<PAGE>
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 January 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9618
NAVISTAR INTERNATIONAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3359573
------------------------------ -------------------
(State or other jurisdiction of (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 March 9, 1998, the number of shares outstanding of the registrant's
common stock was 49,113,774 and the Class B Common was 19,894,103.
- 1 -
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
--------------------------
INDEX
-----
Page
Reference
---------
Part I. Financial Information:
Item 1. Financial Statements:
Statement of Income --
Three Months Ended January 31, 1998 and 1997............. 3
Statement of Financial Condition --
January 31, 1998 October 31, 1997 and January 31, 1997... 4
Statement of Cash Flow --
Three Months Ended January 31, 1998 and 1997............. 5
Notes to Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................ 12
Part II. Other Information:
Item 1. Legal Proceedings................................. 18
Item 6. Exhibits and Reports on Form 8-K.................. 18
Signature .................................................. 19
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
STATEMENT OF INCOME (Unaudited)
- -------------------------------------------------------------------------------
Millions of dollars, except per share data
- -------------------------------------------------------------------------------
Three Months Ended January 31
-----------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
1998 1997
------ ------
Sales and revenues
Sales of manufactured products ................ $1,672 $1,240
Finance and insurance revenue ................. 45 45
Other income .................................. 10 11
------ ------
Total sales and revenues .................... 1,727 1,296
------ ------
Costs and expenses
Cost of products and services sold ............ 1,454 1,076
Postretirement benefits ....................... 45 51
Engineering and research expense .............. 35 30
Marketing and administrative expense .......... 98 83
Interest expense .............................. 17 17
Financing charges on sold receivables ......... 8 7
Insurance claims and underwriting expense ..... 9 8
------ ------
Total costs and expenses .................... 1,666 1,272
------ ------
Income before income taxes ................ 61 24
Income tax expense ........................ 23 9
------ ------
Net income .................................... 38 15
Less dividends on Series G preferred stock .... 7 7
------ ------
Net income applicable to common stock ......... $ 31 $ 8
====== ======
Earnings per share
Basic .................................... $ .43 $ .10
Diluted .................................. $ .42 $ .10
Average shares outstanding (millions)
Basic .................................... 71.6 73.6
Diluted .................................. 72.5 73.7
See Notes to Financial Statements.
- 3 -
<PAGE>
STATEMENT OF FINANCIAL CONDITION (Unaudited)
- -------------------------------------------------------------------------------
Millions of dollars
- -------------------------------------------------------------------------------
Navistar International Corporation
and Consolidated Subsidiaries
-------------------------------------------
January 31 October 31 January 31
1998 1997 1997
------------ ---------- ----------
ASSETS
- -----------------------------------
Cash and cash equivalents ......... $ 188 $ 609 $ 197
Marketable securities ............. 361 356 448
------ ------ ------
549 965 645
Receivables, net .................. 1,543 1,755 1,311
Inventories ....................... 506 483 452
Property, net of accumulated
depreciation and amortization
of $876, $847 and $864........... 896 835 773
Investments and other assets ...... 312 332 238
Intangible pension assets ......... 212 212 314
Deferred tax asset, net .......... 911 934 1,024
------ ------ ------
Total assets ...................... $4,929 $5,516 $4,757
====== ====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Liabilities
Accounts payable, principally trade $1,033 $1,100 $ 714
Debt:
Manufacturing operations ........ 125 92 113
Financial services operations ... 1,020 1,224 947
Postretirement benefits liability . 893 1,186 1,278
Other liabilities ................. 885 894 783
------ ------ ------
Total liabilities ............. 3,956 4,496 3,835
------ ------ ------
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 (55.4 and 51.0 million
shares issued) .................. 1,748 1,659 1,642
Class B Common stock (19.9 and 24.3
million shares issued) ......... 388 471 491
Retained earnings (deficit) ....... (1,271) (1,301) (1,425)
Common stock held in treasury,
at cost ......................... (136) (53) (30)
------ ------ ------
Total shareowners' equity ..... 973 1,020 922
------ ------ ------
Total liabilities $4,929 $5,516 $4,757
and shareowners' equity ......... ====== ====== ======
See Notes to Financial Statements.
- 4 -
<PAGE>
STATEMENT OF CASH FLOW (Unaudited)
- -------------------------------------------------------------------------------
For the Three Months Ended January 31 (Millions of dollars)
- -------------------------------------------------------------------------------
Navistar International
Corporation and
Consolidated Subsidiaries
-------------------------
1998 1997
------ ------
Cash flow from operations
Net income ................................. $ 38 $ 15
Adjustments to reconcile net income
to cash used in operations:
Depreciation and amortization ............ 39 33
Deferred income taxes .................... 23 8
Postretirement benefits funding in excess
of expense ............................. (271) (71)
Other, net ............................... (34) (24)
Change in operating assets and liabilities:
Receivables .............................. (6) 37
Inventories .............................. (25) 11
Prepaid and other current assets ......... (10) (19)
Accounts payable ......................... (61) (106)
Other liabilities ........................ (25) (24)
------ ------
Cash used in operations .................... (332) (140)
------ ------
Cash flow from investment programs
Purchase of retail notes and lease
receivables .............................. (237) (196)
Collections/sales of retail notes
and lease receivables ................... 485 485
Purchase of marketable securities .......... (129) (165)
Sales or maturities of marketable
securities ............................... 128 113
Capital expenditures ....................... (60) (25)
Property and equipment leased to others .... (41) (16)
Other investment programs, net ............. 7 4
------ ------
Cash provided by investment programs ....... 153 200
------ ------
Cash flow from financing activities
Issuance of debt ........................... 48 79
Principal payments on debt ................. (24) (13)
Net decrease in notes and debt outstanding
under bank revolving credit facility
and asset-backed and other commercial
paper programs ........................... (211) (409)
Mexican credit facility .................... 35 -
Repurchase of common stock ................. (83) -
Dividends paid ............................. (7) (7)
------ ------
Cash used in financing activities .......... (242) (350)
------ ------
Cash and cash equivalents
Decrease during the period ............... (421) (290)
At beginning of the year ................. 609 487
------ ------
Cash and cash equivalents
at end of the period ..................... $ 188 $ 197
====== ======
See Notes to Financial Statements.
- 5 -
<PAGE>
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 the company's manufacturing
operations and its wholly owned financial services subsidiaries. The effects of
transactions between the manufacturing and financial services operations have
been eliminated to arrive at the consolidated totals.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1997 Annual Report on Form
10-K and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flow for the
periods presented. Interim results are not necessarily indicative of results for
the full year. Certain 1997 amounts have been reclassified to conform with the
presentation used in the 1998 financial statements.
Note B. Supplemental Cash Flow Information
Consolidated interest payments during the first three months of 1998 and
1997 were $25 million and $22 million, respectively. There were no consolidated
tax payments made during the first three months of 1998 and 1997.
Note C. Income Taxes
The benefit of Net Operating Loss (NOL) carryforwards is recognized as a
deferred tax asset in the Statement of Financial Condition, while the Statement
of Income includes income taxes calculated at the statutory rate. The amount
reported does not represent cash payment of income taxes except for certain
state income, foreign withholding and federal alternative minimum taxes which
are not material. In the Statement of Financial Condition, the deferred tax
asset is reduced by the amount of deferred tax expense or increased by a
deferred tax benefit recorded during the year. Until the company has utilized
its significant NOL carryforwards, the cash payment of federal income taxes will
be minimal.
- 6 -
<PAGE>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note D. Inventories
Inventories are as follows:
January 31 October 31 January 31
Millions of dollars 1998 1997 1997
- -------------------------------------------------------------------------------
Finished products.......... $ 253 $ 212 $ 246
Work in process............ 109 106 83
Raw materials and supplies. 144 165 123
-------- -------- --------
Total inventories.......... $ 506 $ 483 $ 452
======== ======== ========
Note E. Financial Instruments
In November 1997, Navistar Financial Corporation (NFC) sold $500 million of
retail notes, realizing proceeds of $477 million, net of underwriting fees and
credit enhancements, which were used for general working capital purposes. A
gain of approximately $7 million was recognized on the sale.
During the first quarter of 1998, NFC entered into a $50 million forward
treasury lock in anticipation of a May 1998 sale of retail receivables. NFC
intends to close this position on the pricing date of the sale. Any gain or loss
resulting from this transaction will be included in the gain or loss recognized
on the sale of receivables in May 1998.
In anticipation of the $250 million 10-year Senior Subordinated Note
offering, the company entered into four $50 million forward treasury locks
during the first quarter of 1998. The company closed these positions on the
pricing date of the debt resulting in a gain which was not material.
As of January 31, 1998, the company had open positions on future sales of
$103 million of 30-year Treasury bonds and future purchases of a
duration-weighted equivalent of 2-year Treasury bonds. These positions were
closed in February resulting in a gain which was not material.
The company purchases collateralized mortgage obligations (CMOs) that have
predetermined fixed-principal payment patterns which are relatively certain.
These instruments totaled $84 million at January 31, 1998. At January 31, the
unrecognized gain on the CMO's was not material.
- 7 -
<PAGE>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note F. Earnings Per Share
Effective for Navistar's consolidated financial statements for the three
months ended January 31, 1998, Navistar adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share and diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareowners by the weighted-average number of basic common
shares outstanding for the period. Diluted earnings per share assumes the
issuance of common stock for other potentially dilutive equivalent shares
outstanding. All prior-period earnings per share data has been restated. The
adoption of this new accounting standard did not have a material effect on the
company's reported earnings per share amounts.
Earnings per share was computed as follows:
For The Three Months Ended
January 31
------------------------------
Millions of dollars,
except share and per share data 1998 1997
- ------------------------------- -------- --------
Net income.............................. $ 38 $ 15
Less dividends
on Series G Preferred stock........... 7 7
-------- --------
Net income applicable to
common stock (Basic and Diluted)...... $ 31 $ 8
======== ========
Average shares outstanding (millions)
Basic.............................. 71.6 73.6
Dilutive effect
of options outstanding........ .8 -
Conversion of
Series D Preference Stock..... .1 .1
-------- --------
Diluted............................ 72.5 73.7
======== ========
Earnings per share
Basic.............................. .43 .10
Diluted............................ .42 .10
- 8 -
<PAGE>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note F. Earnings Per Share (continued)
Unexercised employee stock options to purchase 0.7 million and 2.7 million
shares of Navistar common stock during the three months ended January 31, 1998
and 1997, respectively, were not included in the computation of diluted shares
outstanding because the options' exercise prices were greater than the average
market price of Navistar common stock during the respective periods.
Additionally, the diluted calculation excludes the effects of the conversion of
the Series G preferred stock as such conversion would produce anti-dilutive
results. In January 1998, the company repurchased approximately 3.2 million
shares of its Class B Common Stock from the Supplemental Trust.
Note G. New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement revises standards
for disclosures about pension and other postretirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. This standard
expands or modifies disclosure and, accordingly will have no impact on the
company's reported financial position, results of operations and cash flows.
Note H. Subsequent Events
On February 4, 1998 the company completed the private placement of $100
million 7% Senior Notes due 2003 and $250 million 8% Senior Subordinated Notes
due 2008 (the Senior Notes, together with the Senior Subordinated Notes, the
"Old Notes"). The proceeds of the Senior Notes were used to prepay an 8% Secured
Note due 2002 and will be used to repay the 9% Sinking Fund Debentures due 2004.
The proceeds of the Senior Subordinated Notes were used to redeem the company's
$240 million, $6.00 Series G Convertible Cumulative Preferred Stock and to pay
accumulated and unpaid dividends thereon. Excess proceeds from both debt issues
will be used for general working capital purposes. On March 5, 1998, the company
initiated an offer to exchange the Old Notes with new notes (the "Exchange
Notes") which have been registered under the Securities Act of 1933, as amended.
The Exchange Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indentures governing the Old Notes.
On March 5, 1998 the company announced that it has been selected to
negotiate an extended term agreement to supply diesel engines for select Ford
Motor Company under 8,500 lbs. GVW light duty trucks and sport utility vehicles.
- 9 -
<PAGE>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note I. Supplemental Financial Information
Navistar International Corporation (with financial services operations on an
equity basis) in millions of dollars:
Three Months Ended
January 31
---------------------
Condensed Statement of Income 1998 1997
- -------------------------------------------- -------- -------
Sales of manufactured products.............. $ 1,672 $ 1,240
Other income................................ 10 10
-------- --------
Total sales and revenues.................... 1,682 1,250
-------- --------
Cost of products sold....................... 1,448 1,071
Postretirement benefits..................... 45 51
Engineering and research expense............ 35 30
Marketing and administrative expense........ 89 76
Other expenses.............................. 27 21
-------- --------
Total costs and expenses.................... 1,644 1,249
-------- --------
Income before income taxes
Manufacturing operations................. 38 1
Financial services operations............ 23 23
-------- --------
Income before income taxes............. 61 24
Income tax expense......................... 23 9
-------- --------
Net income................................. $ 38 $ 15
======== ========
Condensed Statement January 31 October 31 January 31
of Financial Condition 1998 1997 1997
- ----------------------------------- ---------- ---------- ----------
Cash, cash equivalents
and marketable securities........ $ 387 $ 802 $ 476
Inventories........................ 506 483 452
Property and equipment, net........ 733 706 656
Equity in financial services
subsidiaries..................... 329 322 319
Other assets....................... 876 864 689
Deferred tax asset, net............ 911 934 1,024
-------- -------- --------
Total assets.................. $ 3,742 $ 4,111 $ 3,616
======== ======== ========
Accounts payable,
principally trade................ $ 994 $ 1,060 $ 664
Postretirement benefits liabilities 885 1,178 1,270
Other liabilities.................. 890 853 760
Shareowners' equity................ 973 1,020 922
-------- -------- --------
Total liabilities
and shareowners' equity.... $ 3,742 $ 4,111 $ 3,616
======== ======== ========
- 10 -
<PAGE>
Navistar International Corporation and Consolidated Subsidiaries
Notes to Financial Statements (Unaudited)
Note I. Supplemental Financial Information (continued)
Navistar International Corporation (with financial services operations on an
equity basis) in millions of dollars:
Three Months Ended
January 31
----------------------
Condensed Statement of Cash Flow 1998 1997
- ---------------------------------------------- -------- --------
Cash flow from operations
Net income.................................... $ 38 $ 15
Adjustments to reconcile net income to cash
used in operations:
Depreciation and amortization............ 32 29
Postretirement benefits funding
in excess of expense................... (271) (71)
Equity in earnings of nonconsolidated
companies, net of dividends received... (3) (14)
Deferred income taxes.................... 23 8
Other, net............................... (3) (7)
Change in operating assets and liabilities.... (124) (87)
-------- --------
Cash used in operations....................... (308) (127)
-------- --------
Cash flow from investment programs
Purchase of marketable securities............. (118) (150)
Sales or maturities of marketable securities.. 114 91
Capital expenditures.......................... (60) (25)
Receivable from Navistar Financial Corporation 3 (74)
Other investment programs, net................ 7 4
-------- --------
Cash used in investment programs.............. (54) (154)
-------- --------
Cash flow from financing activities........... (56) (10)
-------- --------
Cash and cash equivalents
Decrease during the period.................... (418) (291)
At beginning of the year...................... 573 452
-------- --------
Cash and cash equivalents at end of the period $ 155 $ 161
======== ========
- 11 -
<PAGE>
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."
The company reported net income of $38 million, or $0.42 per diluted common
share, for the first quarter ended January 31, 1998 reflecting higher sales of
manufactured product. Net income was $15 million, or $.10 per diluted common
share, for the same period last year.
The company's manufacturing operations reported income before income taxes
of $38 million compared with pretax income of $1 million in the first quarter of
1997 reflecting an increase in demand for trucks. The financial services
operations' pretax income for the first three months of 1998 and 1997 was $23
million.
Sales and Revenues. First quarter 1998 industry retail sales of Class 5 through
8 trucks totaled 87,200 units, an increase of 21% from 1997. Class 8 heavy truck
sales of 53,300 units during the first quarter of 1998 were 26% higher than the
1997 level of 42,400 units. Industry sales of Class 5, 6 and 7 medium trucks,
including school buses, increased 14% to 33,900 units. Industry sales of school
buses, which accounted for 16% of the medium truck market, decreased 5%.
Sales and revenues for the first quarter of 1998 totaled $1,727 million,
33% higher than the $1,296 million reported for the comparable quarter in 1997.
Sales of trucks, mid-range diesel engines and service parts for the first
quarter of 1998 totaled $1,672 million compared with $1,240 million reported for
the same period in 1997.
The company maintained its position as sales leader in the combined United
States and Canadian Class 5 through 8 truck market with a 28.6% market share for
the first quarter of 1998, an increase from the 26.4% market share reported in
1997. (Sources: American Automobile Manufacturers Association, the United States
Motor Vehicle Manufacturers Association and R.L. Polk & Company.)
Shipments of mid-range diesel engines by the company to other original
equipment manufacturers during the first quarter of 1998 totaled 42,600 units, a
4% increase from the same period of 1997. Service parts sales of $185 million in
the first quarter of 1998 were consistent with the prior year's level.
Finance and insurance revenue was $45 million for both the first quarter of
1998 and 1997.
Costs and expenses. Manufacturing gross margin was 13.4% of sales for the
first quarter of 1998 consistent with 13.6% for the same period in 1997.
- 12 -
<PAGE>
Marketing and administrative expense increased to $98 million in 1998 from
$83 million in the first quarter of 1997 reflecting investment in the
implementation of the company's truck strategy to reduce costs and complexity in
its manufacturing processes.
Postretirement benefits expense decreased to $45 million in 1998 from $51
million in the first quarter of 1997 mainly as a result of higher expected
return on plan assets.
Engineering and research expense increased $5 million from first quarter
1997 to $35 million, reflecting the company's investment in its next generation
vehicle program.
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 sales of finance receivables the most
economical source of funding.
Insurance operations are funded through internal operations.
Total cash, cash equivalents and marketable securities of the company
amounted to $549 million at January 31, 1998, $965 million at October 31, 1997
and $645 million at January 31, 1997.
Cash used in operations during the first quarter of 1998 totaled $332
million, primarily from excess postretirement benefits funding of $271 million
and from a net change in operating assets and liabilities of $127 million.
During the first quarter, the company contributed $200 million to the Retiree
Health Care Base Plan Trust and $100 million to the hourly pension plan, which
net of expense, resulted in funding of $193 million and $78 million,
respectively. The net change in operating assets and liabilities includes a $61
million decrease in accounts payable resulting from lower production.
Investment programs provided $153 million in cash reflecting a net decrease
in retail notes and lease receivables of $248 million. Other investment
activities used $41 million for property and equipment leased to others and $60
million to fund capital expenditures for construction of a truck assembly
facility in Mexico, to increase mid-range diesel engine capacity and for truck
product improvements.
Financing activities used cash to pay $7 million in dividends on the Series
G Preferred shares and to reduce notes and debt outstanding under the bank
revolving credit facility and asset-backed and other commercial paper program by
$211 million offset by a $24 million net increase in long-term debt at NFC
primarily due to increased capital lease funding and by $35 million of
borrowings under the Mexican credit facility. In addition, $83 million was used
to repurchase 3.2 million shares of Class B common stock during January 1998.
- 13 -
<PAGE>
Receivable sales were a significant source of funding in 1998 and 1997.
During the first quarter of 1998 and of 1997, NFC sold $500 million and $486
million, respectively, of retail notes through Navistar Financial Retail
Receivables Corporation (NFRRC). 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 January 31, 1998, the remaining
shelf registration available to NFRRC was $973 million.
During the first quarter of fiscal 1998, NFC entered into a $50 million
forward treasury lock in anticipation of a May 1998 sale of retail receivables.
NFC intends to close this position on the pricing date of the sale. Any gain or
loss resulting from this transaction will be included in the gain or loss
recognized on the sale of receivables in May 1998.
As of January 1998, Navistar Financial Securities Corporation ("NFSC"), a
wholly-owned subsidiary of NFC had in place a $531 million revolving wholesale
note trust that provides for the continuous sale of eligible wholesale notes on
a daily basis. During the next few months $31 million will amortize and the
commitment will be $500 million. At January 31, 1998, the remaining shelf
registration available to NFSC for the issuance of investor certificates was
$200 million.
At January 31, 1998, available funding under NFC's amended and restated
credit facility and the asset-backed commercial paper facility was $767 million,
of which $115 million was used to back short-term debt at January 31, 1998. The
remaining $652 million, when combined with unrestricted cash and cash
equivalents made $658 million available to fund the general business purposes of
NFC at January 31, 1998.
As of January 31, 1998, the company had open positions on future sales of
$103 million of 30-year Treasury bonds and future purchases of a
duration-weighted equivalent of 2-year Treasury bonds. These positions were
closed in February resulting in a gain which was not material.
The company purchases collateralized mortgage obligations (CMOs) that have
predetermined fixed-principal payment patterns which are relatively certain.
These instruments totaled $84 million at January 31, 1998. At January 31, the
unrecognized gain on the CMO's was not material.
In November 1997, the company's Mexican subsidiary established a $125
million credit facility to be used to fund the development of the company's
Mexican operations.
The company had outstanding capital commitments of $107 million at January
31, 1998, primarily for increased manufacturing capacity at the Indianapolis
engine plant, improvements to existing facilities and products, and for
construction of a truck assembly facility in Mexico.
- 14 -
<PAGE>
In January 1998, Moody's, Standard and Poors and Duff and Phelps raised
Transportation's senior debt ratings from Ba2, BB, and BB to Ba1, BB+ and BB+,
respectively. NFC's senior debt ratings increased from Ba2, BB and BB+ to Ba1,
BB+ and BBB-. NFC's subordinated debt ratings were also raised from B1, B+ and
BB to Ba3, BB- and BB+, respectively.
On February 4, 1998 the company completed the private placement of $100
million 7% Senior Notes due 2003 and $250 million 8% Senior Subordinated Notes
due 2008 (the Senior Notes, together with the Senior Subordinated Notes, the
"Old Notes"). The net proceeds from the sale of the Senior Notes were
approximately $98 million (after deducting discounts to initial purchasers and
expenses of the offering). The company used approximately $27 million to repay
the 8% Secured Note due 2002 including accrued interest and expects to use
approximately $47 million to repay the 9% Sinking Fund Debentures due 2004
including accrued interest. The net proceeds from the sale of the Senior
Subordinated Notes (after deducting discounts to the initial purchasers and
expenses in connection with the offering) were approximately $244 million and
were used to redeem the company's Series G Convertible Cumulative Preferred
Stock and to pay accumulated and unpaid dividends thereon. Any remaining
proceeds will be used for general corporate purposes, including working capital.
Although the issuance of the new debt will result in higher interest costs, the
redemption of the Series G Preferred Stock eliminates the payment of the $6.00
per share annual preferred dividend. On March 5, 1998, the company initiated an
offer to exchange the Old Notes with new notes (the "Exchange Notes") which have
been registered under the Securities Act of 1933, as amended. The Exchange Notes
will evidence the same debt as the Old Notes (which they replace) and will be
issued under and be entitled to the benefits of the Indentures governing the Old
Notes.
In anticipation of the $250 million 10-year Senior Subordinated Note
offering, the company entered into four $50 million forward treasury locks
during the first quarter of fiscal 1998. The company closed these positions on
the pricing date of the debt resulting in a gain which was not material.
Management continues to evaluate current and forecasted cash flow as a
basis for financing operating requirements and capital expenditures. Management
believes that collections on the outstanding receivables portfolios as well as
funds available from various funding sources will permit the financial services
operations to meet the financing requirements of the company's dealers and
customers.
Year 2000
The company has identified all significant applications that will require
modification to ensure Year 2000 compliance. Internal and external resources are
being used to make the required modifications and test Year 2000 compliance. The
company plans to complete the modifications and testing process of all
significant applications by July 1999, which is prior to any anticipated impact
on its operating systems. The total cost of the Year 2000 project has not been
and is not anticipated to be material to the company's financial position or
results of operations and will be funded through operating cash flows.
- 15 -
<PAGE>
The costs of the project and the date on which the company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
In addition, the company has communicated with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
company's systems, would not have a material adverse affect on the company.
New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement revises standards
for disclosures about pension and other postretirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. This standard
expands or modifies disclosure and, accordingly will have no impact on the
company's reported financial position, results of operations and cash flows.
- 16 -
<PAGE>
Business Environment
Sales of Class 5 through 8 trucks are cyclical, with demand affected by
such economic factors as industrial production, construction, demand for
consumer durable goods, interest rates and the earnings and cash flow of dealers
and customers. Reflecting the stability of the general economy, demand for new
trucks remained strong during the first quarter of 1998. An improvement in the
number of new truck orders has increased the company's order backlog to 60,600
units at January 31, 1998 from 29,200 units at January 31, 1997. Retail
deliveries in 1998 continue to be highly dependent on the rate at which new
truck orders are received. The company will evaluate order receipts and backlog
throughout the year and will balance production with demand as appropriate.
A stronger than expected economy has led the company to increase its
estimates of demand. The company currently projects 1998 United States and
Canadian Class 8 heavy truck demand to be 220,000 units, a 12% increase from
1997. Class 5, 6 and 7 medium truck demand, excluding school buses, is forecast
at 123,000 units, a 5% increase from 1997. Demand for school buses is expected
to decline slightly in 1998 to 33,000 units. Mid-range diesel engine shipments
by the company to original equipment manufacturers in 1998 are expected to be
215,300 units, 17% higher than in 1997. The company's service parts sales are
projected to grow 8% to $870 million.
At the currently forecasted 1998 demand of 376,000 units, the entire truck
industry is operating at or near capacity while the company's manufacturing
facilities are near capacity. Additionally, constraints have been placed on the
company's ability to meet certain customers' demands because of component parts
availability.
On March 5, 1998 the company announced that it has been selected to
negotiate an extended term agreement to supply diesel engines for select Ford
Motor Company under 8,500 lbs. GVW light duty trucks and sport utility vehicles.
- 17 -
<PAGE>
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 December 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
4. Instruments Defining
The Rights of Security Holders,
Including Indentures E-2
10. Material Contracts E-3
(b) Reports on Form 8-K:
No reports on Form 8-K were
filed for the three months
ended January 31, 1998.
- 18 -
<PAGE>
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)
March 17, 1998
- 19 -
<PAGE>
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-1
<PAGE>
EXHIBIT 4
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
The following instruments of Navistar International Corporation and its
principal subsidiary Navistar International Transportation Corp. and its
principal subsidiary Navistar Financial Corporation defining the rights of
security holders are incorporated herein by reference.
4.1 Indenture, dated as of March 1, 1968, between Navistar
International Transportation Corp. and Manufacturers Hanover
Trust Company, as Trustee, and succeeded by FIDATA Trust Company
of New York, as successor Trustee, for 6 1/4% Sinking Fund
Debentures due 1998 for $50,000,000. Filed on Registration No.
2-28150.
4.2 Indenture, dated as of June 15, 1974, between Navistar
International Transportation Corp. and Harris Trust and Savings
Bank, as Trustee, and succeeded by Commerce Union Bank, now known
as Sovran Bank/Central South, as successor Trustee, for 9%
Sinking Fund Debentures due 2004 for $150,000,000. Filed on
Registration No. 2-51111.
4.3 Indenture, dated as of November 15, 1993, between Navistar
Financial Corporation and Bank of America, Illinois formerly
known as Continental Bank, National Association, as Trustee, for
8 7/8% Senior Subordinated Notes due 1998 for $100,000,000. Filed
on Registration No. 33-50541.
4.4 Indenture, dated as of May 30, 1997, by and between Navistar
Financial Corporation and The Fuji Bank and Trust Company, as
Trustee, for 9% Senior Subordinated Notes due 2002 for
$100,000,000.
Filed on Registration No. 333-30167.
4.5 $125,000,000, Credit Agreement dated as of November 26, 1997, as
amended by Amendment No. 1 dated as of February 4, 1998, among
Navistar International Corporation Mexico, S.A. de C.V., Navistar
International Corporation, certain banks, certain Co-Arranger
banks, Bank of Montreal, as Paying Agent, and Bancomer, S.A.,
Institucion de Banca Multiple, Grupo Financiero, as Peso Agent
and Collateral Agent. The Registrant agrees to furnish to the
Commission upon request a copy of such agreement which it has
elected not to file under the provisions of Regulation 601(b) (4)
(iii).
4.6 Indenture, dated as of February 4, 1998, by and between Navistar
International Corporation and Harris Trust and Savings Bank, as
Trustee, pursuant to which the 7% Senior Notes due 2003 have been
issued. Filed on Registration No. 333-47063.
4.7 Indenture, dated as of February 4, 1998, by and between Navistar
International Corporation and Harris Trust and Savings Bank, as
Trustee, pursuant to which the 8% Senior Subordinated Notes due
2008 have been issued. Filed on Registration No. 333-47063.
======
Instruments defining the rights of holders of other unregistered long-term
debt of Navistar and its subsidiaries have been omitted from this exhibit index
because the amount of debt authorized under any such instrument does not exceed
10% of the total assets of the Registrant and its consolidated subsidiaries. The
Registrant agrees to furnish a copy of any such instrument to the Commission
upon request.
E-2
<PAGE>
EXHIBIT 10
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
----------------------------------
MATERIAL CONTRACTS
The following documents of Navistar International Corporation are included
herein.
Form 10-Q Page
--------------
10.3 Navistar 1994 Performance Incentive Plan E-4
amended as of December 16, 1997.
10.20 Navistar 1998 Non-Employee Director E-16
Stock Option Plan.
E-3
<PAGE>
EXHIBIT 10.3
NAVISTAR 1994 PERFORMANCE INCENTIVE PLAN
Amended as of December 16, 1997
SECTION I
ESTABLISHMENT OF THE PLAN
The Board of Directors of Navistar International Corporation approved the
establishment of the Navistar 1994 Performance Incentive Plan ("Plan"). The Plan
replaces the Navistar 1988 Performance Incentive Plan which consolidated and
modified the Corporation's Annual Incentive Plan, the Long Term Incentive Plan
and the 1984 Stock Option Plan into one plan.
SECTION II
PURPOSE OF THE PLAN
The purpose of the Plan is to enable the Corporation and its subsidiaries
to attract and retain highly qualified personnel, to provide key employees who
hold positions of major responsibility the opportunity to earn incentive awards
commensurate with the quality of individual performance, the achievement of
performance goals and ultimately the increase in shareowner value.
SECTION III
DEFINITIONS
For the purposes of the Plan, the following words and phrases shall have
the meanings described below in this Section III unless a different meaning is
plainly required by the context.
(1) "Annual Incentive Award" means an award of cash approved by the
Committee based on the level of achievement attained against
annual performance goals approved by the Committee on or prior
to the commencement of the applicable Fiscal year.
(2) "Award" means an award made under the Plan.
(3) "Board of Directors" means the Board of Directors of
Navistar International Corporation.
E-4
<PAGE>
(4) "Change in Control" shall be deemed to have occurred if (A) 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 Corporation or Navistar International
Transportation Corp. ("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
Corporation representing 25% or more of the combined voting
power of the Corporation's then outstanding securities, (B) 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 Corporation 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
Corporation or (C) any dissolution or liquidation of the
Corporation or NITC or an agreement for the sale or disposition
of all or substantially all (more than 50%) of the assets of the
Corporation or NITC occurs. 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.
(5) "Committee" means the Committee on Organization of the
Board of Directors.
(6) "Common Stock" means the common stock of the Corporation.
(7) "Corporation" means Navistar International Corporation.
(8) "Employee" means a person regularly employed by the Corporation
or any subsidiary of the Corporation, including its officers.
(9) "Fair Market Value" means the average of the high and the low
prices of a share of Common Stock on the effective date of grant
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.
(10) "Fiscal Year" means the fiscal year of the Corporation.
(11) "Incentive Stock Option" means a right, as evidenced by an
agreement between the Participant and the Company in a form
approved by the Committee, to purchase a certain number of
shares of Common Stock at Fair Market Value for a period of ten
(10) years from the date of grant which options are designed to
meet the requirements set out under Section 422 of the Internal
Revenue Code.
E-5
<PAGE>
(12) "Long-term Incentive Award" means an award of Restricted Shares
for a long-term cycle, the amount of the award and the length of
the cycle will be determined by the Committee.
(13) "Nonqualified Stock Option" means a right, as evidenced by an
agreement between the Participant and the Company in a form
approved by the Committee, to purchase a certain number of
shares of Common Stock at Fair Market Value for a period of ten
(10) years and one day from the date of grant on which options
are stated not to be qualified as incentive stock options under
Section 422 of the U.S. Internal Revenue Code.
(14) "Participant" means an Employee selected by the Corporation
for participation in the Plan.
(15) "Plan" means the Navistar 1994 Performance Incentive Plan as set
forth herein and as it may be amended hereafter from time to
time.
(16) "Qualified Retirement" means a retirement from employment of the
Corporation or any of its subsidiaries at any time after the
attainment of age fifty-five (55) with at least ten (10) years
of credited service as defined by the applicable retirement
plan.
(17) "Restricted Share" means a share of Common Stock awarded to a
Participant by the Committee without payment by the Participant
which is restricted as to sale or transfer and subject to
forfeiture pursuant to terms established by the Committee at the
time of issuance.
(18) "Stock Option" means either an Incentive Stock Option or a
Nonqualified Stock Option.
SECTION IV
ELIGIBILITY
Management will, from time to time, select and recommend to the Committee
Employees who are to become Participants in the Plan. Such Employees will be
selected from those who, in the opinion of management, have substantial
responsibility in a managerial or professional capacity. Employees selected for
participation in the Plan may not concurrently participate in any other annual
performance, long term performance, sales incentive or profit sharing plan of
the Corporation or any of its subsidiaries except as specifically approved by
the Committee.
E-6
<PAGE>
SECTION V
ANNUAL INCENTIVE AWARDS
(1) On or before the commencement of each Fiscal Year, the Committee
will approve performance goals for corporate achievement for
such Fiscal Year, and the amount of the Annual Incentive Awards
for such Fiscal Year will be based on the level of achievement
attained against previously approved performance goals. The
Committee also will approve an award percentage for each
organization level for each performance goal.
(2) Performance goals for Annual Incentive Awards will not be
increased or decreased within a Fiscal Year except for
extraordinary circumstances approved by the Committee.
(3) An Annual Incentive Award determination will be made by the
Committee when the financial results and performance levels for
a Fiscal Year are presented to the Committee by management.
(4) Payment of an Annual Incentive Award will be made in cash to the
Participant as soon as practicable after an Annual Incentive
Award determination has been made by the Committee. A
Participant who is not an Employee at the end of a Fiscal Year
will not be entitled to an Annual Incentive Award for that
Fiscal Year unless the Committee determines otherwise.
SECTION VI
LONG TERM INCENTIVE AWARDS
(1) On or before the commencement of each Fiscal Year, the Committee
will approve performance goals for corporate achievement for a
long-term cycle as determined by the Committee. The amount of
any Long Term Incentive Award earned shall be based on the
cumulative level of performance attained against the approved
performance goals.
(2) Criteria for Long Term Incentive Awards will not be increased or
decreased for any long-term cycle which has begun except for
extraordinary circumstances approved by the Committee.
(3) Separate Long-term Incentive Award determinations will be made
by the Committee for each long term cycle.
E-7
<PAGE>
(4) Restricted Shares will be awarded by the Committee to each
Participant approved by the Committee at the beginning of each
cycle unless to do so would present a substantial risk of
causing the Corporation to undergo an ownership change, as such
term is defined in Section 382 of the Internal Revenue Code, in
which event the Committee shall delay the award until there is
no longer such a risk. The amount to be awarded will be pursuant
to a formula approved by the Committee which will be based on
the ability of the Participant to contribute to the efforts to
achieve the performance goals approved by the Committee for the
applicable cycle. The Committee shall designate which shares
shall be subject to performance goals. The Committee will make
the final Long-Term Award determination. No fractional shares
will be issued. A Participant who quits or is involuntarily
separated will forfeit any Restricted Shares. Any Restricted
Shares forfeited shall be forfeited (i) to the Company or (ii)
if the forfeiture to the Company creates a substantial risk of
an ownership change under Section 382 of the Internal Revenue
Code, then to the salaried and hourly pension trusts of the
Corporation's principal operating subsidiary pro rata based on
assets held in the trusts as of the beginning of the prior plan
year. If a Participant dies, becomes permanently and totally
disabled, or retires pursuant to a Qualified Retirement,
Restricted Shares previously awarded which are subject to
performance goals, will be retained until the shares are earned
or forfeited for failure to meet the performance goals.
(5) A Participant may elect, subject to the provisions of Section
VII(2), to pay any withholding tax due on Stock Options or on
Restricted Shares awarded pursuant to the Plan either (i) by
cash including a personal check made payable to the Corporation
or (ii) by delivering at Fair Market Value unrestricted Common
Stock already owned by the Participant or (iii) by any
combination of cash or unrestricted Common Stock. If the
Participant is an officer of the Corporation who is subject to
Section 16(b) of the Securities Exchange Act of 1934, he or she
may make an election pursuant to (ii) or (iii) above only if it
is made in writing (a) at least six (6) months following the
date of grant of an option or an award and at least six (6)
months prior to the date on which the amount of the minimum
required withholding tax related to the option or award is
determined or (b) within a ten-day period following the release
of the Corporation's annual or quarterly financial results. Once
an officer, who is subject to Section 16(b) of the Securities
Exchange Act of 1934, makes an election pursuant to (ii) or
(iii) above with respect to a specific option or award, it shall
be irrevocable unless the election is disapproved by the
Committee at its next meeting following the election. If the
redemption of shares by the Corporation to pay withholding taxes
would present a substantial risk of causing an ownership change
under Section 382 of the Internal Revenue Code, the Corporation
may refuse the redemption. In such a case of refusal to redeem
by the Corporation, the Participant would be permitted to sell
sufficient shares to pay any withholding taxes due.
E-8
<PAGE>
SECTION VII
STOCK OPTIONS
(1) The Committee may grant Nonqualified Stock Options or Incentive
Stock Options or a combination of both to Participants in the
amount and at the time that the Committee approves. Option
grants shall be limited to a maximum of 50,000 shares per year
for any Participant.
(2) Unless otherwise determined by the Committee, a Stock Option
granted under the Plan will become exercisable in whole or in
part after the commencement of the second year of the term of
the Stock Option to the extent of one third of the shares, to
the extent of one third of the shares after commencement of the
third year, and to the extent of one third of the shares after
commencement of the fourth year. The Committee will be
authorized to establish the manner of exercise of a Stock
Option. The effective date of the grant of a Stock Option will,
unless the Committee expressly determines otherwise, be the
business day on which the Committee approves the grant of such
Stock Option, provided that such grant will expire if a written
option agreement is not signed by the Participant receiving a
Stock Option and delivered to the Corporation within thirty (30)
days of such approval by the Committee. The option can be
exercised in whole or in part through cashless exercises or
other arrangements through agents, including stock brokers,
under arrangements established by the Corporation by paying the
amounts required by instructions issued by the Secretary of the
Corporaton for the exercise of the options. If an exercise is
not covered by instructions issued by the Corporate Secretary,
the purchase price is to be paid in full to the Corporation upon
the exercise of a Stock Option either (i) by cash including a
personal check made payable to the Corporation; (ii) by
delivering at Fair Market Value unrestricted Common Stock
already owned by the Participant for six months or more or (iii)
by any combination of cash and unrestricted Common Stock, and in
either case, by payment to the Corporation of any withholding
tax. In no event may successive simultaneous pyramiding be used
to exercise an Option. If permitting the exercise of a Stock
Option at the time notice of intent is given by the Participant
to the Corporation would present a substantial risk of causing
an ownership change under Section 382 of the Internal Revenue
Code, the Corporation may refuse to permit the exercise in which
event as soon as the Corporation determines that a substantial
risk of causing an ownership change no longer exists, it will
issue shares of Common Stock equal in value to the difference
between the exercise price per share and the market price per
share times the number of shares covered by the exercise plus
interest on the total for the period of the delay calculated at
the composite prime rate of interest to corporate borrowers as
published in The Wall Street Journal. The Committee also will be
authorized in its discretion to prescribe in the option
agreement for the exercise of the Stock Option in specific
installments. A Stock Option granted under the Plan will be
exercisable during such period as the Committee may determine,
and will be subject to earlier
E-9
<PAGE>
termination as hereinafter provided. In no event, however, may a
Stock Option governed by the Plan be exercised after the
expiration of its term. Except as provided herein, no Stock
Option may be exercised at any time unless the Participant who
holds the Stock Option is then an Employee. The Participant who
holds a Stock Option will have none of the rights of a
shareowner with respect to the shares subject to a Stock Option
until such shares are issued upon the exercise of a Stock
Option. Shares which otherwise would be delivered to the holder
of a Stock Option may be delivered, at the election of the
holder, to the Corporation in payment of Federal, state and/or
local withholding taxes due in connection with an exercise.
(3) Neither the Corporation nor any subsidiary may directly or
indirectly lend money to any Participant for the purpose of
assisting the individual to acquire shares of Common Stock
issued upon the exercise of Stock Options granted under the
Plan.
(4) In the event of the termination of the employment of a
Participant who holds an outstanding Stock Option, other than by
reason of death, total and permanent disability or a Qualified
Retirement, the Participant may (unless the Stock Option shall
have been previously terminated) exercise the Stock Option at
any time within three (3) months after such termination, but not
after the expiration of the term of the grant, to the extent of
the number of shares which were exercisable at the date of the
termination of employment. Stock Options governed by the Plan
will not be affected by any change of employment so long as the
Participant continues to be an Employee.
(5) Except as provided in the last two sentences of this Section
VII(5), in the event of Qualified Retirement or total and
permanent disability, a Participant who holds an outstanding
Stock Option may exercise the Stock Option, to the extent the
option is exercisable or becomes exercisable under its terms, at
any time within three years after such termination or, if later,
the date on which the option becomes exercisable with respect to
such shares, but not after the expiration of the term of the
grant. In the event of the death of a Participant who holds an
outstanding Stock Option, the Stock Option may be exercised by a
legatee, or by the personal representatives or distributees, at
any time within a period of two (2) years after death, but not
after the expiration of the term of the grant. If death occurs
while employed by the Corporation or a subsidiary, or during the
three-year period specified in the first sentence of this
paragraph, options may be exercised to the extent of the
remaining shares covered by Stock Options whether or not such
shares were exercisable at the date of death. If death occurs
during the three-month period specified in Section VII(4) Stock
Options may be exercised to the extent of the number of shares
which were exercisable at the date of death. Notwithstanding the
other provisions of this Section VII(5), no option which is not
exercisable at the time of a retirement shall become exercisable
after such retirement if, without the written consent of the
Corporation, a Participant engages in a business, whether as
owner, partner,
E-10
<PAGE>
officer, employee, or otherwise, which is in competition with
the Corporation or one of its affiliates, and if the
Participant's participation in such business is deemed by the
Corporation to be detrimental to the best interests of the
Corporation. The determination as to whether such business is in
competition with the Corporation or any of its affiliates, and
whether such participation by such person is detrimental to the
best interests of the Corporation, shall be made by the
Corporation in its absolute discretion, and the decision of the
Corporation with respect thereto, including its determination as
to when the participation in such competitive business
commenced, shall be conclusive.
SECTION VIII
RESTRICTED SHARES
(1) In addition to the Restricted Shares which the Committee may
award pursuant to Section VI(4), the Committee also may award
Restricted Shares to individuals recommended by management for
either retention or performance purposes or as part of an
employment agreement.
(2) The Participant will be entitled to all dividends paid with
respect to all Restricted Shares awarded under the Plan during
the period of restriction and will not be required to return any
such dividends to the Corporation in the event of the forfeiture
of the Restricted Shares. The Participant also will be entitled
to vote Restricted Shares during the period of restriction.
(3) All Restricted Share certificates awarded under the Plan are to
be delivered to the Participant with an appropriate legend
imprinted on the certificate.
SECTION IX
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the option agreements may
contain such provisions as the Committee determines to be appropriate for the
adjustment of the number and class of shares, subject to each outstanding Stock
Option, the option prices in the event of changes in, or distributions with
respect to, the outstanding Common Stock by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or exchanges
of shares, spinoffs and the like, and, in the event of any such changes in, or
distribution with respect to, the outstanding Common Stock, the aggregate number
and class of shares available under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
E-11
<PAGE>
SECTION X
ADMINISTRATION OF THE PLAN
Full power and authority to construe, interpret and administer the Plan is
vested in the Committee. Decisions of the Committee will be final, conclusive
and binding upon all parties, including the Corporation, shareowners and
employees. The foregoing will include, but will not be limited to, all
determinations by the Committee as to (a) the approval of Employees for
participation in the Plan, (b) the amount of the Awards, (c) the performance
levels at which different percentages of the Awards would be earned and all
subsequent adjustments to such levels and (d) the determination of all Awards.
Any person who accepts any Award hereunder agrees to accept as final, conclusive
and binding all determinations of the Committee. The Committee will have the
right, in the case of employees not employed in the United States, to vary from
the provision of the Plan to the extent the Committee deems appropriate in order
to preserve the incentive features of the Plan.
SECTION XI
NON-ASSIGNMENT
Awards under the Plan may not be assigned or alienated. In case of a
Participant's death, the amounts distributable to the deceased Participant under
the Plan with respect to which a designation of beneficiary has been made (to
the extent it is valid and enforceable under applicable law) shall be
distributed in accordance with the Plan to the designated beneficiary or
beneficiaries. The amount distributable to a Participant upon death and not
subject to such a designation shall be distributed to the Participant's estate.
If there is any question as to the right of any beneficiary to receive a
distribution under the Plan, the amount in question may be paid to the estate of
the Participant, in which event the Corporation will have no further liability
to anyone with respect to such amount.
SECTION XII
RIGHTS OF PARTICIPANT
To the extent that any Participant, beneficiary or estate acquires a right
to receive payments or distributions under the Plan, such right will be no
greater than the right of a general unsecured creditor of the Corporation. All
payments and distributions to be made hereunder will be paid from the general
assets of the Corporation. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create any
contracted right or trust of any kind or fiduciary relationship between the
Corporation and any Participant, beneficiary or estate.
E-12
<PAGE>
SECTION XIII
MODIFICATION, AMENDMENT OR TERMINATION
The Committee may modify without the consent of the Participant (i) the
Plan, (ii) the terms of any option previously granted or (iii) the terms of
Restricted Shares previously awarded at any time, provided that, no such
modification will, without the approval of the shareowners of the Corporation,
increase the number of shares of Common Stock available hereunder. The Committee
may terminate the Plan at any time.
SECTION XIV
RESERVATION OF SHARES
Each fiscal year, there will be reserved for issue under the Plan one (1)
percent of the outstanding shares of Common Stock including Class B Common Stock
of the Corporation as determined by the number of shares outstanding as of the
end of the immediately preceding fiscal year. No more than Five Hundred Thousand
(500,000) shares shall be granted as Incentive Stock Options in any calendar
year. Such shares may be in whole or in part, as the Board of Directors shall
from time to time determine, authorized and unissued shares of Common Stock or
issued shares of Common Stock which shall have been reacquired by the
Corporation. If less than one (1) percent of the shares is granted or awarded in
any fiscal year, the difference will be available for use in the following year
only and if not used in the following year, those shares will no longer be
available. Any shares available from the prior year will be the last shares to
be granted or awarded.
SECTION XV
AGREEMENT TO SERVE
Each Participant receiving a Nonqualified Stock Option or an Incentive
Stock Option shall, as one of the terms of the option agreement, agree to remain
in the service of the Corporation or of one of its subsidiaries for a period of
at least one (1) year from the date of granting the option. Such service will
(subject to the provisions of any contract between the Corporation or any such
subsidiary and such Participant) be at the pleasure of the Corporation or of
such subsidiary and at such compensation as the Corporation or such subsidiary
shall determine from time to time. Any termination of a Participant's service
for any reason other than death, permanent and total disability or Qualified
Retirement during such period shall be deemed a violation of the Agreement
contained in this Section. In the event of such violation, any Nonqualified
Stock Option or Incentive Stock Option held by the Participant under the Plan
will immediately be canceled. Nothing in the Plan will confer on any Participant
any right to continue in the employ of the Corporation or any of its
subsidiaries or interfere with or prevent in any way the right of the
Corporation or any of its subsidiaries to terminate a Participant's employment
at any time for any reason.
E-13
<PAGE>
SECTION XVI
CHANGE IN CONTROL
Notwithstanding any provision contained herein to the contrary, in the
event of a Change in Control, all awarded Restricted Shares will immediately be
free of all restrictions and performance contingencies and will be deemed fully
earned and not subject to forfeiture and all outstanding options governed by the
Plan will be immediately exercisable and shall continue to be exercisable for a
period of three (3) years from the date of the Change in Control regardless of
the original term or employment status, except that the term of any Incentive
Stock Option shall not be extended beyond ten (10) years from the date of grant.
SECTION XVII
LIMITATION OF ACTIONS
Every right of action by or on behalf of the Corporation or any shareowner
against any past, present or future member of the Board of Directors, officer or
Employee arising out of or in connection with the Plan will, irrespective of the
place where action may be brought and irrespective of the place of residence of
any such director, officer or employee, cease and be barred by the expiration of
three years from whichever is the later of (a) the date of the act or omission
in respect of which such right of action arises or (b) the first date upon which
there has been made generally available to shareowners an annual report of the
Corporation and a proxy statement for the annual meeting of shareowners
following the issuance of such annual report, which annual report and proxy
statement alone or together set forth, for the related period, the aggregate
amount of Awards under the Plan during such period; and any and all right of
action by an Employee (past, present or future) against the Corporation arising
out of or in connection with the Plan shall, irrespective of the place where
action may be brought, cease and be barred by the expiration of three (3) years
from the date of the act or omission in respect of which such right of action
arises.
SECTION XVIII
GOVERNING LAW
The Plan will be governed by and interpreted pursuant to the laws of the
State of Delaware, the place of incorporation of the Corporation.
E-14
<PAGE>
SECTION XIX
SUBSIDIARIES' PLANS
To the extent determined by the Committee, any subsidiary may, without
regard to the limitations under the Plan, have a separate incentive plan or
program. The Committee will have exclusive jurisdiction and sole discretion to
approve or disapprove any such plan or program and, from time to time, to amend,
modify, or suspend any such plan or program. Individuals eligible for Awards
under any such plan or program will not be considered Employees eligible for
Awards under the Plan, unless otherwise determined by the Committee. No
provision of any such plan or program will be included in, or considered a part
of, the Plan and any awards made under any such plan or program will not be
charged against the aggregate amount available under the Plan unless otherwise
determined by the Committee.
SECTION XX
EFFECTIVE DATE
The effective date of the Plan shall be December 16, 1993, if approved by
the shareowners at the 1994 Annual Meeting, and the Plan shall continue in
effect for ten (10) years from the effective date.
E-15
<PAGE>
EXHIBIT 10.20
NAVISTAR 1998 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
Adopted as of December 16, 1997
1. Administration
The Navistar 1998 Non-Employee Director Stock Option Plan (the "Plan")
will be administered by the Board of Directors ("Board") of Navistar
International Corporation ("Corporation").
The granting of an option pursuant to the Plan will take place the
business day following the day on which the Board approves the grant of such
option at its regularly scheduled December meeting, provided that, such grant
will expire if a written option agreement is not signed by the optionee and
delivered to the Corporation within thirty (30) days of the date of the grant.
Subject to the express provisions of the Plan, the Board will have
complete authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it, to determine the terms and provisions of the
respective option agreements (which need not be identical) and to make all other
determinations necessary or advisable for the administration of the Plan. The
Board's determinations on the matters referred to in this paragraph 1 will be
conclusive.
2. Stock Subject to the Plan
Such shares may be in whole or in part, as the Board will from time to
time determine, authorized and unissued shares of Common Stock or issued shares
of Common Stock which shall have been reacquired by the Corporation. If any
option granted under the Plan shall expire or terminate for any reason without
having been exercised or earned in full, the shares subject thereto will again
be available for the purposes of the Plan.
3. Effectiveness of the Plan
The Plan will become effective upon the effective date of its adoption
by the Board.
4. Eligibility
Options may be granted only to non-employee directors of the Board. No
individual who is, at the time of the grant, an employee of the Corporation or
of any subsidiary of the Corporation will be eligible to receive an option under
the Plan.
E-16
<PAGE>
5. Number of Shares to Be Granted
At each regularly scheduled December meeting of the Board, an option
will be granted to each non-employee director for two thousand (2,000) shares of
Common Stock.
6. Option Prices
The purchase price of the Common Stock under each option will be 100%
of the fair market value of the Common Stock on the business day following the
day of grant by the Board. Such fair market value will be determined by the
average of the high and low prices of the Common Stock in the New York Stock
Exchange--Composite Transactions listing published in the Midwest Edition of The
Wall Street Journal or equivalent financial publication.
7. Exercise Options
An option granted under the Plan will become exercisable in whole or in
part after the commencement of the second year of the term of the option. The
Board is authorized to establish the manner and the effective date of the
exercise of an option. Each option will become immediately exercisable in the
event of death, total and permanent disability, retirement in accordance with
the Board's policy or a "change in control" of the Corporation. A "change in
control" shall be deemed to have occurred, if (A) 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 Corporation or Navistar International Transportation Corp.
("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 Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities, (B) 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 Corporation 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 Corporation or (C) any dissolution or liquidation of the Corporation or NITC
or an agreement for the sale or disposition of all or substantially all (more
than 50%) of the assets of the Corporation or of NITC occurs. 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. The
purchase price is to be paid in full to the Corporation upon the exercise of the
option either (i) by cash including a personal check payable to the order of the
Corporation or (ii) by delivering at fair market value Common Stock already
owned by the optionee or any combination of cash and Common Stock. The fair
market value of the Common Stock so delivered will be the average of the high
and low prices of the Common Stock on the day prior to delivery as
E-17
<PAGE>
published in the New York Stock Exchange--Composite Transactions listed in the
Midwest Edition of the Wall Street Journal or equivalent financial publication.
An option granted under the Plan will be exercisable for a term of ten (10)
years from the date of the grant, and will be subject to earlier termination as
hereinafter provided. Except as provided in paragraphs 10 and 11 hereof, no
option may be exercised at any time unless the holder thereof is then a director
of the Corporation. The holder of an option will have none of the rights of a
stockholder with respect to the shares subject to option until such shares are
issued upon the exercise of the option. Shares which otherwise would be
delivered to the holder of an option may be delivered, at the election of the
holder, to the Corporation in payment of any Federal, state and/or local
withholding taxes due in connection with an exercise.
8. Non-Transferability of Options
No option granted under the Plan will be transferable other than by
will or the laws of descent and distribution, and an option may be exercised,
during the life time of the holder thereof, only by the holder.
9. Agreement to Serve
Each individual receiving an option will, as one of the terms of the
option agreement, agree to remain as a director of the Corporation for a period
of at least one (1) year from the date of granting the option except as provided
in the immediately following sentence. In the event of retirement in accordance
with the Board's policy prior to the end of the one year service period, each
holder will, as one of the terms of the option agreement, agree to serve as a
consultant to the Board for any remaining portion of such one year service
period. Such service will (subject to the provisions of paragraph 10 hereof) be
at the pleasure of the Corporation and at such compensation as the Corporation
will reasonably determine from time to time.
10. Termination of Service
In the event of the termination of the service of the holder of any
option, other than by reason of a retirement, permanent and total disability or
death as set forth in paragraph 11, the holder may (unless the option shall have
been previously terminated pursuant to the provisions of paragraph 9 above or
unless otherwise provided in the option agreement) exercise the option at any
time within three (3) months after such termination, but not after the date
identified in the option agreement as the date the options expire. Nothing in
the Plan or in any option granted pursuant to the Plan will confer on any
individual any right to continue in the service of the Corporation or interfere
in any way with the right of the Board to terminate service at any time.
E-18
<PAGE>
11. Retirement, Total and Permanent Disability or Death of Holder of Option
In the event of retirement in accordance with the Board's policy or in
the event of total and permanent disability, the holder may exercise the option
at any time within three (3) years after such retirement or such disability but
not after the date identified in the option agreement as the date the options
expire. In the event of the death of an individual to whom an option has been
granted under the Plan, while the option is outstanding, the option theretofore
granted to the holder may be exercised by a legatee or legatees of the option
holder, or by the personal representative or distributees, at any time within a
period of one (1) year after death, but not after the date identified in the
option as the date the options expire.
12. Adjustments upon Changes in Capitalization
Notwithstanding any other provision of the Plan, the option agreements
may contain such provisions as the Board shall determine to be appropriate for
the adjustment of the number and class of shares subject to each outstanding
option and the option prices in the event of changes in, or distributions with
respect to, the outstanding Common Stock by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or exchanges
of shares, spin-offs and the like, and, in the event of any such change in, or
distribution with respect to, the outstanding Common Stock, the aggregate number
and class of shares available under the Plan shall be appropriately adjusted by
the committee, whose determination shall be conclusive.
13. No Loans to Holders of Options
Neither the Corporation, nor any of its subsidiaries, may directly or
indirectly lend money to any individual for the purpose of assisting the
individual to acquire or carry shares of Common Stock issued upon the exercise
of options granted under the Plan.
14. Amendment and Termination
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan will terminate on, and no option will be granted after
December 17, 2007. The Plan may be terminated, modified or amended by the Board.
No termination, modification or amendment of the Plan may, without the consent
of the optionee to whom any option or award shall theretofore have been granted,
adversely affect the rights of such optionee.
E-19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 188
<SECURITIES> 361
<RECEIVABLES> 1575
<ALLOWANCES> 32
<INVENTORY> 506
<CURRENT-ASSETS> 0<F1>
<PP&E> 1772
<DEPRECIATION> 876
<TOTAL-ASSETS> 4929
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1145
0
244
<COMMON> 2136
<OTHER-SE> (1407)
<TOTAL-LIABILITY-AND-EQUITY> 4929
<SALES> 1672
<TOTAL-REVENUES> 1727
<CGS> 1454
<TOTAL-COSTS> 1666
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 61
<INCOME-TAX> 23
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-PRIMARY> .43<F2>
<EPS-DILUTED> .42
<FN>
<F1>The company has adopted an unclassified presentation in the Statement of
Financial Condition.
<F2>Amount represents Basic Earnings Per Share.
</FN>
</TABLE>
