent Sold	70.00%
Gain (Loss) on Sales of Investments and Businesses, Net	$ 54,000,000	(3,000,000)
Melrose Park [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring charges			2,000,000		$ 41,000,000
Pension Liability					23,000,000
Restructuring Benefit					8,000,000
Inventory Reserve Charge					$ 10,000,000
Global Operations [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring charges			1,000,000
Assets Leased to Others [Member]
Restructuring Cost and Reserve [Line Items]
Asset impairment charges		$ 3,000,000	$ 1,000,000			$ 6,000,000	2,000,000
long-lived asset [Domain] | North America Truck [Member]
Restructuring Cost and Reserve [Line Items]
Asset impairment charges							6,000,000
long-lived asset [Domain] | Cherokee [Domain]
Restructuring Cost and Reserve [Line Items]
Asset impairment charges							$ 2,000,000

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Finance Receivables - Finance Receivables (Details) - USD ($) $ in Millions		Jul. 31, 2019	Oct. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount, Covered		$ 2,486	$ 2,180
Less: Allowance for Doubtful accounts		24	22
Total finance receivables, net		2,462	2,158
Financing Receivable, Recorded Investment, Current	[1]	2,187	1,898
Finance Receivables, Noncurrent		275	260
Loans and Leases Receivable, Gross		2,486	2,180
Retail Portfolio [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount, Covered		851	720
Wholesale Portfolio [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount, Covered		$ 1,635	$ 1,460

[1] (A) The current portion of finance receivables is computed based on contractual maturities. Actual cash collections typically vary from the contractual cash flows because of prepayments, extensions, delinquencies, credit losses, and renewals.

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Allowance for Doubtful Accounts (Tables)

9 Months Ended

Jul. 31, 2019

Allowance for Doubtful Accounts [Abstract]

Allowance For Credit Losses On Receivables [Table Text Block]

The following tables present the activity related to our allowance for doubtful accounts for our retail portfolio segment, wholesale portfolio segment, and trade and other receivables:

	Three Months Ended July 31, 2019										Three Months Ended July 31, 2018
(in millions)	Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables		Total			Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total
Allowance for doubtful accounts, at beginning of period	$	22		$	3	$	29	$	54		$	19		$	3	$	27		$	49
Provision for doubtful accounts	1			—		1		2			2			—		1			3
Charge-off of accounts	(2		)	—		—		(2		)	(1		)	—		—			(1		)
Recoveries	1			—		—		1			1			—		—			1
Other(A)	(1		)	—		2		1			—			—		(2		)	(2		)
Allowance for doubtful accounts, at end of period	$	21		$	3	$	32	$	56		$	21		$	3	$	26		$	50

	Nine Months Ended July 31, 2019											Nine Months Ended July 31, 2018
(in millions)	Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total			Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total
Allowance for doubtful accounts, at beginning of period	$	19		$	3	$	28		$	50		$	17		$	3	$	28		$	48
Provision for doubtful accounts	5			—		3			8			5			—		1			6
Charge-off of accounts	(4		)	—		(1		)	(5		)	(4		)	—		—			(4		)
Recoveries	1			—		—			1			3			—		—			3
Other(A)	—			—		2			2			—			—		(3		)	(3		)
Allowance for doubtful accounts, at end of period	$	21		$	3	$	32		$	56		$	21		$	3	$	26		$	50

____________________

(A) Amounts include impact from currency translation.

Impaired Financing Receivables [Table Text Block]

The following table presents information regarding impaired finance receivables:

	July 31, 2019						October 31, 2018
(in millions)	Retail Portfolio		Wholesale Portfolio		Total		Retail Portfolio		Wholesale Portfolio		Total
Impaired finance receivables with specific loss reserves	$	22	$	—	$	22	$	20	$	—	$	20
Impaired finance receivables without specific loss reserves	—		—		—		—		—		—
Specific loss reserves on impaired finance receivables	11		—		11		9		—		9
Finance receivables on non-accrual status	22		—		22		20		—		20

Allowance for Credit Losses on Financing Receivables [Table Text Block]

We use the aging of our receivables as well as other inputs when assessing credit quality. The following table presents the aging analysis for finance receivables:

	July 31, 2019						October 31, 2018
(in millions)	Retail Portfolio		Wholesale Portfolio		Total		Retail Portfolio		Wholesale Portfolio		Total
Current, and up to 30 days past due	$	771	$	1,634	$	2,405	$	655	$	1,459	$	2,114
30-90 days past due	59		1		60		51		1		52
Over 90 days past due	21		—		21		14		—		14
Total finance receivables	$	851	$	1,635	$	2,486	$	720	$	1,460	$	2,180

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Jul. 31, 2019

Product Warranty Liability [Line Items]

Schedule of Product Warranty Liability [Table Text Block]

The following table presents accrued product warranty and deferred warranty revenue activity:

	Nine Months Ended July 31,
(in millions)	2019			2018
Balance at beginning of period	$	529		$	629
Costs accrued and revenues deferred	182			139
Adjustments to pre-existing warranties(A)	7			(4		)
Payments and revenues recognized	(208		)	(233		)
Other adjustments(B)	12			—
Balance at end of period	522			531
Less: Current portion	247			254
Noncurrent accrued product warranty and deferred warranty revenue	$	275		$	277

_________________________

(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior fiscal periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

(B)

Other adjustments include a $14 million increase in revenues deferred in connection with the adoption of the new revenue standard (as defined below regarding Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606), partially offset by a $2 million reduction in liability related to the sale of a majority interest in our defense business, ND Holdings, LLC ("Navistar Defense")..

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Earnings (Loss) Per Share Attributable to Navistar International Corporation - Basic & Diluted Loss per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Income (loss) from continuing operations, net of tax	$ 156	$ 170	$ 119	$ 152
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	161	177	135	172
Net loss attributable to Navistar International Corporation	$ 156	$ 170	$ 119	$ 152
Basic (in shares)	99.4	99.0	99.2	98.8
Weighted Average Number Diluted Shares Outstanding Adjustment	0.3	0.7	0.3	0.8
Diluted (in shares)	99.7	99.7	99.5	99.6
Earnings Per Share, Basic	$ 1.57	$ 1.72	$ 1.20	$ 1.54
Earnings Per Share, Diluted	$ 1.56	$ 1.71	$ 1.20	$ 1.53
Retained Earnings [Member]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest			$ 119	$ 152

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Consolidated Statements of Cash Flows - USD ($) $ in Millions	9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018
Cash flows from operating activities
Net income (loss)	$ 135	$ 172
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	99	107
Depreciation of equipment leased to others	45	53
Deferred taxes, including change in valuation allowance	(41)	(3)
Asset impairment charges	6	11
Gain (Loss) on Sales of Investments and Businesses, Net	56	0
Amortization of debt issuance costs and discount	15	23
Stock-based compensation	20	27
Provision for doubtful accounts	8	6
Equity in income of non-consolidated affiliates, net of dividends	(3)	4
Write off of debt issuance cost and discount	6	43
Other non-cash operating activities	(6)	(17)
Changes in other assets and liabilities, exclusive of businesses disposed	(124)	(606)
Net cash used in operating activities	104	(180)
Cash flows from investing activities
Payments to Acquire Marketable Securities	0	(214)
Sales of marketable securities	0	460
Maturities of marketable securities	98	29
Capital expenditures	(90)	(79)
Purchases of equipment leased to others	(130)	(142)
Proceeds from sales of property and equipment	12	9
Payments for (Proceeds from) Businesses and Interest in Affiliates	100	(3)
Payments for (Proceeds from) Other Investing Activities	1	0
Net Cash Provided by (Used in) Investing Activities	(9)	60
Cash flows from financing activities
Proceeds from issuance of secured debt	331	32
Principal payments on secured debt	(300)	(50)
Net change in secured revolving credit facilities	120	64
Proceeds from issuance of non-securitized debt	144	3,210
Principal payments on non-securitized debt	(988)	(2,669)
Net change in notes and debt outstanding under revolving credit facilities	469	(52)
Debt issuance costs	(9)	(36)
Proceeds from finance lease obligations	13	48
Proceeds from exercise of stock options	3	7
Dividends paid by subsidiaries to non-controlling interest	(18)	(19)
Other financing activities	(2)	(17)
Net cash provided by (used in) financing activities	(237)	518
Effect of exchange rate changes on cash and cash equivalents	(7)	(16)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect	(149)	382
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period	1,445	840
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	$ 1,296	$ 1,222

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Consolidated Statements of Operations - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Sales and revenues
Sales of Manufactured Products	$ 2,996	$ 2,566	$ 8,330	$ 6,815
Finance revenues	46	40	141	118
Sales and revenues, net	3,042	2,606	8,471	6,933
Costs and expenses
Cost of Goods and Services Sold	2,501	2,096	6,973	5,615
Restructuring charges	0	(1)	(1)	(1)
Asset impairment charges	3	8	6	11
Selling, general and administrative expenses	167	222	726	613
Engineering and product development costs	81	72	242	222
Interest expense	76	82	243	240
Other expense (income), net	25	(55)	140	36
Total costs and expenses	2,853	2,426	8,331	6,736
Equity in income of non-consolidated affiliates	1	0	4	0
Income (Loss) Attributable to Parent, before Tax	190	180	144	197
Income Tax Expense (Benefit)	29	3	9	25
Net income (loss)	161	177	135	172
Less: Net income attributable to non-controlling interests	(5)	(7)	(16)	(20)
Net income (loss) attributable to Navistar International Corporation	$ 156	$ 170	$ 119	$ 152
Earnings (loss) per share attributable to Navistar International Corporation:
Earnings Per Share, Basic	$ 1.57	$ 1.72	$ 1.20	$ 1.54
Earnings Per Share, Diluted	$ 1.56	$ 1.71	$ 1.20	$ 1.53
Weighted average shares outstanding:
Basic (in shares)	99.4	99.0	99.2	98.8
Diluted (in shares)	99.7	99.7	99.5	99.6

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Segment Reporting - Summary of Segment Assets (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Nov. 01, 2018	Oct. 31, 2018
Segment Reporting Information [Line Items]
External sales and revenues, net	$ 3,042	$ 2,606	$ 8,471	$ 6,933
Segment Assets	7,294		7,294		$ 7,121	$ 7,230
Intersegment sales and revenues	0	0	0	0
Sales and revenues, net	3,042	2,606	8,471	6,933
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	156	170	119	152
Income Tax Expense (Benefit)	29	3	9	25
Segment Profit Loss	185	173	128	177
Depreciation, Depletion and Amortization	47	51	144	160
Interest expense	76	82	243	240
Equity in income of non-consolidated affiliates	1	0	4	0
Capital expenditures	24	26	90	79
North America Truck [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	2,342	1,894	6,405	4,810
Segment Assets	1,942		1,942			2,085
Intersegment sales and revenues	45	22	75	61
Sales and revenues, net	2,342		6,405
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	167	165	183	200
Income Tax Expense (Benefit)	0	0	0	0
Segment Profit Loss	167	165	183	200
Depreciation, Depletion and Amortization	26	31	78	100
Interest expense	0	0	0	0
Equity in income of non-consolidated affiliates	0	1	3	2
Capital expenditures	17	19	69	74
North America Parts [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	569	603	1,693	1,768
Segment Assets	686		686			636
Intersegment sales and revenues	2	2	5	6
Sales and revenues, net	569		1,693
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	149	144	437	413
Income Tax Expense (Benefit)	0	0	0	0
Segment Profit Loss	149	144	437	413
Depreciation, Depletion and Amortization	1	2	4	5
Interest expense	0	0	0	0
Equity in income of non-consolidated affiliates	1	1	2	2
Capital expenditures	2	0	3	1
Global Operations [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	82	68	223	229
Segment Assets	322		322			331
Intersegment sales and revenues	8	21	27	38
Sales and revenues, net	82		223
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	1	4	10	(2)
Income Tax Expense (Benefit)	0	0	0	0
Segment Profit Loss	1	4	10	(2)
Depreciation, Depletion and Amortization	3	3	7	8
Interest expense	0	0	0	0
Equity in income of non-consolidated affiliates	0	(2)	(1)	(4)
Capital expenditures	1	1	2	2
Financial Services Operations
Segment Reporting Information [Line Items]
Interest Revenue (Expense), Net	53	46	161	131
External sales and revenues, net	46	40	141	118
Segment Assets	3,010		3,010			2,648
Intersegment sales and revenues	28	25	85	69
Sales and revenues, net	46		141
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	30	23	93	62
Income Tax Expense (Benefit)	0	0	0	0
Segment Profit Loss	30	23	93	62
Depreciation, Depletion and Amortization	16	14	48	41
Interest expense	27	22	83	64
Equity in income of non-consolidated affiliates	0	0	0	0
Capital expenditures	0	1	2	1
Corporate And Eliminations [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	3	1	9	8
Segment Assets	1,334		1,334			$ 1,530
Intersegment sales and revenues	(83)	(70)	(192)	(174)
Sales and revenues, net	3		9
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	(191)	(166)	(604)	(521)
Income Tax Expense (Benefit)	(29)	(3)	(9)	(25)
Segment Profit Loss	(162)	(163)	(595)	(496)
Depreciation, Depletion and Amortization	1	1	7	6
Interest expense	49	60	160	176
Equity in income of non-consolidated affiliates	0	0	0	0
Capital expenditures	$ 4	$ 5	$ 14	$ 1

XML

Fair Value Measurements - Carrying Values and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Capital Lease Obligations		$ 1		$ 1
Goodwill		38		38		$ 38
Asset impairment charges		3	$ 8	6	$ 11
Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Retail Notes		204		204		183
Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Retail Notes		198		198		180
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Retail Notes		0		0		0
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Retail Notes		0		0		0
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Retail Notes		198		198		180
Term Loan [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,560		1,560
Term Loan [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,578		1,578
Term Loan [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0
Term Loan [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0
Term Loan [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,578		1,578
Term Loan [Member] | Financial Services Operations | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						394
Term Loan [Member] | Financial Services Operations | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						400
Term Loan [Member] | Financial Services Operations | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Term Loan [Member] | Financial Services Operations | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Term Loan [Member] | Financial Services Operations | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						400
Line of Credit [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		1,560		1,560		1,570
Line of Credit [Member] | Manufacturing Operations [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt						1,570
Line of Credit [Member] | Manufacturing Operations [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						1,597
Line of Credit [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Line of Credit [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Line of Credit [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						1,597
Line of Credit [Member] | Financial Services Operations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		1,000		1,000		519
Line of Credit [Member] | Financial Services Operations | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		1,000		1,000		519
Line of Credit [Member] | Financial Services Operations | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		975		975		511
Line of Credit [Member] | Financial Services Operations | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Line of Credit [Member] | Financial Services Operations | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Line of Credit [Member] | Financial Services Operations | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		975		975		511
Senior Notes [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,085		1,085
Senior Notes [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,130		1,130
Senior Notes [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0
Senior Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,130		1,130
Senior Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		$ 0		$ 0
Tax Exempt Bond [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		6.75%		6.75%
Long-term Debt		$ 220		$ 220		220
Tax Exempt Bond [Member] | Manufacturing Operations [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		220		220		220
Tax Exempt Bond [Member] | Manufacturing Operations [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		235		235		235
Tax Exempt Bond [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Tax Exempt Bond [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		235		235		235
Tax Exempt Bond [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Financed lease obligations [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		54		54		122
Financed lease obligations [Member] | Manufacturing Operations [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		54		54		122
Financed lease obligations [Member] | Manufacturing Operations [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		54		54		122
Financed lease obligations [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Financed lease obligations [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Financed lease obligations [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		54		54		122
Notes Payable, Other Payables [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		10		10		26
Notes Payable, Other Payables [Member] | Manufacturing Operations [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		9		9		26
Notes Payable, Other Payables [Member] | Manufacturing Operations [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		9		9		25
Notes Payable, Other Payables [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Notes Payable, Other Payables [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Notes Payable, Other Payables [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		9		9		25
Secured Debt [Member] | Financial Services Operations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		1,102		1,102		948
Secured Debt [Member] | Financial Services Operations | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		1,102		1,102		948
Secured Debt [Member] | Financial Services Operations | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,106		1,106		949
Secured Debt [Member] | Financial Services Operations | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Secured Debt [Member] | Financial Services Operations | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Secured Debt [Member] | Financial Services Operations | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		1,106		1,106		949
Commercial Paper [Member] | Financial Services Operations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt						75
Commercial Paper [Member] | Financial Services Operations | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		71		71		75
Commercial Paper [Member] | Financial Services Operations | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		71		71		75
Commercial Paper [Member] | Financial Services Operations | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		71		71
Commercial Paper [Member] | Financial Services Operations | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						75
Commercial Paper [Member] | Financial Services Operations | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0
Commercial Paper [Member] | Financial Services Operations | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Commercial Paper [Member] | Financial Services Operations | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0
Commercial Paper [Member] | Financial Services Operations | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Borrowings Secured By Operating and Finance Leases [Member] | Financial Services Operations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		102		102		105
Borrowings Secured By Operating and Finance Leases [Member] | Financial Services Operations | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt		102		102		105
Borrowings Secured By Operating and Finance Leases [Member] | Financial Services Operations | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		101		101		104
Borrowings Secured By Operating and Finance Leases [Member] | Financial Services Operations | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Borrowings Secured By Operating and Finance Leases [Member] | Financial Services Operations | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		0		0		0
Borrowings Secured By Operating and Finance Leases [Member] | Financial Services Operations | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value		$ 101		$ 101		104
Eight Point Two Five Percent Senior Notes [Member] | Notes Payable to Banks [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		8.25%		8.25%
Long-term Debt		$ 1,085		$ 1,085		1,083
Eight Point Two Five Percent Senior Notes [Member] | Notes Payable to Banks [Member] | Manufacturing Operations [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt						1,083
Eight Point Two Five Percent Senior Notes [Member] | Notes Payable to Banks [Member] | Manufacturing Operations [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						1,122
Eight Point Two Five Percent Senior Notes [Member] | Notes Payable to Banks [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Eight Point Two Five Percent Senior Notes [Member] | Notes Payable to Banks [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						1,122
Eight Point Two Five Percent Senior Notes [Member] | Notes Payable to Banks [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Four Point Five Zero Senior Subordinated Convertible Notes [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		4.50%		4.50%
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		4.75%		4.75%
Long-term Debt		$ 0		$ 0		405
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member] | Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt	[1]					405
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value	[1]					412
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value	[1]					412
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value						0
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Subordinated Debt [Member] | Manufacturing Operations [Member] | Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long-term Debt, Fair Value	[1]					$ 0

[1] The carrying value represents the consolidated financial statement amount of the debt which excludes the allocation of the conversion feature to equity, while the estimated fair value is derived from quoted prices in active markets which include the equity feature.

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Revenue - Performance Obligations (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-02-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected revenue	$ 23		$ 23
Expected revenue, period	9 months		9 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-11-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected revenue	$ 82		$ 82
Expected revenue, period	1 year		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-11-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected revenue	$ 68		$ 68
Expected revenue, period	1 year		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-11-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected revenue	$ 47		$ 47
Expected revenue, period	1 year		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-11-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected revenue	$ 26		$ 26
Expected revenue, period	1 year		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-11-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected revenue	$ 27		$ 27
Expected revenue, period	1 year		1 year
Extended Warranty Programs [Member]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue from Contract with Customer, Including Assessed Tax	$ 27	$ 24	$ 85	$ 80

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Finance Receivables - Narrative (Details) $ in Millions	Jul. 31, 2019 USD ($) segments	Oct. 31, 2018 USD ($)
Schedule of Securitization [Line Items]
Loans and Leases Receivable, Net Amount	$ 2,500	$ 2,200
Number of Portfolio Segments for Finance Receivables | segments	2
Trac Funding Facility [Member]
Schedule of Securitization [Line Items]
Finance Receivables Retail Accounts Collateral For Borrowed Securities	$ 1,100	956
Cash Collateral for Borrowed Securities	321	235
Financial Services Operations
Schedule of Securitization [Line Items]
Assets Net Of Intercompany Balances	$ 3,000	$ 2,600

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Earnings (Loss) Per Share Attributable to Navistar International Corporation - Narrative (Details) $ / shares in Units, shares in Millions	3 Months Ended	9 Months Ended
	Jul. 31, 2019 USD ($) $ / shares shares	Jul. 31, 2019 $ / shares shares	Jul. 31, 2018 shares
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	13.2		13.3
Four Point Five Zero Senior Subordinated Convertible Notes [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares related to convertible notes		3.4	3.4
Four Point Five Zero Senior Subordinated Convertible Notes [Member] | Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Debt Instrument, Convertible, Conversion Ratio	17.1233
Debt Instrument Convertible Conversion Ratio Basis | $	$ 1,000
Debt Instrument, Convertible, Conversion Price | $ / shares	$ 58.40	$ 58.40
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Debt Instrument, Convertible, Conversion Ratio	18.4946
Option Indexed to Issuer's Equity, Strike Price | $ / shares	$ 54.07
Shares related to convertible notes		7.6	7.6
Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member] | Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Debt Instrument Convertible Conversion Ratio Basis | $	$ 1,000
Manufacturing Operations [Member] | Convertible Subordinated Debt [Member] | Four Point Five Zero Senior Subordinated Convertible Notes [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	4.50%	4.50%
Manufacturing Operations [Member] | Convertible Subordinated Debt [Member] | Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	4.75%	4.75%

XML

Postretirement Benefits - Schedule of Net Benefit (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Defined Contribution Plan, Cost	$ 8	$ 7	$ 28	$ 25
Employer contributions	9	25	140	78
Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	1	1	5	5
Interest on obligations	30	27	92	81
Amortization of cumulative loss	23	26	70	79
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement	0	0	142	9
Premiums on pension insurance	3	1	7	3
Expected return on assets	(35)	(40)	(108)	(121)
Net postretirement benefits expense	22	15	208	56
Health and Life Insurance Benefits
Defined Benefit Plan Disclosure [Line Items]
Service cost	1	1	3	3
Interest on obligations	12	10	36	32
Amortization of cumulative loss	0	3	0	7
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement	0	0	0	0
Premiums on pension insurance	0	0	0	0
Expected return on assets	(5)	(5)	(16)	(17)
Net postretirement benefits expense	$ 8	$ 9	$ 23	$ 25

XML

Inventories - Inventory (Details) - USD ($) $ in Millions	Jul. 31, 2019	Nov. 01, 2018	Oct. 31, 2018
Inventory Disclosure [Abstract]
Finished products	$ 779		$ 671
Work in process	104		118
Raw materials	312		321
Total inventories, net	$ 1,195	$ 1,019	$ 1,110

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Segment Reporting (Tables)

9 Months Ended

Jul. 31, 2019

Segment Reporting [Abstract]

Schedule of selected financial information, by segment

We define segment profit (loss) as net income (loss) attributable to NIC, excluding income tax benefit (expense). Selected financial information from our Consolidated Statements of Operations and our Consolidated Balance Sheets is as follows:

(in millions)	Truck		Parts		Global Operations		Financial Services(A)		Corporate and Eliminations			Total
Three Months Ended July 31, 2019
External sales and revenues, net	$	2,342	$	569	$	82	$	46	$	3		$	3,042
Intersegment sales and revenues	45		2		8		28		(83		)	—
Total sales and revenues, net	$	2,387	$	571	$	90	$	74	$	(80	)	$	3,042
Net income (loss) attributable to NIC	$	167	$	149	$	1	$	30	$	(191	)	$	156
Income tax expense	—		—		—		—		(29		)	(29		)
Segment profit (loss)	$	167	$	149	$	1	$	30	$	(162	)	$	185
Depreciation and amortization	$	26	$	1	$	3	$	16	$	1		$	47
Interest expense	—		—		—		27		49			76
Equity in income of non-consolidated affiliates	—		1		—		—		—			1
Capital expenditures(B)	17		2		1		—		4			24

(in millions)	Truck		Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Three Months Ended July 31, 2018
External sales and revenues, net	$	1,894	$	603	$	68		$	40	$	1		$	2,606
Intersegment sales and revenues	22		2		21			25		(70		)	—
Total sales and revenues, net	$	1,916	$	605	$	89		$	65	$	(69	)	$	2,606
Net income (loss) attributable to NIC	$	165	$	144	$	4		$	23	$	(166	)	$	170
Income tax expense	—		—		—			—		(3		)	(3		)
Segment profit (loss)	$	165	$	144	$	4		$	23	$	(163	)	$	173
Depreciation and amortization	$	31	$	2	$	3		$	14	$	1		$	51
Interest expense	—		—		—			22		60			82
Equity in income (loss) of non-consolidated affiliates	1		1		(2		)	—		—			—
Capital expenditures(B)	19		—		1			1		5			26

(in millions)	Truck		Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Nine Months Ended July 31, 2019
External sales and revenues, net	$	6,405	$	1,693	$	223		$	141	$	9		$	8,471
Intersegment sales and revenues	75		5		27			85		(192		)	—
Total sales and revenues, net	$	6,480	$	1,698	$	250		$	226	$	(183	)	$	8,471
Net income (loss) attributable to NIC	$	183	$	437	$	10		$	93	$	(604	)	$	119
Income tax expense	—		—		—			—		(9		)	(9		)
Segment profit (loss)	$	183	$	437	$	10		$	93	$	(595	)	$	128
Depreciation and amortization	$	78	$	4	$	7		$	48	$	7		$	144
Interest expense	—		—		—			83		160			243
Equity in income (loss) of non-consolidated affiliates	3		2		(1		)	—		—			4
Capital expenditures(B)	69		3		2			2		14			90

(in millions)	Truck			Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Nine Months Ended July 31, 2018
External sales and revenues, net	$	4,810		$	1,768	$	229		$	118	$	8		$	6,933
Intersegment sales and revenues	61			6		38			69		(174		)	—
Total sales and revenues, net	$	4,871		$	1,774	$	267		$	187	$	(166	)	$	6,933
Net income (loss) attributable to NIC	$	200		$	413	$	(2	)	$	62	$	(521	)	$	152
Income tax expense	—			—		—			—		(25		)	(25		)
Segment profit (loss)	$	200		$	413	$	(2	)	$	62	$	(496	)	$	177
Depreciation and amortization	$	100		$	5	$	8		$	41	$	6		$	160
Interest expense	—		—	—		—			64		176			240
Equity in income (loss) of non-consolidated affiliates	2			2		(4		)	—		—			—
Capital expenditures(B)	74			1		2			1		1			79

_________________________

(A) Total sales and revenues in the Financial Services segment include interest revenues of $53 million and $161 million for the three and nine months ended July 31, 2019, respectively, and $46 million and $131 million for the three and nine months ended July 31, 2018, respectively.

(B) Exclusive of purchases of equipment leased to others.

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Segment assets, as of:
July 31, 2019	$	1,942	$	686	$	322	$	3,010	$	1,334	$	7,294
October 31, 2018	2,085		636		331		2,648		1,530		7,230

XML

Summary of Significant Accounting Policies - Variable Interest Entities (Details) - USD ($) $ in Millions	Jul. 31, 2019	Oct. 31, 2018
Variable Interest Entity [Line Items]
Cash and cash equivalents	$ 1,160	$ 1,320
Variable Interest Entity Primary Beneficiary, Blue Diamond Parts [Member]
Variable Interest Entity [Line Items]
Variable Interest Entity, Consolidated, Carrying Amount, Assets	28	39
Cash and cash equivalents	3	4
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities	3	4
Variable Interest Entity Primary Beneficiary Securitizations Treated As Borrowings [Member] | Financial Services Operations
Variable Interest Entity [Line Items]
Variable Interest Entity, Consolidated, Carrying Amount, Assets	1,100	994
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities	956	852
Transaction Does Not Qualify for Sale Accounting [Member] | Financial Services Operations
Variable Interest Entity [Line Items]
Variable Interest Entity, Consolidated, Carrying Amount, Assets	465	370
Variable Interest Entity, Consolidated, Carrying Amount, Liabilities	$ 253	$ 205

XML

Segment Reporting

9 Months Ended

Jul. 31, 2019

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The following is a description of our four reporting segments:

• Our Truck segment manufactures and distributes Class 4 through 8 trucks and buses under the International and IC Bus ("IC") brands, and produces engines under our proprietary brand name.

This segment sells its products in the U.S., Canada, and Mexico markets, as well as through our export truck business. In an effort to strengthen and maintain our dealer network, this segment occasionally acquires and operates dealer locations for the purpose of transitioning ownership.

• Our Parts segment provides customers with proprietary products needed to support the International commercial truck, IC Bus, proprietary engine lines, and export parts business, as well as our other product lines. Our Parts segment also provides a wide selection of other standard truck, trailer, and engine aftermarket parts. Also included in the Parts segment are the operating results of BDP, which manages the sourcing, merchandising, and distribution of certain service parts we sell to Ford in North America.

• Our Global Operations segment primarily consists of Brazil engine operations which produce diesel engines under contract manufacturing arrangements, as well as under the MWM brand, for sale to original equipment manufacturers (OEMs) in South America. In addition, our Global Operations segment includes the operating results of our former joint venture in China with Anhui Jianghuai Automobile Co., Ltd ("JAC").

• Our Financial Services segment provides retail, wholesale, and lease financing of products sold by the Truck and Parts segments and their dealers within the U.S. and Mexico, as well as financing for wholesale accounts and selected retail accounts receivable. This segment also facilitates financing relationships in the U.S. and other countries to support our Manufacturing Operations.

Corporate contains those items that are not included in our four segments.

Segment Profit (Loss)

We define segment profit (loss) as net income (loss) attributable to NIC, excluding income tax benefit (expense). Selected financial information from our Consolidated Statements of Operations and our Consolidated Balance Sheets is as follows:

(in millions)	Truck		Parts		Global Operations		Financial Services(A)		Corporate and Eliminations			Total
Three Months Ended July 31, 2019
External sales and revenues, net	$	2,342	$	569	$	82	$	46	$	3		$	3,042
Intersegment sales and revenues	45		2		8		28		(83		)	—
Total sales and revenues, net	$	2,387	$	571	$	90	$	74	$	(80	)	$	3,042
Net income (loss) attributable to NIC	$	167	$	149	$	1	$	30	$	(191	)	$	156
Income tax expense	—		—		—		—		(29		)	(29		)
Segment profit (loss)	$	167	$	149	$	1	$	30	$	(162	)	$	185
Depreciation and amortization	$	26	$	1	$	3	$	16	$	1		$	47
Interest expense	—		—		—		27		49			76
Equity in income of non-consolidated affiliates	—		1		—		—		—			1
Capital expenditures(B)	17		2		1		—		4			24

(in millions)	Truck		Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Three Months Ended July 31, 2018
External sales and revenues, net	$	1,894	$	603	$	68		$	40	$	1		$	2,606
Intersegment sales and revenues	22		2		21			25		(70		)	—
Total sales and revenues, net	$	1,916	$	605	$	89		$	65	$	(69	)	$	2,606
Net income (loss) attributable to NIC	$	165	$	144	$	4		$	23	$	(166	)	$	170
Income tax expense	—		—		—			—		(3		)	(3		)
Segment profit (loss)	$	165	$	144	$	4		$	23	$	(163	)	$	173
Depreciation and amortization	$	31	$	2	$	3		$	14	$	1		$	51
Interest expense	—		—		—			22		60			82
Equity in income (loss) of non-consolidated affiliates	1		1		(2		)	—		—			—
Capital expenditures(B)	19		—		1			1		5			26

(in millions)	Truck		Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Nine Months Ended July 31, 2019
External sales and revenues, net	$	6,405	$	1,693	$	223		$	141	$	9		$	8,471
Intersegment sales and revenues	75		5		27			85		(192		)	—
Total sales and revenues, net	$	6,480	$	1,698	$	250		$	226	$	(183	)	$	8,471
Net income (loss) attributable to NIC	$	183	$	437	$	10		$	93	$	(604	)	$	119
Income tax expense	—		—		—			—		(9		)	(9		)
Segment profit (loss)	$	183	$	437	$	10		$	93	$	(595	)	$	128
Depreciation and amortization	$	78	$	4	$	7		$	48	$	7		$	144
Interest expense	—		—		—			83		160			243
Equity in income (loss) of non-consolidated affiliates	3		2		(1		)	—		—			4
Capital expenditures(B)	69		3		2			2		14			90

(in millions)	Truck			Parts		Global Operations			Financial Services(A)		Corporate and Eliminations			Total
Nine Months Ended July 31, 2018
External sales and revenues, net	$	4,810		$	1,768	$	229		$	118	$	8		$	6,933
Intersegment sales and revenues	61			6		38			69		(174		)	—
Total sales and revenues, net	$	4,871		$	1,774	$	267		$	187	$	(166	)	$	6,933
Net income (loss) attributable to NIC	$	200		$	413	$	(2	)	$	62	$	(521	)	$	152
Income tax expense	—			—		—			—		(25		)	(25		)
Segment profit (loss)	$	200		$	413	$	(2	)	$	62	$	(496	)	$	177
Depreciation and amortization	$	100		$	5	$	8		$	41	$	6		$	160
Interest expense	—		—	—		—			64		176			240
Equity in income (loss) of non-consolidated affiliates	2			2		(4		)	—		—			—
Capital expenditures(B)	74			1		2			1		1			79

_________________________

(A) Total sales and revenues in the Financial Services segment include interest revenues of $53 million and $161 million for the three and nine months ended July 31, 2019, respectively, and $46 million and $131 million for the three and nine months ended July 31, 2018, respectively.

(B) Exclusive of purchases of equipment leased to others.

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Segment assets, as of:
July 31, 2019	$	1,942	$	686	$	322	$	3,010	$	1,334	$	7,294
October 31, 2018	2,085		636		331		2,648		1,530		7,230

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Postretirement Benefits

9 Months Ended

Jul. 31, 2019

Retirement Benefits [Abstract]

Postretirement Benefits

Postretirement Benefits

Defined Benefit Plans

We provide postretirement benefits to a substantial portion of our employees and retirees. Costs associated with postretirement benefits include pension and postretirement health care expenses for employees, retirees, surviving spouses and dependents.

Generally, the pension plans are non-contributory. Our policy is to fund the pension plans in accordance with applicable U.S. and Canadian government regulations and to make additional contributions from time to time. For the three and nine months ended July 31, 2019, we contributed $9 million and $140 million, respectively, and for the three and nine months ended July 31, 2018, we contributed $25 million and $78 million, respectively, to our pension plans to meet regulatory funding requirements. During the first quarter of 2019, we accelerated the payment of a substantial portion of our 2019 minimum required funding. We do not expect any additional contributions to our pension plans during the remainder of 2019.

We primarily fund OPEB obligations, such as retiree medical, in accordance with the 1993 Settlement Agreement (the "1993 Settlement Agreement"), which requires us to fund a portion of the plans' annual service cost to a retiree benefit trust (the "Base Trust"). The 1993 Settlement Agreement resolved a class action lawsuit originally filed in 1992 regarding the restructuring of our then applicable retiree health care and life insurance benefits. Contributions for the three and nine months ended July 31, 2019 and 2018, as well as anticipated contributions for the remainder of 2019, are not material.

Components of Net Periodic Benefit Expense

Net periodic benefit expense included in our Consolidated Statements of Operations, and other amounts recognized in our Consolidated Statements of Stockholders' Deficit, for the three and nine months ended July 31, 2019 and 2018 are comprised of the following:

	Three Months Ended July 31,												Nine Months Ended July 31,
	Pension Benefits						Health and Life Insurance Benefits						Pension Benefits						Health and Life Insurance Benefits
(in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Service cost for benefits earned during the period	$	1		$	1		$	1		$	1		$	5		$	5		$	3		$	3
Interest on obligation	30			27			12			10			92			81			36			32
Amortization of cumulative loss	23			26			—			3			70			79			—			7
Settlements	—			—			—			—			142			9			—			—
Premiums on pension insurance	3			1			—			—			7			3			—			—
Expected return on assets	(35		)	(40		)	(5		)	(5		)	(108		)	(121		)	(16		)	(17		)
Net periodic benefit expense	$	22		$	15		$	8		$	9		$	208		$	56		$	23		$	25

In the nine months ended July 31, 2019, we adopted ASU No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." This ASU requires that an employer disaggregate the service cost component from the other components of net periodic benefit cost. As a result, we have reclassified certain net periodic benefit costs from SG&A expenses to Other expense, net in our Consolidated Statements of Operations. The guidance, which required retrospective application, resulted in a reclassification of $22 million and $73 million for the three and nine months ended July 31, 2018, respectively.

In the nine months ended July 31, 2019 and 2018, we purchased group annuity contracts for certain retired pension plan participants resulting in plan remeasurements. The purchase of the group annuity contracts was funded directly by the assets of our pension plans. As a result, in the nine months ended July 31, 2019 and 2018, net actuarial losses of $11 million and $2 million, respectively, were recognized as components of Accumulated other comprehensive loss and non-cash pension settlement accounting expenses of $142 million and $9 million, respectively, were recognized in Other income, net in our Consolidated Statements of Operations.

Defined Contribution Plans and Other Contractual Arrangements

Our defined contribution plans cover a substantial portion of domestic salaried employees and certain domestic represented employees. The defined contribution plans contain a 401(k) feature and provide most participants with a matching contribution from the Company. Effective January 1, 2019, we deposit the matching contribution monthly. Many participants covered by the plans receive annual Company contributions to their retirement accounts based on an age-weighted percentage of the participant's eligible compensation for the calendar year. Defined contribution expense pursuant to these plans was $8 million and $28 million in the three and nine months ended July 31, 2019, respectively, and $7 million and $25 million in the three and nine months ended July 31, 2018, respectively.

In accordance with the 1993 Settlement Agreement, an independent Retiree Supplemental Benefit Trust (the "Supplemental Trust") was established. The Supplemental Trust, and the benefits it provides to certain retirees pursuant to a certain Retiree Supplemental Benefit Program under the 1993 Settlement Agreement ("Supplemental Benefit Program"), is not part of our consolidated financial statements.

Our contingent profit sharing obligations under a certain Supplemental Benefit Trust Profit Sharing Plan ("Supplemental Benefit Trust Profit Sharing Plan") will continue until certain funding targets defined by the 1993 Settlement Agreement are met. We record profit sharing accruals based on the operating performance of the entities that are included in the determination of qualifying profits. For more information on pending arbitration regarding the Supplemental Benefit Trust Profit Sharing Plan, see Note 11, Commitments and Contingencies.

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Finance Receivables

9 Months Ended

Jul. 31, 2019

Receivables [Abstract]

Finance Receivables

Finance Receivables

Finance receivables are receivables of our Financial Services operations. Finance receivables generally consist of wholesale notes and accounts, as well as retail notes, finance leases and accounts. Total finance receivables reported on the Consolidated Balance Sheets are net of an allowance for doubtful accounts. Total assets of our Financial Services operations net of intercompany balances were $3.0 billion and $2.6 billion as of July 31, 2019 and October 31, 2018, respectively.

Included in total assets of our Financial Services operations were finance receivables of $2.5 billion and $2.2 billion as of July 31, 2019 and October 31, 2018, respectively. We have two portfolio segments of finance receivables that we distinguish based on the type of customer and nature of the financing inherent to each portfolio. The retail portfolio segment represents loans or leases to end-users for the purchase or lease of vehicles. The wholesale portfolio segment represents loans to dealers to finance their inventory.

Our Finance receivables, net in our Consolidated Balance Sheets consist of the following:

(in millions)	As of July 31, 2019		As of October 31, 2018
Retail portfolio	$	851	$	720
Wholesale portfolio	1,635		1,460
Total finance receivables	2,486		2,180
Less: Allowance for doubtful accounts	24		22
Total finance receivables, net	2,462		2,158
Less: Current portion, net(A)	2,187		1,898
Noncurrent portion, net	$	275	$	260

_________________________

(A) The current portion of finance receivables is computed based on contractual maturities. Actual cash collections typically vary from the contractual cash flows because of prepayments, extensions, delinquencies, credit losses, and renewals.

Securitizations

Our Financial Services operations transfer wholesale notes, retail accounts receivable, finance leases, and operating leases to special purpose entities ("SPEs"), which generally are only permitted to purchase these assets, issue asset-backed securities, and make payments on the securities issued. In addition to servicing receivables, our continued involvement in the SPEs may include an economic interest in the transferred receivables and, in some cases, managing exposure to interest rate changes on the securities using interest rate swaps or interest rate caps. There were no transfers of finance receivables that qualified for sale accounting treatment as of July 31, 2019 or October 31, 2018, and as a result, the transferred finance receivables are included in our Consolidated Balance Sheets and the related interest earned is included in Finance revenues.

We transfer eligible finance receivables into owner trusts in order to issue asset-backed securities. These trusts are VIEs of which we are determined to be the primary beneficiary, and, therefore, the assets and liabilities of the trusts are included in our Consolidated Balance Sheets. The outstanding balance of finance receivables transferred into these VIEs was $1.1 billion and $956 million as of July 31, 2019 and October 31, 2018, respectively.

Other finance receivables related to secured transactions that do not qualify for sale accounting treatment were $321 million and $235 million as of July 31, 2019 and October 31, 2018, respectively. For more information on assets and liabilities of consolidated VIEs and other securitizations accounted for as secured borrowings by our Financial Services segment, see Note 1, Summary of Significant Accounting Policies.

Finance Revenues

The following table presents the components of our Finance revenues in our Consolidated Statements of Operations:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	2019		2018		2019		2018
Retail notes and finance leases revenue	$	16	$	12	$	45	$	36
Wholesale notes interest	31		26		93		75
Operating lease revenue	19		19		62		54
Retail and wholesale accounts interest	8		8		26		22
Gross finance revenues	74		65		226		187
Less: Intercompany revenues	28		25		85		69
Finance revenues	$	46	$	40	$	141	$	118

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Revenue (Tables)

9 Months Ended

Jul. 31, 2019

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

Disaggregation of Revenue

The following tables disaggregate our external revenue by product type for the three and nine months ended July 31, 2019 (in millions):

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Three Months Ended July 31, 2019
Truck products and services(A)	$	2,115	$	—	$	—	$	—	$	3	$	2,118
Truck contract manufacturing	144		—		—		—		—		144
Used trucks	54		—		—		—		—		54
Engines	—		73		63		—		—		136
Parts	2		496		19		—		—		517
Extended warranty contracts	27		—		—		—		—		27
Sales of manufactured products, net	2,342		569		82		—		3		2,996
Retail financing(C)	—		—		—		35		—		35
Wholesale financing(C)	—		—		—		11		—		11
Sales and revenues, net	$	2,342	$	569	$	82	$	46	$	3	$	3,042

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Nine Months Ended July 31, 2019
Truck products and services(A)(B)	$	5,891	$	—	$	—	$	—	$	9	$	5,900
Truck contract manufacturing	274		—		—		—		—		274
Used trucks	151		—		—		—		—		151
Engines	—		217		168		—		—		385
Parts	4		1,476		55		—		—		1,535
Extended warranty contracts	85		—		—		—		—		85
Sales of manufactured products, net	6,405		1,693		223		—		9		8,330
Retail financing(C)	—		—		—		106		—		106
Wholesale financing(C)	—		—		—		35		—		35
Sales and revenues, net	$	6,405	$	1,693	$	223	$	141	$	9	$	8,471

_________________________

(A) Includes other markets primarily consisting of Bus, Export Truck and Mexico.

(B) Includes military sales of $62 million. In December 2018, we completed the sale of a 70% equity interest in Navistar Defense. See Note 3, Restructuring, Impairments and Divestitures for additional information.

(C)

Retail financing and Wholesale financing revenues in the Financial Services segment include interest revenue of $15 million and $11 million for the three months ended July 31, 2019, respectively, and $42 million and $35 million for the nine months ended July 31, 2019, respectively.

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Earnings (Loss) Per Share Attributable to Navistar International Corporation

9 Months Ended

Jul. 31, 2019

Earnings Per Share [Abstract]

Loss Per Share Attributable to Navistar International Corporation

Earnings Per Share Attributable to Navistar International Corporation

The following table presents the information used in the calculation of our basic and diluted earnings per share all attributable to NIC in our Consolidated Statements of Operations:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions, except per share data)	2019		2018		2019		2018
Numerator:
Net income attributable to Navistar International Corporation common stockholders	$	156	$	170	$	119	$	152
Denominator:
Weighted average shares outstanding:
Basic	99.4		99.0		99.2		98.8
Effect of dilutive securities	0.3		0.7		0.3		0.8
Diluted	99.7		99.7		99.5		99.6
Earnings per share attributable to Navistar International Corporation:
Basic	$	1.57	$	1.72	$	1.20	$	1.54
Diluted	1.56		1.71		1.20		1.53

The conversion rate on our 4.5% Senior Subordinated Convertible Notes due 2018 (the "2018 Convertible Notes") was 17.1233 shares of common stock per $1,000 principal amount of 2018 Convertible Notes, equivalent to an initial conversion price of approximately $58.40 per share of common stock. The 2018 Convertible Notes had an anti-dilutive effect when calculating diluted earnings per share when our average stock price was less than $58.40. The 2018 Convertible Notes were fully repaid upon maturity in October 2018, and none were converted into shares of our common stock.

The conversion rate on our 4.75% Senior Subordinated Convertible Notes due 2019 (the “2019 Convertible Notes”) was 18.4946 shares of common stock per $1,000 principal amount of 2019 Convertible Notes, equivalent to an initial conversion price of approximately $54.07 per share of common stock. The 2019 Convertible Notes had an anti-dilutive effect when calculating diluted earnings per share when our average stock price was less than $54.07. The 2019 Convertible Notes were fully repaid upon maturity in April 2019, and none were converted into shares of our common stock.

The computation of diluted earnings per share excludes outstanding options and other common stock equivalents in periods where inclusion of such potential common stock instruments would be anti-dilutive.

For the three and nine months ended July 31, 2018, certain securities have been excluded from the computation of earnings per share, as our average stock price during the period was less than their respective exercise prices. The aggregate shares not included were 13.2 million and 13.3 million, respectively, which was primarily comprised of 3.4 million shares related to the 2018 Convertible Notes and 7.6 million shares related to the 2019 Convertible Notes.

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Debt (Tables)

9 Months Ended

Jul. 31, 2019

Debt Disclosure [Abstract]

Debt

The following tables present the components of Notes payable and current maturities of long-term debt and Long-term debt in our Consolidated Balance Sheets:

(in millions)	July 31, 2019		October 31, 2018
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $6 and $7, respectively, and unamortized debt issuance costs of $10 and $11, respectively	$	1,560	$	1,570
6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $15 and $17, respectively	1,085		1,083
4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $5 and unamortized debt issuance costs of $1	—		405
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates	220		220
Financed lease obligations	54		122
Other	10		26
Total Manufacturing operations debt	2,929		3,426
Less: Current portion	30		461
Net long-term Manufacturing operations debt	$	2,899	$	2,965

(in millions)	July 31, 2019		October 31, 2018
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2023, net of unamortized debt issuance costs of $5 and $4, respectively	$	1,102	$	948
Senior secured NFC Term Loan, due 2025, net of unamortized discount of $2 and unamortized debt issuance costs of $4	—		394
Bank credit facilities, at fixed and variable rates, due dates from 2019 through 2025, net of unamortized debt issuance costs of zero and $2, respectively	1,000		519
Commercial paper, at variable rates, program matures in 2022	71		75
Borrowings secured by operating and finance leases, at various rates, due serially through 2024	102		105
Total Financial Services operations debt	2,275		2,041
Less: Current portion	646		485
Net long-term Financial Services operations debt	$	1,629	$	1,556

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Finance Receivables - Schedule of Finance Revenues (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Finance Revenues [Line Items]
Retail notes and finance leases revenue	$ 16	$ 12	$ 45	$ 36
Gross finance revenues	74	65	226	187
Intercompany Revenues	28	25	85	69
Finance Revenues, Net	46	40	141	118
Financing Receivable [Member]
Finance Revenues [Line Items]
Operating lease revenue	19	19	62	54
Wholesale Portfolio [Member] | Notes Receivable [Member]
Finance Revenues [Line Items]
Interest Income, Operating	31	26	93	75
Retail And Wholesale Portfolios [Member]
Finance Revenues [Line Items]
Interest Income, Operating	8	8	26	22
Financial Services Operations
Finance Revenues [Line Items]
Finance Revenues, Net	$ 46	$ 40	$ 141	$ 118

XML

Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Millions	1 Months Ended	2 Months Ended	3 Months Ended		9 Months Ended
	Dec. 31, 2018	Dec. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Disaggregation of Revenue [Line Items]
Finance revenues			$ 46	$ 40	$ 141	$ 118
Sales and revenues, net			3,042	2,606	8,471	6,933
Truck products and services [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			2,118		5,900
Truck contract manufacturing [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			144		274
Used Trucks [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			54		151
Engines [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			136		385
Parts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			517		1,535
Extended warranty contracts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			27	24	85	80
Manufactured products, net [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			2,996		8,330
Retail [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			35		106
Interest income			15	42
Wholesale financing [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			11		35
Interest income			11			35
Military Sales [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net		$ 62
North America Truck [Member]
Disaggregation of Revenue [Line Items]
Sales and revenues, net			2,342		6,405
North America Truck [Member] | Truck products and services [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			2,115		5,891
North America Truck [Member] | Truck contract manufacturing [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			144		274
North America Truck [Member] | Used Trucks [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			54		151
North America Truck [Member] | Engines [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
North America Truck [Member] | Parts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			2		4
North America Truck [Member] | Extended warranty contracts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			27		85
North America Truck [Member] | Manufactured products, net [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			2,342		6,405
North America Truck [Member] | Retail [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
North America Truck [Member] | Wholesale financing [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
North America Parts [Member]
Disaggregation of Revenue [Line Items]
Sales and revenues, net			569		1,693
North America Parts [Member] | Truck products and services [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
North America Parts [Member] | Truck contract manufacturing [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
North America Parts [Member] | Used Trucks [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
North America Parts [Member] | Engines [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			73		217
North America Parts [Member] | Parts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			496		1,476
North America Parts [Member] | Extended warranty contracts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
North America Parts [Member] | Manufactured products, net [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			569		1,693
North America Parts [Member] | Retail [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
North America Parts [Member] | Wholesale financing [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
Global Operations [Member]
Disaggregation of Revenue [Line Items]
Sales and revenues, net			82		223
Global Operations [Member] | Truck products and services [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Global Operations [Member] | Truck contract manufacturing [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Global Operations [Member] | Used Trucks [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Global Operations [Member] | Engines [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			63		168
Global Operations [Member] | Parts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			19		55
Global Operations [Member] | Extended warranty contracts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Global Operations [Member] | Manufactured products, net [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			82		223
Global Operations [Member] | Retail [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
Global Operations [Member] | Wholesale financing [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
Financial Services Operations
Disaggregation of Revenue [Line Items]
Finance revenues			46	$ 40	141	$ 118
Sales and revenues, net			46		141
Financial Services Operations | Truck products and services [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Truck contract manufacturing [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Used Trucks [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Engines [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Parts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Extended warranty contracts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Manufactured products, net [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Financial Services Operations | Retail [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			35		106
Financial Services Operations | Wholesale financing [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			11		35
Corporate And Eliminations [Member]
Disaggregation of Revenue [Line Items]
Sales and revenues, net			3		9
Corporate And Eliminations [Member] | Truck products and services [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			3		9
Corporate And Eliminations [Member] | Truck contract manufacturing [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Corporate And Eliminations [Member] | Used Trucks [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Corporate And Eliminations [Member] | Engines [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Corporate And Eliminations [Member] | Parts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Corporate And Eliminations [Member] | Extended warranty contracts [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			0		0
Corporate And Eliminations [Member] | Manufactured products, net [Member]
Disaggregation of Revenue [Line Items]
Sales of manufactured products, net			3		9
Corporate And Eliminations [Member] | Retail [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			0		0
Corporate And Eliminations [Member] | Wholesale financing [Member]
Disaggregation of Revenue [Line Items]
Finance revenues			$ 0		$ 0
Navistar Defense [Member]
Disaggregation of Revenue [Line Items]
Equity Interest, Percent Sold	70.00%

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Restructuring and Impairments - Restructuring Reserve by Type (Details) - USD ($) $ in Millions	3 Months Ended			9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2017	Jul. 31, 2019	Jul. 31, 2018
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 0	$ 1	$ 6	$ 1	$ 1

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Consolidated Balance Sheets - USD ($) $ in Millions	Jul. 31, 2019	Oct. 31, 2018
Current assets
Cash and cash equivalents	$ 1,160	$ 1,320
Restricted cash and cash equivalents	79	62
Marketable securities	3	101
Trade and other receivables, net	429	456
Finance receivables, net	2,187	1,898
Inventories, net	1,195	1,110
Other current assets	273	189
Total current assets	5,326	5,136
Restricted cash	57	63
Trade and other receivables, net	12	49
Finance receivables, net	275	260
Investments in non-consolidated affiliates	33	50
Property and equipment (net of accumulated depreciation and amortization of $2,463 and $2,498, respectively)	1,290	1,370
Goodwill	38	38
Intangible assets (net of accumulated amortization of $142 and $140, respectively)	27	30
Deferred taxes, net	124	121
Other noncurrent assets	112	113
Total assets	7,294	7,230
Current liabilities
Notes payable and current maturities of long-term debt	676	946
Accounts payable	1,806	1,606
Other current liabilities	1,323	1,255
Total current liabilities	3,805	3,807
Long-term debt	4,528	4,521
Postretirement benefits liabilities	1,929	2,097
Other noncurrent liabilities	692	731
Total liabilities	10,954	11,156
Stockholders’ deficit
Series D convertible junior preference stock	2	2
Common stock, $0.10 par value per share (103.1 shares issued and 220 shares authorized at both dates)	10	10
Additional paid-in capital	2,730	2,731
Accumulated deficit	(4,501)	(4,593)
Accumulated other comprehensive loss	(1,754)	(1,920)
Common stock held in treasury, at cost (3.9 and 4.2 shares, respectively)	(150)	(161)
Total stockholders’ deficit attributable to Navistar International Corporation	(3,663)	(3,931)
Stockholders’ equity attributable to non-controlling interests	3	5
Total stockholders’ deficit	(3,660)	(3,926)
Total liabilities and stockholders’ deficit	$ 7,294	$ 7,230

XML

Summary of Significant Accounting Policies

9 Months Ended

Jul. 31, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Organization and Description of the Business

Navistar International Corporation ("NIC"), incorporated under the laws of the State of Delaware in 1993, is a holding company whose principal operating entities are Navistar, Inc. ("NI") and Navistar Financial Corporation ("NFC"). References herein to the "Company," "we," "our," or "us" refer collectively to NIC and its consolidated subsidiaries, including certain variable interest entities ("VIEs") of which we are the primary beneficiary. We operate in four principal industry segments: Truck, Parts, Global Operations (collectively called "Manufacturing operations"), and Financial Services, which consists of NFC and our foreign finance operations (collectively called "Financial Services operations"). These segments are discussed in Note 12, Segment Reporting.

Our fiscal year ends on October 31. As such, all references to 2019, 2018, and other years contained within this Quarterly Report on Form 10-Q relate to the fiscal year, unless otherwise indicated.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations and our Financial Services operations, including VIEs of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.

We prepared the accompanying unaudited consolidated financial statements in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for comprehensive annual financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended October 31, 2018, which should be read in conjunction with the disclosures therein. In our opinion, these interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.

Significant Accounting Policies [Text Block]

Summary of Significant Accounting Policies

Organization and Description of the Business

Navistar International Corporation ("NIC"), incorporated under the laws of the State of Delaware in 1993, is a holding company whose principal operating entities are Navistar, Inc. ("NI") and Navistar Financial Corporation ("NFC"). References herein to the "Company," "we," "our," or "us" refer collectively to NIC and its consolidated subsidiaries, including certain variable interest entities ("VIEs") of which we are the primary beneficiary. We operate in four principal industry segments: Truck, Parts, Global Operations (collectively called "Manufacturing operations"), and Financial Services, which consists of NFC and our foreign finance operations (collectively called "Financial Services operations"). These segments are discussed in Note 12, Segment Reporting.

Our fiscal year ends on October 31. As such, all references to 2019, 2018, and other years contained within this Quarterly Report on Form 10-Q relate to the fiscal year, unless otherwise indicated.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations and our Financial Services operations, including VIEs of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.

We prepared the accompanying unaudited consolidated financial statements in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for comprehensive annual financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended October 31, 2018, which should be read in conjunction with the disclosures therein. In our opinion, these interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.

Variable Interest Entities

We have an interest in several VIEs, primarily joint ventures, established to manufacture or distribute products and enhance our operational capabilities. We have determined for certain of our VIEs that we are the primary beneficiary because we have the power to direct the activities of the VIE that most significantly impact its economic performance and we have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Accordingly, we include in our consolidated financial statements the assets and liabilities and results of operations of those entities, even though we may not own a majority voting interest. The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather they represent claims against the specific assets of these VIEs. Assets of these entities are not readily available to satisfy claims against our general assets.

We are the primary beneficiary of our Blue Diamond Parts, LLC ("BDP") joint venture with Ford Motor Company ("Ford"). As a result, our Consolidated Balance Sheets include assets of $28 million and $39 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $3 million and $4 million, at each date. As of July 31, 2019 and October 31, 2018, assets include $3 million and $4 million of cash and cash equivalents, respectively, which are not readily available to satisfy claims against our general assets. The creditors of BDP do not have recourse to our general credit.

Our Financial Services segment consolidates several VIEs. As a result, our Consolidated Balance Sheets include secured assets of $1.1 billion and $994 million as of July 31, 2019 and October 31, 2018, respectively, and liabilities of $956 million and $852 million as of July 31, 2019 and October 31, 2018, respectively, all of which are involved in securitizations that are treated as asset-backed debt. In addition, our Consolidated Balance Sheets include secured assets of $465 million and $370 million as of July 31, 2019 and October 31, 2018, respectively, and corresponding liabilities of $253 million and $205 million, at the respective dates, which are related to other secured transactions that do not qualify for sale accounting treatment, and, therefore, are treated as borrowings secured by operating and finance leases. Investors that hold securitization debt have a priority claim on the cash flows generated by their respective securitized assets to the extent that the related VIEs are required to make principal and interest payments. Investors in securitizations of these entities have no recourse to our general credit.

We also have an interest in other VIEs, which we do not consolidate because we are not the primary beneficiary. Our financial support and maximum loss exposure relating to these non-consolidated VIEs are not material to our financial condition, results of operations, or cash flows.

We use the equity method to account for our investments in entities that we do not control under the voting interest or variable interest models, but where we have the ability to exercise significant influence over operating and financial policies. Equity in income of non-consolidated affiliates includes our share of the net income of these entities.

Related Party Transactions

We have a series of commercial relationships and agreements with TRATON SE and certain of its subsidiaries and affiliates ("TRATON Group") for royalties related to use of certain engine technology, contract manufacturing operations performed by us, the sale of engines, the sale and purchase of parts, and a procurement joint venture. We also have development agreements with TRATON Group involving certain engine and transmission projects. This development work is being expensed as incurred. For the three and nine months ended July 31, 2019, revenue recognized was approximately $42 million and $113 million, respectively, compared to $33 million and $114 million in the comparable prior year periods. For the three and nine months ended July 31, 2019, expenses incurred were $11 million and $29 million, respectively, compared to $2 million and $21 million in the comparable prior year periods, included primarily in Engineering and product development costs on our Consolidated Statements of Operations. Our receivable from TRATON Group was $16 million and $10 million as of July 31, 2019 and October 31, 2018, respectively. Our payable to TRATON Group was $48 million and $25 million as of July 31, 2019 and October 31, 2018, respectively.

We have an exclusive long-term agreement to supply military and commercial parts and chassis to our former defense business, ND Holdings, LLC (“Navistar Defense”). We also entered into an intellectual property agreement and a transition services agreement. For the three and nine months ended July 31, 2019, revenue recognized was approximately $9 million and $43 million, respectively. As of July 31, 2019, our receivables from Navistar Defense were $29 million.

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is principally determined using the first-in, first-out method. Our gross used truck inventory was $251 million at July 31, 2019 compared to $154 million at October 31, 2018, offset by reserves of $55 million and $31 million, respectively.

Property and Equipment

We report land, buildings, leasehold improvements, machinery and equipment (including tooling and pattern equipment), furniture, fixtures, and equipment, and equipment leased to others at cost, net of depreciation. We initially record assets under capital lease obligations at the lower of their fair value or the present value of the aggregate future minimum lease payments. We depreciate our assets using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets.

We test for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset or asset group (hereinafter referred to as "asset group") may not be recoverable by comparing the sum of the estimated undiscounted future cash flows expected to result from the operation of the asset group and its eventual disposition to the carrying value.

Continued economic weakness in Brazil has resulted in a decline in forecasted results for the Brazilian asset group, which is included in the Global Operations segment. It is reasonably possible that within the next twelve months, we could recognize impairment charges if we experience adverse changes in our business including further declines in profitability due to changes in volume, market pricing, cost, or the business environment. Significant adverse changes to our business environment and future cash flows could cause us to record impairment charges in future periods, which could be material.

Product Warranty Liability

The following table presents accrued product warranty and deferred warranty revenue activity:

	Nine Months Ended July 31,
(in millions)	2019			2018
Balance at beginning of period	$	529		$	629
Costs accrued and revenues deferred	182			139
Adjustments to pre-existing warranties(A)	7			(4		)
Payments and revenues recognized	(208		)	(233		)
Other adjustments(B)	12			—
Balance at end of period	522			531
Less: Current portion	247			254
Noncurrent accrued product warranty and deferred warranty revenue	$	275		$	277

_________________________

(A) Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior fiscal periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

(B) Other adjustments include a $14 million increase in revenues deferred in connection with the adoption of the new revenue standard (as defined below regarding Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606), partially offset by a $2 million reduction in liability related to the sale of a majority interest in our defense business, ND Holdings, LLC ("Navistar Defense")..

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, pension and other postretirement benefits, allowance for doubtful accounts, tax contingency accruals and valuation allowances, product warranty accruals, asbestos and other product liability accruals, asset impairment charges, restructuring charges and litigation-related accruals. Actual results could differ from our estimates.

Concentration Risks

Our financial condition, results of operations, and cash flows are subject to concentration risks related to our significant unionized workforce. As of July 31, 2019, approximately 8,300, or 98%, of our hourly workers and approximately 700, or 13%, of our salaried workers, are represented by labor unions and are covered by collective bargaining agreements. In January 2019, certain of our United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") represented employees executed a new six-year master collective bargaining agreement with a ratification date of December 17, 2018 that replaced the prior agreement which expired in October 2018. Our future operations may be affected by changes in governmental procurement policies, budget considerations, changing national defense requirements, and political, regulatory and economic developments in the U.S. and certain foreign countries (primarily Canada, Mexico, and Brazil).

Recently Adopted Accounting Standards

On November 1, 2018, we adopted the new accounting standard ASC 606, "Revenue from Contracts with Customers" and all the related amendments (“new revenue standard”) using the modified retrospective method to all contracts. Based on our assessment, the cumulative effect adjustment upon adoption of the new revenue standard had a $27 million impact on our Accumulated deficit. The primary impacts include an increase in Accumulated deficit due to an increase in the refund liability owed to our customers for future returns of core components. Previously our refund liability was recorded net of our future trade-in value to our suppliers. Under the new revenue standard, we record a liability for the amounts owed to our customers and a deposit asset for the amount we are currently eligible to receive from our suppliers. An additional increase relates to a change in the recognition pattern of revenue for extended warranty contracts. Revenue from these contracts was recognized on a straight-line basis over the life of the contract. Under the new revenue standard, revenue for extended warranty contracts is recorded in proportion to the costs expected to be incurred in satisfying the obligations based on historical cost patterns over the life of similar contracts.

The increase in Accumulated deficit is partially offset by certain contracts where revenue recognition occurred as units were delivered and accepted. Under the new revenue standard, when the contract transfers control of a good to a customer as services or production occurs, revenue is recognized over time. An additional decrease in Accumulated deficit relates to certain sales that were recorded as leases or borrowings as we retained substantial risks of ownership. Under the new revenue standard, revenue is recognized upon transfer of control for these transactions, less the value of any guarantees provided to the customer. The adoption of the new revenue standard resulted in changes in the classification of Sales and revenues, net and Costs of products sold in our Consolidated Statements of Operations. The new revenue standard also resulted in changes in the classification of certain assets and liabilities in our Consolidated Balance Sheets.

We have revised our relevant policy and procedures and provided expanded revenue recognition disclosures based on the new qualitative and quantitative disclosure requirements of the standard in Note 2, Revenue.

The cumulative effects of the adjustments made to our November 1, 2018 Consolidated Balance Sheet for the adoption of the new revenue standard were as follows:

(in millions)	Balance at October 31, 2018			Change Due to New Standard			Balance at November 1, 2018
ASSETS
Current assets
Trade and other receivables, net	$	456		$	(8	)	$	448
Inventories, net	1,110			(91		)	1,019
Other current assets	189			101			290
Total current assets	5,136			2			5,138
Property and equipment, net	1,370			(109		)	1,261
Deferred taxes, net	121			1			122
Other noncurrent assets	113			(3		)	110
Total assets	$	7,230		$	(109	)	$	7,121
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	946		$	(15	)	$	931
Other current liabilities	1,255			13			1,268
Total current liabilities	3,807			(2		)	3,805
Long-term debt	4,521			(58		)	4,463
Other noncurrent liabilities	731			(22		)	709
Total liabilities	11,156			(82		)	11,074
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,931		)	(27		)	(3,958		)
Total liabilities and stockholders’ deficit	$	7,230		$	(109	)	$	7,121

The following reconciles amounts as they would have been reported under the prior standard to current reporting:

	Three months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	2,998		$	(2	)	$	2,996
Costs of products sold	2,504			(3		)	2,501
Interest expense	77			(1		)	76
Income before income tax	188			2			190
Income tax expense	(29		)	—			(29		)
Net income	$	159		$	2		$	161

	Nine months ended July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
Sales of manufactured products, net	$	8,307		$	23		$	8,330
Costs of products sold	6,965			8			6,973
Interest expense	246			(3		)	243
Income before income tax	126			18			144
Income tax expense	(6		)	(3		)	(9		)
Net income	$	120		$	15		$	135

______________________

(A) Our Consolidated Statements of Operations for the nine months ended July 31, 2019 includes two months of the operating activity of Navistar Defense prior to the sale of a majority interest in our former defense business. See Note 3 Restructuring, Impairments and Divestitures for additional information.

	As of July 31, 2019(A)
(in millions)	Under Prior Standard			Effects of New Standard			As Reported
ASSETS
Current assets
Trade and other receivables, net	$	432		$	(3	)	$	429
Inventories, net	1,248			(53		)	1,195
Other current assets	210			63			273
Total current assets	5,319			7			5,326
Property and equipment, net	1,485			(195		)	1,290
Deferred taxes, net	126			(2		)	124
Other noncurrent assets	120			(8		)	112
Total assets	$	7,492		$	(198	)	$	7,294
LIABILITIES and STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term debt	$	689		$	(13	)	$	676
Other current liabilities	1,305			18			1,323
Total current liabilities	3,800			5			3,805
Long-term debt	4,577			(49		)	4,528
Other noncurrent liabilities	824			(132		)	692
Total liabilities	11,130			(176		)	10,954
Stockholders’ deficit
Total stockholders’ deficit attributable to Navistar International Corporation	(3,641		)	(22		)	(3,663		)
Total liabilities and stockholders’ deficit	$	7,492		$	(198	)	$	7,294

_________________________

(A) Our Consolidated Balance Sheet as of July 31, 2019 does not include the impact of Navistar Defense due to the sale of a majority interest in our former defense business. See Note 3, Restructuring, Impairments and Divestitures for additional information.

Recently Issued Accounting Standards

In August 2018, the FASB issued Accounting Standard Update ("ASU") No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". This ASU provides guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) and determining when the arrangement includes a software license. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2021. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)". This ASU provides guidance on a reclassification from accumulated other comprehensive income to retained earnings for the effect of the tax rate change resulting from the Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We are currently evaluating the impact of this ASU on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (Topic 326), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-13. This ASU sets forth an expected credit loss model which requires the measurement of expected credit losses for financial instruments based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, and certain off-balance sheet credit exposures. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Adoption will require a modified retrospective transition. This ASU is effective for us in the first quarter of fiscal 2021. The impact of this ASU on our consolidated financial statements will primarily result from our Financial Services operations and certain financial guarantees, and will largely depend on economic conditions and forecasts existing at the time of adoption.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842), and subsequently issued various ASUs to clarify the implementation guidance in ASU 2016-02. This ASU requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. The accounting by lessors will remain largely unchanged. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This ASU is effective for us in the first quarter of fiscal 2020. We expect to adopt this ASU in the first quarter of fiscal 2020 on a modified retrospective basis by which the cumulative effect adjustment will be recognized in Accumulated deficit as of November 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We also expect to elect the practical expedient related to land easements, but do not expect to elect the use-of-hindsight. We are currently evaluating our lease population to assess the effect of the guidance on our consolidated financial statements, but expect to record lease liabilities and right-of-use assets for operating leases related to certain property and equipment. We have selected our software and service providers and are focused on designing new processes and controls to assist with the implementation of the standard. We continue to evaluate the impact of this ASU on our consolidated financial statements.

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Segment Reporting - Summary of Segment Long Lived Assets and Revenue (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales and revenues, net	$ 3,042	$ 2,606	$ 8,471	$ 6,933
Financial Services Operations
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales and revenues, net	$ 46		$ 141

XML

Commitments and Contingencies - Narrative (Details) R$ in Millions			1 Months Ended		3 Months Ended										6 Months Ended	9 Months Ended
	Apr. 30, 2019 USD ($)	Jul. 16, 2015 USD ($)	Oct. 31, 2016 members	Mar. 31, 2014 BRL (R$)	Jul. 31, 2019 USD ($)	Jul. 31, 2019 BRL (R$)	Oct. 31, 2018 USD ($)	Oct. 31, 2018 BRL (R$)	Jul. 31, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2016 USD ($) lawsuits	Jul. 31, 2014 lawsuits	Jan. 31, 2014 BRL (R$)	Jul. 31, 2010 BRL (R$)	Apr. 30, 2019 BRL (R$)	Jul. 31, 2019 USD ($) dealer	Jul. 31, 2018 USD ($)	Jul. 31, 2015 engine
Loss Contingencies [Line Items]
Available stand-by letters of credit and surety bonds					$ 129,000,000											$ 129,000,000
Purchase commitments					125,000,000											125,000,000
Long Term Purchase Commitment Cancellation Fees																29,000,000
Accrual for environmental loss contingencies					20,000,000											20,000,000
Damages sought, value										$ 31,000,000
Loss Contingency, Number of Plaintiffs | members			2
Loss Contingency, New Claims Filed, Number | lawsuits											2	17
Notice of Violation, number | engine																		7,749
Civil penalties sought, per violation		$ 37,500
Loss Contingency, Overcharge Penalty										88,000,000
Loss Contingency, Damages Sought, Value, Punitive Damages										20,000,000
Legal Fees									$ 1,000,000							1,000,000
Selling, general and administrative expenses					167,000,000				222,000,000							726,000,000	$ 613,000,000
Loss Contingency, Damages Sought										$ 264,000,000
Sao Paulo Groundwater Notice [Member] | Sanctions [Member]
Loss Contingencies [Line Items]
Damages sought, value				R$ 3												1,000,000
International Chamber of Commerce [Member] | Penalties and Interest [Member]
Loss Contingencies [Line Items]
Damages sought, value																17,000,000
Navitrucks [Member] | Alleged Unfulfilled Promises and Injury to Reputation [Member]
Loss Contingencies [Line Items]
Damages sought, value					28,000,000		$ 28,000,000									34,000,000
G E Operating Agreement [Member]
Loss Contingencies [Line Items]
Off Balance Sheet Finance Receivables					1,600,000,000		1,500,000,000									1,600,000,000
Off Balance Sheet Finance Receivables Related Originations1					2,600,000,000		2,500,000,000									2,600,000,000
Minimum [Member] | Damages from Product Defects [Member] | EPA [Member]
Loss Contingencies [Line Items]
Civil penalties sought, per violation		2,000,000
Maximum [Member] | Damages from Product Defects [Member] | EPA [Member]
Loss Contingencies [Line Items]
Civil penalties sought, per violation		$ 291,000,000
G E Operating Agreement [Member]
Loss Contingencies [Line Items]
Equipment leased to others					46,000,000		104,000,000									46,000,000
Manufacturing Operations [Member] | Financed lease obligations [Member]
Loss Contingencies [Line Items]
Long-term Debt					54,000,000		122,000,000									54,000,000
Manufacturing Operations [Member] | G E Operating Agreement [Member] | Financed lease obligations [Member]
Loss Contingencies [Line Items]
Long-term Debt					54,000,000		122,000,000									54,000,000
Pending Litigation [Member] | FATMA Notice, Trial [Member] | Penalties [Member]
Loss Contingencies [Line Items]
Damages sought, value														R$ 2		1,000,000
Profit Sharing Litigation [Member] | Pending Litigation [Member] | Disputes [Member]
Loss Contingencies [Line Items]
Damages sought, value											$ 50,000,000
Retiree Health Care [Member]
Loss Contingencies [Line Items]
Damages sought, value																26,000,000
MaxxForce Engine EGR Warranty Litigation [Member]
Loss Contingencies [Line Items]
Common Fund, Balance					135,000,000											135,000,000
Selling, general and administrative expenses									$ 31,000,000							31,000,000
Litigation Settlement, Amount Awarded to Other Party	$ 159,000,000
MaxxForce Engine EGR Warranty Litigation [Member] | Cash [Member]
Loss Contingencies [Line Items]
Common Fund, Contribution					85,000,000											85,000,000
MaxxForce Engine EGR Warranty Litigation [Member] | Rebate [Member]
Loss Contingencies [Line Items]
Common Fund, Contribution					50,000,000											50,000,000
MaxxForce Engine EGR Warranty Litigation [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Common Fund, Allocation Between Contribution Types					35,000,000											35,000,000
CARB [Member]
Loss Contingencies [Line Items]
Damages sought, value																$ 2,000,000
Brazil, Brazil Real | International Chamber of Commerce [Member] | Penalties and Interest [Member]
Loss Contingencies [Line Items]
Damages sought, value | R$													R$ 64
Brazil, Brazil Real | Navitrucks [Member] | Alleged Unfulfilled Promises and Injury to Reputation [Member]
Loss Contingencies [Line Items]
Damages sought, value | R$						R$ 131		R$ 107					R$ 128		R$ 107
Brazil, Brazil Real | Navitrucks [Member] | Reimbursement of Legal Fees [Member]
Loss Contingencies [Line Items]
Damages sought, value | R$						R$ 3
Brazil, Brazil Real | Navitrucks [Member] | costs of arbitral proceedings [Member]
Loss Contingencies [Line Items]
Damages sought, value | R$								R$ 3
Brazil, Brazil Real | IIAA [Member] | costs of arbitral proceedings [Member]
Loss Contingencies [Line Items]
Damages sought, value | R$															R$ 6
United States of America, Dollars | Navitrucks [Member] | Alleged Unfulfilled Promises and Injury to Reputation [Member]
Loss Contingencies [Line Items]
Damages sought, value					35,000,000
United States of America, Dollars | Navitrucks [Member] | Reimbursement of Legal Fees [Member]
Loss Contingencies [Line Items]
Damages sought, value					$ 1,000,000
United States of America, Dollars | Navitrucks [Member] | costs of arbitral proceedings [Member]
Loss Contingencies [Line Items]
Damages sought, value							1,000,000
United States of America, Dollars | IIAA [Member] | costs of arbitral proceedings [Member]
Loss Contingencies [Line Items]
Damages sought, value							$ 2,000,000
International Indústria de Motores da América do Sul Ltda [Member] | Other Cases Vs. International Indústria de Motores da América do Sul Ltda [Member] | Pending Litigation [Member]
Loss Contingencies [Line Items]
Loss Contingency, Number of Truck Fleet Owners | dealer																2

XML

Debt - Narrative (Details) - USD ($) $ in Millions	9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	May 01, 2019	Apr. 30, 2019	Mar. 31, 2019	Oct. 31, 2018
Debt Instrument [Line Items]
Payments of Debt Issuance Costs	$ 9	$ 36
Financial Services Operations | VFN Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	350			$ 550	$ 350
Financial Services Operations | Trac Funding Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	150				$ 100
Financial Services Operations | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	269		$ 748
Investor Notes [Member]
Debt Instrument [Line Items]
Long-term Debt, Current Maturities	250
Convertible Subordinated Debt [Member] | Manufacturing Operations [Member] | Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member]
Debt Instrument [Line Items]
Long-term Debt	0					$ 405
Line of Credit [Member] | Manufacturing Operations [Member]
Debt Instrument [Line Items]
Long-term Debt	1,560					1,570
Line of Credit [Member] | Financial Services Operations
Debt Instrument [Line Items]
Long-term Debt	$ 1,000					$ 519
Notes Payable to Banks [Member] | Financial Services Operations
Debt Instrument [Line Items]
Debt Instrument, Face Amount			$ 398

XML

Allowance for Doubtful Accounts - Schedule of Allowance Aging Analysis (Details) - USD ($) $ in Millions	Jul. 31, 2019	Oct. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Finance Receivables, Current	$ 2,405	$ 2,114
30-90 days past due	60	52
Total finance receivables	2,486	2,180
Retail Portfolio [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Finance Receivables, Current	771	655
30-90 days past due	59	51
Total finance receivables	851	720
Wholesale Portfolio [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Finance Receivables, Current	1,634	1,459
30-90 days past due	1	1
Total finance receivables	1,635	1,460
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Over 90 days past due	21	14
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Over 90 days past due	21	14
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Wholesale Portfolio [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Over 90 days past due	$ 0	$ 0

XML

Fair Value Measurements - Financial Instruments Measured on Recurring Basis (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Millions	Jul. 31, 2019	Oct. 31, 2018
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 3	$ 101
Guarantees, Fair Value Disclosure	0	0
Liabilities, Fair Value Disclosure	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	1	4
Guarantees, Fair Value Disclosure	0	0
Liabilities, Fair Value Disclosure	3	0
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	0	0
Guarantees, Fair Value Disclosure	26	24
Liabilities, Fair Value Disclosure	26	24
US Treasury Bill Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	3	101
US Treasury Bill Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
US Treasury Bill Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	0	0
Other Current Assets [Member] | Commodity Contract [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	0
Other Current Assets [Member] | Commodity Contract [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	2
Other Current Assets [Member] | Commodity Contract [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	0
Other Current Assets [Member] | Foreign Exchange Contract [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	0	0
Other Current Assets [Member] | Foreign Exchange Contract [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	1	0
Other Current Assets [Member] | Foreign Exchange Contract [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	0	0
Other Noncurrent Assets [Member] | Interest Rate Cap [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	0	0
Other Noncurrent Assets [Member] | Interest Rate Cap [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	0	2
Other Noncurrent Assets [Member] | Interest Rate Cap [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	0	0
Other Current Liabilities [Member] | Commodity Contract [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	0
Other Current Liabilities [Member] | Commodity Contract [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	2	0
Other Current Liabilities [Member] | Commodity Contract [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	0
Other Current Liabilities [Member] | Foreign Exchange Contract [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	0
Other Current Liabilities [Member] | Foreign Exchange Contract [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	1	0
Other Current Liabilities [Member] | Foreign Exchange Contract [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	0
Estimate of Fair Value Measurement [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	4	105
Guarantees, Fair Value Disclosure	26	24
Liabilities, Fair Value Disclosure	29	24
Estimate of Fair Value Measurement [Member] | US Treasury Bill Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	3	101
Estimate of Fair Value Measurement [Member] | Other Current Assets [Member] | Commodity Contract [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	0	2
Estimate of Fair Value Measurement [Member] | Other Current Assets [Member] | Foreign Exchange Contract [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	1	0
Estimate of Fair Value Measurement [Member] | Other Noncurrent Assets [Member] | Interest Rate Cap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign currency contracts	0	2
Estimate of Fair Value Measurement [Member] | Other Current Liabilities [Member] | Commodity Contract [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	2	0
Estimate of Fair Value Measurement [Member] | Other Current Liabilities [Member] | Foreign Exchange Contract [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Liability, Fair Value, Gross Liability	$ 1	$ 0

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Fair Value Measurements

9 Months Ended

Jul. 31, 2019

Fair Value Disclosures [Abstract]

Fair value measurements

Fair Value Measurements

For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect our assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, we classify each fair value measurement as follows:

• Level 1—based upon quoted prices for identical instruments in active markets,

• Level 2—based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and

• Level 3—based upon one or more significant unobservable inputs.

The following section describes key inputs and assumptions in our valuation methodologies:

Cash Equivalents and Restricted Cash Equivalents—Cash equivalents are highly liquid investments, with an original maturity of 90 days or less, which may include U.S. government and federal agency securities, commercial paper, and other highly liquid investments. The carrying amounts of cash and cash equivalents and restricted cash and cash equivalents approximate fair value because of the short-term maturity and highly liquid nature of these instruments.

Marketable Securities—Our marketable securities portfolios are classified as available-for-sale and may include investments in U.S. government and federal agency securities, commercial paper and other investments with an original maturity greater than 90 days. We use quoted prices from active markets to determine fair value.

Derivative Assets and Liabilities—We measure the fair value of derivatives assuming that the unit of account is an individual derivative transaction and that each derivative could be sold or transferred on a stand-alone basis. We classify within Level 2 our derivatives that are traded over-the-counter and valued using internal models based on observable market inputs.

Guarantees—We provide certain guarantees of payments and residual values, to which losses are generally capped, to specific counterparties. The fair value of these guarantees includes a contingent component and a non-contingent component that are based upon internally developed models using unobservable inputs. We classify these liabilities within Level 3. For more information regarding guarantees, see Note 11, Commitments and Contingencies.

Impaired Finance Receivables and Impaired Assets Under Operating Leases—Fair values of the underlying collateral are determined by current and forecasted sales prices, aging of and demand for used trucks, and the mix of sales through various market channels. For more information regarding impaired finance receivables, see Note 5, Allowance for Doubtful Accounts.

Impaired Property, Plant and Equipment—We measure the fair value by discounting future cash flows expected to be received from the operation of, or disposition of, the asset or asset group that has been determined to be impaired. For more information regarding the impairment of property, plant and equipment, see Note 3, Restructurings and Impairments.

The following table presents the financial instruments measured at fair value on a recurring basis:

	As of July 31, 2019								As of October 31, 2018
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. government and federal agency securities	$	3	$	—	$	—	$	3	$	101	$	—	$	—	$	101
Derivative financial instruments:
Commodity forward contracts(A)	—		—		—		—		—		2		—		2
Foreign currency contracts(A)	—		1		—		1		—		—		—		—
Interest rate caps(B)	—		—		—		—		—		2		—		2
Total assets	$	3	$	1	$	—	$	4	$	101	$	4	$	—	$	105
Liabilities
Derivative financial instruments:
Commodity forward contracts(C)	$	—	$	2	$	—	$	2	$	—	$	—	$	—	$	—
Foreign currency contracts(C)	—		1		—		1		—		—		—		—
Guarantees	—		—		26		26		—		—		24		24
Total liabilities	$	—	$	3	$	26	$	29	$	—	$	—	$	24	$	24

_________________________

(A) The asset value of commodity forward contracts and foreign currency contracts is included in Other current assets in the accompanying Consolidated Balance Sheets.

(B) The asset value of interest rate caps is included in Other noncurrent assets in the accompanying Consolidated Balance Sheets.

(C) The liability value of commodity forward contracts and foreign currency contracts is included in Other current liabilities in the accompanying Consolidated Balance Sheets.

The following table presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	2019			2018			2019			2018
Guarantees, at beginning of period	$	(22	)	$	(27	)	$	(24	)	$	(21	)
Net (issuances) terminations	(4		)	7			(3		)	(1		)
Settlements	—			—			1			2
Guarantees, at end of period	$	(26	)	$	(20	)	$	(26	)	$	(20	)

There were no transfers of Level 3 financial instruments.

In addition to the methods and assumptions we use for the financial instruments recorded at fair value as discussed above, we use the following methods and assumptions to estimate the fair value for our other financial instruments that are not marked to market on a recurring basis. The carrying amounts of Cash and cash equivalents, Restricted cash and cash equivalents, and Accounts payable approximate fair values because of the short-term maturity and highly liquid nature of these instruments. Finance receivables generally consist of retail and wholesale accounts and notes.

The carrying amounts of Trade and other receivables and retail and wholesale accounts approximate fair values as a result of the short-term nature of the receivables. The carrying amounts of wholesale notes approximate fair values as a result of the short-term nature of the wholesale notes and their variable interest rate terms. Due to the nature of the aforementioned financial instruments, they have been excluded from the fair value amounts presented in the table below.

The fair values of our retail notes are estimated by discounting expected cash flows at estimated current market rates. The fair values of our retail notes are classified as Level 3 financial instruments.

The fair values of our debt instruments classified as Level 1 were determined using quoted market prices. The 6.75% Tax Exempt Bonds, due 2040, are traded, but the trading market is illiquid, and as a result, the Loan Agreement underlying the Tax Exempt Bonds is classified as Level 2. Trading in our 6.625% Senior Notes is limited to qualified institutional buyers; therefore the notes are classified as Level 2. The fair values of our Level 3 debt instruments are generally determined using internally developed valuation techniques such as discounted cash flow modeling. Inputs such as discount rates and credit spreads reflect our estimates of assumptions that market participants would use in pricing the instrument and may be unobservable.

The following tables present the carrying values and estimated fair values of financial instruments:

	As of July 31, 2019
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	198	$	198	$	204
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025	—		—		1,578		1,578		1,560
6.625% Senior Notes, due 2026	—		1,130		—		1,130		1,085
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040	—		235		—		235		220
Financed lease obligations	—		—		54		54		54
Other(A)	—		—		9		9		9
Financial Services operations
Asset-backed debt issued by consolidated SPEs, due serially through 2023	—		—		1,106		1,106		1,102
Bank credit facilities, due dates from 2019 through 2025	—		—		975		975		1,000
Commercial paper, program matures in 2022	71		—		—		71		71
Borrowings secured by operating and finance leases, due serially through 2024	—		—		101		101		102

	As of October 31, 2018
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	180	$	180	$	183
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025	—		—		1,597		1,597		1,570
6.625% Senior Notes, due 2026	—		1,122		—		1,122		1,083
4.75% Senior Subordinated Convertible Notes, due 2019(B)	412		—		—		412		405
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040	—		235		—		235		220
Financed lease obligations	—		—		122		122		122
Other	—		—		25		25		26
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2023	—		—		949		949		948
Senior secured NFC Term Loan, due 2025	—		—		400		400		394
Bank credit facilities, due dates from 2019 through 2025	—		—		511		511		519
Commercial paper, at variable rates, program matures in 2022	75		—		—		75		75
Borrowings secured by operating and finance leases, due serially through 2024	—		—		104		104		105

________________________

(A) Excludes capital lease obligation debt of $1 million as of July 31, 2019.

(B)

The carrying value represents the consolidated financial statement amount of the debt which excludes the allocation of the conversion feature to equity, while the estimated fair value is derived from quoted prices in active markets which include the equity feature.

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Inventories

9 Months Ended

Jul. 31, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories

The following table presents the components of Inventories in our Consolidated Balance Sheets:

(in millions)	July 31, 2019		October 31, 2018
Finished products	$	779	$	671
Work in process	104		118
Raw materials	312		321
Total inventories, net	$	1,195	$	1,110

XML

Summary of Significant Accounting Policies - Inventory (Details) - USD ($) $ in Millions	Jul. 31, 2019	Oct. 31, 2018
Inventory Reserve [Line Items]
Gross truck bed inventory	$ 251	$ 154
Inventory reserves	$ 55	$ 31

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(Tables)

9 Months Ended

Jul. 31, 2019

Retirement Benefits [Abstract]

Schedule of Net Benefit Costs [Table Text Block]

Net periodic benefit expense included in our Consolidated Statements of Operations, and other amounts recognized in our Consolidated Statements of Stockholders' Deficit, for the three and nine months ended July 31, 2019 and 2018 are comprised of the following:

	Three Months Ended July 31,												Nine Months Ended July 31,
	Pension Benefits						Health and Life Insurance Benefits						Pension Benefits						Health and Life Insurance Benefits
(in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Service cost for benefits earned during the period	$	1		$	1		$	1		$	1		$	5		$	5		$	3		$	3
Interest on obligation	30			27			12			10			92			81			36			32
Amortization of cumulative loss	23			26			—			3			70			79			—			7
Settlements	—			—			—			—			142			9			—			—
Premiums on pension insurance	3			1			—			—			7			3			—			—
Expected return on assets	(35		)	(40		)	(5		)	(5		)	(108		)	(121		)	(16		)	(17		)
Net periodic benefit expense	$	22		$	15		$	8		$	9		$	208		$	56		$	23		$	25

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Earnings (Loss) Per Share Attributable to Navistar International Corporation (Tables)

9 Months Ended

Jul. 31, 2019

Earnings Per Share [Abstract]

Schedule of Earnings Per Share Reconciliation [Table Text Block]

The following table presents the information used in the calculation of our basic and diluted earnings per share all attributable to NIC in our Consolidated Statements of Operations:

	Three Months Ended July 31,				Nine Months Ended July 31,
(in millions, except per share data)	2019		2018		2019		2018
Numerator:
Net income attributable to Navistar International Corporation common stockholders	$	156	$	170	$	119	$	152
Denominator:
Weighted average shares outstanding:
Basic	99.4		99.0		99.2		98.8
Effect of dilutive securities	0.3		0.7		0.3		0.8
Diluted	99.7		99.7		99.5		99.6
Earnings per share attributable to Navistar International Corporation:
Basic	$	1.57	$	1.72	$	1.20	$	1.54
Diluted	1.56		1.71		1.20		1.53

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Income Taxes - Narrative (Details) - USD ($)	1 Months Ended		3 Months Ended			9 Months Ended
	Jan. 31, 2019	Jan. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Jan. 31, 2017	Jul. 31, 2019	Jul. 31, 2018
Operating Loss Carryforwards [Line Items]
Unusual or Infrequent Item, or Both, Tax Effect	$ 38,000,000
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount				$ 0.21	$ 0.35
Deferred Tax Assets, Valuation Allowance			$ 983,000,000			$ 983,000,000
Effective Income Tax Rate Reconciliation, Repatriation of Foreign Earnings, Amount		$ 147,000,000
Income Taxes Percent Likelihood Of Being Realized Upon Settlement			50.00%			50.00%
Income Tax Expense (Benefit)			$ 29,000,000	$ 3,000,000		$ 9,000,000	$ 25,000,000
Unrecognized Tax Benefits			$ 21,000,000			21,000,000
Interest and Penalties from Uncertain Tax Positions, Income Tax Expense						1,000,000
Other Comprehensive Income (Loss) [Member]
Operating Loss Carryforwards [Line Items]
Income Tax Expense (Benefit)						$ (9,000,000)

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Debt - Schedule of Debt Instruments (Details) - USD ($) $ in Millions	Jul. 31, 2019	Nov. 01, 2018	Oct. 31, 2018
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations	$ 4,528	$ 4,463	$ 4,521
Term Loan [Member]
Debt Instrument [Line Items]
Gross maximum borrowing capacity	0		394
Financial Services Operations
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities	2,275		2,041
Long-term Debt and Capital Lease Obligations, Current	646		485
Long-term Debt and Capital Lease Obligations	1,629		1,556
Financial Services Operations | Secured Debt [Member]
Debt Instrument [Line Items]
Long-term Debt	1,102		948
Financial Services Operations | Line of Credit [Member]
Debt Instrument [Line Items]
Long-term Debt	1,000		519
Financial Services Operations | Commercial Paper [Member]
Debt Instrument [Line Items]
Long-term Debt			75
Commercial Paper	71
Financial Services Operations | Borrowings Secured By Operating and Finance Leases [Member]
Debt Instrument [Line Items]
Long-term Debt	102		105
Manufacturing Operations [Member]
Debt Instrument [Line Items]
Long-term Debt and Capital Lease Obligations, Including Current Maturities	2,929		3,426
Long-term Debt and Capital Lease Obligations, Current	30		461
Long-term Debt and Capital Lease Obligations	2,899		2,965
Manufacturing Operations [Member] | Line of Credit [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 1,560		1,570
Manufacturing Operations [Member] | Notes Payable to Banks [Member] | Eight Point Two Five Percent Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	8.25%
Long-term Debt	$ 1,085		1,083
Manufacturing Operations [Member] | Convertible Subordinated Debt [Member] | Four Point Five Zero Senior Subordinated Convertible Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	4.50%
Manufacturing Operations [Member] | Convertible Subordinated Debt [Member] | Four Point Seven Five Senior Subordinated Convertible Notes [Member] [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	4.75%
Long-term Debt	$ 0		405
Manufacturing Operations [Member] | Tax Exempt Bond [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	6.75%
Long-term Debt	$ 220		220
Manufacturing Operations [Member] | Financed lease obligations [Member]
Debt Instrument [Line Items]
Long-term Debt	54		122
Manufacturing Operations [Member] | Notes Payable, Other Payables [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 10		$ 26

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Allowance for Doubtful Accounts - Schedule of Impaired Finance Receivables (Details) - USD ($) $ in Millions	9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Retail Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Average Recorded Investment	$ 21	$ 19
Impaired finance receivables with specific loss reserves [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	22		$ 20
Impaired finance receivables with specific loss reserves [Member] | Retail Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	22		20
Impaired finance receivables with specific loss reserves [Member] | Wholesale Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	0		0
Impaired financing receivable without specific loss reserves [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	0		0
Impaired financing receivable without specific loss reserves [Member] | Retail Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	0		0
Impaired financing receivable without specific loss reserves [Member] | Wholesale Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	0		0
Specific loss reserves on impaired finance receivables [Member]
Finance Receivable, Impaired [Line Items]
Specific loss reserves on impaired finance receivables	11		9
Specific loss reserves on impaired finance receivables [Member] | Retail Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Specific loss reserves on impaired finance receivables	11		9
Specific loss reserves on impaired finance receivables [Member] | Wholesale Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Specific loss reserves on impaired finance receivables	0		0
Finance receivable non-accrual status [Member]
Finance Receivable, Impaired [Line Items]
Finance receivables on non-accrual status	22		20
Finance receivable non-accrual status [Member] | Retail Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Finance receivables on non-accrual status	22		20
Finance receivable non-accrual status [Member] | Wholesale Portfolio [Member]
Finance Receivable, Impaired [Line Items]
Finance receivables on non-accrual status	$ 0		$ 0

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Income Taxes

9 Months Ended

Jul. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We compute, on a quarterly basis, an estimated annual effective tax rate considering ordinary income and related income tax expense. Tax jurisdictions with a projected or year to date loss for which a tax benefit cannot be realized are excluded. Ordinary income refers to income (loss) before income tax expense excluding significant unusual or infrequently occurring items. The tax effect of a significant unusual or infrequently occurring item is recorded in the interim period in which the item occurs. We included an income tax benefit of $38 million in the first quarter of 2019 for the tax effect of a group annuity contract purchase for certain retired pension plan participants as a significant unusual or infrequently occurring item. Other items included in income tax expense in the periods in which they occur include the tax effects of cumulative changes in tax laws or rates, foreign exchange gains and losses, adjustments to uncertain tax positions, and adjustments to our valuation allowance due to changes in judgment regarding the ability to realize deferred tax assets in future years.

On December 22, 2017, the Tax Act was signed into U.S. law. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company’s financial statement effects were reported on a provisional basis for the year ended October 31, 2018. The remeasurement period for SAB 118 ended on December 22, 2018. The Tax Act reduced the statutory corporate income tax rate from 35% to 21%, effective January 1, 2018. This rate reduction required us to remeasure our deferred taxes as of the date the Tax Act was enacted. Our U.S. deferred tax assets, net of deferred tax liabilities, were remeasured and reduced by $983 million, entirely offset by a valuation allowance reduction. As a result, the remeasurement of our deferred tax assets, net of deferred tax liabilities, including the valuation allowance, did not impact our income tax expense or net income. The Tax Act also included a mandatory deemed repatriation of earnings of the Company’s foreign subsidiaries and resulted in a one-time transition tax for the year ended October 31, 2018. We included $147 million of foreign earnings in taxable income due to this deemed repatriation. The deferred tax impact had a valuation allowance offset, resulting in no impact on our income tax expense or net income.

The income tax accounting for the effect of the rate change on deferred taxes and the mandatory deemed repatriation is complete.

The Tax Act also included many other provisions, including changes to limits on the deductions for executive compensation and interest expense, a tax on global intangible low‐taxed income (“GILTI”), the base erosion anti‐abuse tax and a deduction for foreign derived intangible income. We have included the impact of these provisions in our interim period tax calculations, which first apply to our taxable year beginning November 1, 2018. Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is electing to account for taxes on GILTI as incurred.

We will continue to evaluate the Tax Act’s impact, which may change as a result of additional Treasury guidance, federal or state legislative actions, or changes in accounting standards or related interpretations. The Company’s analyses performed to date are sufficient to calculate a reasonable estimate of the impacts of the Tax Act.

We have evaluated the need to maintain a valuation allowance for deferred tax assets based on our assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. There were no significant changes in judgement related to our valuation allowance positions during the quarter ended July 31, 2019. For certain deferred tax assets, while we believe that it is more likely than not that they will be realized, we believe that it is reasonably possible that additional deferred tax asset valuation allowances could be required in the next twelve months in certain jurisdictions.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of July 31, 2019, the amount of liability for uncertain tax positions was $21 million. The liability as of July 31, 2019 has a recorded offsetting tax benefit associated with various issues that total $9 million. If the unrecognized tax benefits are recognized, all would impact our effective tax rate, except for positions for which we maintain a full valuation allowance against certain deferred tax assets. In this case, the effect may be in the form of an increase in the deferred tax asset related to our net operating loss carryforward, which would be offset by a full valuation allowance.

We recognize interest and penalties related to uncertain tax positions as part of Income tax expense. Total interest and penalties for the three and nine months ended July 31, 2019 related to our uncertain tax positions resulted in an income tax expense of less than $1 million, for both periods.

We have open tax years back to 2001 with various significant taxing jurisdictions, including the U.S., Canada, Mexico, and Brazil. In connection with the examination of tax returns, contingencies may arise that generally result from differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenues or expenses in taxable income, or the sustainability of tax credits to reduce income taxes payable. We believe we have sufficient accruals for our contingent tax liabilities. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns, although actual results may differ. While it is probable that the liability for unrecognized tax benefits may increase or decrease during the next twelve months, we do not expect any such change would have a material effect on our financial condition, results of operations, or cash flows.

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Allowance for Doubtful Accounts

9 Months Ended

Jul. 31, 2019

Allowance for Doubtful Accounts [Abstract]

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Our two finance receivables portfolio segments, retail and wholesale, each consist of one class of receivable based on: (i) initial measurement attributes of the receivables, and (ii) the assessment and monitoring of risk and performance of the receivables. For more information, see Note 4, Finance Receivables.

The following tables present the activity related to our allowance for doubtful accounts for our retail portfolio segment, wholesale portfolio segment, and trade and other receivables:

	Three Months Ended July 31, 2019										Three Months Ended July 31, 2018
(in millions)	Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables		Total			Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total
Allowance for doubtful accounts, at beginning of period	$	22		$	3	$	29	$	54		$	19		$	3	$	27		$	49
Provision for doubtful accounts	1			—		1		2			2			—		1			3
Charge-off of accounts	(2		)	—		—		(2		)	(1		)	—		—			(1		)
Recoveries	1			—		—		1			1			—		—			1
Other(A)	(1		)	—		2		1			—			—		(2		)	(2		)
Allowance for doubtful accounts, at end of period	$	21		$	3	$	32	$	56		$	21		$	3	$	26		$	50

	Nine Months Ended July 31, 2019											Nine Months Ended July 31, 2018
(in millions)	Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total			Retail Portfolio			Wholesale Portfolio		Trade and Other Receivables			Total
Allowance for doubtful accounts, at beginning of period	$	19		$	3	$	28		$	50		$	17		$	3	$	28		$	48
Provision for doubtful accounts	5			—		3			8			5			—		1			6
Charge-off of accounts	(4		)	—		(1		)	(5		)	(4		)	—		—			(4		)
Recoveries	1			—		—			1			3			—		—			3
Other(A)	—			—		2			2			—			—		(3		)	(3		)
Allowance for doubtful accounts, at end of period	$	21		$	3	$	32		$	56		$	21		$	3	$	26		$	50

____________________

(A) Amounts include impact from currency translation.

The accrual of interest income is suspended on certain impaired finance receivables. Impaired finance receivables include accounts with specific loss reserves and certain accounts that are on non-accrual status. In certain cases, we continue to collect payments on our impaired finance receivables.

The following table presents information regarding impaired finance receivables:

	July 31, 2019						October 31, 2018
(in millions)	Retail Portfolio		Wholesale Portfolio		Total		Retail Portfolio		Wholesale Portfolio		Total
Impaired finance receivables with specific loss reserves	$	22	$	—	$	22	$	20	$	—	$	20
Impaired finance receivables without specific loss reserves	—		—		—		—		—		—
Specific loss reserves on impaired finance receivables	11		—		11		9		—		9
Finance receivables on non-accrual status	22		—		22		20		—		20

The average balances of the impaired finance receivables in the retail portfolio were $21 million and $19 million during the nine months ended July 31, 2019 and 2018, respectively. See Note 10, Fair Value Measurements, for information on the valuation of impaired finance receivables.

We use the aging of our receivables as well as other inputs when assessing credit quality. The following table presents the aging analysis for finance receivables:

	July 31, 2019						October 31, 2018
(in millions)	Retail Portfolio		Wholesale Portfolio		Total		Retail Portfolio		Wholesale Portfolio		Total
Current, and up to 30 days past due	$	771	$	1,634	$	2,405	$	655	$	1,459	$	2,114
30-90 days past due	59		1		60		51		1		52
Over 90 days past due	21		—		21		14		—		14
Total finance receivables	$	851	$	1,635	$	2,486	$	720	$	1,460	$	2,180

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Fair Value Measurements (Tables)

9 Months Ended

Jul. 31, 2019

Fair Value Disclosures [Abstract]

Financial instruments measured at fair value, recurring basis

The following table presents the financial instruments measured at fair value on a recurring basis:

	As of July 31, 2019								As of October 31, 2018
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. government and federal agency securities	$	3	$	—	$	—	$	3	$	101	$	—	$	—	$	101
Derivative financial instruments:
Commodity forward contracts(A)	—		—		—		—		—		2		—		2
Foreign currency contracts(A)	—		1		—		1		—		—		—		—
Interest rate caps(B)	—		—		—		—		—		2		—		2
Total assets	$	3	$	1	$	—	$	4	$	101	$	4	$	—	$	105
Liabilities
Derivative financial instruments:
Commodity forward contracts(C)	$	—	$	2	$	—	$	2	$	—	$	—	$	—	$	—
Foreign currency contracts(C)	—		1		—		1		—		—		—		—
Guarantees	—		—		26		26		—		—		24		24
Total liabilities	$	—	$	3	$	26	$	29	$	—	$	—	$	24	$	24

_________________________

(A) The asset value of commodity forward contracts and foreign currency contracts is included in Other current assets in the accompanying Consolidated Balance Sheets.

(B) The asset value of interest rate caps is included in Other noncurrent assets in the accompanying Consolidated Balance Sheets.

(C)

The liability value of commodity forward contracts and foreign currency contracts is included in Other current liabilities in the accompanying Consolidated Balance Sheets.

Financial instruments classified within Level 3

The following table presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy:

	Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	2019			2018			2019			2018
Guarantees, at beginning of period	$	(22	)	$	(27	)	$	(24	)	$	(21	)
Net (issuances) terminations	(4		)	7			(3		)	(1		)
Settlements	—			—			1			2
Guarantees, at end of period	$	(26	)	$	(20	)	$	(26	)	$	(20	)

Carrying values and estimated fair values of financial instruments

	As of July 31, 2019
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	198	$	198	$	204
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025	—		—		1,578		1,578		1,560
6.625% Senior Notes, due 2026	—		1,130		—		1,130		1,085
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040	—		235		—		235		220
Financed lease obligations	—		—		54		54		54
Other(A)	—		—		9		9		9
Financial Services operations
Asset-backed debt issued by consolidated SPEs, due serially through 2023	—		—		1,106		1,106		1,102
Bank credit facilities, due dates from 2019 through 2025	—		—		975		975		1,000
Commercial paper, program matures in 2022	71		—		—		71		71
Borrowings secured by operating and finance leases, due serially through 2024	—		—		101		101		102

	As of October 31, 2018
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	180	$	180	$	183
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025	—		—		1,597		1,597		1,570
6.625% Senior Notes, due 2026	—		1,122		—		1,122		1,083
4.75% Senior Subordinated Convertible Notes, due 2019(B)	412		—		—		412		405
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040	—		235		—		235		220
Financed lease obligations	—		—		122		122		122
Other	—		—		25		25		26
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2023	—		—		949		949		948
Senior secured NFC Term Loan, due 2025	—		—		400		400		394
Bank credit facilities, due dates from 2019 through 2025	—		—		511		511		519
Commercial paper, at variable rates, program matures in 2022	75		—		—		75		75
Borrowings secured by operating and finance leases, due serially through 2024	—		—		104		104		105

________________________

(A) Excludes capital lease obligation debt of $1 million as of July 31, 2019.

(B)

The carrying value represents the consolidated financial statement amount of the debt which excludes the allocation of the conversion feature to equity, while the estimated fair value is derived from quoted prices in active markets which include the equity feature.

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Summary of Significant Accounting Policies - Narrative (Details) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019 USD ($) employees segments	Jul. 31, 2018 USD ($)	Jul. 31, 2019 USD ($) employees segments	Jul. 31, 2018 USD ($)	Jan. 31, 2019 USD ($)	Nov. 01, 2018 USD ($)	Oct. 31, 2018 USD ($)
Accounting Policies [Line Items]
Document Period End Date			Jul. 31, 2019
Cumulative Effect of New Accounting Principle in Period of Adoption					$ 27
Selling, General and Administrative Expense	$ (167)	$ (222)	$ (726)	$ (613)
Net Cash Provided by (Used in) Investing Activities			(9)	60
Sales of Manufactured Products	2,996	2,566	8,330	6,815
Accounts Receivable, Net, Current	(429)		(429)			$ (448)	$ (456)
Property and equipment, net	(1,290)		(1,290)			(1,261)	(1,370)
Liabilities, Current	(3,805)		(3,805)			(3,805)	(3,807)
Long-term Debt and Capital Lease Obligations	(4,528)		(4,528)			(4,463)	(4,521)
Other Liabilities, Noncurrent	692		692			709	731
Liabilities	(10,954)		(10,954)			(11,074)	(11,156)
Assets	(7,294)		(7,294)			(7,121)	(7,230)
Debt, Current	(676)		(676)			(931)	(946)
Other Liabilities, Current	1,323		1,323			1,268	1,255
Cost of Goods and Services Sold	$ (2,501)	(2,096)	$ (6,973)	(5,615)
Number Of Segments | segments	4		4
Goodwill	$ 38		$ 38				38
Interest expense	(76)	(82)	(243)	(240)
Income (Loss) Attributable to Parent, before Tax	190	180	144	197
Capital expenditures	24	26	90	79
Proceeds from finance lease obligations			13	48
Product Warranty Accrual, Preexisting, Increase (Decrease)			$ 7	(4)
Document Type			10-Q
Inventory, Gross	251		$ 251				154
Income Tax Expense (Benefit)	(29)	(3)	(9)	(25)
Stockholders' Equity Attributable to Parent	(3,663)		(3,663)			(3,958)	(3,931)
Inventory, Net	(1,195)		(1,195)			(1,019)	(1,110)
Other Assets, Current	273		273			290	189
Assets, Current	5,326		5,326			5,138	5,136
Deferred Tax Assets, Net of Valuation Allowance, Noncurrent	(124)		(124)			(122)	(121)
Other Assets, Noncurrent	(112)		(112)			(110)	(113)
Liabilities and Equity	(7,294)		(7,294)			(7,121)	(7,230)
Other Operating Income (Expense), Net	(25)	55	(140)	(36)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	$ 161	177	$ 135	172
Unionized Employees Concentration Risk [Member] | Number Of Employees Hourly Workers [Member]
Accounting Policies [Line Items]
Concentration Risk Number Of Employees | employees	8,300		8,300
concentration risk number of employees percentage	98.00%		98.00%
Unionized Employees Concentration Risk [Member] | Number of Employees Salaried Workers [Member]
Accounting Policies [Line Items]
Concentration Risk Number Of Employees | employees	700		700
concentration risk number of employees percentage	13.00%		13.00%
Traton Group [Member]
Accounting Policies [Line Items]
Less: Intercompany revenues	$ 42	33	$ 113	114
Costs and Expenses, Related Party	11	2	29	21
Accounts Receivable, Related Parties	16		16				10
Accounts Payable, Related Parties	48		48				25
Navistar Defense [Member]
Accounting Policies [Line Items]
Less: Intercompany revenues	9		43
Accounts Receivable, Related Parties	29		29
North America Truck [Member]
Accounting Policies [Line Items]
Assets	(1,942)		(1,942)				(2,085)
Interest expense	0	0	0	0
Capital expenditures	17	19	69	74
Income Tax Expense (Benefit)	0	$ 0	0	$ 0
Difference between Revenue Guidance in Effect before and after Topic 606 [Member]
Accounting Policies [Line Items]
Sales of Manufactured Products	(2)		23
Accounts Receivable, Net, Current	(3)		(3)			(8)
Property and equipment, net	(195)		(195)			(109)
Liabilities, Current	(5)		(5)			(2)
Long-term Debt and Capital Lease Obligations	(49)		(49)			(58)
Other Liabilities, Noncurrent	(132)		(132)			(22)
Liabilities	(176)		(176)			(82)
Assets	(198)		(198)			(109)
Debt, Current	(13)		(13)			(15)
Other Liabilities, Current	18		18			13
Cost of Goods and Services Sold	(3)		(8)
Interest expense	(1)		(3)
Income (Loss) Attributable to Parent, before Tax	2		18
Income Tax Expense (Benefit)	0		3
Stockholders' Equity Attributable to Parent	(22)		(22)			(27)
Inventory, Net	(53)		(53)			(91)
Other Assets, Current	63		63			101
Assets, Current	7		7			2
Deferred Tax Assets, Net of Valuation Allowance, Noncurrent	(2)		(2)			(1)
Other Assets, Noncurrent	(8)		(8)			(3)
Liabilities and Equity	(198)		(198)			$ (109)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	2		15
Calculated under Revenue Guidance in Effect before Topic 606 [Member]
Accounting Policies [Line Items]
Sales of Manufactured Products	2,998		8,307
Accounts Receivable, Net, Current	(432)		(432)				(456)
Property and equipment, net	(1,485)		(1,485)				(1,370)
Liabilities, Current	(3,800)		(3,800)				(3,807)
Long-term Debt and Capital Lease Obligations	(4,577)		(4,577)				(4,521)
Other Liabilities, Noncurrent	824		824				731
Liabilities	(11,130)		(11,130)				(11,156)
Assets	(7,492)		(7,492)				(7,230)
Debt, Current	(689)		(689)				(946)
Other Liabilities, Current	1,305		1,305				1,255
Cost of Goods and Services Sold	(2,504)		(6,965)
Interest expense	(77)		(246)
Income (Loss) Attributable to Parent, before Tax	188		126
Income Tax Expense (Benefit)	29		6
Stockholders' Equity Attributable to Parent	(3,641)		(3,641)				(3,931)
Inventory, Net	(1,248)		(1,248)				(1,110)
Other Assets, Current	210		210				189
Assets, Current	5,319		5,319				5,136
Deferred Tax Assets, Net of Valuation Allowance, Noncurrent	(126)		(126)				(121)
Other Assets, Noncurrent	(120)		(120)				(113)
Liabilities and Equity	(7,492)		(7,492)				$ (7,230)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	$ 159		$ 120
Disposal Group, Held-for-sale or Disposed of by Sale, Not Discontinued Operations [Member]
Accounting Policies [Line Items]
Extended Product Warranty Accrual					$ 2

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Summary of Significant Accounting Policies Related Party Transactions (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Traton Group [Member]
Related Party Transaction [Line Items]
Revenue from Related Parties	$ 42	$ 33	$ 113	$ 114
Costs and Expenses, Related Party	11	$ 2	29	$ 21
Accounts Receivable, Related Parties	16		16		$ 10
Accounts Payable, Related Parties	48		48		$ 25
Navistar Defense [Member]
Related Party Transaction [Line Items]
Revenue from Related Parties	9		43
Accounts Receivable, Related Parties	$ 29		$ 29

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Inventories (Tables)

9 Months Ended

Jul. 31, 2019

Inventory Disclosure [Abstract]

Schedule of inventories

The following table presents the components of Inventories in our Consolidated Balance Sheets:

(in millions)	July 31, 2019		October 31, 2018
Finished products	$	779	$	671
Work in process	104		118
Raw materials	312		321
Total inventories, net	$	1,195	$	1,110

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Summary of Significant Accounting Policies Inventory (Tables)

9 Months Ended

Jul. 31, 2019

Inventory Disclosure [Abstract]

Inventory, Policy [Policy Text Block]

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is principally determined using the first-in, first-out method. Our gross used truck inventory was $251 million at July 31, 2019 compared to $154 million at October 31, 2018, offset by reserves of $55 million and $31 million, respectively.

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Stockholders' Deficit

9 Months Ended

Jul. 31, 2019

Equity [Abstract]

Stockholders' Deficit

Stockholders' Deficit

Accumulated Other Comprehensive Loss

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

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of April 30, 2019	$	(319	)	$	(1,467	)	$	(1,786	)
Other comprehensive income before reclassifications	9			—			9
Amounts reclassified out of accumulated other comprehensive loss	—			23			23
Net current-period other comprehensive income	9			23			32
Balance as of July 31, 2019	$	(310	)	$	(1,444	)	$	(1,754	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2018	$	(315	)	$	(1,605	)	$	(1,920	)
Other comprehensive income (loss) before reclassifications	5			(8		)	(3		)
Amounts reclassified out of accumulated other comprehensive loss	—			169			169
Net current-period other comprehensive income	5			161			166
Balance as of July 31, 2019	$	(310	)	$	(1,444	)	$	(1,754	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of April 30, 2018	$	(289	)	$	(1,865	)	$	(2,154	)
Other comprehensive loss before reclassifications	(13		)	—			(13		)
Amounts reclassified out of accumulated other comprehensive loss	—			29			29
Net current-period other comprehensive income (loss)	(13		)	29			16
Balance as of July 31, 2018	$	(302	)	$	(1,836	)	$	(2,138	)

(in millions)	Foreign Currency Translation Adjustments			Defined Benefit Plans			Total
Balance as of October 31, 2017	$	(283	)	$	(1,928	)	$	(2,211	)
Other comprehensive loss before reclassifications	(19		)	(2		)	(21		)
Amounts reclassified out of accumulated other comprehensive loss	—			94			94
Net current-period other comprehensive income (loss)	(19		)	92			73
Balance as of July 31, 2018	$	(302	)	$	(1,836	)	$	(2,138	)

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

		Three Months Ended July 31,				Nine Months Ended July 31,
(in millions)	Location in Consolidated Statements of Operations	2019		2018		2019			2018
Defined benefit plans
Amortization of actuarial loss	Other expense, net	$	23	$	29	$	70		$	86
Settlements	Other expense, net	—		—		142			9
	Total before tax	23		29		212			95
	Income tax expense	—		—		(43		)	(1		)
Total reclassifications for the period, net of tax		$	23	$	29	$	169		$	94

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Revenue - Narrative (Details) - Extended warranty contracts [Member] - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Disaggregation of Revenue [Line Items]
Contract liabilities	$ 273		$ 273		$ 255
Revenue from Contract with Customer, Including Assessed Tax	$ 27	$ 24	$ 85	$ 80

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Restructuring and Impairments - Schedule of Impairment Charges (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Restructuring Cost and Reserve [Line Items]
Liability, Defined Benefit Plan, Noncurrent	$ (1,929)		$ (1,929)		$ (2,097)
Asset impairment charges	3	$ 8	6	$ 11
Assets Leased to Others [Member]
Restructuring Cost and Reserve [Line Items]
Asset impairment charges	$ 3	$ 1	$ 6	2
long-lived asset [Domain] | North America Truck [Member]
Restructuring Cost and Reserve [Line Items]
Asset impairment charges				6
long-lived asset [Domain] | Financial Services Operations
Restructuring Cost and Reserve [Line Items]
Asset impairment charges				$ 1

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Allowance for Doubtful Accounts - Schedule of Allowance for Retail, Wholesale, Trade & Other (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for Loan, Lease, and Other Losses	$ 2	$ 3	$ 8	$ 6
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for doubtful accounts at beginning of period	54	49	50	48
Allowance for doubtful accounts at end of period	56	50	56	50
Financing Receivable, Allowance for Credit Losses, Write-downs	(2)	(1)	(5)	(4)
Allowance for Doubtful Accounts Receivable, Recoveries		1		3
Financing Receivable, Allowance for Credit Losses, Other	1	(2)	2	(3)
SEC Schedule, 12-09, Allowance, Credit Loss [Member]
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for Doubtful Accounts Receivable, Recoveries	1		1
Retail Portfolio [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for Loan, Lease, and Other Losses	1	2	5	5
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for doubtful accounts at beginning of period	22	19	19	17
Allowance for doubtful accounts at end of period	21	21	21	21
Impaired Financing Receivable, Average Recorded Investment			21	19
Financing Receivable, Allowance for Credit Losses, Write-downs	(2)	(1)	(4)	(4)
Allowance for Doubtful Accounts Receivable, Recoveries		1		3
Financing Receivable, Allowance for Credit Losses, Other	(1)	0	0	0
Wholesale Portfolio [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for Loan, Lease, and Other Losses	0	0	0	0
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for doubtful accounts at beginning of period	3	3	3	3
Allowance for doubtful accounts at end of period	3	3	3	3
Financing Receivable, Allowance for Credit Losses, Write-downs	0	0	0	0
Allowance for Doubtful Accounts Receivable, Recoveries		0		0
Financing Receivable, Allowance for Credit Losses, Other	0	0	0	0
Trade and Other Receivables [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for Loan, Lease, and Other Losses	1	1	3	1
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for doubtful accounts at beginning of period	29	27	28	28
Allowance for doubtful accounts at end of period	32	26	32	26
Financing Receivable, Allowance for Credit Losses, Write-downs	0	0	(1)	0
Allowance for Doubtful Accounts Receivable, Recoveries		0		0
Financing Receivable, Allowance for Credit Losses, Other	2	$ (2)	2	$ (3)
Trade and Other Receivables [Member]
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for Doubtful Accounts Receivable, Recoveries	0		0
Wholesale Portfolio [Member]
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for Doubtful Accounts Receivable, Recoveries	0		0
Retail Portfolio [Member]
Allowance for Doubtful Accounts Receivable [Roll Forward]
Allowance for Doubtful Accounts Receivable, Recoveries	$ 1		$ 1

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Segment Reporting - Summary of Segment Operations (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018
Segment Reporting Information [Line Items]
External sales and revenues, net	$ 3,042	$ 2,606	$ 8,471	$ 6,933
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	156	170	119	152
Income Tax Expense (Benefit)	(29)	(3)	(9)	(25)
Interest expense	76	82	243	240
Equity in income of non-consolidated affiliates	1	0	4	0
Capital expenditures	24	26	90	79
Intersegment sales and revenues	0	0	0	0
Segment Reporting, Segment Revenue	3,042	2,606	8,471	6,933
Segment Profit Loss	185	173	128	177
Depreciation, Depletion and Amortization	47	51	144	160
North America Truck [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	2,342	1,894	6,405	4,810
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	167	165	183	200
Income Tax Expense (Benefit)	0	0	0	0
Interest expense	0	0	0	0
Equity in income of non-consolidated affiliates	0	1	3	2
Capital expenditures	17	19	69	74
Intersegment sales and revenues	45	22	75	61
Segment Reporting, Segment Revenue	2,387	1,916	6,480	4,871
Segment Profit Loss	167	165	183	200
Depreciation, Depletion and Amortization	26	31	78	100
Corporate And Eliminations [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	3	1	9	8
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	(191)	(166)	(604)	(521)
Income Tax Expense (Benefit)	29	3	9	25
Interest expense	49	60	160	176
Equity in income of non-consolidated affiliates	0	0	0	0
Capital expenditures	4	5	14	1
Intersegment sales and revenues	(83)	(70)	(192)	(174)
Segment Reporting, Segment Revenue	(80)	(69)	(183)	(166)
Segment Profit Loss	(162)	(163)	(595)	(496)
Depreciation, Depletion and Amortization	1	1	7	6
North America Parts [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	569	603	1,693	1,768
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	149	144	437	413
Income Tax Expense (Benefit)	0	0	0	0
Interest expense	0	0	0	0
Equity in income of non-consolidated affiliates	1	1	2	2
Capital expenditures	2	0	3	1
Intersegment sales and revenues	2	2	5	6
Segment Reporting, Segment Revenue	571	605	1,698	1,774
Segment Profit Loss	149	144	437	413
Depreciation, Depletion and Amortization	1	2	4	5
Global Operations [Member]
Segment Reporting Information [Line Items]
External sales and revenues, net	82	68	223	229
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	1	4	10	(2)
Income Tax Expense (Benefit)	0	0	0	0
Interest expense	0	0	0	0
Equity in income of non-consolidated affiliates	0	(2)	(1)	(4)
Capital expenditures	1	1	2	2
Intersegment sales and revenues	8	21	27	38
Segment Reporting, Segment Revenue	90	89	250	267
Segment Profit Loss	1	4	10	(2)
Depreciation, Depletion and Amortization	3	3	7	8
Financial Services Operations
Segment Reporting Information [Line Items]
Interest Revenue (Expense), Net	53	46	161	131
External sales and revenues, net	46	40	141	118
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	30	23	93	62
Income Tax Expense (Benefit)	0	0	0	0
Interest expense	27	22	83	64
Equity in income of non-consolidated affiliates	0	0	0	0
Capital expenditures	0	1	2	1
Intersegment sales and revenues	28	25	85	69
Segment Reporting, Segment Revenue	74	65	226	187
Segment Profit Loss	30	23	93	62
Depreciation, Depletion and Amortization	$ 16	$ 14	$ 48	$ 41

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Revenue

9 Months Ended

Jul. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenue

Revenue

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Disaggregation of Revenue

The following tables disaggregate our external revenue by product type for the three and nine months ended July 31, 2019 (in millions):

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Three Months Ended July 31, 2019
Truck products and services(A)	$	2,115	$	—	$	—	$	—	$	3	$	2,118
Truck contract manufacturing	144		—		—		—		—		144
Used trucks	54		—		—		—		—		54
Engines	—		73		63		—		—		136
Parts	2		496		19		—		—		517
Extended warranty contracts	27		—		—		—		—		27
Sales of manufactured products, net	2,342		569		82		—		3		2,996
Retail financing(C)	—		—		—		35		—		35
Wholesale financing(C)	—		—		—		11		—		11
Sales and revenues, net	$	2,342	$	569	$	82	$	46	$	3	$	3,042

(in millions)	Truck		Parts		Global Operations		Financial Services		Corporate and Eliminations		Total
Nine Months Ended July 31, 2019
Truck products and services(A)(B)	$	5,891	$	—	$	—	$	—	$	9	$	5,900
Truck contract manufacturing	274		—		—		—		—		274
Used trucks	151		—		—		—		—		151
Engines	—		217		168		—		—		385
Parts	4		1,476		55		—		—		1,535
Extended warranty contracts	85		—		—		—		—		85
Sales of manufactured products, net	6,405		1,693		223		—		9		8,330
Retail financing(C)	—		—		—		106		—		106
Wholesale financing(C)	—		—		—		35		—		35
Sales and revenues, net	$	6,405	$	1,693	$	223	$	141	$	9	$	8,471

_________________________

(A) Includes other markets primarily consisting of Bus, Export Truck and Mexico.

(B) Includes military sales of $62 million. In December 2018, we completed the sale of a 70% equity interest in Navistar Defense. See Note 3, Restructuring, Impairments and Divestitures for additional information.

(C) Retail financing and Wholesale financing revenues in the Financial Services segment include interest revenue of $15 million and $11 million for the three months ended July 31, 2019, respectively, and $42 million and $35 million for the nine months ended July 31, 2019, respectively.

Trucks, Truck Contract Manufacturing, Used trucks, Engines and Parts

Revenue for our Truck products and services, certain truck contract manufacturing, Used trucks, certain Engines and Parts is recognized at a point in time when control is transferred to the customer. Our Trucks, Used trucks, Engines, and Parts have a standard warranty, the estimated cost of which is included in Costs of products sold. Operating lease and borrowing revenues are recognized on a straight-line basis over the life of the lease.

Prior to our sale of a 70% equity interest in Navistar Defense, certain truck sales to the U.S. government of non-commercial products manufactured to government specification were recognized over time as the goods were manufactured. Certain truck and other contract manufacturing arrangements, unrelated to Navistar Defense, continue to be recognized over time. We recognize revenue over time when the finished assets have no alternative use and we have a right to payment for work performed in the event of a contract cancellation or when we create or enhance an asset that the customer controls as it is being created or enhanced. We recognize revenue using a cost-based input method because it best depicts our progress in satisfying the performance obligation. The selection of the method requires judgement and is based on the nature of the products or services to be provided.

Certain terms or modifications to U.S. and foreign government contracts may have been unpriced; that is, the work to be performed was defined, but the related contract price was to be negotiated at a later date. In situations where we could reliably estimate a profit margin in excess of costs incurred, revenue and gross margin were recorded for delivered contract items. Otherwise, revenue was recognized when the price had been agreed with the applicable government and costs were deferred when it was probable that the costs would be recovered.

An allowance for parts sales returns is recorded as a reduction to revenue based upon estimates using historical information about returns. This includes when the Company is a reseller of certain service parts that include a core component. A core component is the basic forging or casting, such as an engine block, that can be remanufactured by a certified remanufacturing supplier. When a dealer returns a core component within the specified eligibility period, we refund the core return deposit, which is applied to the customer's account balance.

Extended Warranty Contracts

We sell separately-priced extended warranty contracts that can be purchased for periods ranging from one to ten years. Warranty revenue related to extended warranty contracts is recognized over the life of the contract in proportion to the costs expected to be incurred in satisfying the obligation under the contract. Costs under extended warranty contracts are expensed as incurred. We recognize losses on defined pools of extended warranty contracts when the remaining expected costs for a given pool of contracts exceed the related deferred revenue.

Retail and Wholesale Financing

Financial Services operations recognize revenue from retail notes, finance leases, wholesale notes, retail accounts, and wholesale accounts as Finance revenues over the term of the receivables utilizing the effective interest method. Certain direct origination costs and fees are deferred and recognized as adjustments to yield and are reported as part of interest income over the life of the receivable. Loans are impaired when we conclude it is probable the customer will not be able to make full payment according to contractual terms after reviewing the customer's financial performance, payment ability, capital-raising potential, management style, economic situation, and other factors. The accrual of interest on such loans is suspended when the loan becomes 90 days or more past due. Finance revenues on these loans are recognized only to the extent cash payments are received. We resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured.

Operating lease revenues are recognized on a straight-line basis over the life of the lease. Recognition of revenue is suspended when management determines the collection of future revenue is not probable. Recognition of revenue is resumed if collection again becomes probable.

Performance Obligations

Generally, revenue from our sales is recognized at a point in time when control is transferred to the customer which generally occurs upon shipment from our plants and distribution centers or at the time of delivery to our customers. The standard payment term is less than 30 days, but we may extend payment terms on selected receivables. We have elected the practical expedient that allows the Company to not assess whether a contract has a significant financing component when the time between cash collection and transfer of control is less than one year.

We recognize price allowances, returns and the cost of incentive programs in the normal course of business based on programs offered to dealers or fleet customers. Estimates are made for sales incentives on certain vehicles in dealer stock inventory based on historical experience and announced special programs. The estimated sales incentives and returns are adjusted at the earlier of when the estimate of consideration we expect to receive changes or the consideration becomes fixed. For contracts where there is more than one performance obligation, discounts are allocated to all of the performance obligations in the contract based on their relative standalone selling prices.

Revenue on bill and hold arrangements is not recognized until after the customer is notified that the product (i) has been completed according to customer specifications, (ii) has passed our quality control inspections, (iii) is ready for physical transfer to the customer and (iv) the reason for the bill and hold arrangement is substantive.

We have elected to account for shipping and handling activities that occur subsequent to transfer of control as a fulfillment cost and not as a separate performance obligation. The costs are recognized as an expense in Costs of products sold when control of the related performance obligation has transferred to the customer. As a practical expedient, we do not disclose the transaction price related to order backlogs as they have an original expected duration of less than one year.

We exclude from revenue any sales taxes, value added taxes and other related taxes collected from customers.

The impact of changes to revenue related to performance obligations satisfied in prior periods was not material to our consolidated financial statements in the third quarter of 2019.

Contract Balances

Most of our contracts are for a period of less than one year. We have certain long-term contract manufacturing and extended warranty contracts that extend beyond one year. We record deferred revenue, primarily related to extended warranty contracts, when we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract. This deferred revenue represents contract liabilities which are included in our Consolidated Balance Sheets as components of current and long-term liabilities. The amount of manufacturing contract liabilities is not material to our consolidated financial statements.

The amount of deferred revenue related to extended warranty contracts was $273 million and $255 million at July 31, 2019 and October 31, 2018, respectively. Revenue recognized under our extended warranty programs was $27 million and $85 million for the three and nine months ended July 31, 2019, respectively, and $24 million and $80 million for the three and nine months ended July 31, 2018, respectively. We expect to recognize revenue under our extended warranty programs of approximately $23 million in the remainder of 2019, $82 million in 2020, $68 million in 2021, $47 million in 2022, $26 million in 2023 and $27 million thereafter.

Contract Costs

We recognize incremental costs to obtain contracts as an asset if they are recoverable. As a practical expedient, we recognize the costs of obtaining a contract as an expense when the related contract period is less than one year. We have no contract costs capitalized as of July 31, 2019.

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Fair Value Measurements - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jul. 31, 2019	Jul. 31, 2018	Jul. 31, 2019	Jul. 31, 2018	Oct. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset impairment charges	$ 3	$ 8	$ 6	$ 11
Goodwill	$ 38		$ 38		$ 38
Cash and Cash Equivalents, Maturity Term	90 days
Marketable Securities, Maturity Term	90 days
Tax Exempt Bond [Member] | Manufacturing Operations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	6.75%		6.75%
Tax Exempt Bond [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	6.75%		6.75%
Senior Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	6.625%		6.625%

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Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Millions, $ in Millions	Jul. 31, 2019	Oct. 31, 2018
Statement of Financial Position [Abstract]
Property and equipment, accumulated depreciation and amortization	$ 2,463	$ 2,498
Intangible assets, accumulated amortization	$ 142	$ 140
Common stock, par value	$ 0.1	$ 0.10
Common stock, shares authorized	220.0	220.0
Common stock, shares issued	103.1	103.1
Common stock held in treasury, shares	3.9	4.2

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Document and Entity Information Document - shares	9 Months Ended
	Jul. 31, 2019	Aug. 31, 2019
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jul. 31, 2019
Document Transition Report	false
Entity File Number	1-9618
Entity Registrant Name	NAVISTAR INTERNATIONAL CORP
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	36-3359573
Entity Address, Address Line One	2701 Navistar Drive
Entity Address, City or Town	Lisle
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60532
City Area Code	331
Local Phone Number	332-5000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		99,205,588
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Entity Central Index Key	0000808450
Current Fiscal Year End Date	--10-31
Amendment Flag	false
Common Stock, par value $0.10 | New York Stock Exchange
Document Information [Line Items]
Title of 12(b) Security	Common Stock, par value $0.10
Trading Symbol	NAV
Security Exchange Name	NYSE
Cumulative convertible junior preference stock, Series D (par value $1.00) | New York Stock Exchange
Document Information [Line Items]
Title of 12(b) Security	Cumulative convertible junior preference stock, Series D (par value $1.00)
Trading Symbol	NAV-D
Security Exchange Name	NYSE