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Judge Approves Navistar Plan For Retiree Health Cuts

May 27, 1993

DAYTON, Ohio (AP) _ A federal judge today approved a plan by Navistar International Corp. to save money by reducing health and life insurance payments for its retirees.

U.S. District Court Judge Walter Rice said the plan is fair, adequate and reasonable and would be less burdensome to the retirees than any other realistic alternative.

The plan is part of a proposed settlement of a lawsuit filed against the Chicago-based truckmaker by a group of retirees. Navistar has argued that it would be threatened with insolvency unless the plan was approved.

″The evidence showed that retirees of companies which have gone into bankruptcy have fared significantly worse than will Navistar’s retirees under this settlement,″ Rice wrote in his decision. ″The evidence also showed that few companies now offer their retirees health insurance coverage as generous as that which will be provided under the settlement agreement.″

Navistar Chairman James Cotting said Rice’s approval is a step toward strengthening the company’s long-term ability to provide jobs and benefits.

″With the judge’s affirmation of this settlement agreement, we’ve made tremendous progress toward getting our benefit cost problems behind us and ensuring our competitiveness ... ,″ Cotting said.

Attorneys for both sides had urged Rice to approve the plan. It must still be approved by Navistar shareholders.

Last week, Navistar reported net income of $8 million for the second quarter. That was the company’s first quarterly profit since the second quarter of 1990. The results compared with a loss of $35 million for the same period one year earlier.

Robert Lannert, chief financial officer for Navistar, said demand was higher than forecast and may result in an overall profit for fiscal 1993. But he said Navistar would lose money at sales levels lower than the current volumes because of the high cost of retiree benefits.

Lannert made the assessment in an affidavit filed Wednesday with Rice. He said that even if current high sales levels continued for two or three years, the company couldn’t sustain itself during the next economic downturn without reducing the health benefit costs.

″The current profit levels caused by the unexpected increase in volume do not alter the conclusion that Navistar is not viable without the settlement,″ Lannert said.

Under the proposed settlement, Navistar would reduce its liability for retiree health care and insurance benefits from $2.6 billion to $1 billion by reducing benefits and requiring retirees to pay more for health insurance.

In return, the company would issue 255 million shares of common stock to a retiree trust fund, giving retirees 50 percent ownership in the company at that point. The company said income from the trust fund would be used either to lower the cost of retiree premiums or to provide more benefits for retirees.

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