<PAGE 1>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
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
N A V I S T A R I N T E R N A T I O N A L C O R P O R A T I O N
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611
-------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 836-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 8, 1997, the number of shares outstanding of the
registrant's common stock was 52,178,299 and the Class B Common was
23,090,905.
<PAGE>
<PAGE 2>
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months and Nine Months
Ended July 31, 1997 and 1996 ............ 3
Statement of Financial Condition --
July 31, 1997, October 31, 1996
and July 31, 1996 ....................... 4
Statement of Cash Flow --
Nine Months Ended July 31, 1997 and 1996 ... 5
Notes to Financial Statements .................. 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition ............................. 11
Part II. Other Information:
Item 1. Legal Proceedings ..................... 16
Item 6. Exhibits and Reports on Form 8-K ...... 16
Signature ...................................... 17
Exhibit 3 ........................................... E-1
Exhibit 10 .......................................... E-2
Exhibit 11 .......................................... E-27
<PAGE>
<PAGE 3>
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
------------------------------------------------------------------------------------
Millions of dollars, except per share data
------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
--------------------------------------------
Three Months Ended Nine Months Ended
July 31 July 31
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and revenues
Sales of manufactured products ........ $1,526 $1,325 $4,259 $4,110
Finance and insurance revenue ......... 45 53 133 154
Other income .......................... 15 13 41 39
------ ------ ------ ------
Total sales and revenues ............ 1,586 1,391 4,433 4,303
------ ------ ------ ------
Costs and expenses
Cost of products and services sold .... 1,320 1,159 3,688 3,588
Postretirement benefits ............... 50 52 158 163
Engineering and research expense ...... 28 29 90 93
Marketing and administrative expense .. 97 84 267 232
Interest expense ...................... 20 22 57 63
Financing charges on sold receivables . 4 5 16 21
Insurance claims
and underwriting expense ............ 11 12 28 38
------ ------ ------ ------
Total costs and expenses ............ 1,530 1,363 4,304 4,198
------ ------ ------ ------
Income before income taxes ........ 56 28 129 105
Income tax expense ................ 21 11 49 40
------ ------ ------ ------
Net income ............................ 35 17 80 65
Less dividends on Series G
Preferred stock ..................... 7 7 21 21
------ ------ ------ ------
Net income applicable to common stock . $ 28 $ 10 $ 59 $ 44
====== ====== ====== ======
Net income per common share ........... $ .38 $ .13 $ .80 $ .59
====== ====== ====== ======
Average number of common and dilutive
common equivalent shares outstanding
(millions) .......................... 73.6 73.8 73.6 73.8
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 4>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- ------------------------------------------------------------------------------------
Millions of dollars
- ------------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
---------------------------------------------
July 31 October 31 July 31
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
- --------------------------------
Cash and cash equivalents ...... $ 212 $ 487 $ 201
Marketable securities .......... 503 394 386
------ ------ ------
715 881 587
Receivables, net ............... 1,379 1,655 1,503
Inventories .................... 497 463 549
Property, net of accumulated
depreciation and amortization
of $893, $842 and $824 ....... 772 770 703
Investments and other assets ... 311 213 227
Intangible pension assets ...... 267 314 284
Deferred tax asset, net ....... 976 1,030 1,055
------ ------ ------
Total assets ................... $4,917 $5,326 $4,908
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable,
principally trade ............ $ 864 $ 820 $ 750
Debt:
Manufacturing operations ..... 98 115 122
Financial services operations. 957 1,305 996
Postretirement benefits
liability .................... 1,221 1,351 1,323
Other liabilities .............. 814 819 811
------ ------ ------
Total liabilities .......... 3,954 4,410 4,002
------ ------ ------
Commitments and contingencies
Shareowners' equity
Series G convertible preferred
stock (liquidation preference
$240 million) ................ 240 240 240
Series D convertible junior
preference stock (liquidation
preference $4 million) ....... 4 4 4
Common stock (52.2, 51.0 and
51.0 million shares issued) .. 1,662 1,642 1,642
Class B Common stock (23.1, 24.3
and 24.3 million shares issued) 471 491 491
Retained earnings (deficit) -
balance accumulated after the
deficit reclassification
as of October 31, 1987 ....... (1,364) (1,431) (1,441)
Common stock held in treasury,
at cost ...................... (50) (30) (30)
------ ------ ------
Total shareowners' equity .. 963 916 906
------ ------ ------
Total liabilities
and shareowners' equity ...... $4,917 $5,326 $4,908
====== ====== ======
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 5>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOW (Unaudited)
-------------------------------------------------------------------------
For the Nine Months Ended July 31 (Millions of dollars)
-------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
1997 1996
------ ------
<S> <C> <C>
Cash flow from operations
Net income ....................................... $ 80 $ 65
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation and amortization .................. 89 75
Deferred income taxes .......................... 45 35
Other, net ..................................... (51) (25)
Change in operating assets and liabilities:
Receivables .................................... (40) 189
Inventories .................................... (40) (134)
Prepaid and other current assets ............... 3 (13)
Accounts payable ............................... 48 (187)
Other liabilities .............................. (100) (164)
------ ------
Cash provided by (used in) operations ............ 34 (159)
------ ------
Cash flow from investment programs
Purchase of retail notes and lease receivables ... (703) (844)
Collections/sales of retail notes
and lease receivables ......................... 1,007 1,016
Purchase of marketable securities ................ (417) (519)
Sales or maturities of marketable securities ..... 315 684
Capital expenditures ............................. (89) (72)
Other investment programs, net ................... (26) (25)
------ ------
Cash provided by investment programs ............. 87 240
------ ------
Cash flow from financing activities
Issuance of debt ................................. 176 -
Principal payments on debt ....................... (37) (130)
Net decrease in notes and debt outstanding
under bank revolving credit facility and
asset-backed and other commercial paper programs (494) (214)
Dividends paid ................................... (21) (21)
Repurchase of Class B Common stock ............... (20) -
------ ------
Cash used in financing activities ................ (396) (365)
------ ------
Cash and cash equivalents
Decrease during the period ..................... (275) (284)
At beginning of the year ....................... 487 485
------ ------
Cash and cash equivalents at end of the period ... $ 212 $ 201
====== ======
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE 6>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note A. Summary of Accounting Policies
Navistar International Corporation is a holding company whose
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). As used hereafter, "company" or "Navistar" refers
to Navistar International Corporation and its consolidated subsidiaries.
The consolidated financial statements include the results of
Transportation's manufacturing operations and its wholly owned financial
services subsidiaries. The effects of transactions between the
manufacturing and financial services operations have been eliminated to
arrive at the consolidated totals.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1996 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements
reflect all adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position, results of operations and cash
flow for the periods presented. Interim results are not necessarily
indicative of results for the full year. Certain 1996 amounts have been
reclassified to conform with the presentation used in the 1997 financial
statements.
Note B. Supplemental Cash Flow Information
Consolidated interest payments during the first nine months of 1997
and 1996 were $57 million and $67 million, respectively. Consolidated tax
payments made during the first nine months of both 1997 and 1996 were $3
million.
Note C. Income Taxes
The benefit of Net Operating Loss (NOL) carryforwards is recognized as
a deferred tax asset in the Statement of Financial Condition, while the
Statement of Income includes income taxes calculated at the statutory rate.
The amount reported does not represent cash payment of income taxes except
for certain state income, foreign withholding and federal alternative
minimum taxes which are not material. In the Statement of Financial
Condition, the deferred tax asset is reduced by the amount of deferred tax
expense or increased by a deferred tax benefit recorded during the year.
Until the company has utilized its significant NOL carryforwards, the cash
payment of federal income taxes will be minimal.
Note D. Receivables
On January 1, 1997, the company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" for all applicable
transactions. The new standard did not have a material effect on the
company's net income or financial position.
<PAGE>
<PAGE 7>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note E. Inventories
Inventories are as follows:
July 31 October 31 July 31
Millions of dollars 1997 1996 1996
- ----------------------------------------------------------------
Finished products ........ $ 237 $ 242 $ 302
Work in process .......... 129 97 111
Raw materials and supplies 131 124 136
------ ------ ------
Total inventories ........ $ 497 $ 463 $ 549
====== ====== ======
Note F. Financial Instruments
The company purchases collateralized mortgage obligations (CMOs) that
have predetermined fixed-principal payment patterns which are relatively
certain. These instruments totaled $23 million at July 31, 1997.
During May through July 1997, Navistar Financial Corporation (NFC)
entered into $100 million of forward starting swaps which begin in October
1997 and expire in July 1999. NFC also entered into $100 million of
forward interest rate lock agreements on a U.S. Treasury security maturing
in July 1999. NFC intends to close these positions on the pricing date of
the anticipated November 1997 sale of retail receivables.
During May 1997, NFC sold $100 million of Senior Subordinated Notes
due June 2002. NFC used the net proceeds of $98 million to repurchase $6
million of its outstanding 1998 Notes and to reduce outstanding
indebtedness under the bank revolving credit facility.
During May 1997, NFC sold $500 million of retail notes, realizing net
proceeds of $499 million which were used for working capital purposes. A
gain of approximately $6 million was recognized on the sale.
During August 1997, NFC's revolving wholesale note trust issued, to
the public, a $200 million tranche of asset-backed certificates which
matures in August 2003. The net proceeds of $199 million were used by NFC
for general working capital purposes.
<PAGE>
<PAGE 8>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note G. Environmental Matters
In March 1997, the U.S. Department of Justice and Transportation
approved the final consent decree in settlement of a dispute related to the
Wisconsin Steel property which was disclosed in Note 4 to the company's
Annual Report on Form 10-K. In June 1997, the company paid $11 million to
the Economic Development Administration in settlement of various commercial
issues and past environmental costs which is consistent with the company's
estimate of the anticipated clean-up costs reported at October 31, 1996.
Note H. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," (SFAS 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS 131). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS 131 establishes
standards for reporting information about operating segments, and related
disclosures about products and services, geographic areas and major
customers. The requirements of both statements are effective for fiscal
years beginning after December 15, 1997. The impact of the adoption of
these statements on the company's financial position and results of
operations has not been fully determined.
Note I. Subsequent Event
During August 1997, the company's current master contract with the
United Auto Workers (UAW) was extended through October 1, 2002 and the
company announced plans to build its next generation truck (NGT), pending
approval by Navistar's Board of Directors in October. Implementation of NGT
will result in various plant rationalizations and significant capital and
development expenditures.
The company also entered into a tentative ten year agreement,
effective with model year 2003, to continue to supply Ford Motor Company
with diesel engines for Ford's F-Series pickup trucks and Econoline vans.
<PAGE>
<PAGE 9>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note J. Supplemental Financial Information
<TABLE>
<CAPTION>
Navistar International Corporation (with financial services operations on an equity
basis) in millions of dollars:
Three Months Ended Nine Months Ended
July 31 July 31
-------------------- --------------------
Condensed Statement of Income 1997 1996 1997 1996
- ------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales of manufactured
products ................... $1,526 $1,325 $4,259 $4,110
Other income ................. 12 11 36 34
------ ------ ------ ------
Total sales and revenues ..... 1,538 1,336 4,295 4,144
------ ------ ------ ------
Cost of products sold ........ 1,315 1,158 3,673 3,582
Postretirement benefits ...... 50 52 158 163
Engineering and
research expense ........... 28 29 90 93
Marketing and
administrative expense ..... 89 75 243 207
Other expenses ............... 23 20 64 63
------ ------ ------ ------
Total costs and expenses ..... 1,505 1,334 4,228 4,108
------ ------ ------ ------
Income before income taxes
Manufacturing operations ... 33 2 67 36
Financial services operations 23 26 62 69
------ ------ ------ ------
Income before income taxes 56 28 129 105
Income tax expense ........... 21 11 49 40
------ ------ ------ ------
Net income ................... $ 35 $ 17 $ 80 $ 65
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement July 31 October 31 July 31
of Financial Condition 1997 1996 1996
- ------------------------------ ------ ------ ------
<S> <C> <C> <C>
Cash, cash equivalents
and marketable securities .. $ 553 $ 707 $ 407
Receivables, net ............. 272 181 261
Inventories .................. 497 463 549
Property and equipment, net .. 653 666 643
Equity in financial
services subsidiaries ...... 310 306 303
Other assets ................. 517 462 464
Deferred tax asset, net ...... 976 1,030 1,055
------ ------ ------
Total assets ............ $3,778 $3,815 $3,682
====== ====== ======
Accounts payable,
principally trade .......... $ 826 $ 771 $ 675
Debt ......................... 98 115 122
Postretirement benefits
liability .................. 1,213 1,344 1,316
Other liabilities ............ 678 669 663
Shareowners' equity .......... 963 916 906
------ ------ ------
Total liabilities and
shareowners' equity . $3,778 $3,815 $3,682
====== ====== ======
</TABLE>
<PAGE>
<PAGE 10>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note J. Supplemental Financial Information (continued)
<TABLE>
<CAPTION>
Navistar International Corporation (with financial services operations
on an equity basis) in millions of dollars:
Nine Months Ended
July 31
Condensed Statement of Cash Flow 1997 1996
- -------------------------------- ------ ------
<S> <C> <C>
Cash flow from operations
Net income ..................... $ 80 $ 65
Adjustments to reconcile net
income to cash provided by
(used in) operations:
Depreciation and amortization 72 68
Equity in earnings
of nonconsolidated
companies, net of
dividends received ...... (4) (23)
Deferred income taxes ..... 45 35
Other, net ................ (25) (5)
Change in operating assets
and liabilities .............. (78) (418)
------ ------
Cash provided by
(used in) operations ......... 90 (278)
------ ------
Cash flow from investment programs
Purchase of marketable securities (337) (456)
Sales or maturities
of marketable securities ..... 216 616
Capital expenditures ........... (89) (72)
Advance to Navistar Financial
Corporation .................. (99) (82)
Other investment programs, net . 4 -
------ ------
Cash (used in)
provided by investment programs (305) 6
------ ------
Cash flow from financing
activities ................... (60) (34)
------ ------
Cash and cash equivalents
Decrease during the period ..... (275) (306)
At beginning of the year ....... 452 461
------ ------
Cash and cash equivalents
at end of the period ........ $ 177 $ 155
====== ======
</TABLE>
<PAGE>
<PAGE 11>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" under the Reform Act, which involve risks and uncertainties.
Navistar International Corporation's actual results may differ
significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include, but are
not limited to, those discussed under the heading "Business Environment."
Third Quarter Ended July 31, 1997
---------------------------------
The company reported net income of $35 million, or $0.38 per common
share for the third quarter ended July 31, 1997, compared with net income
of $17 million, or $0.13 per common share for the comparable quarter last
year.
The company's manufacturing operations reported income before income
taxes of $33 million compared with pretax income of $2 million in the third
quarter of 1996 reflecting continued strong demand for mid-range diesel
engines. The financial services operations' pretax income for the third
quarter of 1997 was $23 million, compared with $26 million for the same
period in 1996.
Sales and Revenues. Third quarter 1997 industry retail sales of Class 5
through 8 trucks totaled 93,100 units, which is an increase of two percent
over the 91,300 units sold during this period in 1996. Class 8 heavy truck
sales of 51,600 units during the third quarter of 1997 were two percent
higher than the 1996 level of 50,600 units. Industry sales of Class 5, 6
and 7 medium trucks, including school buses, increased two percent to
41,400 units. Industry sales of school buses, which accounted for 24
percent of the medium truck market, increased 11 percent.
Sales and revenues for the third quarter of 1997 totaled $1,586
million, 14 percent higher than the $1,391 million reported for the
comparable quarter in 1996. Sales of trucks, mid-range diesel engines and
service parts for the third quarter of 1997 totaled $1,526 million compared
with $1,325 million reported for the same period in 1996.
The company maintained its position as sales leader in the combined
United States and Canadian Class 5 through 8 truck market with a 27.8
percent market share for the third quarter of 1997, a slight decrease from
the market share reported in 1996. (Sources: American Automobile
Manufacturer's Association, the United States Motor Vehicle Manufacturer's
Association and R.L. Polk & Company.)
Shipments of mid-range diesel engines by the company to other original
equipment manufacturers during the third quarter of 1997 totaled 41,900
units, a 16 percent increase from the same period of 1996. Higher
shipments to Ford Motor Company to meet consumer demand for the light
trucks and vans which use this engine was the primary reason for the
increase.
<PAGE>
<PAGE 12>
Service parts sales of $197 million in the third quarter of 1997
increased more than six percent from the prior year's level.
Finance and insurance revenue was $45 million compared with $53
million in the third quarter of 1996 primarily as a result of a decline in
wholesale financing activity.
Costs and expenses. Manufacturing gross margin was 13.8 percent of sales
for the third quarter of 1997 compared with 12.6 percent for the same
period in 1996.
Consolidated marketing and administrative expense increased to $97
million in 1997 from $84 million in the third quarter of 1996 reflecting
investment in the implementation of the company's strategy to reduce costs
and complexity in its manufacturing processes.
Nine Months Ended July 31, 1997
-------------------------------
Pretax income for the first nine months of 1997 was $129 million
compared with $105 million reported for the same period of 1996. The
company's manufacturing operations reported income before income taxes of
$67 million during this period, compared with $36 million reported in 1996.
The financial services operations' pretax income for the first nine months
of 1997 was $62 million, a decline from the $69 million reported in 1996.
This change is a result of lower income on sales of retail receivables and
a lower volume of wholesale financing.
Manufacturing operations' sales and revenues during this period
totaled $4,295 million, an increase of four percent from 1996. During the
first nine months of 1997, sales of trucks increased one percent while
sales of diesel engines to original equipment manufacturers increased 11
percent. Service parts sales were six percent higher than in the same
period of 1996. Finance and insurance revenue was $133 million during the
first three quarters of 1997 compared with $154 million in 1996.
Industry retail sales of Class 5 through 8 trucks during the first
nine months of 1997 totaled 252,800 units, a slight decrease from the
258,900 units sold during this period in 1996. The company remained the
sales leader in the combined United States and Canadian Class 5 through 8
truck market for the first three quarters of the year with a 27.1 percent
market share that is consistent with the same period a year ago.
Manufacturing gross margin for the first nine months of 1997 increased
to 13.8 percent from 12.8 percent in the prior year. The increase in gross
margin reflects increased sales volume, product mix, and improved operating
performance, offset by increased accruals for profit sharing.
Consolidated marketing and administrative expense was $267 million
during the first three quarters of 1997 compared with $232 million during
the first three quarters of 1996. The factors which influenced this
expense during the third quarter of 1997 were also responsible for the
change during the first nine months of the year.
<PAGE>
<PAGE 13>
Liquidity and Capital Resources
Cash flow is generated from the manufacture and sale of trucks, mid-
range diesel engines and service parts as well as product financing and
insurance coverage provided to the company's dealers and retail customers
by the financial services operations.
Historically, funds to finance the company's products are obtained
from a combination of commercial paper, short- and long-term bank
borrowings, medium- and long-term debt issues, sales of finance receivables
and equity capital. NFC's current debt ratings have made bank borrowings
and sales of finance receivables the most economic sources of cash.
Insurance operations are funded through internal operations.
Total cash, cash equivalents and marketable securities of the company
amounted to $715 million at July 31, 1997, $881 million at October 31, 1996
and $587 million at July 31, 1996.
Cash provided by operations during the first nine months of 1997
totaled $34 million primarily from a net change in operating assets and
liabilities of $129 million offset by net income of $80 million and $83
million of other noncash items, principally depreciation. The net change
in operating assets and liabilities includes a $48 million increase in
payables offset by increases of $40 million in receivables and inventory
and a $100 million decline in other liabilities. The change in other
liabilities includes the company's contributions of $214 million to its
hourly and salaried pension plans during the first half of 1997.
Investment programs provided $87 million in cash reflecting a net
increase in marketable securities of $102 million and a net decrease in
retail notes and lease receivables of $304 million. In addition, $89
million was used to fund capital expenditures for construction of a truck
assembly facility in Mexico, to increase mid-range diesel engine capacity,
and for truck product improvements.
Financing activities used cash to reduce notes and debt outstanding
under the bank revolving credit facility and asset-backed and other
commercial paper program by $494 million offset by a $176 million increase
in debt and $21 million in dividends on the Series G Preferred shares. In
addition, $20 million was used to repurchase Class B Common stock
Receivable sales were a significant source of funding in 1997 and
1996. During the first nine months of 1997 and of 1996, NFC sold $987
million and $985 million, respectively, of retail notes through Navistar
Financial Retail Receivables Corporation (NFRRC). NFRRC has filed
registration statements with the Securities and Exchange Commission which
provide for the issuance of up to $5,000 million of asset-backed
securities. At July 31, 1997, the remaining shelf registration available
to NFRRC was $1,473 million.
<PAGE>
<PAGE 14>
During the third quarter of 1997, NFC entered into $100 million of
forward starting swap agreements which begin in October 1997 and expire in
July 1999. NFC also entered into $100 million of forward interest rate
lock agreements on a U.S. Treasury security maturing in 1999. NFC intends
to close these positions on the pricing date of the anticipated November
1997 sale of retail receivables.
NFC also utilizes a $400 million revolving wholesale note trust that
provides for the continuous sale of eligible wholesale notes on a daily
basis. The trust is comprised of two $100 million tranches of investor
certificates maturing serially from 1998 to 1999 and a $200 million tranche
maturing in 2004. In July 1997, NFC filed a shelf registration to issue an
additional $400 million of investor certificates. During August 1997, the
trust issued a $200 million tranche of investor certificates which matures
in August 2003. The net proceeds of $199 million were used by NFC for
general working capital purposes.
At July 31, 1997, available funding under NFC's amended and restated
credit facility and the asset-backed commercial paper facility was $755
million, of which $112 million was used to back short-term debt at July 31,
1997. The remaining $643 million, when combined with unrestricted cash and
cash equivalents made $652 million available to fund the general business
purposes of NFC at July 31, 1997.
During May 1997, NFC sold $100 million of Senior Subordinated Notes
due June 2002. NFC used the net proceeds of $98 million to repurchase $6
million of its outstanding 1998 Notes and to reduce outstanding
indebtedness under the Bank Revolving Credit Facility.
The company had outstanding capital commitments of $175 million at
July 31, 1997, which consist of truck and engine development, ongoing
facility maintenance programs and construction of a plant in Mexico. In
November 1996, the company announced plans to spend $167 million, over the
next two years, to construct this new truck assembly facility in Mexico.
During August 1997, the company approved a plan for $51 million of capital
expenditures to increase the manufacturing capacity of the Indianapolis
plant.
Management continues to evaluate current and forecasted cash flow as a
basis for financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. Management also believes that
collections on the outstanding receivables portfolios as well as funds
available from various funding sources will permit the financial services
operations to meet the financing requirements of the company's dealers and
customers.
<PAGE>
<PAGE 15>
Business Environment
Sales of Class 5 through 8 trucks are cyclical, with demand affected
by such economic factors as industrial production, construction, demand for
consumer durable goods, interest rates and the earnings and cash flow of
dealers and customers. Although the general economy remains stable, demand
for new trucks in 1997 is anticipated to be slightly lower than in 1996.
An improvement in the number of new truck orders has increased the
company's order backlog to 38,900 units at July 31, 1997 from 20,500 units
at July 31, 1996. Retail deliveries during the remainder of 1997 continue
to be highly dependent on the rate at which new truck orders are received.
The company will evaluate order receipts and backlog throughout the year
and will balance production with demand as appropriate.
The company currently projects 1997 United States and Canadian Class 8
heavy truck demand to be 190,000 units, a three percent decrease from 1996.
Class 5, 6 and 7 medium truck demand, excluding school buses, is forecast
at 114,000 units, a slight increase from 1996. Demand for school buses is
expected to decline six percent in 1997 to 30,500 units. Mid-range diesel
engine shipments by the company to original equipment manufacturers in 1997
are expected to be 185,100 units, 13 percent higher than in 1996. The
company's service parts sales are projected to grow six percent to $809
million.
During August 1997, the company's current master contract with the
United Auto Workers (UAW) was extended through October 1, 2002 and the
company announced plans to build its next generation truck (NGT), pending
approval by Navistar's Board of Directors in October. Implementation of NGT
will result in various plant rationalizations and significant capital and
development expenditures.
The company also entered into a tentative ten year agreement,
effective with model year 2003, to continue to supply Ford Motor Company
with diesel engines for Ford's F-Series pickup trucks and Econoline vans.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," (SFAS 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS 131). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS 131 establishes
standards for reporting information about operating segments, and related
disclosures about products and services, geographic areas and major
customers. The requirements of both statements are effective for fiscal
years beginning after December 15, 1997. The impact of the adoption of
these statements on the company's financial position and results of
operations has not been fully determined.
<PAGE>
<PAGE 16>
Navistar International Corporation and Consolidated Subsidiaries
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Incorporated herein by reference from Item 3 - "Legal
Proceedings" in the company's definitive Form 10-K dated
January 22, 1997, Commission File No. 1-9618.
Item 6. Exhibits and Reports on Form 8-K
10-Q Page
---------
(a) Exhibits:
3. Articles of Incorporation and By-Laws E-1
10. Material Contracts E-2
11. Computation of Net Income Per Share E-27
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the
nine months ended July 31, 1997.
<PAGE>
PAGE 17
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/ J. Steven Keate
- ----------------------------------
J. Steven Keate
Vice President and Controller
(Principal Accounting Officer)
September 12, 1997
<E-1>
EXHIBIT 3
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
ARTICLES OF INCORPORATION AND BY-LAWS
The following documents of Navistar International Corporation are
incorporated herein by reference:
3.1 Restated Certificate of Incorporation of Navistar
International Corporation effective July 1, 1993, filed as
Exhibit 3.2 to Form 10-K dated October 31, 1993, which was
filed on January 27, 1994, Commission File No. 1-9618.
3.2 The By-Laws of Navistar International Corporation effective
April 14, 1995, filed as Exhibit 3.2 on Annual Report on
Form 10-K dated October 31, 1995, which was filed on
January 26, 1996, on Commission File No. 1-9618.
<E-2>
EXHIBIT 10
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
MATERIAL CONTRACTS
The following documents of Navistar International Corporation are
included herein.
Form 10-Q Page
--------------
10.5 Form of Executive Severance Agreement
which is executed with all executive
officers dated June 16, 1997. E-3
10.20 Navistar International Corporation
Stock Ownership Program. E-12
<PAGE>
<E-3>
EXHIBIT 10.5
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
THIS AGREEMENT between Navistar International Corporation, a
Delaware corporation (the "Company"), its principal operating subsidiary,
Navistar International Transportation Corp., a Delaware corporation
("NITC"), and (the "Executive"), dated this 16th day
of June 1997.
WITNESSETH
----------
WHEREAS, the Company wishes to assure itself of stability and
continuity of senior management and recognizes that organizational changes,
including a change in control of the Company or NITC, may occur, and that
the possibility of such changes negatively affects or may negatively affect
the retention of senior management personnel of the Company and NITC and
the decision-making and performance of such personnel with respect to such
organizational changes, and the effectiveness of retention and
incentivizing features of other elements of the Company's executive
compensation program; and
WHEREAS, the Executive desires to achieve a degree of certainty
as to rights to compensation upon certain terminations of employment during
the Agreement Period as defined in paragraph 2 below.
NOW, THEREFORE, this Agreement is made to assure the fulfillment
of the Company's and NITC's objectives in a manner which serves the best
interests of the Company and NITC and their stockholders by providing the
Executive and certain severance benefits in the event of a Termination as
defined in paragraph 4 below during the Agreement Period. Accordingly, the
Company, NITC and the Executive agree as follows:
1. Implementation of Agreement.
----------------------------
(a) This Agreement shall become effective on the date first
set forth above.
(b) This Agreement shall be sole and exclusive agreement
between the parties hereto with regard to severance payments and severance
benefits provided by the Company or NITC to the Executive. Specifically,
the Executive Severance Agreement between the Company and NITC and the
Executive, dated is hereby terminated by mutual
agreement of the parties. All stock options and restricted stock of the
Company granted or awarded to the Executive shall be governed by the
respective plans and agreements pursuant to which they were granted or
awarded. Except as provided in paragraph 5, any pension or other retirement
benefits due to the Executive upon termination or retirement of the
Executive from the Company or NITC shall be governed by the appropriate
pension or benefit plan.
(c) This Agreement is not an employment contract nor does it
alter the Executive's status as an at will employee of the Company or NITC.
The Executive may terminate his or her employment with the Company or NITC
at any time, and the Company and NITC retain the right to terminate the
Executive's employment without notice, at any time, for any reason. This
Agreement only provides the Executive with the severance payments and
benefits as defined in paragraph 5 below in the event of a Termination as
defined in paragraphs 4(a) or 4(b) below.
<PAGE>
<E-4>
2. Agreement Period.
-----------------
For purposes of this Agreement, "Agreement Period" means the
period beginning on the date first set forth above and ending on the
earlier of (i) June 30, 2000, or (ii) the date on which the Executive dies
or becomes totally and permanently disabled or on which the Executive
voluntarily elects to take retirement in accordance with the Company's or
NITC's retirement policy, provided that such election takes place prior to
a Change in Control (as defined in paragraph 3 hereof). The Agreement
Period automatically shall be extended annually for successive one year
periods ending on each subsequent June 30, without any further action on
the part of any party hereto, unless the Company or NITC has, at least one
hundred eighty (180) days prior to the effective date of such extension,
notified the Executive that the Agreement shall not be so extended. If a
Change in Control occurs during the Agreement Period, notwithstanding any
other provision of this Section 2, the Agreement Period shall not expire
earlier than three years after such Change in Control.
3. Change in Control.
------------------
For purposes of this Agreement, a "Change in Control" shall
be deemed to have occurred if (i) any "person" or "group" (as such terms
are used in Section 13(d) and 14(d) of the Securities Exchange Act of
1934), other than employee or retiree benefit plans or trusts sponsored or
established by the Company or NITC, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, (ii) the following individuals cease for any reason to
constitute more than three-fourths of the number of directors then serving
on the Board of Directors of the Company: individuals who, on the date
hereof, constitute the Board and any new director (other than a director
whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved by the vote of at least two-thirds
(2/3) of the directors then still in office or whose appointment, election
or nomination was previously so approved or recommended; (iii) any
dissolution or liquidation of the Company or NITC or sale or disposition of
all or substantially all (more than 50%) of the assets of the Company or of
NITC occurs: or (iv) as the result of, or in connection with, any cash
tender offer, exchange offer, merger or other business combination, sale of
assets, proxy or consent solicitation, contested election or substantial
stock accumulation (a "Control Transaction"), the members of the Board of
Directors of the Company immediately prior to the first public announcement
relating to such Control Transaction shall immediately thereafter, or
within two years, cease to constitute a majority of the Board of Directors
of the Company. Notwithstanding the foregoing, the sale or disposition of
any or all of the assets or stock of Navistar Financial Corporation shall
not be deemed a Change in Control.
4. Termination.
------------
(a) For purposes of this Agreement, a Termination under this
paragraph 4(a) shall have occurred if, during the Agreement Period and
either prior to a Change in Control or more than 36 months after the
then-most recent Change in Control, (i) the Executive's employment is
terminated by the Company or by NITC for any reason other than for Cause
(as defined below, or (ii) an event occurs which constitutes Good Reason
(as defined below), and the Executive voluntarily terminates his or her
<PAGE>
<E-5>
employment with the Company or NITC within ten (10) days after being
notified of such an event. For purposes of this Agreement, "Good Reason"
means the occurrence, during the Agreement Period and either prior to a
Change in Control or more than 36 months after the then-most recent Change
in Control, of either of the following events, unless the Executive has
given his or her written consent that such event shall not be deemed Good
Reason hereunder: the Company or subsidiary (A) reduces the Executive's
base salary by 10% or more in one reduction or a series of reductions over
a period of time and such reduction is not part of a general reduction for
his or her peers as a group and is not a deferral, or (B) takes action
which makes the Executive ineligible to participate on the same basis in
incentive plans or bonuses in which his or her peers as a group
participate. In the event of Termination under this paragraph 4(a), the
Executive shall be paid the termination payments and benefits set forth in
paragraph 5(a) below. For purposes of this Agreement, the term "Cause"
means that the reason for the Executive's termination was for (i) willful
misconduct involving an offense of a serious nature, (ii) conviction of a
felony as defined by the United States of America or by the state in which
the Executive resides, or (iii) continued intentional failure to
substantially perform required duties with the Company or its subsidiaries
(other than a failure due to physical or mental illness) or, prior to a
Change in Control, to substantially comply with requirements as to the
ownership of Common Stock of the Company under the Company's Stock
Ownership Program as in effect on June 16, 1997, in each case continuing
for 15 days after the Executive is given written notice of such failure. If
the Executive's termination is for Cause, no termination payments or
benefits shall be due or owing by the Company or NITC under paragraph 5(a)
below.
(b) For purposes of this Agreement, a Termination under this
paragraph 4(b) shall have occurred if, during the Agreement Period and
during the 36 months after a Change in Control, (i) the Executive's
employment is terminated by the Company or by NITC, or (ii) an event occurs
which constitutes a Constructive Termination (as defined below), and the
Executive voluntarily terminates his or her employment with the Company or
NITC within ten (10) days of being notified of such an event. For purposes
of this Agreement, "Constructive Termination" means the occurrence, during
the period of 36 months after a Change in Control, of any of the following
events, unless the Executive has given his or her written consent that such
event shall not be deemed a Constructive Termination hereunder: (i) a
material change, adverse to the Executive, in the Executive's positions,
titles, offices, status, nature of responsibilities, organizational level
or authority within the Company in effect prior to a Change in Control,
except in connection with the termination of the Executive's employment for
Cause, disability, or retirement, or as a result of the Executive's death;
(ii) the Company or subsidiary reduces the Executive's annual base salary
or annual total compensation opportunities (including threshold, target,
and maximum levels in the case of performance-based compensation) as
compared to the highest rates in effect for the Executive in the six months
prior to the Change in Control; (iii) the Executive becomes ineligible to
participate on substantially the same basis in incentive plans, bonuses,
benefit plans or fringe benefits in which the Executive participated
immediately prior to the Change in Control or in which his or her peers as
a group then participate; (iv) the Company and NITC fail to obtain
agreements from any successor to assume and agree to perform this agreement
as contemplated in paragraph 14 below; or (v) the Company or a subsidiary
requires the Executive to be based anywhere more than 45 miles from the
location of the Executive's office or the location of the Company's
executive offices immediately prior to the Change in Control, except that
the Company may require the Executive to be based more than 45 miles from
such location if the relocation is to a principal executive office of the
Company or principal office of a major division or subsidiary of the
Company, provided that the Executive is fully reimbursed, on an after-tax
basis, for all reasonable expenses incurred and losses experienced in
respect of such relocation in accordance with the relocation policy of the
Company or its subsidiaries in effect immediately prior to the date of the
Change in Control, and except for required travel on the Company's business
to an extent substantially consistent with the business travel obligations
which the Executive undertook on behalf of the Company prior to the Change
in Control. In the event of a Termination under this paragraph 4(b), the
Executive shall be paid the termination payments and benefits set forth in
paragraph 5(b) below.
<PAGE>
<E-6>
(c) For purposes of this Agreement, a termination of
employment shall be deemed to have occurred only if the Executive is not,
after such event, employed by the Company, NITC, or any subsidiary of the
Company and/or NITC. A termination of employment by any subsidiary of the
Company or NITC shall be deemed to be a termination by the Company and NITC
for purposes of this Agreement, if the condition of the first sentence of
this paragraph 4(c) is met.
5. Termination Payments.
---------------------
(a) In the event of a Termination as defined in paragraph 4(a)
above, the Executive will be entitled to the following payments and
benefits:
(i) The Company and NITC shall be jointly obligated to
pay to the Executive, within ten (10) business days of the Executive's
termination of employment, a lump sum amount in cash equal to (A) a Pro
Rata (as defined below) portion of the Executive's Target Annual Incentive
(as defined below) plus (B) 200% of the sum of the Executive's annual base
salary in effect at the time of Termination and Target Annual Incentive.
For purposes of this Agreement, "Target Annual Incentive" means the annual
incentive amount that would have been payable to the Executive for the
fiscal year of Termination under such plan(s), program(s), or policy(ies)
which result or would result in the earning of compensation reportable as
"Bonus" in the Company's Summary Compensation Table under Item 402(b)(2) of
Regulation S-K or any successor thereto for that year assuming the
"targeted" level of performance required for payment of such annual
incentive was achieved for the fiscal year of Termination and assuming
Executive's employment had not terminated. For purposes of this Agreement,
"Pro Rata" means a portion of a specified amount determined by multiplying
such amount by a fraction the numerator of which is the number of days from
the beginning of the fiscal year of Termination through the date of
Termination and the denominator of which is the total number of days in the
fiscal year of Termination.
(ii) In addition, the Company and NITC shall be jointly
obligated to provide the following benefits to the Executive: (A) health
insurance and life insurance for a period of 12 months immediately
following the date of Termination, with the same coverage, in the same
amounts and at the same costs to the Executive as in effect immediately
prior to the date of the Termination; (B) Company or NITC paid outplacement
services normally provided to his or her peers; (C) Company or NITC paid
tax counseling and tax forms preparation normally provided to his or her
peers for all years up to and including he year of Termination; (D) payment
for any unused vacation; and (E) such pension and post-retirement health
and life insurance benefits (including grow-in) as are provided for the
Executive at his or her level, age and years of service under Company or
NITC sponsored retirement plans on the date of the Termination.
(b) In the event of a Termination as defined in paragraph 4(b)
above, the Executive will be entitled to the following payments and
benefits:
(i) The Company and NITC shall be jointly obligated to
pay to the Executive, within ( 10) business days after said Termination, a
lump sum amount in cash equal to the sum of the amounts specified in (A)
and (B) as follows:
(A) A Pro Rata portion of the Executive's
Target Annual Incentive; and
(B) 300% of the sum of the Executive's annual
base salary in effect at the time of
Termination and Target Annual Incentive.
(ii) The Company and NITC shall be jointly obligated to
pay to the Executive the amounts, if any, specified in paragraph 6, at the
times specified and otherwise in accordance with paragraph 6.
<PAGE>
<E-7>
(iii) In addition, the Company and NITC shall be jointly
obligated to provide the following benefits to the Executive: (A) health
insurance and life insurance for a period of 36 months immediately
following the date of termination, with the same coverage, in the same
amounts and at the same costs to the Executive as in effect immediately
prior to the date of the Change in Control; (B) Company or NITC paid
outplacement services normally provided to his or her peers at the time of
the Change in Control: (C) Company or NITC paid tax counseling and tax
forms preparation normally provided to his or her peers at the time of the
Change in Control for all years up to and including the year of
Termination; (D) payment for any unused vacation; and (E) such
post-retirement health and life insurance benefits (including grow-in) as
were provided for the Executive at his or her level, age and years of
service under Company or NITC sponsored retirement plans at the time of the
Change in Control.
(iv) In addition, the Company and NITC shall be jointly
obligated to pay the Executive, within 30 days after Termination, a lump
sum amount in cash equal to the present value of the Participant's accrued
benefits under the Company's Managerial Retirement Objective Plan, the
Supplemental Executive Retirement Plan, or successor plans thereto or any
other supplemental, non-qualified pension plan including grow-in (together,
the "Supplemental Plans") in which the Executive was participating at the
time of the Change in Control, determined after giving the Executive three
additional years of age and pension service credit thereunder. Such present
value shall be determined using actuarial assumptions and discount rates
consistent with the Company's practices in effect immediately prior to the
Change in Control.
(v) The Company and NITC shall be jointly obligated to
pay to the Executive, within ten ( 10) business days after said
Termination, a lump sum amount in cash equal to the excess (if any) of the
amount specified below in (A) over the amount specified below in (B):
(A) 295% of the Executive's average annual
compensation from the Company and/or NITC
during the five years ended December 31,
1996 as set forth in the Executive's W-2
statements issued by the Company or NITC.
If the Executive has not been employed for
five years by the Company and/or NITC, his
or her average annual compensation will be
calculated based on the average of the
Executive's annual compensation from the
Company or NITC as set forth in the
Executive's W-2 statements for the
previously ended calendar years during
which the Executive was employed by the
Company or NITC. If any of the W-2
statements to be used in the calculation is
for employment with the Company or NITC for
part of a year, the amount shall be
annualized for the purpose of the foregoing
calculation.
(B) The amount paid or payable under paragraph
5(b)(i).
(c) No portion of any payment made under this paragraph 5
shall be included in any calculation for any pension due the Executive from
the Company or NITC.
<PAGE>
<E-8>
6. Tax Gross-Up Payment.
---------------------
In the event that there shall occur a Change in Control of
the Company, if the Executive becomes entitled to one or more payments
(with a "payment" including, without limitation, the vesting of an option
or other non-cash benefit or property), whether pursuant to the terms of
this Agreement or any other plan, arrangement, or agreement with the
company or any affiliated company (the "Total Payments"), which are or
become subject to the tax imposed by Section 4999 of the Internal Revenue
Code (the "Code") (or any similar tax that may hereafter be imposed) (the
"Excise Tax"), an additional amount shall be payable to the Executive at
the time specified below pursuant to Section 5(b)(ii) about the (the
Gross-up Payment") (which shall include, without limitation, reimbursement
for any penalties and interest that may accrue in respect of such Excise
Tax) such that the net amount retained by the Executive, after reduction
for any Excise Tax (including any penalties or interest thereon) on the
Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this paragraph 6,
but before reduction for any federal, state, or local income or employment
tax on the Total Payments, shall be equal to the sum of (A) the Total
Payments, and (B) an amount equal to the product of any deductions
disallowed for federal, state, or local income tax purposes because of the
inclusion of the Gross-up Payment in the Executive's adjusted gross income
multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the
Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(A) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax, unless and except to the
extent that, in the written opinion of independent
compensation consultants or auditors of nationally
recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to the Executive,
the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(B) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the
total amount of excess parachute payments within the
meaning of section 280G(b)(l) of the Code (after applying
clause (A) above); and
(C) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Section 280G(d)(3)
and (4) of the Code.
For the purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed (A) to pay federal income taxes at
the highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made; (B) to pay any applicable
state and local income taxes at the highest marginal rate of taxation for
the calendar year in which the Gross-up payment is to be made, net of the
<PAGE>
<E-9>
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes if paid in such year (determined
without regard to limitations on deductions based upon the amount of the
Executive's adjusted gross income); and (C) to have otherwise allowable
deductions for federal, state, and local income tax purposes at least equal
to those disallowed because of the inclusion of the Gross-up Payment in the
Executive's adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded
to the Executive or otherwise realized as a benefit by the Executive) the
portion of the Gross-up Payment that would not have been paid if such
Excise Tax had been applied in initially calculating the Gross-up Payment,
plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time
the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest and penalties payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date at the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments
(or any portion thereof) are subject to the Excise Tax; provided, however,
that if the amount of such Gross-up Payment or portion thereof cannot be
finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined by the Independent
Advisors, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be
determined.
In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Executive, payable on the fifth day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at
its sole option, the Company may pursue or forego any and all
administrative appeals, proceedings, hearings, and conferences with any
taxing authority in respect of such Excise Tax (including any interest or
penalties thereon); providing, however, that the Company's control over any
such proceedings shall be limited to issues with respect to which a
Gross-up-Payment would be payable hereunder, and the Executive shall be
entitled to settle or contest any other issue raised by the Internal
Revenue Service or any other taxing authority. The Executive shall
cooperate with the Company in any proceedings relating to the determination
and assessment of any Excise Tax and shall not take any position or action
that would materially increase the amount of any Gross-up Payment.
7. Confidentiality.
---------------
The Executive agrees that at all times during and after the
Agreement Period as defined in paragraph 2 above, he or she will not
divulge or appropriate for personal use or the use of others any secret or
confidential proprietary information pertaining to the business of the
Company or NITC.
<PAGE>
<E-10>
8. Offsetting Payments.
-------------------
In the event of a Termination as defined in paragraph 4 above for
which termination payments have been paid, the Company or NITC shall not be
entitled to recover or offset any termination payment paid or owed other
than for a breach of the obligations set forth in paragraph 7 above.
9. Arbitration of All Disputes.
----------------------------
Any controversy or claim arising out of or relating to this
Agreement or the breach hereof shall be settled by arbitration in the City
of Chicago in accordance with the laws of the State of Illinois by three
arbitrators, of whom one shall be appointed by the Company and NITC, one by
the Executive and one by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the Chief Judge of the United States
Court of Appeals for the Seventh Circuit. The arbitration shall be
conducted in Chicago in accordance with the rules of the American
Arbitration Association, except with respect to the place of arbitration
and to the selection of arbitrators which shall be as provided in this
paragraph 9. Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Any award will include
interest on any amounts due and payable to the Executive from the date due
to the date of payment calculated at the greater of twelve percent (12%)
simple interest per annum or one hundred and ten percent (110%) of the
prime rate in effect at the Continental Illinois National Bank and Trust
Company of Chicago on the first of each month. In the event that it shall
be necessary or desirable for the Executive to retain legal counsel and/or
incur other costs and expenses in connection with the enforcement of any or
all of the Executive's rights under this Agreement, the Company and NITC
shall pay, when submitted by the Executive, the Executive's reasonable
attorney's fees and costs and expenses, including expenses of any expert
witnesses, in connection with the enforcement of said rights (including the
enforcement of any arbitration award in court) unless the arbitrators
specifically find that the Executive's request to arbitrate was frivolous.
10. Notices.
--------
Any notices, requests, demands or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail, return receipt requested, to the Executive at
the last address filed in writing with the Company or, in the case of the
Company or NITC, to the Company or NITC at its principal executive offices,
attention General Counsel.
11. Non-Alienation.
---------------
The Executive shall not have any right to pledge, hypothecate,
anticipate or in any way create a lien upon any termination payments or
other benefits provided under this Agreement; and no termination payments
or other benefits payable hereunder shall be assignable in anticipation of
payment either by voluntary or involuntary acts, or by operation of law.
This provision does not affect beneficiary designations or testamentary
dispositions to the extent applicable.
12. Governing Law.
--------------
The provisions of this Agreement shall be construed in accordance
with the internal law of the State of Illinois.
<PAGE>
<E-11>
13. Amendment.
----------
This Agreement may be amended or canceled by mutual agreement of
the parties in writing without the consent of any other person and, so long
as the Executive lives, no person, other than the parities hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
14. Successors; Binding Agreement.
------------------------------
All provisions of this Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the Company and NITC. The
Company and NITC will require its respective successor or assign to
expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company and NITC would be required to perform
it if no such succession or assignment had taken place.
<PAGE>
<E-12>
EXHIBIT 10.20
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
NAVISTAR INTERNATIONAL CORPORATION STOCK OWNERSHIP PROGRAM
INTRODUCTION
On June 16, 1997, the Board of Directors of Navistar
International Corporation (the "Company") approved the terms of the Stock
Ownership Program (the "Program") in which all officers and senior managers
in Pay Levels 9-12 (the "Participants") will participate. The Program will
require you to make a substantial investment in the common stock of the
Company. This memorandum describes the terms of the Program.
Senior management and the Board believe that, in order for the
Company to become the best truck and engine company in North America,
senior management of the Company must have a significant ownership stake in
the Company. The Program requires you and every other member of senior
management to acquire such an ownership stake, and to do so promptly. The
goal of the Program is to secure your individual commitment to the
management team that intends to implement the vision for the Company and
our shareholders, by requiring you to make an "at risk" investment of
personal funds as well as career success in the Company. In this way, the
Program will reinforce the behavior of every member of senior management to
act like an owner.
In connection with the Program, the Board has also approved the
terms of a new severance agreement that the Company will enter into with
Officers and Senior Managers. The new severance agreement, which replaces
your existing severance agreement, will enhance your protection in the
event of termination of employment or a change in control of the Company.
In this way, the Company is making a greater commitment to you at the same
time as you are making a greater commitment to the Company. Your new
severance agreement is being delivered to you under a separate covering
memorandum.
THE STOCK OWNERSHIP REQUIREMENT
Mandatory Ownership Requirement.
--------------------------------
The Program imposes a mandatory requirement that you own a
specified amount of the Company's common stock, $0.10 par value per share
("Stock"). Failure to continuously own the required amounts of Stock at the
times required under the Program will constitute grounds for termination of
your employment with the Company and its subsidiaries.
Required Levels of Stock Ownership.
-----------------------------------
Under the Program, you will be required to own a number of shares
calculated by reference to your salary, a multiplier assigned to your pay
level, and the average of the high and low prices of Stock (rounded down to
the nearest dollar) on the date the Program became effective, June 16, 1997
(the "Effective Date"), which was $17.00 per share. The actual number of
shares you will be required to own under the Program (the Ownership
Requirement") will be specified in Exhibit A, which will be sent to you
under separate cover.
Your Ownership Requirement will not vary with changes in the
market price of Stock during the life of the Program, subject to the
Board's right of review. Nor will your Ownership Requirement change if your
salary is increased or decreased but you remain in the same Pay Level.
<PAGE>
<E-13>
Unless otherwise determined by the Board, in the event you are
promoted to a higher Pay Level after the Effective Date, you will become
subject to the Ownership Requirement applicable to that Pay Level, based on
your then-current base salary. The additional number of shares needed to
meet your new Ownership Requirement will be calculated based on the market
price at the date of your promotion (net of the dollar amount associated
with your original Ownership Requirement using the market price on the
Effective Date). For example, assume a Participant in Pay Level 10 is
required to own 13,235 shares based on a $150,000 salary, a multiplier of
1.5 times his salary and a $17.00 market price on the Effective Date.
Further assume that the Participant is promoted to Pay Level 11 at a salary
of $200,000 when the market price is $20. The additional number of shares
needed to satisfy his or her new Ownership Requirement is 11,250 calculated
as follows:
Level 10: 150,000 Salary
-------- x 1.5 Pay Level Multiplier
-------
225,000 divided by 17.00 = 13,235* Original Ownership
======= Requirement
Level 11: 200,000 Salary
-------- x 2.25 Pay Level Multiplier
-------
450,000
-224,995 (17.00 x 13,235)
--------
225,005 divided by 20.00 = 11,250* Additional
======= Ownership
Requirement
In the case of a person who becomes subject to the Program after
the Effective Date (i.e., is promoted to Pay Level 9 or newly hired at Pay
Level 9 or above), the Ownership Requirement for that person's salary and
Pay Level will apply based upon the market price of Stock on the date he or
she becomes subject to the Program.
The Board intends to review Ownership Requirements every three
years, but reserves the right to adjust the Ownership Requirements at any
time in its sole discretion to reflect, among other things, market
conditions and the Company's ongoing executive compensation programs.
Time to Meet Ownership Requirement.
-----------------------------------
The Ownership Requirement will be phased in, so that you will be
required to own shares representing:
- ----------------------------------------------------
*Rounded down to the nearest number of whole shares.
<PAGE>
<E-14>
(i) one-third of your Ownership Requirement (the "Initial
Ownership Requirement") by August 16, 1997, the 60th day
after the Effective Date (the "August 1997 Deadline");
(ii) two-thirds of your Ownership Requirement (the "Second
Ownership Requirement") by August 16, 1998, 14 months after
the Effective Date (the "August 1998 Deadline"); and
(iii) the full amount of the Ownership Requirement by June 16,
2002, 60 months after the Effective Date (the "Ownership
Deadline").
In the case of any promoted or newly hired member of management,
any additional or new Ownership Requirement will be phased in so that
one-third of such additional or new Ownership Requirement must be met on
the 60th day after the promotion or hiring, two-thirds after 14 months, and
in full after 60 months. Deadlines applicable to any original Ownership
Requirement will not be altered.
Restriction on Sales or Dispositions of Stock.
----------------------------------------------
Once your Ownership Requirement is met, you must continue to own
sufficient Stock to meet the Ownership Requirement until the Ownership
Requirement lapses (as discussed below) or the Program is terminated. The
Program is indefinite in duration, although it may be terminated or
modified at any time by the Board.
Under the Program, you may not sell or dispose of any shares of
Stock that you own (as determined under the Program) at any time that you
have not met the full Ownership Requirement, or to the extent the sale or
disposition would cause your ownership to fall below your Ownership
Requirement. This means that, for example, even if you own shares in excess
of one-third of your Ownership Requirement between the August 1997 Deadline
and the August 1998 Deadline, you could not sell such excess shares. You
can only sell shares if you have met your full Ownership Requirement.
As stated above, the sale or disposition of shares in violation
of the Program's requirements will constitute grounds for termination of
employment. The Program does not impose a legal restriction on the
transferability of the shares (other than Deferred Shares and Premium
Shares, discussed below), but imposes the potential penalty of termination
(and forfeiture of Deferred Shares and Premium Shares, as discussed below).
Thus, it is up to you to ensure that shares subject to the Program are not
sold. The Program does not prohibit a pledge of shares as security for a
loan, but if the shares are disposed of as a result of such pledge (for
example, due to a default by you on such loan), such disposition will
constitute grounds for termination of employment under the Program. Short
positions and "put equivalent" derivative securities positions will be
deemed dispositions for purposes of the Program
If you are an officer of the Company subject to the reporting and
short-swing profits liability provisions of Section 16 of the Securities
Exchange Act of 1934, any purchases you make in the open market in order to
meet your Ownership Requirement will be non-exempt transactions, which
could potentially be matched with any sale within less than six months
before the purchase or six months after the purchase to yield short-swing
profits liability.
<PAGE>
<E-15>
All purchases and sales of Stock in the market are subject to
federal and state laws prohibiting transactions while in possession of
certain material non-public information, and to Company Policies
prohibiting trading on the basis of such material non-public information.
Under such Company policies, you are required to pre-clear any transaction
with the Company's General Counsel. All shares purchased or sold must be
reported to the Office of the Secretary on Exhibit B.
Shares Deemed Owned Under the Program.
--------------------------------------
Shares of Stock that count toward meeting your Ownership
Requirement are shares in which you have an exclusive pecuniary interest,
and shares in which you and members of your immediate family have an
exclusive pecuniary interest if such members have consented to such shares
being deemed owned by you for purposes of the Program. This would include
shares of Stock owned directly by you, either in record name or in a
brokerage account, shares owned by you as a participant in the Company's
401(k) Retirement Savings Plan, shares acquired under the share purchase
features of the Program, including units representing Deferred Shares and
Premium Shares acquired under the Program (discussed below), and shares or
share units under any other plan or program of the Company or any
subsidiary if and to the extent so designated by the administrator of the
Program. In addition, shares of restricted Stock held under any Company
plan under which the vesting conditions are not dependent upon the
achievement of a performance goal will count toward meeting your Ownership
Requirements; provided, however, that in the event you have irrevocably
elected stock withholding in connection with an award of such restricted
Stock, the number of such shares that count toward meeting your Ownership
Requirements will be reduced to the net number of such shares remaining
after applying a 44.5% rate of withholding (rounded down to the nearest
whole share).
On the other hand, shares of restricted Stock held under any
Company plan that may or may not vest depending on the achievement of a
performance goal will not be deemed to be owned by you until such time as
such shares have become vested, and shares which may be acquired upon
exercise of an option (whether or not then exercisable) will not be deemed
owned by you until such option is duly exercised. In this regard, the
surrender or withholding of shares of Stock to pay the exercise price or
tax withholding with respect to an option or vesting of restricted Stock
will not be deemed a sale or disposition of such shares for purposes of the
Program. Shares in which any other person (other than an immediate family
member if such member has consented as aforesaid) has a pecuniary interest
will not be deemed to be owned by you for purposes of the Program, and
will not be subject to restrictions on sale or disposition.
Lapse of Ownership Requirement; Change in Control.
--------------------------------------------------
Your Ownership Requirement will lapse upon your termination of
employment for any reason. In addition, all Ownership Requirements lapse
upon a Change in Control.
For purposes of the Program, a "Change in Control" will be deemed
to have occurred if (i) any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934), other
than employee or retiree benefit plans or trusts sponsored or established
by the Company or Navistar International Transportation Company ("NITC"),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities; (ii) the following individuals
<PAGE>
<E-16>
cease for any reason to constitute more than three-fourths of the number of
directors then serving on the Board of Directors of the Company:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to election of directors of
the Company) whose appointment or election by the Board or nomination for
election by the Company's stockholders was approved by the vote of at
least two-thirds (2/3) of the directors then still in office or whose
appointment, election or nomination was previously so approved or
recommended; (iii) any dissolution or liquidation of the Company or NITC or
sale or disposition of all or substantially all (more than 50%) of the
assets of the Company or of NITC occurs; or (iv) as the result of, or in
connection with, any cash tender offer, exchange offer, merger or other
business combination, sale of assets, proxy or consent solicitation,
contested election or substantial stock accumulation (a "Control
Transaction"), the members of the Board of Directors of the Company
immediately prior to the first public announcement relating to such Control
Transaction shall immediately thereafter, or within two years, cease to
constitute a majority of the Board of Directors of the Company.
Notwithstanding the foregoing, the sale or disposition of any or all of the
assets or stock of Navistar Financial Corporation shall not be deemed a
Change in Control.
Ownership Reporting and Certification.
--------------------------------------
Participants will be required to periodically file reports as to
their ownership of shares of Stock under the Program, including purchases,
sales or dispositions of Stock.
ACQUISITIONS OF SHARES UNDER THE PROGRAM
Overview.
---------
The Program includes a number of features to enable Participants
to acquire shares, as well as features to encourage Participants to make a
substantial and prompt commitment to meeting their Ownership Requirements.
Company Loan To Meet Two-Thirds of Ownership Requirement.
---------------------------------------------------------
To assist Participants in meeting their Ownership Requirement,
the Company will provide financing for a purchase of shares by the
Participant on the following terms:
- The Company will lend to a Participant at any time an amount
sufficient to enable the Participant to purchase two-thirds of
his or her Ownership Requirement.
- A Participant requesting a loan will file an application and
execute a Note in the forms attached hereto as Exhibits C and
D, respectively.
- The loan will have a term of five years with payment of
principal and accrued interest due at maturity in a balloon
payment, subject to accelerated maturity in connection with
certain terminations of employment, as stated below. A sale,
pledge, or other disposition of the shares acquired with the
loan will not result in an acceleration of the maturity of the
loan. You may voluntarily repay all or any part of the loan or
interest thereon prior to maturity, without penalty.
<PAGE>
<E-17>
- The following provisions apply to the loan in the event of the
Participant's termination of employment by the Company (and any
subsidiary of the Company which employs the Participant). The
terms "Cause," "Good Reason," and "Constructive Termination"
have the meanings defined in the Participant's Executive
Severance Agreement or other employment agreement in effect at
the time of his or her termination of employment. The term
"Retirement" means voluntary termination of employment with the
Company (and/or any subsidiary of the Company which employs the
Participant) following which the Participant is eligible
promptly to commence receiving benefits from a qualified
pension plan maintained by the Company or any of its
subsidiaries.
-- In the event of the Participant's termination by the Company
for any reason other than Cause, termination by the
Participant for Good Reason, Constructive Termination of the
Participant, or termination by the Participant due to
Retirement, the Participant shall be required within 30 days
after such termination to either (i) post collateral of a
type acceptable to the Company having a fair market value
(or, if the Company is then subject to Regulation G
promulgated by the Federal Reserve Board, a "loan value" as
defined in Regulation G) equal to the lesser of the
aggregate amount of the accrued interest and principal then
outstanding on the loan or the aggregate fair market value,
at the date of such termination, of the shares purchased
with the original loan, or (ii) repay the accrued interest
and principal of the loan to the extent of the lesser of the
aggregate amount of the accrued interest and principal then
outstanding on the loan or the aggregate fair market value,
at the date of such termination, of the shares purchased
with the original loan. Any remaining unpaid principal
amount and accrued interest shall remain subject to the
terms of the Note.
-- In the event of the Participant's termination of employment
due to death or disability, if the amount of accrued
interest and principal of the loan 60 days after the date of
termination exceeds the then aggregate fair market value of
the shares purchased with the original loan, the Company
will forgive, as of such date, the portion of the accrued
interest and principal of the loan in excess of such
aggregate fair market value of such shares, and the
remaining accrued interest and principal amount of the loan
shall be immediately due and payable.
-- In the event of the Participant's termination for Cause or a
voluntary termination by the Participant not for Retirement,
not for Good Reason prior to a Change in Control and not a
Constructive Termination after a Change in Control, the
Participant shall be required, within 10 days after such
termination, to repay in full the accrued interest and
principal of the loan.
- The exercise of the Put Right (as defined below) following a
Change in Control will be deemed a voluntary early repayment of
the loan, so that the proceeds of an exercise of such Put Right
will be first applied to the accrued interest and principal of
the Participant's loan.
<PAGE>
<E-18>
- Interest will accrue on the loan at the Applicable Federal Rate
in effect on the loan commencement date, compounded annually.
However, interest is payable only at maturity, except as noted
above in the event of certain terminations or upon a voluntary
repayment of the loan.
- The loan will be a "full recourse" loan, meaning that you will
be obligated to repay the loan with interest even if the value
of the shares purchased with the loan is less than the amount
of such repayment; thus, you will be personally at risk with
respect to your purchase.
- The loan will be "unsecured" except as noted above in the event
of certain terminations.
Acquisitions From the Company.
------------------------------
The Program provides for acquisitions of shares of Stock from the
Company, by purchase and through the crediting of units representing shares
as an incentive to Participants to promptly acquire shares to meet their
Ownership Requirements. A Participant may acquire shares from the Company
as follows:
- Company Loan.
-------------
Up to two-thirds of your Ownership Requirement may be satisfied
by a purchase of shares from the Company using the proceeds of
the loan described above. In such case, the purchase price per
share shall be the average of the high and the low prices of a
share of Stock on the purchase date (or, if that date is not a
trading date, on the most recent previous trading date) as set
forth in the New York Stock Exchange Composite Transactions
listing published in the Midwest Edition of the Wall Street
Journal or equivalent financial publication ("Fair Market
Value").
- Salary Reduction. Up to two-thirds of your Ownership Requirement
may be satisfied by salary reduction. You may purchase units
representing shares ("Deferred Shares") by electing to have your
salary reduced, on a pre-tax basis, over any period up to five
years. Upon electing a salary reduction, you will be credited
with Deferred Shares having a Fair Market Value at that date
equal to the elected salary reduction. The amount of salary
reduction will be taken by apportioning the aggregate purchase
price equally over your pay periods for the succeeding salary
reduction period. Deferred Shares acquired through salary
reduction will vest (become non-forfeitable) proportionately over
the course of the salary reduction period, but vested Deferred
Shares generally will not be settled by delivery of actual Stock
until your termination of employment (as described below).
- Annual Incentive Payouts.
-------------------------
You may purchase Deferred Shares by electing to have a portion of
future annual incentive payments to which you may become entitled
under any plan of the Company applied, on a pre-tax basis, to
such purchases. You may elect to apply an amount between 50% and
100% of your future annual incentives to such purchases. Your
election may be made on an annual basis and must be made prior to
July 31, 1997, for the 1997 fiscal year and prior to January 1st
<PAGE>
<E-19>
for each fiscal year thereafter. If you make this election, you
will acquire Deferred Shares at the date an annual incentive
payment would otherwise be made to you in an amount determined by
dividing the amount of the annual incentive to be applied to the
purchase by the Fair Market Value of Deferred Shares at the date
the annual incentive would have been otherwise payable. Deferred
Shares acquired through the application of annual incentive
payouts will vest immediately, but vested Deferred Shares
generally will not be settled by delivery of actual Stock until
your termination of employment (as described below).
- Premium Shares. Units representing shares ("Premium Shares")
will be credited to an account for the Participant as a reward
for certain acquisitions of shares, as follows:
-- To the extent any shares comprising your Initial Ownership
Requirement consist of restricted Stock awarded by the
Company or are purchased on or before August 16, 1997 in the
open market or from the Company (including by exercise of
options) using personal funds or funds obtained from a
source other than the Company, you will be credited (as of
August 16, 1997) with a number of Premium Shares equal to
15% of such shares. To the extent any shares comprising your
Second Ownership Requirement (less your Initial Ownership
Requirement) consist of restricted Stock awarded by the
Company or are purchased on or before August 16, 1997 in
the open market or from the Company (including by
exercise of options or Company loan, but excluding Deferred
Shares acquired by salary reduction or elective deferral of
annual incentive payments and all Premium Shares), you will
be credited (as of August 16, 1997) with a number of Premium
Shares equal to 25% of such shares. To the extent any shares
comprising your final Ownership Requirement (less your
Second Ownership Requirement) consist of restricted Stock
awarded by the Company or are purchased on or before August
16, 1998 in the open market or from the Company (including
by exercise of options, Company loan, or elective deferral
of annual incentive payments, but excluding Deferred Shares
acquired by salary reduction and all Premium Shares), you
will be credited (as of August 16, 1998) with a number of
Premium Shares equal to 25% of such shares.
-- If you acquire Deferred Shares as a result of your election
to apply 50% of any future annual incentive payment toward
their purchase, you will be credited with a number of
Premium Shares equal to 5% of the number of Deferred Shares
so acquired; if you acquire Deferred Shares as a result of
your election to apply 100% of any future annual incentive
payment toward their purchase, you will be credited with a
number of Premium Shares equal to 15% of the number of
Deferred Shares so acquired; and if you acquire Deferred
Shares as a result of your election to apply more than 50%
but less than 100% of any future annual incentive
payment toward their purchase, you will be credited with a
number of Premium Shares determined by interpolating on a
straight-line basis between 5% and 15% of the number of
Deferred Shares so acquired. Premium Shares credited to you
in connection with an annual incentive will be credited as
of the date the annual incentive would have been otherwise
payable.
<PAGE>
<E-20>
Terms of Deferred Shares and Premium Shares.
--------------------------------------------
Deferred Shares and Premium Shares will be credited to a
Participant's account in whole shares (rounded down to the nearest whole
number). For each such Deferred or Premium Share credited to a
Participant's account on a record date for a dividend, a dollar amount will
be paid to the Participant at the dividend payment date equal to the amount
of dividends paid on one share; provided, however, that the Committee on
Organization may require any extraordinary dividend to be deemed reinvested
in additional Deferred Shares or Premium Shares (as the case may be) at the
Fair Market Value of shares at the dividend payment date. Deferred Shares
and Premium Shares may not be transferred or disposed of by a Participant.
Deferred Shares acquired through salary reduction, and all
Premium Shares, are forfeitable until such time as they have vested. In the
event the Committee on Organization elects to require an extraordinary
dividend to be deemed reinvested in additional Deferred Shares or Premium
Shares, such Deferred Shares and Premium Shares acquired through dividend
reinvestment on unvested Deferred Shares and unvested Premium Shares
("original Shares") will vest at the times and in proportion to the vesting
of the original Shares. Deferred Shares and Premium Shares acquired through
dividend reinvestment on vested Deferred Shares and vested Premium Shares
will be immediately vested. Vesting terms of Deferred Shares acquired
through salary reduction are described above. Deferred Shares acquired by
application of annual incentive payments are fully vested (i.e.,
non-forfeitable) at all times.
Except as described above with respect to extraordinary dividends
deemed to be reinvested in additional Premium Shares, Premium Shares vest
in equal installments on each of the first three anniversaries of the date
on which they are credited, or earlier upon the occurrence of a Change in
Control or termination of employment due to death, disability, or
retirement approved in advance by the Committee on Organization. In the
event a Participant's employment with the Company or its subsidiaries
terminates for any reason, any unvested Deferred Shares and unvested
Premium Shares shall be immediately forfeited. In addition, in the event a
Participant sells or otherwise disposes of other purchased shares in
respect of which Premium Shares were credited, all of the Participant's
unvested Premium Shares shall be immediately forfeited. A Participant shall
not be treated as having sold or otherwise disposed of purchased shares in
respect of which Premium Shares were credited unless he or she has sold or
disposed of shares in excess of the number of his or her shares in respect
of which no Premium Shares were credited.
Each vested Deferred Share and each vested Premium Share will be
settled by delivery of one share of Stock. Such settlement shall occur
within ten days after a Participant's termination of employment (or, in the
case of a Participant who retires, such later date as may have been elected
by a Participant under procedures approved by the Program administrator);
provided, however, that settlement shall be accelerated to the date
immediately prior to a Change in Control (subject to any deferral of
settlement as may have been elected by a Participant under procedures
approved by the Program administrator).
Deferred Shares and Premium Shares will be appropriately adjusted
by the Board in the event of stock splits, stock dividends and other
extraordinary, special, and non-recurring dividends, and other
extraordinary corporate events.
<PAGE>
<E-21>
Right to Put Shares to the Company.
-----------------------------------
A Participant under the Program has the right, in the event of a
Change in Control by action of the UAW or the Supplementary Trust, to "put"
to the Company any shares of Stock acquired by the Participant on and after
the Effective Date (other than Premium Shares) and owned under the Program
immediately prior to the Change in Control, on the following terms and
conditions (the "Put Right"). The Put Right represents a right of the
Participant to sell, and an obligation of the Company to buy, each share of
Stock (other than a Premium Share) acquired under the Program, exercisable
by the Participant during a period of 30 days following such Change in
Control (as defined above). The purchase price ("strike price") payable by
the Company to the Participant for each share to be sold to the Company
upon a Participant's exercise of the Put Right shall equal the amount paid
per share by the Participant; provided, however, that if the Participant
exercises the Put Right as to all shares purchased with a loan from the
Company under the Program, the purchase price for such shares shall be
deemed to be the greater of the aggregate purchase price of such shares or
the unpaid balance (principal plus accrued interest) on the loan, and such
purchase price shall be applied to the repayment in full of such unpaid
loan balance (with any remaining amount paid to the Participant together
with interest thereon as specified in the Note).
The Participant may exercise the Put Right as to all or less than
all of the shares subject to the Put Right, and shall identify such shares
in a manner sufficient to identify the original purchase price of the
shares as to which the Put Right is exercised.
Notwithstanding the Company's power to terminate or amend the
Program, the Company may not terminate or amend the Put Right following a
Change in Control in a manner adverse to a Participant without his or her
written consent.
MARKET PRICE RANGE
For the three years ending December 31, 1996, the high and low
sales price for the Company's Stock for the Periods indicated was as
follows:
Stock Price
------------------
Year Ending High Low
------------ -------- --------
December 31,1996 $ 12.125 $ 8.375
December 31,1995 $ 17.500 $ 9.000
December 31,1994 $ 26.625 $ 12.250
Prior to investing in the Stock, Participants are encouraged to
obtain current information concerning the price of the Stock:
RISK FACTORS
OWNERSHIP OF THE STOCK INVOLVES CERTAIN RISKS.
PARTICIPANTS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS
WELL AS OTHER INFORMATION INCLUDED IN THIS MEMORANDUM BEFORE MAKING
AN INVESTMENT IN THE STOCK OFFERED BY THE PROGRAM.
The Company's ability to be profitable will be dependent upon the
Company's ability to adapt to the varying conditions in the medium and
heavy duty truck industry. This market is highly competitive and is subject
to considerable volatility as it moves in response to cycles in the overall
business environment and is particularly sensitive to the industrial sector
which generates a significant portion of freight tonnage hauled. Truck
demand also depends on general economic conditions, interest rates and fuel
costs.
<PAGE>
<E-22>
The intensity of the competition within the truck industry, which
is expected to continue, results in price discounting and margin pressures
throughout the industry and adversely affects the Company's ability to
increase vehicle prices. Many of the Company's competitors have greater
financial resources, which may place the Company at a competitive
disadvantage in responding to substantial industry changes that require
major additional capital expenditures.
Government regulation, especially in the environmental and safety
areas, has impacted and will continue to impact trucking operations and
efficiencies and the specifications of equipment. Complying with such laws
and applicable regulations has added and will add to the cost of vehicle
emission control systems and increase the capital intensive nature of the
Company's diesel engine business.
Compared with certain of its competitors, the Company is faced
with significantly greater health care and pension benefit expenses and
less financial flexibility. The Company's pension and benefit plans will
continue to experience high current period expenses because of both the
absolute number of its past and present employees and the relatively high
proportion of retired employees to active employees.
The Supplemental Trust, a retiree trust created in 1993 pursuant
to a restructuring of retiree health care and life insurance programs (the
"Supplemental Trust'') currently holds approximately 23.7 million shares of
Navistar's non-voting Class B common stock. On June 30, 1998, the
non-voting Class B common stock held by the Supplemental Trust will convert
into voting Common Stock. Based upon the approximately 49.1 million shares
of Common Stock outstanding as of March 10, 1997, the Supplemental Trust
would hold approximately 33% of Navistar's voting stock upon conversion.
During the time that the Supplemental Trust owns such shares following such
conversion, it is likely that the Supplemental Trust will be able to have a
significant influence over those matters submitted to a vote of Navistar's
shareowners, including the election of directors and approval of certain
significant corporate transactions.
FEDERAL INCOME TAX CONSEQUENCES
Shares purchased in the open market or from the Company under the
Program with personal funds or the proceeds of a loan, which are held in
the form of actual shares, will represent share ownership by the
Participant, so that gains or losses realized upon the ultimate disposition
of such shares will be capital gains or losses to the Participant. Deferred
Shares and Premium Shares will be rights acquired on a pre-tax basis, so
that their settlement by issuance and delivery of shares will result in
ordinary income to the Participant equal to the then-fair market value of
the shares delivered. Employment taxes (FICA and Medicare) will be due and
payable when Deferred Shares and Premium Shares vest, even though income
tax liability will be deferred until shares are delivered. Interest on a
Company loan will be treated as "investment interest" and will be
deductible by a Participant when paid, subject to the limitations
applicable to "investment interest." Deloitte & Touche LLP has rendered an
opinion that the exercise of a Put Right will not result in a Participant's
recognition of income, gain or loss to the extent the amount paid by the
Company equals the amount paid per share by the Participant.
The foregoing is a general summary of certain Federal income tax
consequences. Participants are urged to consult their personal tax advisors
regarding the tax consequences of their participation in the Program.
<PAGE>
<E-23>
OTHER INFORMATION
Administrator.
--------------
The Program is administered by the Company's Senior Vice
President, Employee Relations and Administration.
Program Not Otherwise Tax-Qualified or Subject to ERISA.
--------------------------------------------------------
The Program is not qualified under Code Section 401(a) and is
intended to qualify for the "top hat" exemption from the requirements of
the Employee Retirement Income Security Act of 1974, as amended.
Registration: Additional Information.
-------------------------------------
On June 16, 1997, the Company filed a registration statement on
Form S-8 (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") registering under the Securities Act of 1933, as
amended (the "Securities Act"), the offer and sale of up to 650,000 shares
in connection with the Program.
Certain documents filed by the Company with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), before
the Company filed the Registration Statement, including the Company's
then-most recent Annual Report on Form 10-K, as well as periodic reports,
current reports, and proxy statements filed after the date of such
Registration Statement, are incorporated by reference into the Registration
Statement. These documents are also incorporated by reference into this
memorandum and form part of the prospectus for the Program under the
Registration Statement.
The Company may from time to time update this memorandum to
reflect material changes relating to the Program. Such updated information,
which will be delivered to Officers and Senior Managers subject to the
Program, should be read in conjunction with this memorandum and the other
documents that form part of the prospectus for the Program, except to the
extent that statements in this memorandum and the other documents have been
modified or superseded by statements in a subsequent memorandum or other
document forming part of the prospectus for the Program.
The Company will provide without charge to each person subject to
the Program, upon the written or oral request of such person, a copy of any
or all of the documents incorporated by reference herein (except that
exhibits to such documents will not be provided without charge unless such
exhibits are specifically incorporated by reference into such documents), a
copy of any or all other documents constituting part of the prospectus for
the Program previously delivered to such person, and a copy of any or all
other documents required to be delivered to such persons by SEC rules. Such
requests, and requests for additional information about the Program and its
administrator, should be directed to:
Navistar International Corporation
455 North Cityfront Plaza Drive
Chicago, Illinois 60611
(312) 836-2000
The Company will deliver to each person to whom offers and sales
are made under the Program, who otherwise does not receive such material,
copies of all future reports, proxy statements, and other communications
distributed to its shareowners, generally no later than the time such
material is sent to shareowners.
<PAGE>
<E-24>
Exhibit D
PROMISSORY NOTE
$--------
--------, --------
FOR VALUE RECEIVED, --------- (the "Maker") hereby promises to
pay to the order of Navistar International Corporation, a Delaware
corporation (together with its successors and assigns and any other
transferee or successor then becoming the holder of this Note, the
"Payee"), at the principal office of Navistar International Corporation in
Chicago, Illinois, or at such other place as may be designated in the
future in writing by the holder of this Note, in lawful money of the United
States of America, the principal sum of -----------($-----------), and to
pay interest on the unpaid principal balance hereof, and at a rate per
annum, as hereinafter provided.
1. Maturity Date. Except as provided in paragraph 3, the principal
balance of this Note shall be due and payable in full upon the Maturity
Date. The "Maturity Date" shall be the earliest to occur of the following:
(a) The fifth anniversary of the date of this Note;
(b) The Accelerated Maturity Date, as specified in paragraph 3; and
(c) Following an exercise of Maker's Put Right (as defined under the
Navistar International Corporation Stock Ownership Program (the
"Program")) by Maker, at the date Navistar International
Corporation settles said Put Right.
2. Interest. Except as provided in paragraph 3, the unpaid principal
balance due hereunder shall accrue interest at the rate of _% per annum,
compounded annually. Interest shall be due and payable in full upon the
Maturity Date, together with principal as provided in paragraph 1 above.
3. Effect of Termination of Employment. In the event of the Maker's
termination of employment with Navistar International Corporation and any
subsidiary of Navistar International Corporation, the provisions of this
paragraph shall apply. For purposes of this Note, the terms "Change in
Control" and "Retirement" shall have the meanings defined under the
Program, and the terms "Cause," "Good Reason," and "Constructive
Termination" shall have the meanings defined in the Maker's Executive
Severance Agreement or other employment agreement in effect at the time of
such termination:
(a) If Maker's employment was terminated by Navistar International
Corporation and/or its subsidiaries for any reason other than
Cause, was terminated by Maker for Retirement, was terminated by
Maker prior to a Change in Control for Good Reason, or was
terminated by Maker at or after a Change in Control in a
Constructive Termination, Maker shall be required, within 30 days
after such termination, to either (i) post collateral with Navistar
International Corporation or its agent, of a type acceptable to
Navistar International Corporation, having a fair market value (or,
if Navistar International Corporation is then subject to Regulation
G promulgated by the Federal Reserve Board, having a "loan value"
as defined in Regulation G) equal to the lesser of the aggregate
amount of the accrued interest and principal then outstanding on
the Note or the aggregate fair market value, at the date of such
termination, of the shares of Common Stock of Navistar
International Corporation purchased under the Program with the
original loan giving rise to this Note (the "Shares"), or (ii)
repay the unpaid principal balance together with accrued interest
due hereunder to the extent of the lesser of the aggregate amount
of such principal balance and accrued interest due hereunder or the
aggregate fair market value, at the date of such termination, of
the Shares. Any remaining unpaid principal amount and accrued
interest shall remain subject to the terms of this Note.
<PAGE>
<E-25>
(b) In the event Maker's employment terminated due to Maker's death or
disability, if the unpaid principal amount and accrued interest
hereunder 60 days after the date of termination exceeds the then
aggregate fair market value of the Shares, Navistar International
Corporation will forgive, as of such date, the portion of the
unpaid principal amount and accrued interest hereunder in excess of
such aggregate fair market value of the Shares, and the remaining
unpaid principal amount and accrued interest hereunder shall be
immediately due and payable, which repayment deadline shall be the
"Accelerated Maturity Date."
(c) If Maker's employment was terminated by Navistar International
Corporation for Cause, was terminated by Maker not for Retirement,
was terminated by Maker not for Good Reason prior to a Change in
Control, or was terminated by Maker not in a Constructive
Termination at or after a Change in Control, Maker shall be
required, within ten days after such termination, to repay in full
the unpaid principal amount and accrued interest hereunder, which
repayment deadline shall be the "Accelerated Maturity Date."
4. Optional Prepayment. The Maker may prepay this Note, in whole or in
part at any time and from time to time, without penalty or premium.
Prepayments shall be applied first to accrued but unpaid interest and then
to principal.
5. Payment Following Change in Control. In the event of a Change in
Control by action of the UAW or the Supplementary Trust, Maker may pay this
Note in full (including all principal and interest then accrued) by
exercising that certain Put Right of Maker under the Program, in accordance
with the terms thereof and at such time as the Put Right is exercisable, as
to all of the Shares and delivering said Shares to Navistar International
Corporation. In the event any prepayment has been received under paragraph
4 hereof, the Put Right and Shares shall be deemed to have a value equal to
the full amount of principal and interest accrued hereunder immediately
prior to such exercise plus the amount of the prior prepayment (together
with interest thereon, at the rate specified in paragraph 2, from the date
or dates of prepayment), such that an amount equal to the prior prepayment
(plus interest thereon) shall be payable to Maker in accordance with the
terms of the Put Right. If Navistar International Corporation is not then
the Payee, it shall thereupon immediately pay over to the Payee in cash the
full amount of principal and interest accrued hereunder.
6. Rights and Remedies. If the Maker fails to make the payment of
principal and interest in full when the same shall be due and payable
(e.g., upon the Maturity Date), default interest shall become payable on
the unpaid amount from and after the Maturity Date at the highest rate of
interest then permitted under Illinois law. The Maker agrees to pay all
costs of collection when incurred, including, without limitation,
reasonable attorney's fees and expenses and court costs. Failure or delay
in exercising any right hereunder on the part of the Payee shall not be
deemed a waiver thereof.
7. Waiver of Notice of Demand, Etc. The Maker hereby waives demand for
payment, notice of non-payment, notice of dishonor, notice of protest or
any other notice.
8. Entire Agreement; Modification of Terms. This Note constitutes the
entire understanding among the parties with respect to the matters set
forth and may not be changed or terminated orally, nor may any of its
provisions be waived, except by an agreement in writing signed by the party
against whom enforcement of such change or termination is sought.
9. Choice of Law. THIS NOTE AND THE LEGALITY, VALIDITY AND
PERFORMANCE OF THE TERMS HEREOF, SHALL BE GOVERNED AND ENFORCED,
DETERMINED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES.
<PAGE>
<E-26>
10. Assignment and Transferability. This Note shall be binding upon the
Maker and the Maker's successors and assigns. Navistar International
Corporation may transfer this Note to another party, but shall in no event
be relieved of its obligations pursuant to paragraphs 3 and 5 hereof.
IN WITNESS WHEREOF, Maker and Navistar International Corporation have
caused this Note to be executed and delivered as of the date first above
written.
-----------------------------------------
[Participant Name]
NAVISTAR INTERNATlONAL CORPORATION
By:
---------------------------------------
Chairman, President and
Chief Executive Officer
<E-27>
EXHIBIT 11
NAVISTAR INTERNATIONAL CORPORATION
AND SUBSIDIARIES
----------------------------------
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
A. Primary: See the Statement of Income of this Form 10-Q.
B. Full Dilution:
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31 JULY 31
Millions of Dollars, ------------------- --------------------
except per share data 1997 1996 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income ................... $ 35 $ 17 $ 80 $ 65
Less dividends on Series G
Preferred stock ........... 7 7 21 21
-------- -------- -------- --------
Net income applicable to
common stock ............... $ 28 $ 10 $ 59 $ 44
======== ======== ======== ========
Fully diluted average common
and dilutive common equivalent
shares outstanding .......... 73.8 73.8 74.3 73.8
======== ======== ======== ========
Fully diluted earnings
per share ................... $ .38 $ .13 $ .79 $ .59
======== ======== ======== ========
- ---------------
<FN>
This calculation is submitted in accordance
with Regulation S-K item 601(b)(11) of the Securities Exchange Act.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 212
<SECURITIES> 503
<RECEIVABLES> 1404
<ALLOWANCES> (25)
<INVENTORY> 497
<CURRENT-ASSETS> 0<F1>
<PP&E> 1665
<DEPRECIATION> (893)
<TOTAL-ASSETS> 4917
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1055
0
244
<COMMON> 2133
<OTHER-SE> (1414)
<TOTAL-LIABILITY-AND-EQUITY> 4917
<SALES> 4259
<TOTAL-REVENUES> 4433
<CGS> 3688
<TOTAL-COSTS> 4304
<OTHER-EXPENSES> 158
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 129
<INCOME-TAX> (49)
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
<FN>
<F1>The company has adopted an unclassified presentation in the Statement of
Financial Condition.
</FN>
</TABLE>
