SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
----------
NAVISTAR INTERNATIONAL CORPORATION
(Name of Registrant as Specified in its Charter)
----------
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[LOGO]
NAVISTAR INTERNATIONAL CORPORATION
4201 Winfield Road
P. O. Box 1488
Warrenville, Illinois 60555
NOTICE OF 2003 ANNUAL MEETING OF SHAREOWNERS
To be held Tuesday, February 18, 2003
To Our Shareowners:
You are cordially invited to attend Navistar International Corporation's
2003 Annual Meeting of Shareowners. This year's meeting will be held at the
Hyatt Lisle Hotel, 1400 Corporetum Drive, Lisle, Illinois 60532 on Tuesday,
February 18, 2003 at 11:00 a.m. (Central Standard Time).
The purposes of the Annual Meeting are:
o To elect 3 directors; and
o To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Shareowners of record at the close of business on January 3, 2003 are
entitled to notice of and to vote at this meeting.
YOUR VOTE IS IMPORTANT. Whether you plan to attend the meeting or not, we
urge you to vote your shares either by using a toll-free telephone number or by
signing, dating, and mailing the enclosed proxy card in the envelope provided.
Instructions regarding both methods of voting are contained on the proxy card.
If you attend the meeting and prefer to vote in person, you may do so, even if
you have previously submitted your proxy.
By Order of the Board of Directors,
/s/ Robert J. Perna
Robert J. Perna
Secretary
January 16, 2003
TABLE OF CONTENTS
NOTICE OF ANNUAL MEETING ................................................. COVER
INFORMATION ABOUT THE ANNUAL MEETING ..................................... 1
INFORMATION ABOUT VOTING ................................................. 1
Quorum Requirements ................................................... 2
Required Vote ......................................................... 2
Other Matters ......................................................... 2
ELECTION OF DIRECTORS .................................................... 2
BOARD MEETINGS AND COMMITTEES ............................................ 4
DIRECTORS' COMPENSATION .................................................. 5
NAVISTAR COMMON STOCK OWNERSHIP BY DIRECTORS AND OFFICERS ................ 6
PERSONS OWNING MORE THAN 5% OF NAVISTAR COMMON STOCK ..................... 7
AUDIT COMMITTEE REPORT ................................................... 9
EXECUTIVE COMPENSATION ................................................... 10
Committee on Compensation and Governance Executive Compensation Report 10
Performance Graph ..................................................... 13
Executive Compensation Tables ......................................... 14
Termination and Other Compensatory Arrangements ....................... 16
Retirement Plans ...................................................... 17
Certain Related Transactions .......................................... 19
OTHER INFORMATION ........................................................ 20
Annual Report ......................................................... 20
Householding Information .............................................. 20
Section 16(a) Beneficial Ownership Reporting Compliance ............... 20
Independent Public Accountants ........................................ 20
Proxy Solicitation .................................................... 21
Shareowner Proposals for the 2004 Annual Meeting ...................... 21
i
PROXY STATEMENT
Navistar International Corporation
4201 Winfield Road
Warrenville, Illinois 60611
INFORMATION ABOUT THE ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Navistar International Corporation, a
Delaware corporation, for use at the 2003 Annual Meeting of Shareowners and at
any meeting following postponement or adjournment thereof. The meeting will be
held at the Hyatt Lisle Hotel, 1400 Corporetum Drive, Lisle, Illinois on
Tuesday, February 18, 2003 at 11:00 a.m. (Central Standard Time). This Proxy
Statement summarizes information that we are required to provide you under the
rules of the U.S. Securities and Exchange Commission and is designed to assist
you in voting your shares. On or about January 16 2003, we began sending these
proxy materials to all shareowners of record at the close of business on January
3, 2003.
INFORMATION ABOUT VOTING
Shareowners of record can vote in person at the Annual Meeting or by
proxy. There are two ways to vote by proxy:
-- By Telephone--If you hold your shares in your own name rather than
through a broker, you can vote by telephone by calling the toll-free
number listed on the proxy card. Please see your proxy card for
specific instructions.
-- By Mail--You can vote by mail by signing, dating and mailing the
enclosed proxy card.
If you hold your shares through a bank, broker, or other record holder,
you may vote your shares by following the instructions they have provided.
By voting by proxy, you will direct the individuals named on the card
(your "proxies") to vote your shares at the Annual Meeting in the manner you
indicate. The persons named as proxies were selected by the Board of Directors
and are either directors or officers of the Company or both. If you sign and
return the card without indicating your instructions, then the designated
proxies will vote your shares "FOR" the election of all three nominees for
director.
You may revoke or change your proxy at any time before it is exercised by
sending a written revocation to the Company's Secretary, by providing a later
dated proxy, by voting by telephone at a later time, or by attending the Annual
Meeting and voting in person.
You may have your votes kept confidential by so indicating in the
designated place on the proxy card or when prompted during telephone voting. If
you are a participant in the Company's 401(k) Retirement Savings Plan, 401(k)
Plan for Represented Employees, or Retirement Accumulation Plan, the proxy card
will represent the number of shares allocated to your account under the Plan and
will serve as a direction to the Plan's trustee as to how the shares in your
account are to be voted.
Holders of record of Navistar's Common Stock at the close of business on
January 3, 2003 are entitled to receive this notice and to vote their shares at
the Annual Meeting. As of that date, there were outstanding 67,842,193 shares of
Common Stock. You are entitled to one vote per share, exercisable in person or
by proxy, with respect to all matters to come before the Annual Meeting.
1
Quorum Requirements
A quorum is necessary to hold a valid meeting. Under the Company's By-Laws
at least one-third of the Company's Common Stock must be represented at the
Annual Meeting, whether in person or by proxy, to constitute a quorum.
Abstentions and broker non-votes are counted as present for establishing a
quorum. A broker "non-vote" occurs when a broker votes on some matter on the
proxy card but not on others because the broker does not have the authority to
do so.
Required Vote
Directors are elected by a plurality vote of shares present (in person or
by proxy) at the meeting, meaning that the three nominees for director receiving
the highest number of votes will be elected. Abstentions and broker "non-votes"
are not counted in determining the number of shares voted for or against any
nominee for director.
Other Matters
The Board of Directors does not know of any other matters that will be
presented at the Annual Meeting other than the election of directors as
discussed in this Proxy Statement. If any other matter properly comes before the
Annual Meeting, your proxies will vote your shares in accordance with their best
judgment. Discretionary authority to vote on other matters is included in the
proxy.
ELECTION OF DIRECTORS
Our Board of Directors currently has 14 members, who are divided into
three classes (Class I, Class II, and Class III). One class is elected at each
Annual Meeting of shareowners to serve for a three-year term.
Three directors will be elected at the Annual Meeting to serve as Class I
directors for a three-year term beginning at this Annual Meeting and expiring at
our Annual Meeting in the year 2006. The Board of Directors has nominated Y.
Marc Belton, Abbie J. Griffin and Robert C. Lannert for election as Class I
directors. Each nominee is presently a director of the Company. Your proxies
will vote your shares FOR the nominees, unless you instruct otherwise. Each
nominee elected as a director will continue in office until his or her successor
has been elected and qualified, or until his or her death, resignation or
retirement.
The Board of Directors Recommends a vote FOR the Election of these
Nominees as Directors.
The Company expects each nominee to be able to serve. If a nominee is
unavailable for election, the Board may choose another nominee and your proxies
will then vote your shares for that nominee or, as an alternative, the Board may
reduce the number of directors to be elected at the Annual Meeting. The Board
has authority under the Company's By-Laws to fill vacancies and to increase and
decrease its size.
The Board's retirement policy provides for directors' retirement prior to
the first Annual Meeting of shareowners, which is held after the date they
attain age 70. Mr. Jerry E. Dempsey, currently a Class I director, and Mr. Allen
J. Krowe, currently a Class III director, will have attained age 70 prior to the
Annual Meeting and will retire from the Board of Directors. As a result,
effective upon the election of the Class I directors at the Annual Meeting, the
total number of directors of the Company will be decreased to 12.
If you want to recommend a director candidate, you may do so in accordance
with the Company's By-Laws that require advance notice to the Company and
certain other information. If you are interested in recommending a director
candidate, you should request a copy of the By-Laws provisions by writing the
Company's Secretary, Navistar International Corporation, 4201 Winfield Road,
P.O. Box 1488, Warrenville, Illinois 60555.
The following are brief biographies of each of the nominees and the other
directors whose terms of office will continue after the Annual Meeting.
Nominees for Class I Directors Whose Terms Expire 2006
Y. Marc Belton, 43, director since 1999. He is Senior Vice President of
General Mills, Inc. and President of Yoplait USA, General Mills Canada
Corporation and New Business Development since March 2002. General Mills, Inc.
is engaged in manufacturing and marketing of consumer food products. He was
President of the "Big
2
G" Cereal Division from 1999 to 2002. From 1997 to 1999 he was President of the
New Ventures Division. From 1994 to 1997 he was President, Snacks Division. He
was named a Vice President of General Mills in 1991. He serves on the board of
directors of Urban Ventures as well as the Board of Trustees of Northwestern
College. He is also a member of the Executive Leadership Council and Co-Chairman
of the Salvation Army Capital Campaign. Committees: Audit and Finance.
Dr. Abbie J. Griffin, 48, director since 1998. She is a Professor of
Business Administration at the University of Illinois, Urbana-Champaign since
1997. She was Associate Professor of Marketing and Production Management from
1993 to 1997 at the University of Chicago, Graduate School of Business.
Committees: Audit and Finance.
Robert C. Lannert, 62, director since 1990. He is Vice Chairman of the
Board of Directors of the Company since April 2002, and he is Chief Financial
Officer of the Company since 1990. He was Executive Vice President from 1990 to
2002. He is a director of DT Industries, Inc. and President of the Des Plaines
Valley Council of the Boy Scouts of America.
Class II Directors Whose Terms Expire 2004
Michael N. Hammes, 61, director since 1996. He is Chairman and Chief
Executive Officer of Sunrise Medical Inc., which designs, manufacturers and
markets home medical equipment worldwide, since January 2000. He was Chairman
and Chief Executive Officer of the Guide Corporation, an automotive lighting
business, from 1998 to 2000. He was also Chairman and Chief Executive Officer of
The Coleman Company, Inc., a manufacturer and distributor of camping and outdoor
recreational products and hardware/home products, from 1993 to 1997. He is a
member of the Board of Visitors of Georgetown University's School of Business.
Committees: Compensation and Governance, Executive and Finance (Chair).
John R. Horne, 64, director since 1990. He is Chairman of the Board of
Directors of the Company since 1996, and Chief Executive Officer of the Company
since 1995. The Company has announced that Mr. Ustian will succeed Mr. Horne as
Chief Executive Officer of the Company, effective February 19, 2003. Mr. Horne
will continue to serve as Chairman of the Board of the Company. Prior to his
present position, he was President from 1996 to April 2002 and President and
Chief Operating Officer of the Company from 1990 to 1995. Mr. Horne is a
director of the National Association of Manufacturers (NAM), Intermet
Corporation, Corrections Corporation of America, and Junior Achievement of
Chicago (Chairman); is a member of the Board of Trustees of the Manufacturers
Alliance/MAPI; serves on the Mechanical Engineering Industrial Advisory Council
for Purdue University; and is a member of the Conference Board, the Economic
Club of Chicago and the Executives' Club of Chicago. Committee: Executive
(Chair).
James H. Keyes, 62, director since December 2002. He is Chairman of the
Board of Johnson Controls, Inc., an automotive system and facility management
and control company, since 1993. He served as Chairman and Chief Executive
Officer from 1993 until September 2002. He is a director of the Federal Reserve
Bank of Chicago, LSI Logic Corporation and Pitney Bowes, Inc. Committees: Audit
and Compensation and Governance.
Southwood J. Morcott, 64, director since 2000. He retired as Chairman of
the Board of Dana Corporation, a manufacturer and distributor of automotive and
vehicular parts, in April 2000, a position he had held since 1990. He was Chief
Executive Officer from 1989 to 1999 and President from 1986 to 1996 of Dana
Corporation. He is a director of CSX Corporation, Phelps-Dodge Corporation and
Johnson Controls, Inc. Committees: Compensation and Governance and Finance.
Class III Directors Whose Terms Expire 2005
Eugenio Clariond, 59, director since December 2002. He is President and
Chief Executive Officer of Grupo IMSA, a producer of steel processed products,
aluminum extrusion products and a wide range of automotive batteries, since
1984. He is a director of Texas Industries, Inc. and Vice Chairman of the World
Business Counsel for Sustainable Development and Vice President of the Mexican
chapter of the Latin American Business Counsel. Committees: Compensation and
Governance and Finance.
3
John D. Correnti, 55, director since 1994. He was Chairman of the Board
and Chief Executive Officer of Birmingham Steel Corporation, a manufacturer of
steel and steel products, from 1999 to December 2002. On June 3, 2002,
Birmingham Steel Corporation filed for voluntary reorganization under Chapter 11
of the U.S. Bankruptcy Code. Mr. Correnti served as Chief Executive Officer,
President and Vice Chairman of Nucor Company, a mini mill manufacturer of steel
products, from 1996 to 1999, and as its President and Chief Operating Officer
and as a director from 1991 to 1996. He is a director of Corrections Corporation
of America and the Steel Manufacturers Association. Committees: Audit and
Compensation and Governance.
William F. Patient, 68, director since 1996. Mr. Patient is the retired
Chairman of the Board and Chief Executive Officer of The Geon Company, positions
he held from 1993 until his retirement in 1999. The Geon Company manufactures
polyvinyl chloride (PVC) resins and compounds, which are used in a wide variety
of applications, including household appliances, business machines and
construction products. He is Chairman of the Board of the Cleveland State
University Foundation, director of Atlantic Extrusion Corp. and the University
Hospital Health Systems, and a member of the Board of Trustees of Washington
University. Committees: Audit and Compensation and Governance.
Daniel C. Ustian, 52, director since April 2002. He is President and Chief
Operating Officer of the Company since April 2002. The Company has announced
that Mr. Ustian has been elected Chief Executive Officer of the Company,
effective February 19, 2003. Prior to his present position, he was President of
the Engine Group of International Truck and Engine Corporation, the Company's
principal operating subsidiary, from 1999 to 2002 and he served as Group Vice
President and General Manager of Engine & Foundry from 1993 to 1999. He is a
member of the Society of Automotive Engineers and the American Foundry
Association and participates in the Electrical Council for the Economy.
Additional Director
In July 1993, the Company restructured its post-retirement health care and
life insurance benefits pursuant to a settlement agreement, which required,
among other things, the addition of a seat on the Company's Board of Directors.
The director's seat is filled by a person appointed by the United Automobile,
Aerospace & Agricultural Implement Workers of America (the "UAW"). This director
is not part of the classes referred to above and is not standing for election by
shareowners at the Annual Meeting.
David McAllister, 47, director since 2001. He is Administrative Assistant
to the UAW's Vice President since 1999. He was Administrative Assistant and
Co-Director from 1998 to 1999, Associate Co-Director from 1996 to 1998 and
Program Coordinator from 1989 to 1996, of the UAW-DaimlerChrysler National
Training Center. He is a founding member of the Chelsea Civic Foundation and a
member of the NAACP. Committees: Audit and Finance.
BOARD MEETINGS AND COMMITTEES
In fiscal year 2002 the full Board met 8 times. In addition, the Board's
non-management directors met 3 times in regularly scheduled executive sessions
to evaluate the performance of the Board, the performance of the Chief Executive
Officer, and to discuss corporate strategies. All of the directors attended at
least 75% of all the meetings of the Board and the committees on which he or she
serves, except that, because of conflicts in schedules, Mr. McAllister attended
67% of the meetings.
The Board has 4 standing committees. Committee membership is noted for
each director next to the director's name in the biographical section above.
Audit Committee--The Audit Committee is composed of 7 directors, none of
whom are employees of the Company. The Committee oversees the Company's
financial reporting process on behalf of the Board. During 2002, the Committee
reviewed the 2002 audit plans of the Company's independent public accountants
and internal audit staff, reviewed the audit of the Company's accounts with the
independent public accountants and the internal auditors, considered the
adequacy of audit scope and reviewed and discussed with the auditors and
management the auditors' reports. The Committee recommended to the Board the
selection of the Company's independent public accountants. The Committee also
reviewed environmental surveys and compliance activities
4
for the Company's facilities and the expense accounts of principal executives.
In fiscal year 2002, the Committee held 5 meetings.
Committee on Compensation and Governance--The Committee on Compensation
and Governance is composed of 7 directors, none of whom are employees of the
Company. The Committee recommends to the Board the election, responsibilities
and compensation of all executive officers. The Committee also has
responsibilities for the organization of the Board. The Committee reviews and
makes recommendations to the Board concerning nominees for election as
directors. Upon management's recommendation, the Committee also reviews basic
changes to non-represented employees' base compensation and incentive and
benefit plans. The Committee held 6 meetings in fiscal year 2002.
Executive Committee--The Executive Committee is composed of 4 directors,
three of whom are not employees of the Company. The Committee represents the
Board between meetings for the purpose of consulting with officers, considering
matters of importance and either taking action or making recommendations to the
Board. The Committee held no meetings in fiscal year 2002.
Finance Committee--The Finance Committee is composed of 8 directors, none
of whom are employees of the Company. The Committee reviews the Company's
financing requirements; custody and management of assets which fund the pension
and retirement savings plans of the Company's subsidiaries; procedures by which
projections and estimates of cash flow are developed; dividend policy; and
operating and capital expenditure budgets. In fiscal year 2002, the Committee
held 4 meetings.
DIRECTORS' COMPENSATION
Directors who are employees of the Company receive no fees for their
service as directors. Directors who are not employees of the Company receive
separate compensation for Board service. That compensation includes:
Annual Retainer: $50,000
Attendance Fees: $1,000 for each Board meeting
$1,000 for each committee meeting
Expenses related to attendance
Committee Chairman Additional Retainer: $ 6,000
Stock Options: 4,000 shares annually (The exercise price of these
options is equal to the fair market value of
Navistar's Common Stock on the first business day
after the date of grant. The options expire 10 years
after the grant date.)
At least one-fourth of each director's annual retainer is paid in the form
of restricted stock.
Under the Company's Non-Employee Directors Deferred Fee Plan, directors
may defer payment of fees in cash or in restricted stock. At the request of the
UAW (the organization which elected Mr. McAllister to the Board), all of the
cash portion of Mr. McAllister's annual retainer and attendance fees (together
with a cash amount equal to the value of the restricted stock which otherwise
would be payable to Mr. McAllister) is contributed to a trust created in 1993
pursuant to a restructuring of the Company's retiree health care benefits.
5
NAVISTAR COMMON STOCK OWNERSHIP BY DIRECTORS AND OFFICERS
This table shows how much Common Stock the executive officers and
directors beneficially own as of November 30, 2002. In general, "beneficial
ownership" includes those shares a director or executive officer has the power
to vote or transfer, and stock options exercisable within 60 days. Except as
noted, the persons named in the table below have the sole voting and investment
power with respect to all shares beneficially owned by them.
Number of Shares
-------------------------------------------------
Obtainable Percent
Through Stock of
Name/Group Owned (1)(2) Option Exercise Total Class
--------------------------------------------------------- -------------- ----------------- ------------ --------
Y. Marc Belton .......................................... 1,280 7,000 8,280 *
Robert A. Boardman ...................................... 41,284 85,662 126,946 *
Eugenio Clariond ........................................ 0 0 0 *
John D. Correnti ........................................ 4,953 15,500 20,453 *
Jerry E. Dempsey(3) ..................................... 3,360 16,750 20,110 *
Dr. Abbie Griffin ....................................... 1,560 9,000 10,560 *
Michael N. Hammes ....................................... 2,140 13,000 15,140 *
John R. Horne ........................................... 410,729 671,735 1,082,464 1.6
J. Steven Keate ......................................... 32,575 144,161 176,736 *
James H. Keyes .......................................... 0 0 0 *
Allen J. Krowe(3) ....................................... 15,211 11,000 26,211 *
Robert C. Lannert ....................................... 234,032 308,605 542,637 *
David McAllister ........................................ 0 0 0 *
Southwood J. Morcott .................................... 2,560 5,000 7,560 *
William F. Patient ...................................... 8,249 13,000 21,249 *
Daniel C. Ustian ........................................ 62,422 121,376 183,798 *
All Directors and Executive Officers as a Group ......... 953,293 1,790,844 2,744,137 4.0
------------
* Percentage of shares beneficially owned does not exceed one percent.
(1) Includes shares over which there is shared voting and investment power as
follows: Directors and Executive Officers as a Group--60 shares.
(2) The number of shares shown for each executive officer (and all executive
officers as a group) includes the number of shares of Navistar Common
Stock owned indirectly, as of November 30, 2002, by such executive
officers in the Company's 401(k) Retirement Savings Plan and Retirement
Accumulation Plan, as reported to us by the Plan trustee.
Under our Stock Ownership Program executives may defer their cash bonus
into deferred share units ("DSUs"). If an executive officer has elected to
defer cash bonus, the number of shares shown for such executive officer
includes these DSUs. These DSUs vest immediately (but may not settle
within 60 days of November 30, 2002). The number of shares shown for each
executive officer (and all executive officers as a group) also includes
premium share units ("PSUs") that were awarded under the Stock Ownership
Program. PSUs vest in equal installments on each of the first three
anniversaries of the date on which they are awarded (but may not settle
within 60 days of November 30, 2002).
Under Navistar's Non-Employee Directors Deferred Fee Plan, directors may
defer the portion of their retainer fee payable in restricted stock. If a
director has elected to defer this portion of the retainer fee into
phantom stock units, these phantom stock units are shown in this column.
Under our Restoration Stock Option Program executives may defer the
receipt of shares of Navistar Common Stock due in connection with a
restoration stock option exercise. If an executive has elected to defer
receipt of these shares into phantom stock units, these phantom stock
units are also shown in this column.
(3) Retires as a director on February 18, 2003.
6
PERSONS OWNING MORE THAN 5% OF NAVISTAR COMMON STOCK
This table indicates, as of December 17, 2002, all persons we know to be
beneficial owners of more than 5% of Company's Common Stock. This information is
based on Schedule 13D and Schedule 13G reports filed with the U.S. Securities
and Exchange Commission by each of the firms listed in the table below.
Total Amount
and Nature of
Beneficial
Name and Address Ownership Percent of Class
------------------------------------------------------------------- ------------------ -----------------
FMR Corp. ......................................................... 8,701,237(A) 14.6%
82 Devonshire Street
Boston, Massachusetts 02109
Capital Group International, Inc. ................................. 8,534,070(B) 14.4%
11100 Santa Monica Blvd.
Los Angeles, California 90025
Jennison Associates LLC ........................................... 8,122,496(C) 13.4%
466 Lexington Avenue
New York, New York 10017
International Truck and Engine Corporation Non-contributory
Retirement Plan Trust; International Truck and Engine Corporation
Retirement Plan for Salaried Employees Trust; and International
Truck and Engine Corporation Retiree Health Benefit Trust ......... 7,755,030(D) 11.4%
c/o International Truck and Engine Corporation
4201 Winfield Road
Warrenville, Illinois 60555
Gabelli Asset Management, Inc. .................................... 5,146,002(E) 8.6%
One Corporate Center
Rye, New York 10580
------------
(A) As reported in a Schedule 13G, as amended February 14, 2002, filed with
the U.S. Securities and Exchange Commission by FMR Corp. ("FMR"), Edward
C. Johnson, 3d, Chairman of FMR, Abigail P. Johnson, a Director of FMR,
and Fidelity Management and Research Company. It is reported in the
Schedule 13G that (1) FMR has sole dispositive power with respect to
8,701,237 shares and sole voting power with respect to 1,180,253 shares,
(2) Edward C. Johnson, 3d and Abigail P. Johnson each have sole
dispositive power over these shares, and (3) these shares represented (a)
7,448,275 shares beneficially owned by Fidelity Management & Research
Company ("Fidelity"), a wholly-owned subsidiary of FMR, as a result of
acting as investment advisor to various investment companies ("Funds"),
(b) 903,862 shares beneficially owned by Fidelity Management Trust
Company, a wholly-owned subsidiary of FMR, as a result of its serving as
investment manager of certain institutional accounts, and (c) 349,100
shares beneficially owned by Fidelity International Limited, a Bermuda
joint stock company of which a partnership controlled by Mr. Johnson and
his family members owns approximately 40% of the voting stock, as a result
of acting as investment adviser to various non-U.S. investment companies
and certain institutional investors. The voting power with respect to the
7,448,275 shares beneficially owned by Fidelity is held by the Board of
Trustees of the various investment companies of which Fidelity is the
investment advisor. FMR, Edward C. Johnson, 3d, and the Funds each has
sole power to dispose of the 7,448,275 shares beneficially owned by
Fidelity. Edward C. Johnson, 3d and FMR each has sole dispositive power
over 903,862 shares and sole voting power over 830,862 shares beneficially
owned by Fidelity Management Trust Company. FIL has sole voting power and
sole dispositive power over the 349,100 shares owned by it.
7
(B) As reported in Schedule 13G, dated February 11, 2002, filed with the U.S.
Securities and Exchange Commission by Capital Group International, Inc.
and Capital Guardian Trust Company, a wholly owned subsidiary of Capital
Group International, Inc. It is reported in the Schedule 13G that
4,741,200 shares are beneficially owned by Capital Group International,
Inc., over which it has sole dispositive power and sole voting power with
respect to 4,159,100 shares. Capital Guardian Trust Company beneficially
own 3,792,870 shares, over which it has sole voting power with respect to
3,210,770 shares and sole dispositive power with respect to 3,792,870
shares.
(C) As reported in Schedule 13G, dated December 10, 2002 filed with the U.S.
Securities and Exchange Commission by Jennison Associates LLC. It is
reported in the Schedule 13G that 8,122,496 shares are beneficially owned
by Jennison Associates LLC, over which it has sole dispositive power and
sole voting power. See paragraph (D) below.
(D) As reported in a Schedule 13G filed November 18, 2002 with the U.S.
Securities and Exchange Commission by Navistar International Corporation
("Navistar"), International Truck and Engine Corporation
("International"), International Truck and Engine Corporation
Non-Contributory Retirement Plan Trust (the "Hourly Trust"), International
Truck and Engine Corporation Retirement Plan for Salaried Employees Trust
(the "Salaried Trust"), and International Truck and Engine Corporation
Retiree Health Benefit Trust (the "Health Benefit Trust"). It is reported
in the Schedule 13G that on November 8, 2002 Navistar sold an aggregate
amount of 7,755,030 shares of its Common Stock, in three separate
transactions as follows: 4,653,018 shares to the Hourly Trust, 1,551,006
shares to the Salaried Trust and 1,551,006 shares to the Health Benefit
Trust. Each trust is a funding trust for an employee benefit plan
sponsored by International. The trust agreements of the Hourly Trust and
the Salaried Trust provide that the trustee of the trust is only a
directed trustee with respect to Navistar stock held by the trusts and
that the Pension Fund Investment Committee of International (the "PFIC"),
or an investment manager designated by the PFIC, is to direct the trustee
with respect to the voting or disposition of Navistar stock. The trust
agreement for the Health Benefit Trust provides that International, or an
investment manager appointed by International, is to direct the trustee
with respect to voting and disposition of Navistar stock. International
has delegated authority for such matters to the Base Plan Investment
Committee of International (the "BPIC"), which currently has the same
members as the PFIC; all who are executive officers of Navistar. Jennison
Associates LLC has subsequently been appointed the investment manager for
each trust with respect to the Navistar stock, and Jennison has been given
discretionary authority regarding voting and disposition of the Navistar
stock. Since, the PFIC and BPIC and Navistar have the power to revoke or
change the appointment of Jennison (and therefore reacquire the voting and
dispositive control over the Navistar stock), the committees,
International or Navistar could be considered "beneficial owners" of the
Navistar stock.
(E) As reported in Schedule 13D, as amended, dated November 22, 2002, filed
with the U.S. Securities and Exchange Commission by Gabelli Funds, LLC,
GAMCO Investors, Inc., Gabelli Securities, Inc., Gabelli Group Capital
Partners, Inc., Gabelli Asset Management, Inc., Marc J. Gabelli and Mario
J. Gabelli. It is reported in the Schedule 13D that these shares
represent; (1) 1,800,000 shares beneficially owned by Gabelli Funds, LLC,
over which it has sole voting and dispositive power, (2) 3,345,502 shares
beneficially owned by GAMCO Investors, Inc., over which it has sole voting
power with respect to 3,128,702 shares and sole dispositive power with
respect to 3,345,502 shares, (3) 500 shares beneficially owned by Gabelli
Securities Inc., over which it has sole voting and dispositive power.
8
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (under this heading, the
"Committee") is composed of 7 directors who are neither officers nor employees
of the Company, and who meet the independence requirements of the New York Stock
Exchange. The Committee is governed by a written charter as approved by the
Board of Directors. In accordance with its written charter, the Committee
assists the Board in fulfilling its responsibility for oversight of the quality
and integrity of the accounting, auditing and financial reporting practices of
the Company. During fiscal year 2002, the Committee met 5 times, and the
Committee chair, as representative of the Committee, discussed the interim
financial information contained in quarterly earnings announcements with both
management and the independent auditors prior to public release.
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1 "Independence Discussions with Audit Committees," discussed with
the auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the auditors' independence. The
Committee also discussed with management, the internal auditors and the
independent auditors the quality and adequacy of the Company's internal
controls. The Committee reviewed with both the independent and the internal
auditors their audit plans, audit scope, and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Committee also discussed the results of the
internal audit examinations.
The Committee discussed and reviewed the audited consolidated financial
statements of the Company as of and for the fiscal year ended October 31, 2002
with management and the independent auditors. Management has the responsibility
for the preparation of the Company's financial statements and the independent
auditors have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and
the independent auditors, the Committee recommended to the Board that the
Company's audited consolidated financial statements be included in its Annual
Report on Form 10-K for the fiscal year ended October 31, 2002 for filing with
the Securities and Exchange Commission.
Audit Committee
Allen J. Krowe, Chairperson
Y. Marc Belton
John D. Correnti
Abbie J. Griffin
James H. Keyes
David McAllister
William F. Patient
9
EXECUTIVE COMPENSATION
Committee on Compensation and Governance Executive Compensation Report
Introduction
The Board's Committee on Compensation and Governance (under this heading,
the "Committee") establishes, administers, and monitors all compensation and
benefit programs under which executive benefits are provided and compensation is
paid or awarded to the Company's executive officers. Specifically the Committee
reviews the performance of executive officers and makes compensation decisions
with respect to the Company's executive officers, given the overall successes of
the individual executives, their specific group and the organization as a whole.
Compensation Philosophy and Objectives
The executive compensation program is designed to closely align executive
compensation with corporate and individual performance and the total return to
shareowners. The Company has developed an overall compensation philosophy that
is built on a foundation of guiding principles:
o Competitive Positioning: To attract and retain the executive talent
required to achieve the Company's goals through a market competitive
total remuneration package.
o Performance Orientation: Executive compensation has a strong
individual performance-based link, and is designed to promote an
alignment of interests between shareowners and senior executives.
o Equity: Our compensation programs are fair and equitable, and create
no advantage for any one individual or group on the basis of age,
service, or other non-performance related criteria.
o Ownership and Responsibility: The Company has designed a
compensation program that recognizes individual contributions as
well as linking executive and shareowner interests through
compensation programs that are based on common measures of financial
success.
Market Compensation Review
In 2002 the Committee conducted a comprehensive review of the executive
compensation program to ensure that pay opportunities are competitive with the
current market, and that there is an appropriate link between company and
individual performance, the Company's stated compensation philosophy, and actual
executive compensation. This process included consultation with an independent
compensation and benefits consulting firm throughout the year on such issues as
base salaries, incentive awards, and overall compensation and benefits
philosophy. The Committee reviews executive compensation against peer groups of
companies with which the Company competes for talent. Competitive executive
compensation data was gathered from a custom peer group of 32 companies
reflecting a cross section of aerospace, automobile, and other transportation
companies.
The Committee believes that the market in which the Company competes for
talent is growing in breadth and scope. Therefore, we feel it is relevant to
include in our compensation review not only some of those companies that make up
the Standard and Poor's Construction and Farm Index (classified as the Heavy
Duty Truck & Parts Index through 2001), which appears in the Performance Graph
in this Proxy Statement, but also those organizations that we view as a relevant
source for executive talent.
The Company has established and communicated to executives a policy of
targeting base salaries at the 50th percentile of the competitive market. Our
incentive compensation is targeted to reward executives with total compensation
at the 50th percentile of the market for target corporate performance, and at
the 75th percentile for distinguished corporate performance. This philosophy was
adhered to in setting base salaries.
10
Policy on Deductibility of Compensation
Section 162(m) of The Internal Revenue Code of 1986 provides that a public
company generally may not deduct the amount of annual compensation paid to
certain executive officers that is more than $1 million. The provision does not
apply to certain performance-based compensation that meets the requirements
contained in IRS regulations. Performance based compensation can include income
from stock options, restricted stock, and certain formula driven compensation
that meets the IRS requirements. The Committee has considered the effect of this
Internal Revenue Code limitation, and has concluded that the limitation will not
have any significant effect on the Company's income tax liability.
Elements of Executive Compensation
The elements of the Company's executive compensation program include base
salary, an annual incentive program, and long-term incentives. Although each
decision relative to these compensation programs has to be undertaken
separately, the Committee considers the total compensation and benefits package
(including salary, incentives, stock options, pension benefits, supplemental
retirement benefits, insurance and other benefits) when making any compensation
decision. Also, in considering the individual performance of the executives
named in this proxy statement, the Committee takes into consideration the
opinions and recommendations of Mr. Horne, the Chief Executive Officer, for
positions other than his own.
Base Salary
Base salaries for executive officers are determined initially by
evaluating and comparing the responsibilities of their positions and experiences
and by reference to the competitive marketplace for executive talent. Salary
adjustments are determined by evaluating the performance of the Company and of
each executive. In addition, the market is surveyed to determine average year
over year industry changes in executive pay.
Based on the competitive survey conducted by the outside consultants and a
subjective review of individual performance, the Committee increased base pay of
the executives named in the Summary Compensation Table by an average of 10.3% in
2002, which includes performance and promotional increases. These increases in
base pay resulted in the group of executive officers being paid, on average, at
the median of the competitive market.
Annual Incentive
A substantial portion of the Company's executive compensation package is
contingent upon the Company's attaining financial and non-financial performance
goals established by the Committee prior to the beginning of each fiscal year.
Approximately 500 participants are eligible for annual incentive payments. The
target annual incentive varies by organization level, from 25% of base salary
for senior managers to 110% of base salary for the Chief Executive Officer. In
1997, the Committee established a performance goal based on the Company's return
on equity.
Long-Term Incentives
Again in 2002, the Company delivered long-term incentive compensation
entirely in annual stock option grants to all executives. Option grants are made
to executives at the fair market value price on the date of grant and expire on
the 10th anniversary of the grant. In 2002, one-third of the options granted
become exercisable on each of the first, second and third anniversaries of the
grant.
When determining the size of the option grants made to executives, the
Committee again considered the results of a competitive compensation survey
conducted by an outside consulting firm.
The Company feels strongly that it is important to encourage senior
executives to hold significant amounts of Navistar stock, thereby tying their
long-term economic interest directly to that of the shareowners. To achieve this
goal, the Company has implemented stock ownership guidelines for those
executives. The Company's stock ownership targets apply to approximately 44
executives, the majority of whom hold the title of staff vice president and
above. Executives are expected to attain their respective ownership level within
five years. These
11
executives have ownership requirements that range from 75% to 300% as a percent
of base salary and are fixed at the number of shares that are required on the
date of their promotion or hire. Currently, the average number of shares owned
by these executives exceeds the required number of shares.
Chief Executive Officer Compensation
Mr. Horne's 2002 base salary was at the median base salary for comparable
positions, according to the compensation survey conducted that same year. As a
result of his achievement of aggressive non-financial performance goals, his
2002 salary was increased by $100,000 to $1,200,000, which, according to the
compensation survey, was within competitive levels at 5% above the 50th
percentile of the Company's competitive market.
Mr. Horne's 2002 annual cash incentive payment would have been awarded on
the achievement of a very challenging return on equity goal for the Company
established by the Committee, as well as the achievement of various
non-financial goals of each business unit. These non-financial goals include,
but are not limited to, leadership development, strategies/growth and product
development. Because these aggressive financial goals were not met, Mr. Horne
did not receive an annual incentive payment for 2002.
In fiscal year 2002, Mr. Horne was also granted an option to purchase
242,700 shares of Common Stock. This award is both competitive and commensurate
with market practice given recent Company and individual performance.
It is the Committee's view that the Company's executive compensation
programs and awards provide a significant link between individual and corporate
performance and compensation paid. We also believe that the programs are
appropriate in the current competitive market and in the shareowners' interests
Committee on Compensation and Governance
Jerry E. Dempsey, Chairperson
Eugenio Clariond
John D. Correnti
Michael N. Hammes
James H. Keyes
Southwood J. Morcott
William F. Patient
12
Performance Graph
This graph shows the yearly percentage change in the Company's cumulative
total shareowner return on Navistar's Common Stock during the last five fiscal
years ended October 31, 2002. The graph also shows the cumulative total returns
of the S&P 500 Index and the S&P Construction & Farm Index. In prior fiscal
years the Company's performance was compared with the cumulative total return of
the S&P Truck and Parts Index. The S&P Truck and Parts Index was discontinued by
Standard & Poor's at the end of 2001, when they changed their classification
standard. The graph shows the cumulative total returns of the S&P Truck and
Parts Index through the last four fiscal years ended October 31, 2001.
The comparison assumes $100 was invested on October 31, 1997 in Navistar
Common Stock and in each of the indices shown and assumes reinvestment of
dividends.
[PERFORMANCE GRAPH]
[THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL]
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Navistar ................. 100.0 90.0 181.1 142.6 129.4 96.7
S&P 500 .................. 100.0 120.1 149.0 156.3 115.8 96.7
S&P Construction & Farm .. 100.0 75.8 94.5 72.4 82.8 85.9
S&P Trucks & Parts ....... 100.0 82.9 114.3 92.3 99.8 --
13
Executive Compensation Tables
This table provides compensation information for the fiscal years 2000,
2001, and 2002 for the Company's Chief Executive Officer and the four next most
highly compensated executive officers.
Summary Compensation Table
Long-Term
Compensation Awards
-------------------------------
Restricted Securities
Annual Compensation Stock Underlying All Other
-------------------------- Awards Options/ Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($)(1)(2) SARs (#) ($)(3)
----------------------------- ------ ------------ ----------- ------------ ---------------- -------------
John R. Horne ............... 2002 1,183,333 0 0 411,429 (4) 40,018
Chairman and 2001 1,083,333 0 0 223,200 32,175
Chief Executive Officer 2000 975,000 0 0 342,636 (5) 24,492
Robert C. Lannert ........... 2002 523,750 0 0 241,909 (6) 14,897
Vice Chairman and 2001 475,000 0 0 75,100 10,341
Chief Financial Officer 2000 450,000 0 0 62,800 7,182
Daniel C. Ustian ............ 2002 557,292 0 167,064 71,804 6,057
President and 2001 466,667 0 0 56,500 4,540
Chief Operating Officer 2000 412,500 0 0 72,754 (7) 3,307
J. Steven Keate ............. 2002 446,667 0 0 64,600 3,714
President, Truck Group 2001 421,667 0 0 56,500 3,331
2000 375,000 0 13,921 44,100 2,163
Robert A. Boardman .......... 2002 376,667 0 0 41,200 5,500
Senior Vice President 2001 353,333 0 0 39,000 4,428
and General Counsel 2000 316,667 0 0 25,200 3,112
------------
(1) The amounts shown include the dollar value of premium share units ("PSU")
representing shares of Common Stock awarded to Mr. Keate and to Mr. Ustian
under the Company's Stock Ownership Program based on the attainment of
certain stock ownership thresholds. Mr. Keate received 353 PSUs in 2000
and Mr. Ustian received 3,784 PSUs in 2002.
(2) The number and value of the aggregate PSUs on October 31, 2002 for each of
the persons named above is as follows: Mr. Horne 24,851 PSUs with an
aggregate value of $557,159; Mr. Lannert 16,250 PSUs with an aggregate
value of $364,325; Mr. Ustian 10,809 PSUs with an aggregate value of
$242,338; Mr. Keate 5,931 PSUs with an aggregate value of $132,973; and
Mr. Boardman 6,377 PSUs with an aggregate value of $142,972. The PSUs vest
in equal installments on each of the first three anniversaries of the date
on which they are awarded. Holders of PSUs receive dividends at the same
time and at the same rate as other Common Stock owners.
(3) The amounts shown represent life insurance premiums paid by the Company
for the persons named in the Summary Compensation Table.
(4) Includes 168,729 restoration options received by Mr. Horne in 2002 to
purchase shares equal to the number of previously owned shares of the
Company Stock surrendered in payment of the exercise price of options.
(5) Includes 175,036 restoration options received by Mr. Horne in 2000 to
purchase a number of shares equal to the number of previously owned shares
of Navistar Common Stock surrendered in payment of the exercise price of
options.
(6) Includes 164,009 restoration options received by Mr. Lannert in 2002 to
purchase a number of shares equal to the number of previously owned shares
of Navistar Common Stock surrendered in payment of the exercise price of
options.
(7) Includes 28,654 restoration options received by Mr. Ustian in 2000 to
purchase a number of shares equal to the number of previously owned shares
of Navistar Common Stock surrendered in payment of the exercise price of
options.
14
This table sets forth certain information regarding options granted during
fiscal year 2002 under the Company's Performance Incentive Plan and Supplemental
Stock Option Plan to the individuals named in the Summary Compensation Table.
Option/SAR Grants In Fiscal Year 2002
Individual Grants
-----------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise Grant Date
Options/SARs Employees in or Base Price Expiration Present
Name Granted (#) Fiscal Year ($/Sh) (4) date Value ($) (5)
---------------------------- ---------------- -------------- --------------- ------------ --------------
John R. Horne .............. 2,617(1) .14 38.20 12-11-11 36,716
240,083(2) 13.23 38.20 12-12-11 3,368,364
3,684(3) .20 40.25 12-21-02 51,686
13,044(3) .72 40.25 12-17-07 183,007
97,143(3) 5.35 40.25 12-16-08 1,362,916
54,858(3) 3.02 40.25 12-13-10 769,658
Robert C. Lannert .......... 2,617(1) .14 38.20 12-11-11 36,716
75,283(2) 4.15 38.20 12-12-11 1,056,220
6,889(3) .38 39.92 12-20-03 96,653
9,058(3) .50 39.92 03-17-04 127,084
21,575(3) 1.19 39.92 10-19-04 302,697
10,905(3) .60 39.92 12-14-04 152,997
14,644(3) .81 39.92 04-19-05 205,455
15,201(3) .84 39.92 12-20-05 213,270
22,141(3) 1.22 39.92 12-17-06 310,638
22,353(3) 1.23 39.92 12-17-07 313,613
35,054(3) 1.93 39.92 12-16-08 491,808
6,189(3) .34 39.92 12-13-10 86,832
Daniel C. Ustian ........... 2,617(1) .14 38.20 12-11-11 36,716
61,983(2) 3.42 38.20 12-12-11 869,621
7,204(2) .40 44.15 04-17-12 101,072
J. Steven Keate ............ 2,617(1) .14 38.20 12-11-11 36,716
61,983(2) 3.42 38.20 12-12-11 869,621
Robert A. Boardman ......... 2,617(1) .14 38.20 12-11-11 36,716
38,583(2) 2.13 38.20 12-12-11 541,319
------------
(1) Incentive Stock Options
(2) Non-Qualified Options
(3) Restoration options with the following terms: granted at fair market
value; becoming exercisable two years from the grant date, or, if sooner,
one month before the end of the remaining term of the options they
replaced; and expiring coincident with the options they replaced.
Restoration options are issued when an executive uses shares of Company
Common Stock to pay the option exercise price of a previously issued
option.
(4) All options, other than restoration options, become exercisable under the
following schedule: one-third on the first anniversary of the grant,
one-third on the second anniversary, and one-third on the third
anniversary. In the event an optionee exercises a non-qualified option
with already-owned shares, he or she may be eligible to receive
restoration options. Restoration options contain the same expiration dates
and other terms as the options they replace except that they have an
exercise price per share equal to the fair market value
15
of the Common Stock on the date the restoration option is granted and
become exercisable in full six months after they are granted or, if
sooner, one month before the end of the remaining term of the options they
replace.
(5) The Black-Scholes model was used to calculate the grant date present value
of the options granted. The following assumptions were used to estimate
the value of options: a 4.0 year expected life of the options; a dividend
yield of 0%; expected volatility for Navistar Common Stock of 39.1%; and a
risk-free rate of return of 4.1%. The actual value, if any, the named
executive officers may realize from these options will depend solely on
the gain in stock price over the exercise price when the options are
exercised.
This table sets forth certain information regarding exercises of options
during fiscal year 2002, and total options held at year end by the individuals
named in the Summary Compensation Table.
Aggregated Option/SAR Exercises During Fiscal Year 2002
And Fiscal Year End Option/SAR Values
Number of Value of
Securities Unexercised
Underlying In-the
Unexercised Money
Options/SARs Options/SARs
2002 Fiscal 2002 Fiscal
Year End (#) Year End ($)
----------------- ---------------
Shares
acquired on Value Exercisable/ Exercisable/
Exercise (#) Realized ($) Unexercisable Unexercisable
-------------- -------------- ----------------- ---------------
John R. Horne .............. 231,757 3,679,559 460,572/447,363 0/110,111
Robert C. Lannert .......... 244,744 5,569,150 236,672/148,900 12,334/37,049
Daniel C. Ustian ........... 51,581 991,726 66,310/124,170 0/27,873
J. Steven Keate ............ 27,403 526,111 89,095/116,966 1,059/27,873
Robert A. Boardman ......... 35,972 589,783 50,528/75,600 0/19,240
Termination and Other Compensatory Arrangements
To assure stability and continuity of management, the Company has entered
into executive termination agreements with each of its executive officers. The
agreements provide that if the officer's employment is terminated by the Company
for any reason other than for cause, as defined in the agreement, the officer
will receive a lump sum payment varying in amounts from 200% of his or her
annual base salary plus annual target bonus (for the Chief Executive Officer) to
150% of his or her annual base salary plus annual target bonus (for the other
executive officers), plus a pro rata portion of the officer's annual target
bonus. However, if the officer's employment is terminated by the Company within
3 years after a "change in control" or prior thereto in anticipation of a change
in control, the officer will receive a lump sum payment equal to the greater of:
(i) a pro rata portion of the officer's annual target bonus and three times the
officer's current annual base salary plus annual target bonus; and (ii) 295% of
the officer's average annual compensation during the previous five years. The
agreements' definition of a "change in control" includes the acquisition by any
person or group of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities. Pursuant to
an arrangement originally entered into with Mr. Horne in 1986, his agreement
provides that if he voluntarily terminates his employment from the Company,
including upon his retirement, and agrees not to compete with the Company, he
will receive an amount equal to 100% of his annual base salary (either in a
single lump sum payment or in 12 equal monthly payments, as selected by Mr.
Horne). Each agreement expires June 30, 2002 and is then renewed automatically
for successive one-year periods unless the Board, six months prior to the
renewal date, elects not to renew it.
On July 8, 2002, the Company entered into an Employment Agreement with
each of Mr. Horne and Mr. Lannert providing for their leadership in the
Company's management transition process. Under the Agreements, in consideration
for Mr. Horne and Mr. Lannert agreeing to extend their planned retirement dates
and to provide certain consulting services to the Company following retirement,
their annual retirement benefit under the
16
Company's MRO Plan will be determined based on their highest consecutive five
years of base salary plus certain amounts of their highest five years of
short-term incentive compensation, in each case out of the ten years immediately
preceding retirement. The effect of the Agreements would be to increase the
estimated annual retirement benefit for Mr. Horne by approximately $193,000 per
year and for Mr. Lannert by approximately $97,735 per year. The Agreements
require Messrs. Horne and Lannert to refrain from competing with the Company for
their lifetimes.
Retirement Plans
The International Truck and Engine Corporation Retirement Plan for
Salaried Employees ("RPSE"), which covers substantially all of the salaried
employees of the Company first hired before January 1, 1996, provides annual
retirement benefits based upon age, credited service and "final average annual
earnings" computed on the basis of the individual's highest consecutive five
years of base salary out of the ten years immediately preceding retirement,
reduced by a portion of the social security benefits to which it is estimated
the participant will be entitled. Benefits accrue at a lower rate for service
after December 31, 1988, than for service prior to that date. Maximum benefits
that may be provided to an employee under the RPSE are subject to the annual
pension limitation ($160,000 in 2003, indexed for inflation) imposed for
qualified plans under The Employee Retirement Income Security Act ("ERISA"). In
addition, these benefits are subject to a requirement that annual compensation
in excess of an annual limit ($200,000 in 2003, indexed for inflation) is not
taken into account. Employees who are first hired on or after January 1, 1996
are not eligible to participate in the RPSE.
With respect to eligible upper level employees who retire at or after age
55 with at least 10 years of credited service, the Company also has a Managerial
Retirement Objective ("MRO") Plan. The MRO Plan currently provides a retirement
benefit objective based upon age, credited service and "final average annual
earnings" computed on the basis of the individual's highest consecutive five
years of base salary plus certain amounts of short-term incentive compensation
out of the ten years immediately preceding retirement. Benefits accrue at a
lower rate for service after December 31, 1988, than for service prior to that
date. If the annual retirement benefits of any eligible employee from all
sources from both the Company contributions and employee contributions
(including benefits under the RPSE and a portion of the social security benefits
to which it is estimated the individual will be entitled, but not including the
International Truck and Engine Corporation 401(k) Retirement Savings Plan or any
individual deferred compensation agreements) do not equal the retirement benefit
objective under the MRO Plan, the Company will pay the difference to the
employee. Employees who are first hired on or after January 1, 1996 are not
eligible to participate in the MRO Plan. See also "Termination and Other
Compensation Arrangements" with respect to Messrs. Horne and Lannert above.
A substantial portion of the salaried employees of the Company, who are
first hired on or after January 1, 1996, are covered by the International Truck
and Engine Corporation Retirement Accumulation Plan ("RAP"), or by a comparable
plan of a subsidiary company. The RAP is a defined contribution plan that
provides for an annual contribution to be allocated to each participant's
retirement account based on an age-weighted percentage of the participant's
eligible compensation for the calendar year. The RAP also contains a 401(k)
feature and provides for a company match, currently 50% of the first 6% of
pretax salary reduction contributions made on behalf of the participant.
The Company also has a Supplemental Executive Retirement Plan ("SERP").
The SERP covers certain executive officers who have attained age 55, and
provides annual retirement income objectives to such executive officers who have
at least five years of credited service, based upon age, credited service and
"final average earnings" (as defined above for purposes of the MRO Plan). SERP
objectives range from 30% to 50% of "final average earnings", and are reduced by
benefits, if any, under the RPSE and the MRO Plan, by the actuarial equivalent
of the executive's retirement account (but not the 401(k) or Company match
accounts) under the RAP, by 50% of the participant's social security benefit and
by retirement benefits from prior employers. It is estimated that the annual
benefits payable under the SERP upon normal retirement (at age 65) to Mr. Keate,
would be approximately 4% of his individual "final average earnings" and to Mr.
Boardman, would be approximately 11% of his individual "final average earnings."
It is estimated that Messrs. Horne, Lannert and Ustian would derive no benefit
from the SERP. Payments under the SERP in fiscal 2002 were $288,524.
17
In the event of a termination of employment by the Company following a
"change in control," certain benefits under the MRO Plan and the SERP will
become contractual rights and not subject to change without the consent of
those affected employees who have accrued at least five years of credited
service as of the date of such termination.
Pension Plan Tables
Estimated Annual Retirement Benefit Objective
Upon Normal Retirement at Age 65
(Assuming all service is earned prior to January 1, 1989)
Final
Average Years of Service
Annual ---------------------------------------------------------------------
Earnings 15 20 25 30 35 and Over
------------- --------- --------- ------------ ------------ ------------
300,000 108,000 144,000 180,000 180,000 180,000
400,000 144,000 192,000 240,000 240,000 240,000
500,000 180,000 240,000 300,000 300,000 300,000
600,000 216,000 288,000 360,000 360,000 360,000
700,000 252,000 336,000 420,000 420,000 420,000
800,000 288,000 384,000 480,000 480,000 480,000
900,000 324,000 432,000 540,000 540,000 540,000
1,000,000 360,000 480,000 600,000 600,000 600,000
1,500,000 540,000 720,000 900,000 900,000 900,000
2,000,000 720,000 960,000 1,200,000 1,200,000 1,200,000
Estimated Annual Retirement Benefit Objective
Upon Normal Retirement at Age 65
(Assuming all service is earned after December 31, 1988)
Final
Average Years of Service
Annual -------------------------------------------------------------------
Earnings 15 20 25 30 35 and Over
------------- --------- --------- ---------- ------------ ------------
300,000 76,500 102,000 127,500 153,000 180,000
400,000 102,000 136,000 170,000 204,000 240,000
500,000 127,500 170,000 212,500 255,000 300,000
600,000 153,000 204,000 255,000 306,000 360,000
700,000 178,500 238,000 297,500 357,000 420,000
800,000 204,000 272,000 340,000 408,000 480,000
900,000 229,500 306,000 382,500 459,000 540,000
1,000,000 255,000 340,000 425,000 510,000 600,000
1,500,000 382,500 510,000 637,500 765,000 900,000
2,000,000 510,000 680,000 850,000 1,020,000 1,200,000
The number of years of credited service as of October 31, 2002 for Mr.
Horne is 36.3; Mr. Lannert is 39.6; Mr. Keate is 8.0; Mr. Ustian is 29.7; and
Mr. Boardman is 13.0.
18
Certain Related Transactions
The Company established the Navistar International Corporation Stock
Ownership Program in 1997 to more closely align the interests of shareowners and
the Company's senior management. Under the Program all executive officers and
certain senior managers of the Company are required to purchase and hold a
specified amount of Navistar's Common Stock equal to a multiple of his or her
annual base salary. During 1999, 2000 and 2001 certain executive officers
received full-recourse loans for the purchase price of the Common Stock they
purchased from the Company. Effective July 30, 2002, however, and in accordance
with the recently-enacted Sarbanes-Oxley Act of 2002, the Company no longer
offers its executive officers loans to assist them in meeting their ownership
requirements under the program. The loans extended to the Company's executive
officers prior to July 30, 2002 will, however, remain in effect in accordance
with their then existing terms and conditions. These existing loans accrue
interest at the applicable federal rate (as determined by Section 1274(d) of the
Internal Revenue Code) on the purchase date for loans of stated maturity,
compounded annually, are unsecured obligations and have a nine-year term.
For current outstanding loans, principal and interest is due at maturity
in a balloon payment. The payment of the loan will be accelerated if a
participant's employment is terminated for cause or for certain other reasons
prior to or following a change of control. In the event of retirement, there is
no loan acceleration. The loan may be prepaid at any time at the participant's
option.
The following executive officers of the Company have outstanding loans
under the program. The table indicates the largest amount of the indebtedness
outstanding during fiscal year 2002, the interest rate charged, and the
aggregate outstanding balance as of December 31, 2002:
Maximum Aggregate
Indebtedness Outstanding Interest
During Balance as of Rate
Name Fiscal Year 2002 ($) December 31, 2002 ($) (%)
---------------------------------- ---------------------- ----------------------- ---------
Robert A. Boardman ............ 423,312 426,558 4.77
John R. Horne ................. 1,524,381 1,536,069 4.77
Thomas M. Hough ............... 117,786 118,689 4.77
J. Steven Keate ............... 112,495 113,358 4.77
Robert C. Lannert ............. 1,385,232 1,395,853 4.77
Mark T. Schwetschenau ......... 156,115 157,312 4.77
Daniel C. Ustian .............. 294,181 296,436 4.77
19
OTHER INFORMATION
Annual Report
A copy of our Annual Report, which includes our Consolidated Financial
Statements for the three years ended October 31, 2002, is being mailed to all
shareowners of record as of January 3, 2003 together with this Proxy Statement.
The Annual Report is not to be regarded as proxy soliciting materials.
Householding Information
Some banks, brokers and other record holders may be participating in the
practice of "householding" proxy statements and annual reports. To reduce our
printing costs and postage fees, beginning this year, the Company has also
adopted this procedure. This means that you and other holders of the Company's
Common Stock in your household that share the same last name may not receive
separate copies of our Proxy Statement or Annual Report. We will promptly
deliver an additional copy of either document to you if you call or write us at
the following address or phone number: Investor Relations, Navistar
International Corporation, 4201 Winfield Road, P.O. Box 1488, Warrenville,
Illinois 60555, (630) 753-2143.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who own beneficially more than ten
percent of a registered class of our equity securities to file reports of
holdings and transfers of Navistar stock with the U.S. Securities and Exchange
Commission and the New York Stock Exchange and to provide copies of those
reports to the Company. Based solely on our review of copies of those reports
received by the Company or written representations that all such reports were
timely filed, we believe that in 2002 our directors, executive officers and
greater than ten beneficial percent shareowners made all required filings on
time, except that Messrs. Ustian, Boardman and Keate each inadvertently filed a
Form 4 late, reporting one, two and three transactions, respectively.
Independent Public Accountants
Upon the recommendation of the Audit Committee, the Board has reappointed
the firm of Deloitte & Touche LLP, Two Prudential Plaza, 180 N. Stetson Avenue,
Chicago, Illinois 60601, to examine the financial statements of the Company for
the current fiscal year ending October 31, 2003. Representatives of Deloitte &
Touche LLP will be present at the Annual Meeting, will have the opportunity to
make a statement if they desire, and will also be available to respond to
appropriate questions.
Audit Fees
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu and their respective affiliates ("Deloitte") for
professional services rendered for the audit of the Company's consolidated
financial statements, including foreign and other statutory audit requirements,
reviews of the consolidated financial statements included in the Company's
Quarterly Reports on Form 10-Q and other audit related services were $1,795,000
and $1,402,000, respectively for the fiscal years ended October 31, 2002 and
2001.
Financial Information Systems Design and Implementation Fees
The Company did not incur any fees to Deloitte for professional services
rendered for information technology services relating to financial information
systems design and implementation for the fiscal years ended October 31, 2002
and 2001.
20
All Other Fees
The aggregate fees billed by Deloitte for services rendered to the
Company, other than the services described above under "Audit Fees" and
"Financial Systems Design and Implementation Fees" were $2,461,000 and
$4,067,000, respectively for the fiscal years ended October 31, 2002 and 2001,
comprised of the following:
2002 2001
------------- -------------
Audit related services .......... $ 525,000 $1,276,000
Tax services .................... $1,086,000 $2,159,000
All other services .............. $ 850,000 $ 632,000
In making its recommendation to appoint Deloitte as the Company's
independent public accountants for the fiscal year ending October 31, 2003, the
Audit Committee has considered whether the provision of the non-audit services
rendered by Deloitte is compatible with maintaining that firm's independence.
Proxy Solicitation
The cost of this proxy solicitation will be borne by the Company.
Georgenson Shareholder Communications, Inc., 17 State Street, New York, New York
10004 has been retained to assist in the solicitation of proxies and will
receive a fee not to exceed $7,500 plus expenses. Directors, officers and
employees of the Company at no additional cost may also solicit proxies. Banks,
brokerage houses and other institutions, nominees or fiduciaries will be
requested to forward the proxy materials to the beneficial owners of the Common
Stock and will be reimbursed for their reasonable expenses incurred in
forwarding such matters.
Shareowner Proposals for the 2004 Annual Meeting
Under the rules of the U.S Securities and Exchange Commission, proposals
of shareowners intended to be presented at the Company's 2004 Annual Meeting
must be received by the Company's Secretary no later than the close of business
on September 17, 2003 for the proposal to be considered for inclusion in our
proxy material for that meeting. To otherwise bring a proposal before the
Company's 2004 Annual Meeting, you must comply with our By-Laws. One of the
procedural requirements of our By-Laws, as now in effect, is that you must
notify the Company's Secretary in writing not later than 120 days nor earlier
than the 180 days in advance of the meeting of your intent to present a
proposal. Based on the anticipated date of next year's annual meeting, the
proposals would have to be received between August 22, 2003 and October 21, 2003
for the Company's 2004 Annual Meeting. The address of the Company's Secretary is
Navistar International Corporation, 4201 Winfield Road, P.O. Box 1488,
Warrenville, Illinois 60555. A copy of our By-Laws may be obtained from the
Company's Secretary by written request to the same address.
By Order of the Board of Directors,
/s/ Robert J. Perna
Robert J. Perna
Secretary
January 16, 2003
21
SM-101-74
PROXY
NAVISTAR INTERNATIONAL CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREOWNERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED HEREBY APPOINTS JOHN R. HORNE, ROBERT C. LANNERT, AND ROBERT A.
BOARDMAN, AND EACH OF THEM, PROXIES, WITH POWER OF SUBSTITUTION, TO VOTE ALL
STOCK OF THE UNDERSIGNED, AT THE ANNUAL MEETING OF NAVISTAR INTERNATIONAL
CORPORATION TO BE HELD FEBRUARY 18, 2003, AND AT ANY ADJOURNMENT OR
POSTPONEMENTS THEREOF, ON ANY BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING. IN THEIR DISCRETION, THE PROXIES ARE HEREBY AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS
OR POSTPONEMENTS THEREOF.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATION MADE. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL DIRECTOR NOMINEES.
(Continued, and to be marked, dated and signed, on the other side)
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
You can now access your Navistar International Corp. account online.
Access your Navistar International Corporation shareholder account online via
Investor ServiceDirect(R) (ISD).
Mellon Investor Services LLC, transfer agent for Navistar International
Corporation, now makes it easy and convenient to get current information on your
shareholder account. After a simple, and secure process of establishing a
Personal Identification Number (PIN), you are ready to log in and access your
account to:
o View account status o View payment history for dividends
o View certificate history o Make address changes
o View book-entry information o Obtain a duplicate 1099 tax form
o Establish/change your PIN
Visit them on the web at http://www.melloninvestor.com
and follow the instructions shown on this page.
Step 1: FIRST TIME USERS - Establish a PIN
You must first establish a Personal Identification Number (PIN) online by
following the directions provided in the upper right portion of the web screen
as follows. You will also need your Social Security Number (SSN) available to
establish a PIN.
Investor ServiceDirect(R) is currently only available for domestic individual
and joint accounts.
o SSN
o PIN
o Then click on the [Establish PIN] button
Please be sure to remember your PIN, or maintain it in a secure place for future
reference.
Step 2: Log in for Account Access
You are now ready to log in. To access your account please enter your:
o SSN
o PIN
o Then click on the [Submit] button
If you have more than one account, you will now be asked to select the
appropriate account.
Step 3: Account Status Screen
You are now ready to access your account information. Click on the appropriate
button to view or initiate transactions.
o Certificate History
o Book-Entry Information
o Issue Certificate
o Payment History
o Address Change
o Duplicate 1099
For Technical Assistance Call 1-877-978-7778 between
9am-7pm Monday-Friday Eastern Time
NAVISTAR INTERNATIONAL CORPORATION Please mark |X|
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED
FOR WITHHOLD
all nominees AUTHORITY
Election of Directors (except as marked to to vote for all
the contrary below) nominees
01 Y. Marc Belton
02 Dr. Abbie J. Griffin [ ] [ ]
03 Robert C. Lannert
WITHHELD FOR: (write the nominee's name in the space provided below)
-------------------------------------------------------------------------------
MARK HERE TO HAVE YOUR [ ]
VOTE REMAIN CONFIDENTIAL.
By checking the box to the right, I consent to future delivery of annual [ ]
reports, proxy statements, prospectuses and other materials and shareholder
communications electronically via the Internet at a webpage which will be
disclosed to me. I understand that the Company may no longer distribute
printed materials to me from any future shareholder meeting until such
consent is revoked. I understand that I may revoke my consent at any time
by contacting the Company's transfer agent, Mellon Investor Services LLC,
Ridgefield Park, NJ and that costs normally associated with electronic
delivery, such as usage and telephone charges as well as any costs I may
incur in printing documents, will be my responsibility.
Signature ______________________ Signature ______________________ Date ________
NOTE: Please sign as name appears hereon. For joint accounts both owners should
sign. When signing as attorney, executor, administrator, trustee or guardian,
etc., please give full title as such.
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
Dear Shareowner:
Below are instructions on how to vote for the directors by telephone.
Please consider voting by telephone. Your vote is recorded as if you mailed in
your proxy card. We believe voting this way is convenient and it also saves the
Company money.
We also ask that you provide your consent to access future annual reports,
proxy statements, prospectuses and other materials and shareholder
communications electronically via the Internet by checking the box above. If you
do so the Company can save money by reducing the number of annual reports, proxy
statements and other materials it must print to mail.
Thank you for your attention to these matters.
Vote by Telephone or Mail
24 Hours a Day, 7 Days a Week
Telephone voting is available through 4PM Eastern Time
the business day prior to annual meeting day.
Your Telephone vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed and returned your proxy card.
--------------------------------------------------------------------------------
Telephone
1-800-435-6710
Use any touch-tone telephone to vote your proxy. There is no charge to you for
this call. Have your proxy card in hand when you call. You will be prompted to
enter your control number, located in the box below, and then follow the
recorded instructions.
--------------------------------------------------------------------------------
OR
--------------------------------------------------------------------------------
Mail
Mark, sign and date your proxy card
and return it in the
enclosed postage-paid envelope.
--------------------------------------------------------------------------------
If you vote your proxy by telephone,
you do NOT need to mail back your proxy card.