UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No._ )

Navistar International Corporation

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

NAVISTAR INTERNATIONAL CORPORATION

4201 WINFIELD ROAD2701 NAVISTAR DRIVE

P.O. BOX 1488

WARRENVILLE,LISLE, ILLINOIS 6055560532

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TUESDAY, FEBRUARY 15, 201121, 2012

11:00 A.M. – CENTRAL TIME

HILTON CHICAGOHYATT LISLE HOTEL

720 SOUTH MICHIGAN AVENUE1400 CORPORETUM DRIVE

CHICAGO,LISLE, ILLINOIS 6060360532

January 14, 201120, 2012

To our stockholders:

On behalf of the Board of Directors of Navistar International Corporation you are cordially invited to attend our 20112012 Annual Meeting of Stockholders, which will be held on February 15, 2011,21, 2012, at 11:00 a.m. Central Time, at the Hilton Chicago, 720 South Michigan Avenue, Chicago,Hyatt Lisle Hotel, 1400 Corporetum Drive, Lisle, Illinois 60603.60532. At our Annual Meeting,annual meeting, our stockholders will be asked to:

ThisThe accompanying proxy statement and the form of proxy are first being made available to our stockholders on January 14, 2011.20, 2012. In order to attend our 20112012 Annual Meeting of Stockholders, you must have an admission ticket to attend. Procedures for requesting an admission ticket are detailed on page 7281 of thisthe accompanying proxy statement. Attendance and voting is limited to stockholders of record at the close of business on December 31, 2010.January 13, 2012.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE STOCKHOLDERS MEETING TO BE HELD ON FEBRUARY 15, 2011:21, 2012:

THE ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE AT

HTTP://IR.NAVISTAR.COM/ANNUALPROXY.CFM

TABLE OF CONTENTS

Q:  Why am I receiving this proxy statement?

A:  You are receiving this proxy statement because the Board of Directors (the “Board”) of Navistar International Corporation (“Navistar” or the “Company”) is soliciting your proxy to vote your shares at our 2011 annual meeting2012 Annual Meeting of stockholdersStockholders (the “Annual Meeting”). This proxy statement includes information that we are required to provide to you under the rules of the U.S. Securities and Exchange Commission (“SEC”) and is designed to assist you in voting your shares.

Q:  What is the purpose of the Annual Meeting?

A:  The purpose of the Annual Meeting is to have stockholders act upon the matters outlined in the notice of annual meeting and this proxy statement, which include (i) Proposal 1 – the approval of an amendment to our Restated Certificate of Incorporation, as amended, (our “Certificate of Incorporation”) to declassify our Board, (ii) Proposal 2 – the election of the nominees named in this proxy statement as directors, (ii)(iii) Proposal 23 – the ratification of the appointment of Navistar’s independent registered public accounting firm, (iii) Proposal 3 – the approval of an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of common stock of the Company (“Common Stock”) from 110,000,000 to 220,000,000,and (iv) Proposal 4 – anthe advisory vote on executive compensation, a so-called “Say-on-Pay” proposal, and (v) Proposal 5 – an advisory vote on the frequency of the advisory vote on executive compensation, a so-called “Say-When-on-Pay” proposal. In addition, management may report on the performance of Navistar and respond to appropriate questions from stockholders.

Q:  How does the Board recommend that I vote?

A.   The Board recommends that you vote:

Q:  Who can attend the Annual Meeting?

A:  Anyone wishing to attend the Annual Meeting must have an admission ticket issued in his or her name. Admission is limited to:

You must provide evidence of your ownership of shares with your ticket request. The specific requirements for obtaining an admission ticket are specified in the “Admission and Ticket Request Procedure” on page 81 of this proxy statement.

You must provide evidence of your ownership of shares with your ticket request. The specific requirements for obtaining an admission ticket are specified in the “Admission & Ticket Request Procedure” on page 72 of this proxy statement.

Q:  What is a stockholder of record?

A:  A stockholder of record or registered stockholder is a stockholder whose ownership of Navistar stock is reflected directly on the books and records of our transfer agent, BNY Mellon Investor Services (the “Transfer Agent”). If you hold Navistar stock through a bank, broker or other intermediary, you hold your shares in “street name” and are not a stockholder of record. For shares held in a street name, the stockholder of record of the shares is your bank, broker or other intermediary. Navistar only has access to ownership records for the stockholders of record. So, if you are not a stockholder of record, for the purpose of requesting a ticket to attend the Annual Meeting, the Company needswe will need additional documentation to evidence your stock ownership as of the record date, such as, a copy of your brokerage account statement, a letter from your broker, bank or other nominee or a copy of your voting instruction card.

Q:  When is the record date and who is entitled to vote?

A:  The Board has set December 31, 2010,January 13, 2012, as the record date for the Annual Meeting. Holders of shares of Navistar common stock (“Common StockStock”) on that date are entitled to one vote per share. As of December 31, 2010,January 13, 2012, there were approximately []69,097,189 shares of Common Stock outstanding. If you arehold shares of our Common Stock as a participant in any of the Company’s 401(k) or retirement savings plans, your 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.

A list of all registered holders will be available for examination by stockholders during normal business hours at 4201 Winfield Road, Warrenville,2701 Navistar Drive, Lisle, Illinois 6055560532 at least ten (10) days prior to the Annual Meeting and will also be available for examination at the Annual Meeting.

Q:  How do I vote?

A:  For stockholders of record: You may vote by any of the following methods:

If you vote by phone or via the Internet, please have your proxy and/or voting instruction card available. The control number appearing on your card is necessary to process your vote. A phone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and returned the card by mail.

For holders in street name: You will receive instructions from the holder of recordyour bank or broker that you must follow in order for your shares to be voted.

Q:  How can I change or revoke my proxy?

A:  For stockholders of record:You may change or revoke your proxy at any time before it is exercised by (i) submitting a written notice of revocation to Navistar c/o the Corporate Secretary at 4201 Winfield

Road, P.O. Box 1488, Warrenville,2701 Navistar Drive, Lisle, Illinois 60555,60532, (ii) signing and returning a new proxy card with a later date, (iii) validly submitting a later-dated vote by telephone or via the Internet on or before 11:59 pm EST on February 14, 201120, 2012 or (iv) attending the Annual Meeting and voting in person. For all methods of voting, the last vote cast will supersede all previous votes.

For holders in street name:You may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker.

Q:  Is my vote confidential?

A:   Yes. Proxy cards, ballots and voting tabulations that identify stockholders are kept confidential. There are exceptions for contested proxy solicitations or when necessary to meet legal requirements. Broadridge Financial Solutions, Inc., the independent proxy tabulator used by Navistar, counts the votes and acts as the inspector of elections for the Annual Meeting.

Q:  Will my shares be voted if I do not provide my proxy?

A:  For stockholders of record: If you are the stockholder of record and you do not vote by proxy card, by telephone or via the Internet or in person at the Annual Meeting, your shares will not be voted at the Annual Meeting.

For holders in street name: If your shares are held in street name, your shares may be voted even if you do not provide the brokerage firm with voting instructions. Under New York Stock Exchange (“NYSE”) rules, your broker may vote shares held in street name on certain “routine” matters. NYSE rules considers the approval of the amendment to our Certificate of Incorporation to declassify our Board (Proposal 1) and the ratification of the appointment of our independent registered public accounting firm (Proposal 2) and the approval of the amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock (Proposal 3), to be routine matters. As a result, your broker is permitted to vote your shares on those matters at its discretion without instruction from you.

When a proposal is not a routine matter, such as the election of directors (Proposal 1),2) and the Say-On-Pay proposal (Proposal 4) and the Say-When-On-Pay proposal (Proposal 5), and you have not provided voting instructions to the bank or brokerage firm with respect to that proposal, the bank or brokerage firm cannot vote the shares on that proposal. The missing votes for these non-routine matters are called a “broker non-votes.”

Q:  What is the quorum requirement for the Annual Meeting?

A:   Under Navistar’s bylaws,Amended and Restated By-Laws (the “By-Laws”), holders of at least one-third of the shares of Common Stock outstanding on the record date must be present in person or represented by proxy in order to constitute a quorum. Abstentions and broker non-votes are counted as present for purposes of establishing a quorum.

Q:  What vote is necessary for action to be taken on proposals?

A:   It will depend on each proposal.

With respect to Proposals 2,1, 3 and 4 you may vote FOR, AGAINST or ABSTAIN. If you abstain from voting on any of these proposals, the abstention will have the same effect as an AGAINST vote. With respect to Proposal 1,2, you may vote FOR all nominees, WITHHOLD your vote as to all nominees, or FOR all nominees except those specific nominees from whom you WITHHOLD your vote. A properly executed proxy marked WITHHOLD with respect to the election of one or more directors will not be voted with respect to the director or directors indicated. Proxies may not be voted for more than three directors and stockholders may not cumulate votes in the election of directors. With respect to Proposal 5, you may vote FOR “Every Year”, FOR “Every Two Years”, FOR “Every Three Years”, or ABSTAIN. Please select one choice only. If you abstain from voting on Proposal 1 or 5,2, the abstention will not have an effect on the outcome of the vote.

Broker non-votes will not affect the outcome on a proposal that requires a plurality vote (Proposals 1 and 5)(Proposal 2) or on a proposal that requires the approval of a majority of the votes present in person or represented by proxy and entitled to vote (Proposals 23 and 4), but will have the effect of a vote against matters that require approval of a majority of the outstanding shares entitled to vote (Proposal 3)1).

Votes submitted by mail, telephone or Internet will be voted by the individuals named on the card (or the individual properly authorized) in the manner indicated. If you do not specify how you want your shares voted, they will be voted in accordance with management’s recommendations. If you hold shares in more than one account, you must vote each proxy and/or voting instruction card you receive to ensure that all shares you own are voted.

Q:  What is house-holding?

A:   If you and other residents at your mailing address own shares of Common Stock in street name, your broker or bank may have notifiednotify you that your household will receive only one annual report and proxy statement for each corporation in whichthe Company if you hold stock through that broker or bank. In this practice known as “house-holding,” you were deemed to have consented to that process.receiving only one annual report and proxy statement for your household. House-holding benefits both you and the Company because it reduces the volume of duplicate information received at your household and helps the Company to reduce expenses. Accordingly, the Company and your broker or bank will send one copy of our annual report and proxy statement to your address.

Each stockholder will continue to receive a separate proxy card or voting instruction card. 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,2701 Navistar Drive, Lisle, Illinois 60555, (630) 753-2143.60532, (331) 332-2143.

Q:  What does it mean if I receive more than one proxy card?

A:  Whenever possible, registered shares and plan shares for multiple accounts with the same registration will be combined into the same proxy card. Shares with different registrations cannot be combined and as a result, the stockholder may receive more than one proxy card. For example, registered shares held individually by John Doe will not be combined on the same proxy card as registered shares held jointly by John Doe and his wife.

Street sharesShares held in street name are not combined with registered or plan shares and may result in the stockholder receiving more than one proxy card. For example, street shares held by a broker for John Doe will not be combined with registered shares for John Doe.

If you hold shares in more than one account, you must vote each proxy and/or voting instruction card you receive to ensure that all shares you own are voted. If you receive more than one card for accounts that you believe could be combined because the registration is the same, contact our stock transfer agent (for registered shares) or your broker (for shares held in street shares)name) to request that the accounts be combined for future mailings.

Q:  Who pays for the solicitation of proxies?

A:  Navistar pays the cost of soliciting proxies. This solicitation is being made by mail, but also may be made by telephone, e-mail or in person. We have hired Alliance Advisors to assist in the solicitation of proxies. Alliance Advisors’ fees are estimated to be $10,500.00,$9,000, plus out-of-pocket expenses, to assist in the solicitation. Proxies may also be solicited by our directors, officers and employees who will not be additionally compensated for those activities. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to stockholders and obtaining their votes.

Q:  When are stockholder proposals or nominations due for the 2012 annual meeting?2013 Annual Meeting of Stockholders?

A:  Our annual meeting of stockholders is typically held on the third Tuesday in February. Accordingly, we expect to hold our 20122013 annual meeting of stockholders on or around February 21, 2012. Under19, 2013. Any stockholder proposal for inclusion in the rules of the SEC, we must receive any stockholder proposals to be included in ourCompany’s proxy statementmaterials for the 20122013 annual meeting of stockholders pursuant to SEC Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”) must be received by the Company’s Corporate Secretary no later than September 22, 2012. Any proposal may be included in next year’s proxy statement only if such proposal complies with the close of business on September 16, 2011.Company’s By-Laws and the rules and regulations promulgated by the SEC, including Rule 14a-8.

To otherwise seekIn addition, the Company’s By-Laws require that the Company be given advance written notice of nominations for election to the Board and other matters that stockholders wish to present a proposalfor action at an annual meeting of stockholders or nominate directors,(other than matters included in the Company’s proxy materials in accordance with Rule 14a-8 under our bylaws notice must be given not more than 180 days and not less than 120 days in advance of the first anniversary of the preceding year’s meeting. Therefore, based on the date of our Annual Meeting, advance notice of any nominations for directors and any other proposals soughtExchange Act). For matters to be presented at the 2013 annual meeting, the Company’s Corporate Secretary must receive such notice no earlier than August 25, 2012, and no later than October 24, 2012. The notice must contain, and be accompanied by, certain information as specified in the Company’s By-Laws. The Company recommends that any stockholder wishing to nominate a director at, or bring any other item before, an annual meeting of stockholders must be received between August 19, 2011 and October 18, 2011.review the Company’s By-Laws, which are available on the Company’s website athttp://ir.navistar.com/documents.cfm. All stockholder proposals and director nominations must be in accordance with our bylaws and delivered to Navistar by mail c/o the Corporate Secretary at 4201 Winfield Road, P.O. Box 1488, Warrenville,2701 Navistar Drive, Lisle, Illinois 60555.60532.

Q:  Are there any matters to be voted on at the Annual Meeting that are not included in the proxy?

A:  We do not know of any matters to be acted upon at the Annual Meeting other than those discussed in this proxy statement. If any other matter is properly presented, proxy holders will vote on the matter in their discretion.

Q:  May stockholders ask questions at the Annual Meeting?

A:  Yes. During the Annual Meeting, stockholders may ask questions or make remarks directly related to the matters being voted on. In order to ensure an orderly meeting, we ask that stockholders direct questions and comments to the Chairman. In order to provide the opportunity to every stockholder who wishes to speak, each stockholder’s remarks will be limited to two minutes. Stockholders may speak a second time only after all other stockholders who wish to speak have had their turn.

Q: How can I find the results of the Annual Meeting?

A:   Preliminary results will be announced at the Annual Meeting. Final results will be published in a Current Report on Form 8-K to be filed with the SEC within four business days after the Annual Meeting. If the official results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final results in an amendment to the Form 8-K as soon as they become available.

Article Seventh of our Certificate of Incorporation currently divides the Board into three classes (Class I, Class II and Class III). One additional director not in any class is elected by the United Automobiles, Aerospace and Agricultural Implement Workers of America, as holders of the Company’s Series B Preference Stock. Each member of a class is elected for a three-year term, with the terms staggered so that approximately one-third of directors stand for election each year. There are currently three Class I directors, whose term expires at the Annual Meeting; three Class II directors, whose term expires at the 2013 annual meeting; and three Class III directors, whose term expires at the 2014 annual meeting.

Classified boards provide effective protection against hostile takeover tactics and proxy contests because they make it difficult to gain control of the board of directors without the cooperation or approval of incumbent directors. A classified board also fosters continuity and stability, not only on the board but also in the overall business of a company, since a majority of directors will always have prior experience as directors of the company.

However, annually elected boards are perceived as increasing the accountability of directors to stockholders as they provide stockholders with the opportunity to register their views at each annual meeting on the performance of the entire board of directors over the prior year. Many institutional investors believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to hold management accountable for implementing those policies. Others support declassification because it removes an anti-takeover defense for the board of directors the stockholders prefer to have in their own hands.

After careful consideration, and as part of an agreement reached with some of our stockholders, the Board has determined that it would be in the best interests of the Company and its stockholders to amend our Certificate of Incorporation as set forth inAppendix A of this proxy statement, to phase out classification of our Board and provide instead for the annual election of directors as further described below (the “Declassification Amendment”). The Board unanimously approved, and recommends that the stockholders approve, the Declassification Amendment.

If the Declassification Amendment is approved by our stockholders, then we will amend our Certificate of Incorporation and directors elected at the Annual Meeting and thereafter will be elected for one-year terms at each annual meeting of stockholders. Therefore, the Class I directors would stand for election at the Annual Meeting for one-year terms, the Class I and Class II directors would stand for election at the 2013 annual meeting for one-year terms, and beginning with the 2014 annual meeting, the Board will be completely declassified and all directors will be subject to annual election to one-year terms. Consistent with Delaware law, the Declassification Amendment also provides that once declassification of the Board is accomplished at the 2014 annual meeting, thereafter directors may be removed with or without cause.

If the Declassification Amendment is not approved by the stockholders, our Board will remain classified and our directors will continue to be subject to our Certificate of Incorporation’s current classification. In such case, the three Class I directors to be elected at the Annual Meeting would be elected to a three-year term to serve until the 2015 annual meeting and until their respective successors are duly elected and qualified. Similarly, the Class II and Class III directors would continue to be elected to three-year terms as provided in our existing Certificate of Incorporation.

To be approved at the Annual Meeting, the Declassification Amendment requires the affirmative vote of at least a majority of the outstanding shares of our Common Stock. An abstention will have the same

effect as a vote against the proposal. If approved, the Declassification Amendment will become effective during the Annual Meeting and prior to the election of directors, so that persons elected directors at the Annual Meeting will be elected to a one-year term.

The general description of the proposed amendment to the Certificate of Incorporation set forth above is qualified in its entirety by reference to the text of the proposed amendment to the Certificate of Incorporation which is attached asAppendix A to this proxy statement.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 1.

Our Board consists of 10 directors.¹ One director is appointed by the United Automobiles, Aerospace and Agricultural Implement Workers of America (the “UAW”) and is not part of our classified Board. The remaining 9nine directors are divided into three equal classes for purposes of election (i.e., Class I, Class II and Class III). Only the three members of Class IIII of our classified Board are up for election at the Annual Meeting.

As explained in further detail on page 8 of this proxy statement, the Board is proposing to amend our Certificate of Incorporation to move to annual elections of all our directors. This action cannot take place, however, until approved by stockholders. Accordingly, if the proposed amendment in Proposal 1 is not approved by our stockholders, the three Class I nominees will be elected to a three-year term expiring at our 2015 annual meeting of stockholders. If elected,our stockholders approve Proposal 1 to amend our Certificate of Incorporation to move to annual election of all our directors, then the Class III DirectorsI nominees will hold office for an additional three yearbe elected to a one-year term expiring in 2014, or until their earlier death, resignation or retirement.at our 2013 annual meeting of stockholders.

If a nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting. We know of no reason why any nominee would be unable to accept nomination or election. All nominees have consented to be named in this proxy statement and to serve if elected.

The following summarizes additional information about each of the nominees and continuing directors as of the date of this proxy statement, including their business experience, director positions held currently or at any time during the last five years, involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that qualify our nominees and continuing directors to serve as directors of the Company. The nominees were evaluated and recommended by the Nominating and Governance Committee in accordance with the process for nominating directors as found on page 1720 of this proxy statement.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NOMINEES PRESENTED IN PROPOSAL 1.2.

Class IIII Directors Whose Term Expires at the 2011 Annual Meeting– THIS IS THE ONLY CLASS OF DIRECTORS UP FOR ELECTION AT THE ANNUAL MEETING.MEETING

		James H. Keyes,* 70, Director since 2002(Committees: Audit (Chair), Compensation, Nominating and Governance and Executive). Mr. Keyes retired as Chairman of the Board of Johnson Controls, Inc., an automotive system and facility management and control company, in 2003, a position he had held since 1993. He served as Chief Executive Officer of Johnson Controls, Inc. from 1988 until 2002. He is a director of Pitney Bowes, Inc.(Committees: Audit and Compensation) and on the Board of Trustees of Fidelity Mutual Funds(Committees: Audit and Compliance). He was also formerly a director of LSI Logic Corporation. Mr. Keyes has broad experience as former chief executive officer of a public company, experience as a certified public accountant, experience as a member of other public company boards of directors, and he has a Masters in Business Administration. He possesses strong skills and experience in accounting, corporate governance, finance, human resources/compensation/employee benefits, manufacturing (domestic and international), mergers and acquisitions and treasury matters, which well qualifies him to serve on our Board.

THE FOLLOWING CLASSES OF DIRECTORS ARE NOT UP FOR ELECTION AT THE ANNUAL MEETING.

Class I Directors Whose Term Expires at the 2012 Annual Meeting

THE FOLLOWING CLASSES OF DIRECTORS ARE NOT UP FOR ELECTION AT THE ANNUAL MEETING.

Class II Directors Whose Term Expires at the 2013 Annual Meeting

		Diane H. Gulyas,*,* 54, 55, Director since 2009 ((Committee: Finance). Ms. Gulyas is the President responsible for E.I. DuPont De Nemours and Company’s (“DuPont”) performance polymers, which contains three business units – engineering polymers, elastomers and films, with annual revenues of approximately $4$5 billion. She joined DuPont in 1978 and spent her first 10 years in a variety of sales, marketing, technical and systems development positions, primarily in the company’s polymers business. She later served as vice president and general manager for DuPont’s advanced fiber business and then group vice president of the $3 billion electronic and communication technologies platform. In April 2004, she was named chief marketing and sales officer, where she was responsible for corporate branding and marketing communications, market research, e-business and marketing/sales capability worldwide. She was named to her current position in October 2009.   As a result of these professional and other experiences, Ms. Gulyas possesses executive and management experience that well qualifies her to serve on our Board. Her skills in engineering, manufacturing (domestic and international), marketing and non-U.S. sales and distribution contribute greatly to the Board’s composition.
		William H. OsborneGeneral (Retired) Stanley A. McChrystal,,* 50, 57, Director since 20092011 ((Committee: Finance). Gen. McChrystal, is a retired 34-year U.S. Army veteran of multiple wars. He commanded the U.S. and NATO’s security mission in Afghanistan, served as the director of the Joint Staff and was the Commander of Joint Special Operations Command, where he was responsible for the nation’s deployed military counter terrorism efforts. Gen. McChrystal is a graduate of the United States Military Academy at West Point, the United States Naval Command and Staff College and was a military fellow at both the Council on Foreign Relations and the Kennedy School of Government at Harvard University. Currently the General is a member of the Board of Directors of JetBlue Airways Corporation (Committees: Compensation, Corporate Governance and Nominating and Airline Safety), a commercial airline, Chairman of the board of Siemens Government Technologies, Inc., a wholly-owned indirect subsidiary and a Federal Business Entity of Siemens AG, since December 2011, and since August 2011 a member of the Board of Advisors of General Atomics, a world leader of resources for high-technology systems ranging from the nuclear fuel cycle to remotely operated surveillance aircraft, airborne sensors, and advanced electric, electronic, wireless and laser technologies. He also teaches a seminar on leadership at the Jackson Institute for Global Affairs at Yale University and serves alongside his wife on the Board of Directors for the Yellow Ribbon Fund, a non-profit organization committed to helping wounded veterans and their families. As a former senior military leader, Gen. McChrystal has experience in logistics, talent management and experience with government and regulatory affairs and military contracting. Gen. McChrystal’s years of military leadership and service are of great value to the Board as the Company expands its global and military businesses.

Class III Directors Whose Term Expires at the 2014 Annual Meeting

		James H. Keyes,* 71, Director since 2002(Committees: Audit (Chair),Compensation, Nominating and Governance and Executive). Mr. OsborneKeyes retired as Chairman of the Board of Johnson Controls, Inc., an automotive system and facility management and control company, in 2003, a position he had held since 1993. He served as Chief Executive Officer of Johnson Controls, Inc. from 1988 until 2002. He is a director of Pitney Bowes, Inc.(Committees: Compensation, Governance and Executive) and is a member of the Board of Trustees of Fidelity Mutual Funds(Committees: Audit and Compliance). He was also formerly a director of LSI Logic Corporation, an electronics company that designs semiconductors and software that accelerate storage and networking in datacenters and mobile networks. Mr. Keyes has broad experience as former chief executive officer of a public company, experience as a certified public accountant, experience as a member of other public company boards of directors, and he has a Masters in Business Administration. He possesses strong skills and experience in accounting, corporate governance, finance, human resources/compensation/employee benefits, manufacturing (domestic and international), mergers and acquisitions and treasury matters, which well qualifies him to serve on our Board.
		John D. Correnti,* 64, Director since 1994(Committees: Audit, Nominating and Governance and Compensation (Chair)). Mr. Correnti serves as Chairman and Chief Executive Officer of Steel Development Company, LLC, a steel mill operational and development company, since 2007. Prior to this position he was President and Chief Executive Officer of Federal SignalSeverCorr, LLC, a manufacturer of high quality flat-rolled steel products, from 2005 until 2008. He was Chairman and Chief Executive Officer of SteelCorr, LLC from 2002 to 2005, and Chairman and Chief Executive Officer of Birmingham Steel Corporation, a $1 billion manufacturer of steel and marketersteel products, from 1999 to 2002. On June 3, 2002, Birmingham Steel Corporation filed for voluntary reorganization under Chapter 11 of fire, safety and municipal infrastructure equipment, from September 2008 until November 2010. Prior to joining Federal Signal Corporation he served in a number of senior-level positions with Ford Motor Company. Most recently, hethe U.S. Bankruptcy Code. Mr. Correnti served as presidentChief Executive Officer, President and chief executive officerVice Chairman of FordNucor Company, a mini mill manufacturer of Australiasteel products, from February 20081996 to September 2008. Previously, he served as president and chief executive officer of Ford of Canada from November 2005 to January 2008,1999, and as Executive Director, Pickup Truckits President and Commercial Vehicles, North American Truck Business of Ford Motor Company from December 2003 to November 2005. His earlier assignments included a variety of roles in product design, developmentChief Operating Officer and engineering. Prior to joining Ford, he held positions at Chrysler and General Motors from 1977 to 1990. He has also served as a director from 1991 to 1996. He is Executive Chairman of Federal Signal Corporation.the Board of Directors of Calisolar, a private solar cells manufacturer, and a director of Corrections Corporation of America, a public provider of correctional solutions(Committee: Compensation). He also serves on the Clarkson University Board of Trustees and the Mississippi University for Women Foundation Board.
		Mr. Osborne has thirty yearsCorrenti’s executive leadership and experience in the global automotive industrygained through his service as a manufacturing, saleschief executive of established and product development executive.start-up companies, both public and private, and his public company director experience contributes significantly to the Board’s composition. His expertise in building and leading complex global organizations as well as his strong backgroundskills and experience in accounting, corporate governance, distribution, engineering, human resources, compensation, and employee benefits, manufacturing (domestic and international), marketing, mergers and marketingacquisitions, domestic sales and distribution and purchasing matters well qualifies him to serve on our Board.

		Daniel C. Ustian, 61, Director since 2002(Committee: Executive). Mr. Ustian serves as President and Chief Executive Officer of Navistar since 2003 and Chairman of the Board since 2004. He has also held numerous positions with Navistar, Inc., including serving as Chairman of the Board of Directors of Navistar, Inc. since 2004, President and Chief Executive Officer since 2003 and a director since 2002. Prior to these positions he served as President and Chief Operating Officer of Navistar, Inc., from 2002 to 2003, President of the Engine Group of Navistar, Inc. from 1999 to 2002, and Group Vice President and General Manager of the Engine & Foundry Group of Navistar, Inc. from 1993 to 1999. He is a member of the Business Roundtable and the Society of Automotive Engineers and has served as a director of AGCO Corporation, a leading global manufacturer of agricultural equipment, since March 2011. Mr. Ustian’s knowledge of the Company and its operations, including his experience running the engine business, the foundry and other experiences at the Company over the last 37 years, is invaluable to the Board in evaluating and directing the Company’s future. As a result of his professional and other experiences, Mr. Ustian possesses particular knowledge and experience in a variety of areas, including corporate governance, distribution, engineering, manufacturing (domestic and international), marketing, mergers and acquisitions, sales/military/government and union/labor relations, which strengthens the Board’s collective knowledge, capabilities and experience and well qualifies him to serve on our Board.

Additional Director Who Is Not Elected by Stockholders

Involvement in Certain Legal Proceedings

On August 5, 2010, the SEC announced that a final administrative settlement had been reached with the Company and certain current and former employees of the Company, including Mr. Ustian, the Company’s Chairman, President and Chief Executive Officer, regarding the SEC’s investigation of matters surrounding the Company’s restatement of its financial results from 2002 through the first three quarters of 2005. As part of the administrative settlement, without admitting or denying any wrongdoing, Mr. Ustian consented to a cease and desist order requiring future compliance with an internal accounting control provision of the federal securities laws and, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, agreed to return to the Company an aggregate of $1,320,000 (paid through the tender of shares of Common Stock) representing his fiscal 2004 monetary bonus, the only bonus that he received during the restatement period.

CORPORATE GOVERNANCE GUIDELINES

Our Board has adopted Corporate Governance Guidelines, which are available on the Investor Relations section of our website athttp://ir.navistar.com/documentdisplay.cfm?DocumentID=1309documents.cfm.. These guidelines reflect the Board’s commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing stockholder value over the long term.

RELATED PARTY TRANSACTIONS AND APPROVAL POLICY

We established the Navistar Executive Stock Ownership Program in 1997 to more closely align the interests of stockholders and our senior management. Under this program all of our executive officers and certain senior managers are required to purchase and hold a specified amount of our Common Stock equal to a multiple of his or her annual base salary. Certain executive officers received full-recourse loans for the purchase price of our Common Stock they purchased through the program. Effective July 30, 2002, we ceased offering loans to our executive officers under this program. The loans extended to our executive officers prior to July 30, 2002, however, remained in effect in accordance with their then existing terms and conditions. These loans accrued interest at the applicable federal rate (as determined by Section 1274(d) of the Internal Revenue Code) on the purchase date (or date of refinance) for loans of stated maturity, compounded annually, were unsecured obligations and had a nine-year term. All principal and interest under these loans had to be repaid at maturity in a balloon payment.

The following executive officers of the Company had outstanding loans under this program during fiscal year 2010. The table below indicates the largest amount of the indebtedness outstanding and interest rate charged during fiscal year 2010. All principal and interest under these loans were repaid in full in fiscal year 2010.

Our Policy and Procedures with Respect to Related Person Transactions governs the review, approval and ratification of transactions involving the Company and related persons where the amount involved exceeds $120,000. Related persons include our executive officers, directors, director nominees, 5% stockholders and immediate family members of such persons, and entities in which one of these persons has a direct or indirect material interest. Under this policy, prior to entering into any related-person transaction, the General Counsel or Corporate Secretary of Navistar is to be notified of the facts and circumstances of the proposed transaction, including: (i) the related person’s relationship to the Company and interest in the transaction; (ii) the material facts of the proposed transaction, including the proposed aggregate value of such transaction or, in the case of indebtedness, the amount of principal that would be involved; (iii) the benefits to the Company of the proposed transaction; (iv) if applicable, the availability of other sources of comparable products or services; and (v) an assessment of whether the proposed transaction is on terms that are comparable to the terms available to an unrelated third party or to employees generally.

The General Counsel or Corporate Secretary then assesses whether the proposed transaction is a related-person transaction for purposes of the policy and SEC rules. If the General Counsel or

Corporate Secretary determines that the proposed transaction is a related-person transaction, the proposed transaction is then submitted to the Audit Committee of the Board for its consideration. The Audit Committee considers all of the relevant facts and circumstances available, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director’s independence, in the event such person is a director; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally. No member of the Audit Committee shall participate in any review, consideration or approval of any related-person transaction with respect to which such member or any of his or her immediate family members is the related person. The Audit Committee approves only those proposed transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as determined by the Audit Committee in good faith. In the event that the Company becomes aware of a related-person transaction that has not been previously approved or ratified, a similar process will be undertaken in order to determine if the existing transaction should continue or be terminated and/or if any disciplinary action is appropriate. The General Counsel or Corporate Secretary may also develop, implement and maintain from time to time certain administrative procedures to ensure the effectiveness of this policy.

A copy of our Policy and Procedures with Respect to Related Person Transactions is available on the Investor Relations section of our website athttp://ir.navistar.com/documentdisplay.cfm?DocumentID=3617documents.cfm.

Since the beginning of fiscal year 2010,2011, the following threefour related-person transactions occurred:

DIRECTOR INDEPENDENCE DETERMINATIONS

We believe that a majority of ourthe members of our Board should be independent non-employee directors. Our Board has affirmatively determined that nine of our ten directors, each of Messrs. Clariond, Correnti, Hammes, Harrison, Keyes, Klinger, OsborneMcChrystal and Williams and Ms. Gulyas, qualifies as an “independent director” in accordance with the NYSE’s independence requirements and our own internal guidelines for determining director independence and eachindependence. Each of these directors has also been determined to be financially literate. All of the members of our Audit Committee, Compensation Committee, Finance Committee and the Nominating and Governance Committee are independent and financially literate.

Both the NYSE requirements and our own guidelines include a series of objective tests for determining the independence of a director, such as that the director is not an employee of Navistar and has not engaged in various types of commercial or charitable relationships with Navistar. A copy of our existing guidelines for determining director independence, as included in our Corporate Governance Guidelines, is available on the Investor Relations section of our website athttp://ir.navistar.com/documentdisplay.cfm?DocumentID=1309documents.cfm. Our Board has made a determination as to each independent director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of the director’s independent judgment in carrying out his or her responsibilities as a director. In making these determinations, our Board reviewed and discussed information provided by the directors and Navistar with regard to each director’s business and personal activities as they may relate to Navistar, its management and/or its independent registered public accounting firm. We intend to explain in our public filings the basis for any determination by the Board that a relationship is not material if the relationship does not satisfy one of the specific categories of immaterial relations contained in our existing guidelines.

BOARD LEADERSHIP STRUCTURE

The Company’s Corporate Governance Guidelines allow the Board to select the Chairman of the Board and the CEO and to determine from time to time whether the positions are combined and filled by one person or separated and filled by two persons. Currently, Mr. Daniel C. Ustian, our CEO,Board leadership structure consists of a Chairman (who is also Chairman.our CEO), an independent Lead Director and strong committee chairs. The Board has determined that selecting our CEO as Chairman is in the best interests of the Company and its stockholders because this leadership structure promotes a unified vision for our Company, strengthens the ability of the CEO to develop and implement strategic initiatives and facilitates our Board’s efficient and effective functioning.

The Board also believes the combination of Chairman and CEO position is appropriate in light of the independent oversight provided by the Board and the appointment of an independent Lead Director. On October 20, 2009,18, 2011, the Board appointedreappointed Mr. Michael N. Hammes to serve as Lead Director for a second two-yearone-year term. Our Lead Director’s duties and responsibilities include: (i) facilitating communications and information sharing among the independent directors; (ii) advising on Board meeting agendas; (iii) advising on meeting materials; (iv) participating in the evaluation and selection of candidates for selection to the Board; (v) participating in the recruiting of new directors; (vi) overseeing the Board self-evaluation process and individual director evaluations, if such individual director evaluations are performed; (vii) participating in the evaluation of the CEO; (viii) participating in the development of recommendations to the Board for the election of Board Committeecommittee members and the appointment of Committeecommittee chairs; (ix) chairing Board meetings in the absence of the Chair; (x) making recommendations about retention of consultants reporting to the Board; (xi) attending all Board Committeecommittee meetings; and (xii) consulting with the CEO prior to the CEO’s personal transactions in the Corporation’sCompany’s securities. In addition, the Lead Director provides feedback to the CEO regarding the other directors’ comments and concerns.

RISK OVERSIGHT

Our Board has overall responsibility for the oversight of risk management at our Company. Day to dayDay-to-day risk management is the responsibility of management, which has implemented an Enterprise Risk

Management process to identify, assess, manage and monitor risks that face our Company. Enterprise Risk Management operates within our Internal Audit and Sarbanes-Oxley Compliance department and coordinates its efforts with these departments.that department. Our Board, either as a whole or through its Committees,committees, regularly discusses with management our major risk exposures, their potential impact on our Company, and the steps we take to monitor and control such exposures.

While our Board has general oversight responsibility for risk at our Company, the Board has delegated some of its risk oversight duties to the various Board Committees.committees. In particular, the Audit Committee is responsible for generally reviewing and discussing the Company’s policies and guidelines with respect to risk assessment and risk management. It also focuses on the management of financial risk exposure and oversees financial statement compliance and control environment risk exposure. The Nominating and Governance Committee oversees risks related to corporate governance, including risk related to the political environment. The Compensation Committee assists our Board in overseeing the management of risks arising from our compensation policies and programs and programs related to assessment, selection, succession planning, training and development of executives of the Company. Finally, the Finance Committee is responsible for overseeing policies with respect to financial risk assessment and financial risk management including, without limitation, risks relating to liquidity/access to capital and macroeconomic trends/environment risks. Each of the Board Committeescommittees periodically reviews these risks and then discusses the process and results with the full Board.

The Board believes the combined role of Chairman and CEO is an effective structure for the Board to understand the risks associated with the Company’s strategic plans and objectives. Additionally, maintaining an independent Board with a Lead Director permits open discussion and assessment of the Company’s ability to manage these risks.

NOMINATING DIRECTORS

You may recommend any person as a candidate for director by writing to our Corporate Secretary at 4201 Winfield Road, P.O. Box 1488, Warrenville,2701 Navistar Drive, Lisle, Illinois 6055560532 and complying with the procedures set forth in our bylaws.By-Laws. Your letter must be received by the Company’s Corporate Secretary no earlier than August 25, 2012, and no later than October 24, 2012, and must include all of the information required by our bylawsBy-Laws including, but not limited to, the proposed nominee’s biographical information and principal occupation; the number of shares of capital stock of the Company which are owned by the proposed nominee, appropriate information about the proposed nominee that would be required to be included in a proxy statement under the rules of the SEC, the number of shares held by you, information about the relationship between the proposed nominee and you, and a representation that you intend to appear in person or by proxy at the meeting to nominate the proposed nominee. Your letter must be accompanied by the written consent of the proposed nominee to being named as a nominee and to serve as a director if elected. You may only recommend a candidate for director if you hold shares of the Company’s stock on the date you give the notice described above and on the record date for the annual meeting of stockholders at which you propose such nominee be elected.

The Nominating and Governance Committee identifies nominees for directors from various sources, including suggestions from Board members and management, and in the past has used third party consultants to assist in identifying and evaluating potential nominees. The Nominating and Governance Committee will consider persons recommended by the stockholders in the same manner as a committee-recommended nominee. The Nominating and Governance Committee has specified the following minimum qualifications that it believes must be met by a nominee for a position on the Board:

The Nominating and Governance Committee believes that consideration should also be given to having a diversity of backgrounds, skills, and perspectives among the directors, and that generally directors should not be persons whose primary activity is investment banking, law, accounting, or consulting. In addition, the selection of directors should consider the need to strengthen the Board by providing a diversity of persons in terms of their expertise, age, sex, race, ethnicity, education, and other attributes which contribute to the Board’s diversity.

The satisfaction of the above criteria is implemented and assessed through ongoing consideration of directors and nominees by the Nominating and Governance Committee and the Board, as well as the Board’s self-evaluation process. Based upon these activities and its review of the current composition of the Board, the Nominating and Governance Committee and the Board believe that these criteria have been satisfied.

As outlined in our Corporate Governance Guidelines, any director who receives more “withheld” votes than “for” votes in an uncontested election is required to tender his or her resignation to the Nominating and Governance Committee for consideration and recommendation to the Board. The Board will publicly disclose its decision.

BOARD COMMITTEES AND MEETINGS

The Board has documented its governance practices in our Corporate Governance Guidelines. These governance standards embody many of our long-standing practices, policies and procedures, which are the foundation of our commitment to best practices. In October 2010,2011, the Board conducted an evaluation of the directors, the committees and the Board.

The Board has five standing committees: an Audit Committee, a Compensation Committee, an Executive Committee, a Finance Committee and a Nominating and Governance Committee. Each of the committees, except for the Executive Committee, is governed by a written charter, copies of which are available on the Investor Relations section of our website athttp://ir.navistar.com/documents.cfm. The provisions governing our Executive Committee are set forth in Article III of our By-Laws, a copy of which is available on the Investor Relations section of our website athttp://ir.navistar.com/documents.cfm.

In fiscal year 2010,2011, the full Board met six (6)ten times. In addition, the Board’s independent directors met three (3) times in regularly scheduled executive sessions to (i) evaluate the performance of the Chief Executive Officer, (ii) discuss corporate strategies and (iii) discuss the Board’s self-evaluation. The Chairs of our Audit, Compensation, Nominating and Governance and Finance committees of the Board each preside as the chair at meetings or executive sessions of outside directors at which the principal items to be considered are within the scope of the authority of his or her committee.

AllDuring fiscal year 2011, each of the directors except Dennis Williams attended 75%93% or more of all the meetings of the Board and the committees on which he or she serves. The Company encouragesaverage attendance of all directors in fiscal 2011 was 96%. Dennis Williams attended 63% of the Board and committee meetings on which he serves. Mr. Williams’ absence from these meetings was due to his attendance at UAW negotiations, which he is required to attend as UAW Secretary Treasurer and Director, Agricultural Implement and Transnational Departments. We encourage all Board members to attend all meetings, including the Annual Meeting. All of our directors attended our 2010 Annual Meeting.2011 annual meeting of stockholders.

Below is a table indicating committee membership and a description of each committee of the Board.

Audit Committee– The Audit Committee assists the Board in fulfilling its responsibility for oversight of the Company’s financial reporting process, the Company’s legal and regulatory compliance, the independence, qualifications and performance of the Company’s independent auditorregistered public accounting firm and the performance of the Company’s internal audit function. The Audit Committee reviewed the fiscal year 20102011 audit plans of the Company’s independent registered public accounting firm and internal audit staff, reviewed the audit of the Company’s accounts with the independent registered public accountantsaccounting firm and the internal auditors, considered the adequacy of audit scope and reviewed and discussed with the auditors and management the auditors’ reports. The Audit Committee also reviewed environmental surveys and compliance activities for the Company’s facilities and the expense accounts of executive officers and directors. The Audit Committee reviews and decides on conflicts of interest and related person transactions that may affect executive officers and directors and also discusses policies and guidelines with respect to risk assessment and risk management. Additional information on the roles and responsibilities of the Audit Committee is provided under “Audit Committee Reports” on page 22. In December 2010 the25 of this proxy statement. The Board designated Mr. John D. Correnti, Mr. David D. Harrison, Mr. James H. Keyes and Mr. Steven J. Klinger as Audit Committee“audit committee financial experts,” as defined by applicable law, rules and regulations. In fiscal year 2010,2011, the Audit Committee held nine (9) meetings. The Audit Committee conducted an evaluation of its performance in October 2010.2011.

Compensation Committee– The Compensation Committee makes recommendations to the Board with respect to the election and responsibilities of all executive officers, reviews and approves the

compensation of executive officers who are not also directors of the Company, reviews and approves the Company’s compensation strategy and any associated risk, recommends to the independent members of the Board the compensation of executive officers who also are directors of the Company, administers the Company’s equity compensation plans, furnishes an annual Compensation Committee Report on executive compensation and reviews and discusses the Compensation Discussion & Analysis (“CD&A”) with management and recommends to the Board the inclusion of the CD&A in the Company’s proxy statement. Upon management’s recommendation, the Compensation Committee reviews basic changes to non-represented employees’ base compensation and incentive and benefit plans. The Compensation Committee also oversees the development and implementation of succession plans for senior executives (with the exception of our CEO) and positions as needed. Additional information on the roles and responsibilities of the Compensation Committee is provided in the CD&A on page 2731 of this proxy statement. The Compensation Committee held six (6)four meetings in fiscal year 2010.2011. The Compensation Committee conducted an evaluation of its performance in October 2010.2011.

Executive Committee – The Executive Committee is composedcomprised of three (3) directors, two (2) of whom are independent directors. The Executive 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 Executive Committee held one meetingtwo meetings in fiscal year 2010.2011.

Finance Committee – The Finance 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 operatinginvestment spending and capital expenditure budgets. The Finance Committee also oversees the Company’s policies with respect to financial risk assessment and financial risk management. The Finance Committee held six (6) meetings in fiscal year 2010.2011. The Finance Committee conducted an evaluation of its performance in October 2010.2011.

Nominating and Governance Committee – The Nominating and Governance Committee is responsible for the organizationorganizational structure of the Board and its committees, recommending to the Board the directors to serve on the standing Board committees, reviewing and making recommendations to the Board concerning nominees for election as directors, CEO succession planning, reviewing and reviewing, recommendingmaking recommendations to the Board concerning corporate governance practices and policies of the Company and changes to the Company’s charterCertificate of Incorporation and by-lawsBy-Laws and overseeing risks related to corporate governance. In addition, the Nominating and Governance Committee leads the Board in its self-evaluation process. The Nominating and Governance Committee held six (6) meetings in fiscal year 2010.2011. The Nominating and Governance Committee conducted an evaluation of its performance in October 2010.2011.

COMMUNICATION WITH THE BOARD

Interested parties may communicate with any of our directors, our Board as a group, our non-employee directors as a group or any committees of the Board by sending an e-mail topresiding.director@navistar.comor by writing to the Presiding Director, c/o the Corporate Secretary, at 4201 Winfield Road, P.O. Box 1488, Warrenville,2701 Navistar Drive, Lisle, Illinois 60555.60532. The Board has given the Corporate Secretary the discretion to distribute communications to the director or directors, after ascertaining whether the communications are appropriate to duties and responsibilities of the Board. Communications that relate to ordinary business matters that are not within the scope of the Board’s responsibilities will be forwarded to the appropriate employee within the Company. Solicitations, junk email and obviously frivolous or inappropriate communications will not be forwarded. You will receive a written acknowledgement from the Corporate Secretary’s Office upon receipt of your communication.

CODE OF CONDUCT

Our Code of Conduct embodies a code of ethics (the “Code”) applicable to all of our directors, officers and employees, which establishes the principles, policies and conduct for professional behavior in the workplace. Every director, officer and employee is required to read and follow the Code. A copy of our Code of Conduct is available on the Investor Relations section of our website athttp://ir.navistar.com/documentdisplay.cfm?DocumentID=4850documents.cfm. Any waiver of the Code for executive officers or directors of the Company requires the approval of the Audit Committee and must be promptly disclosed to the Company’s stockholders. We intend to disclose on the Investor Relations section of our website(http://ir.navistar.com/documents.cfm)) any amendments to, or waivers from, the Code that is required to be publicly disclosed under the rules of the SEC.

The Audit Committee has established procedures for employees, vendors and others interested parties to communicate concerns with respect to our accounting, internal controls or financial reporting to the Audit Committee, which has responsibility for these matters. Concerns may be reported as follows:

Management of the Company has the primary responsibility for the integrity of the accounting, auditing and financial reporting practices of the Company, including the system of internal controls. KPMG LLP (“KPMG”), our independent registered public accounting firm, is responsible for performing an independent audit of the Company’s consolidated financial statements and internal controls over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (United States) and issuing a report thereon. The Audit Committee’s responsibility is to monitor these processes. In this regard, the Audit Committee meets periodically with management, the internal auditors and our independent registered public accounting firm. The Audit Committee has the authority to conduct or authorize investigations into any matters within the scope of its responsibilities and the authority to retain such outside counsel, experts and other advisors as it determines appropriate to assist it in conducting any such investigations. The Audit Committee is responsible for selecting and, if appropriate, replacing our independent registered public accounting firm.

The Audit Committee has discussed with KPMG the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. Discussions about the Company’s audited financial statements included KPMG’s judgments about not only the acceptability of the accounting principles, but also the quality, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with KPMG other matters required by Statement on Auditing Standards No. 114 (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. KPMG provided to the Audit Committee the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee discussed the independence of the independent registered public accounting firm with management and KPMG. The Audit Committee concluded that KPMG’s independence had not been impaired.

Based on the above-mentioned review and discussions with management and KPMG, and subject to the limitations on the roles and responsibilities of the Audit Committee referred to above and in the Audit Committee’s written charter, the Audit 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, 20102011 for filing with the SEC. In addition, the Audit Committee has engaged KPMG to serve as the Company’s independent registered public accounting firm for 2011.fiscal year 2012.

Audit Committee

James H. Keyes, Chairman

John D. Correnti

David D. Harrison

Steven J. Klinger

This table indicates, as of December 15, 2010,31, 2011, all persons we know to be beneficial owners of more than 5% of our Common Stock. This information is based, in part, on a review of Schedule 13D, Schedule 13G and Section 16 reports filed with the SEC by each of the firms listed in the table below.

Barberry is the sole member of Hopper, which is the general partner of High River. Icahn Offshore is the general partner of each of Icahn Master, Icahn Master II and Icahn Master III. Icahn Onshore is the general partner of Icahn Partners. Icahn Capital is the general partner of each of Icahn Offshore and Icahn Onshore. Icahn Enterprises Holdings is the sole member of IPH, which is the general partner of Icahn Capital. Beckton is the sole stockholder of Icahn Enterprises GP, which is the general partner of Icahn Enterprises Holdings. Carl C. Icahn is the sole stockholder of each of Barberry and Beckton. As such, Mr. Icahn is in a position indirectly to determine the investment and voting decisions made by each of the Reporting Persons. In addition, Mr. Icahn is the indirect holder of approximately 92.6% of the outstanding depositary units representing limited partnership interests in Icahn Enterprises L.P. (“Icahn Enterprises”). Icahn Enterprises GP is the general partner of Icahn Enterprises, which is the sole limited partner of Icahn Enterprises Holdings. See the Schedule 13D/A filing by the Reporting Persons for certain disclaimers of beneficial ownership

The following table sets forth certain information regarding beneficial ownership of our Common Stock as November 30, 2010of December 31, 2011 by: (i) each of our directors or nominees for director; (ii) each of our executive officers named in the Summary Compensation Table on page 3949 (“NEOs”); and (iii) all of our directors, nominees for director and executive officers as a group. In general, “beneficial ownership” includes those shares a director, nominee for director or NEO has the power to vote or transfer, stock units with no risk of forfeiture 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.

DSUs PSUs and RSUs

Under our Executive Stock Ownership Program, executives may defer their cash bonus into DSUs. If an executive officer elects to defer a cash bonus, the number of shares shown for such NEO includes

these DSUs. These DSUs vest immediately. The number of shares shown as owned for each NEO (and all NEOs as a group) also includes PSUs that were awarded pursuant to the Executive Stock Ownership Program. PSUs vest in equal installments on each of the first three anniversaries of the date on which they are awarded.

Under our Non-Employee Directors Deferred Fee Plan, directors may defer all or a portion of their annual retainer and meeting fees into phantom stock units.DSUs. If a director elects to defer a portion of their annual retainer and/or meeting fees into phantom stock units,DSUs, these phantom stock unitsDSUs are shown as owned.

Under our 2004 Performance Incentive Plan (“2004 PIP”) and prior plans, executives may defer the receipt of shares of Common Stock due in connection with a restoration stock option exercise of non-qualified stock options that were vested prior to December 31, 2004. If an executive elected to defer receipt of these shares into stock units, these stock units are also shown as owned. The deferral feature has been eliminated with respect to future stock option grants under the 2004 PIP and for non-qualified stock options granted from prior plans that vest on or after January 1, 2005.

Under our 2004 PIP, RSUs were granted to our NEOs on September 18, 2008, December 16, 2008 and December 15, 2009 and December 14, 2010. The September 2008 RSUs vest ratably over a three year period with 25% vesting on each of the first and second anniversary of the date of grant, with the remaining 50% vesting on the third anniversary of the date of grant.2009. The December 2008 and 2009 RSUs vest ratably over a three year period with 1/3^rd vesting on each of the first three anniversaries of the date of grant, so that in 3 years the RSUs are 100% vested.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of our Board (the “Committee”“Compensation Committee”) reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) required by Item 402(b) of Regulation S-K with management, and based upon this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and AnalysisCD&A be included in this proxy statement. The independent members of the Board reviewed and discussed the compensation of the President and CEO.

COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee has the responsibility to approve and monitor all compensation and benefit programs for our executive officers (designated as(which, for purposes of this proxy statement, the term executive officer means senior leadership of the Company, including Section 16 Officers)Officers and NEOs) and makes recommendations for the compensation and benefits of our Chief Executive Officer (the “CEO”), which is then approved by the independent members of our Board. As part of its responsibility, the Compensation Committee reviews the performance of executive officers and approves compensation based on the overall successes of the individual executive, his or her specific business unit to the extent applicable, and the organization as a whole. The Compensation Committee is governed by a written charter, a copy of which is available on the Investor Relations section of our website athttp://ir.navistar.com/documentdisplay.cfm?DocumentID=809.documents.cfm.

Executive Summary

Our long termlong-term business strategy is focused on three pillars: (i) Great Products, (ii) Profitable Growth, and (iii) Competitive Cost Structure, and (iii) Profitable Growth.Structure. Two key enablers to this strategy are our ability to (i) Leverageleverage the resources we have and those of our partners, and (ii) Controlcontrol our destiny.

As

In fiscal year 2011, we had a strong full-year earnings performance reflecting the Company’s continued execution of our strategy. Drivers of this performance included higher revenues and improved margins in our core North American truck business, sustained military sales and profitability of our engine business. We also saw revenues from outside of North America grow to more than $3 billion as well as ongoing benefits from our engineering integration.

Consolidated financial performance factors such as net income, earnings per share, and manufacturing segment profit are considered by the Compensation Committee in their review and approval of short-term and long-term incentive plan design and payment decisions for our executive officers. These financial metrics have demonstrated positive trends over the last three fiscal years, as shown in the charts below.

At our 2011 annual meeting of stockholders, our stockholders read through this CD&A,expressed their continued support of our executive compensation programs by approving our non-binding advisory vote on our executive compensation. More than 98% of votes cast supported our executive compensation policies and practices. In fiscal year 2011, we reviewed our executive compensation programs in light of our business results and our stockholder support of our executive compensation programs. We also held meetings with our institutional investors in order to solicit their views regarding, among other things, our executive compensation practices. Following such review and consideration, we continue to believe that our executive compensation programs are designed to support our company and our business strategies in concert with our culture, compensation philosophies and guiding principles.

The following describesConsistent with our commitment to best practices in executive compensation, some of the key executive compensation program changes implemented or designedpractices we continued to follow in fiscal year 2010.2011 include the following:

A summary of certain key reviews and changes to our executive compensation program in fiscal year 2011 include the following:

Details regarding these changes will beare further explained in the respective sections throughout the CD&A and proxy.this proxy statement.

Set forth below is fiscal year 2010 and 2011 compensation for our CEO as determined under SEC rules. The SEC’s calculation of total compensation (reflected in the column entitled “Total”) includes several items that are driven by accounting and actuarial assumptions, which are not necessarily reflective of compensation actually received by our CEO. To supplement the SEC-required disclosure, we have included an additional column in the table below entitled “Total Realized Value,” which shows total compensation realized by our CEO in each of the last two fiscal years.

Detailed Review of Executive Compensation

Compensation Philosophy and Objectives

Our executive compensation program for our NEOs, as well as other executives,executive officers, is designed to closely align executive rewards with corporate, group and individual performance and the total return to stockholders. WeOur Compensation Committee has developed an overall compensation philosophy that is built on a foundation of the following guiding principles:

Market Compensation Review

We continuously monitor the market competitiveness of our executive compensation program. Over the past couple offew years, the Compensation Committee has reviewed various components of theour executive compensation program to ensure that (i) pay opportunities are competitive with the market, (ii) there is an appropriate link between performance and pay and (iii) the program supports our stated compensation philosophy. ThisFor example, in fiscal year 2010, we redesigned our Annual Incentive Plan (“AI Plan”) to be further tied to our business strategy while driving key performance behaviors. We also amended our Executive Severance Agreements (“ESA”) to eliminate the excise tax gross-ups upon a change in control and to ensure alignment with competitive best practices and regulatory compliance. Additionally, we approved our Total Shareholder Return (“TSR”) program for fiscal year 2011 for certain select executive officers under our 2004 PIP. The TSR program includes incentives based on increasing stockholder value and outperforming the competition.

Our review process included consultation with Exequity, an independent compensation consultancy firm, which compared the compensation of our executives, including our NEOs,executive officers, on short-term incentive awards,incentives, long-term incentives, executive severance arrangements, other benefitsESAs and our overall compensation and benefits philosophy to that of our comparatorcompensation peer group and broader market practice. Exequity was engaged by the Compensation Committee and reports solely to the Compensation Committee. The Compensation Committee has the sole authority to approve the terms of engagement. Exequity did not provide any services to the Company other than executive compensation consulting services during fiscal year 2010.2011. The Compensation Committee considered both Exequity’s advice and management’s opinion in determining the compensation strategy. On an ad hoc basis, the Compensation Committee may engage Exequity to provide information regarding specific executive compensation topics of interest.

For fiscal year 2010,2011, our comparatorcompensation peer group of 23 companies was chosen from a cross section of manufacturing and transportation and equipment companies that have revenues ranging from one half to two times our revenues. The removal of Lear Corporation, as a result of their filing bankruptcy protection under Chapter 11, was the only change from fiscal year 2009 to fiscal year 2010. We review executive compensation against this peer group of companies with which we compete for talent. Information about this list of companies is used by Exequity and management when the Compensation Committee requests specific executive compensation analyses. The Compensation Committee approved the following peer group for fiscal year 2010.2011.

Fiscal Year 20102011 Compensation Peer Group

AOur Compensation Committee also reviewed a broader industry survey published by Aon Hewitt Associates was also used to provide us withfor additional compensation market data. Please refer toAppendix AC of this proxy statement for a list of participants in Aon Hewitt’s 20102011 TCM survey. For individual executive positions, if the market data

from the peer group of companies was not statistically reliable because of the small sample size, we also used the manufacturing group (or if thethat sample size is not large enough, the all-industry group) of this broader survey data. When we use broader industry surveys, we use market data within our revenue scope, either overall consolidated revenue for corporate roles and/or business unit revenue for business unit specific roles. This is especially true for the base salary competitive market review.

In fiscal year 2010,2011, for base salary, short-term incentives, and long-term incentives, we targeted the 50^th percentile (market median). We established a policy of targeting base salaries at the 50^th percentile (market median) of the competitive market, based on the peer group where available, or the broader industry survey.practices. We refer to this as the competitive market data, competitive marketplace,market, or the like. We consider an executive officer to be compensated competitively if his or her base salary is within 8580 to 115120 percent of the market median. Under special circumstances, when we are recruiting for critical roles, we may target an executive’sexecutive officer’s salary up to the 75^th percentile. Our incentive compensation plans provide executivesexecutive officers with the opportunity to earn total compensation at the 50^th percentile of the competitive market for target consolidated, business unit, and/or individual performance and at the 75^th percentile for distinguished consolidated, business unit, and/or individual performance.

Typically, theour CEO makes recommendations to the Compensation Committee regarding annual base salary increases for the NEOs other than himself (see the section entitled “Summary of the Executive Salary Planning Approval Process” below). For our AI thePlan, our CEO may recommend that the Compensation Committee adjust awards to reflect individual performance.performance and/or overall results. For long-term incentives, awards generally follow our fixed share guidelines with no adjustments recommended by theour CEO. However our CEO however awards granted under our new plan design, described below in our LTI section, the CEO hasdoes have discretion for certain select executivesexecutive officers eligible for the performance shares awarded under the TSR plan.program, described inLong-Term Incentives on page 42 of this proxy statement.

Pay Mix

Our pay mix of base salary, short-term incentives, and long-term incentives (“Total Direct Compensation” or “TDC”) generally tracks to the marketplace with themarketplace. The major componentcomponents of total compensation,TDC, specifically annualshort-term and long-term incentives, beingare contingent onupon performance and, variabletherefore, fluctuate with performance.our financial results and share price. This structure supports our pay-for-performance compensation philosophy.

Elements of Executive Compensation

The key elements of our executive compensation program include base salary, short-term incentives, long-term incentives, retirement benefits, perquisites, and other benefits. We also maintain stock ownership guidelines for our executives, including our NEOs. Although decisions relative to each of these compensation elements are made separately, the Compensation Committee considers the total compensation and benefits package when making any compensation decision.

Base Salary

We pay each executive officer a competitive base salary, on a monthly basis, for services rendered during the year. Base salaries for executive officers including our NEOs, are typically reviewed and adjusted based on evaluating (i) the responsibilities of their positions, (ii) the competitive marketplace data and (iii) the performance of each executive during the fiscal year.

Summary of the Executive Salary Planning Approval Process

Due to the economic environment, and consistent with fiscal 2009, traditional base salary performance increases to executives, including NEOs, did not occur for fiscal year 2010. After a two year freeze on performance-based salary increases this typedue to the economic environments of 2009 and 2010, traditional base salary change was reinstatedperformance increases were provided in fiscal year 2011. The table below sets for the base salary for our NEO’s for fiscal year 2011, as well as their previous base salary.

NEO Fiscal Year 2011 Base Salary

CEO Performance Evaluation

Each year, typically in December, the Compensation Committee and the independent members of the Board evaluate the CEO’s performance for the prior fiscal year. This review is based on the CEO’s achievement of goals set for the start of that year. The CEO presents this information solely to the independent members of the Board, who then discuss it in executive session. The CEO is not present during this discussion. The independent members’ evaluation of the CEO’s performance then forms the basis for the decision on the CEOCEO’s short-term incentive award under our AI Plan which is described below, for the prior fiscal year and base salary for the new fiscal year. The chair of the Compensation Committee then informs the CEO of the compensation decisions and the performance evaluation on which those decisions were based.

In December 2009,2010, based on the independent membersrecommendation of the Board discussed and evaluated Mr. Ustian’s accomplishments as CEO. These accomplishments included his foresight in creating the military business and providing continuing leadership to make it sustainable; his work in bringing an end to a

protracted dispute with one of the Company’s suppliers in a manner that set the stage for the formation of a significant new partnership with that supplier; his leadership in navigating the Company through the loss of a significant customer and setting the stage for the Company’s engine business to be successful; the many actions he has taken and continues to take to develop a business model that provides profitability at the bottom of the business cycle; and his leadership in making strategic acquisitions to position the Company for future successes. Based on this evaluation, the independent members of the Board recommended and approved an award in the amount of $1,946,000 in recognition of Mr. Ustian’s achievements.

In December 2010,Compensation Committee, the independent members of the Board approved a base salary increase for Mr. Ustian from $1,180,000 to $1,250,000. Mr. Ustian’s$1,250,000 effective January 1, 2011.

In December 2011, based on the recommendation of the Compensation Committee, the independent members of the Board approved a base salary was last increased in December 2007. This action followed the Committee’s earlier approval of base salary increasesincrease for other executives, including NEOs, for fiscal year 2011.Mr. Ustian from $1,250,000 to $1,290,000 effective January 1, 2012. In this regard, the Compensation Committee determined that there will beawarded performance increases in general to the base salary for executives, including NEOs,executive officers effective in fiscal year 2011.2012. Also, in December 2010,2011, the independent members of the Board approved a fiscal year 20102011 AI Plan award (“AI award”Award”) atslightly above the DistinguishedTarget level for Mr. Ustian based upon both the Company’s successfulstrong financial results and his strong performance in fiscal year 2010 as a result of his achievements within our three strategic pillars of great products, competitive costs and profitable growth.growth in fiscal year 2011. As discussed in the Annual Incentive section below, the Company’s fiscal year 20102011 pro forma Consolidated Normalized Earnings Per Share (“EPS”) was $3.05,$4.71, which is 146% ofslightly above the Target slightly below the Distinguished level of performance (150% of Target). Excluding a one-time charge for costs associated with the fourth quarter settlement of a new labor agreement, EPS would have been $3.19 (155% of Target), which is higher than the Distinguished level of performance of $3.12 EPS.level.

Annual Incentive

AI Plan Redesign

Historically, the profitability of our business has been heavily influenced by the cycle of North American truck sales. Consolidated financial goals for AI had in the past been based on return on pro forma equity (“ROE”). A benchmark of 16.5% ROE had been used to target performance on average over the range of the business cycle (which is represented by forecasted truck industry volume). This truck industry volume measure is re-evaluated annually due to cyclical fluctuations. The amount of income required to earn AI was calculated using this ROE target and then converted to an EPS goal.

The Committee engaged Exequity to work in tandem with the Committee and management on an AI plan redesign project in fiscal year 2009 and into fiscal year 2010 with final Committee approval provided in December 2009.

In redesigning the plan for fiscal year 2010, we considered the following qualitative and quantitative factors: (i) financial metrics, (ii) market expectations for Company performance, (iii) management and Board expectations for Company performance, (iv) the changing nature of our business, (v) how best to prepare the business to be successful in the future, (vi) how the organization works together, and (vii) the fact that our business units are highly dependent on each other.

During this redesign process, we reaffirmed that our overall goals should still be based upon truck industry volume as the demand for our products is closely tied to this metric. However, while ROE and industry volume remain the foundation of the AI calculation, EPS is our primary performance factor. Additionally, EPS is a metric that is understandable and transparent to our stockholders.

Key Features of the 2010 AI Plan:

The AI plan ties into our overall company strategy of great products, competitive costs and profitable growth and is intended to drive key behaviors including:

The AI Plan is a short-term incentive program that exists to reward, motivate and retain employees as well as align rewards with performance for the fiscal year. The AI Plan is a key element in the executive compensation package as the Company intendswe intend for a significant portion of an executive’s, including the NEO’s,executive officer’s total compensation to be performance-related. The AI Plan for fiscal year 20102011 was based on attaining financial and non-financial performance goals established and approved by the Compensation Committee. The AI Plan is authorized under our stockholder approved 2004 PIP. The 2004 PIP is an omnibus plan that allows for various awards such as cash, stock options, stock appreciation rights, RSUs, PSUs, DSUs and DSUs.performance shares. The AI Plan and the 2004 PIP do not currently have claw-back provisions, which, for example, would retract a prior incentive award when financial results are restated after the award was paid. Our intent is to implement a claw-back provision soon after the final SEC rules and guidelines on this topic are adopted.

Historically, the profitability of our business has been heavily influenced by the cycle of North American truck sales. Consolidated financial goals for our AI Plan had in the past been based on return on pro forma equity (“ROE”). This truck industry volume measure is re-evaluated annually due to cyclical fluctuations. The amount of income required to earn an AI Award was calculated using this ROE target and then converted to an EPS goal. During our fiscal year 2010 review and redesign of our AI Plan, we reaffirmed that our overall goals should still be based upon truck industry volume as the demand for our products is closely tied to this metric. However, while ROE and industry volume remain the foundation for our AI Award calculation, EPS is our primary performance factor.

The key features of our AI Plan in fiscal year 2011 are as follows:

Our AI Plan ties into our overall strategy of great products, competitive costs and profitable growth and is intended to drive key behaviors including:

The AI Plan has threshold, target, distinguished, and super-distinguished performance payout levels for the NEOsexecutive officers which range from 25% to 200% of target. Based upon performance, in some years, the Companywe may not make payments under the AI payments,Plan, but the Companywe also hashave the ability under the planAI Plan to make maximum payments at 200% of target bonus opportunity for super-distinguished performance. Consolidated financial results between performance levels are interpolated on a straight-line basis to determine payment amounts.

The following were factors in the 20102011 AI Plan:

Consolidated Financial Performance: For all of our executives,executive officers, consolidated financial performance is heavily weighted in the calculation of incentive payments in order to encourage integrated execution across organizational boundaries within the Company.

We believe that it is important to encourage executivesexecutive officers to work together forto achieve the best consolidated organizational results rather than tosolely focus on results at oneindividual business unit at the expense of other business units.results. Consolidated financial goals are based on our EPS, as determined by the Compensation Committee. The EPS goal is established based on an expected industry volume and an additional adjustment takes place to account for the sustainable revenues and margins from the Company’s growth businesses.

The following table outlines the fiscal year 20102011 EPS goals based upon a forecast for truck industry volume of 203,000265,000 units, and growth business revenue of $2.0 billion.billion, and an estimated share count of 73.6 million shares of Common Stock.

Final fiscal year 20102011 EPS was $3.05$22.64, however, this amount includes the impact of three issues that were not included in the EPS goals. We do not believe these issues are indicative of fiscal year 2011 performance and should be excluded from our fiscal year results when comparing to our EPS goals.

We have calculated a pro forma EPS for purposes of determining annual incentive that excludes the impact of these three issues from our fiscal year results, and adjusts for the difference in the actual diluted weighted shares outstanding of 76.1 million versus the 73.6 million shares assumed when the AI Plan EPS goals were determined, in order to provide an appropriate comparison to our EPS goals.

With the exclusion of the impact of the three issues noted above, pro forma EPS used to determine annual incentive was $4.71, which is 146%101.2% of Target slightly belowunder the Distinguished levelannual incentive straight-line interpolation between performance payout levels.

In fiscal year 2011, we also incurred engineering integration costs of financial performance at 150%$64 million related to the consolidation of Target. Excludingour truck and engine engineering operations as well as the move to our new world headquarters in Lisle, Illinois. These costs were a one-time chargeknown issue when annual incentive goals were set and thus were included in the Target EPS used to determine annual incentive. The earnings guidance we provided to our stockholders, $5.00 to $6.00 EPS, did not include the impact of our engineering integration efforts or the retroactive portion of the incremental OPEB expenses. Our pro forma EPS used to determine annual incentive, as adjusted for engineering integration costs, associated withnon-retroactive incremental OPEB expenses and the fourth quarter settlementshare count assumption, to compare to our earnings guidance in our Form 10-K for fiscal year 2011, is shown below.

The adjusted EPS of a new labor agreement, EPS would have been $3.19 (155%$5.28 is within the guidance range of Target), which is higher than the Distinguished level of performance.$5.00 to $6.00 EPS.

Business Unit and Individual Performance: The AI Plan is funded based on consolidated financial performance but may be adjusted based on assessment of business unit/functional group performance as well as individual performance.

The CEO in consultation with the Compensation Committee establishes goals for the Company including its major business units and/or functions. Performance relative to the goals is

assessed quantitatively and qualitatively at the end of the fiscal year. A participant’s award may be adjusted based on the performance of their business unit and/or functional area as well as their individual performance.

Individual performance is measured by our annual Total Performance Management (the “TPM”) assessment. The TPM process is a performance management tool that focuses on employee career development, goal setting, performance appraisal and evaluation. The TPM assessment reviews how well the executive performed with regard to both individual goals and defined skills and behaviors.

Generally only financial goals are applicable to awards tofor our NEOs except where business unit and/or individual performance is used for downward discretion. However, for fiscal year 2010,2011, in no event will any NEO receive an award greater than their predetermined share of a pool equal to 1.75% of operation income (defined as EBIT)EBIT over $50 million.

In conjunction with the 20102011 AI Plan factors stated above, the following are additional factors used to determine the total 2011 AI Plan pool:

The Compensation Committee reserves the right to reduce the aggregate amounts paid under the 2011 AI Plan. Generally, AI awardsAwards are not paid when consolidated financial results are below threshold. In any event, under no circumstances will the AI Plan provide payments when net income is negative.

The Compensation Committee has the discretion to adjust a bonus payment. In doing so, the Compensation Committee historically has consideredconsiders the requirements of Section 162(m) of the Internal Revenue Code.Code of 1986, as amended (the “Internal Revenue Code”). While the Compensation Committee generally intends for incentive compensation to be tax deductible, there may be instances when the Compensation Committee decides to award a non-deductible amount. The Compensation Committee did not award a non-deductible amount under the AI amountPlan for fiscal year 2010.2011.

Fiscal Year 2010 AI2011 Annual Incentive Target Award Percentages and Amount Earned

Final NEO awards were based upon consolidated financial performance and then the Committee used downward discretion to make individual award decisions based upon their business unit or functional area as well as individual performance. For fiscal year 2010, in no event will any NEO receive an award greater than their predetermined share of a pool equal to 1.75% of operation income (defined as EBIT) over $50 million.

As previously discussed in the CEO Performance Evaluation section on page 37 of this proxy statement, Mr. Ustian’s award is based uponslightly above the DistinguishedTarget level of performance, which is consistent with the pro forma EPS used to determine annual incentive.

All other NEO’s fiscal year 2011 AI Awards were slightly below the Target level of performance. Each of their achievements are highlighted below:

Long-Term IncentiveIncentives

Traditionally, ourOur objectives for including long-term incentives as part of our executives’executive officers’ total compensation package include:

Historically, we have focused our long-term incentive plan on the use of stock options to align executives’ interests with those of stockholders. To manage the allocation of stock options,shares in the 2004 PIP, the Compensation Committee useduses a fixed share grant approach. The fixed share guideline takes into account the long-term incentive target by position, Black-Scholes valuation methodology, and estimated stock price. This approach was used because it:

We have never backdated stock options. In addition, as set forth in the 2004 PIP, we prohibit stock option repricing. However, within the 2004 PIP, there was historically a Restoration Stock Option Program. Specifically, the Restoration Stock Option Program allowed an executive officer to exercise vested non-qualified stock options by presenting shares that have a total market value equal to the option exercise price times the number of options. New restoration options are then granted with an exercise price equal to the fair market value of our stock at that time in an amount equal to the number of mature shares that were used to exercise the original option, plus the number of shares that were withheld for the required tax liability. The restoration stock options have a term equal to the remaining term of the original option, generally become exercisable six months after the date of grant, and otherwise have the same general terms and conditions of other non-qualified stock options granted under the Company’s stock plans. In December 2008, the Compensation Committee approved the elimination of the Restoration Stock Option Program under the 2004 PIP in connection with future long-term incentive grants, beginning with the grants made in December 2008.

In December 2009, a fiscal year 2010 long-term incentive grant under the 2004 PIP was approved for eligible plan participants. The NEOs received a grant mix of 67% stock options and 33% RSUs. We also introduced cash-settled RSUs to certain eligible participants. Awards vest ratably over a three year period.

Long-Term Incentive Competitive Review

The2011, our Compensation Committee engaged Exequity to work together with the Compensation Committee and management to review the competitiveness of our LTI plan.long-term incentive program. The Compensation Committee approved the long-term incentive design for fiscal year 2011 plan design in October 2010 and actualgranted awards in December 2010.

This process began with an overall review of executive compensation positioning for base salary, annual incentive and long-term incentives. We found that our overall compensation program iswas competitive except for the long-term incentive values for our top level executives, including our NEOs listed on the Summary Compensation Table on page 39.certain executive officers. This determination led to our decision to design an LTIa long-term incentive program for our top tier executivescertain select executive officers that moves them closer to the competitive market. For these select executive officers, we modified our traditional fixed share guideline to a targeted long-term incentive economic value, which is stated below in the “NEO Fiscal Year 2011 Long-Term Incentive Awards” table.

In order to do this, a Total Shareholder Return Plan (“TSR”)TSR program was added to the long-term incentive program of the 2004 PIP. The TSR program changes the equity mix for select top executives, including our NEOs,executive officers, to provide them with financial opportunities when there is increased stockholder value and the Company outperforms its competition. TheThese select top executives, including NEOs,executive officers are granted a mix of 50% stock options and 50% cash-settled performance shares based upon the TSR plan.program.

KeyThe following are key features of the TSR plan:program:

In December 2010, athe Compensation Committee approved long-term incentive awards under our 2004 PIP for fiscal year 2011 long-term incentive grant under the 2004 PIP was approved for eligible plan participants. The NEOs and other top executivesSelect executive officers received a grant mix of 50% stock options and 50% cash-settled performance shares based upon athe TSR planprogram described above. All other eligible participants received a grant mix of 50% stock options and 50% cash-settled RSUs. The stock options have a seven (7) year term and both stock options and cash-settled RSUs vest ratably over a three year period.

NEO Fiscal Year 2011 Long-Term Incentive Awards

As discussed in the Annual Incentive section on page 37 of this proxy statement, operationally we had strong earnings performance in fiscal year 2011 and surpassed Target EPS performance. However, we do not believe this performance is reflected in our stock price and relative TSR results as of the end of fiscal year 2011. We expect our stock price to climb and provide future long-term incentive value.

We also believe that the accounting values that are required to be reported on the Summary Compensation Table for the TSR performance shares may be misleading. To provide more useful information, the chart below illustrates the difference between the accounting value (at grant date and as of fiscal year end) and the amount that would have been paid had the requisite performance period ended on October 31, 2011. As you can see, our NEOs have realized no value from these awards in fiscal year 2011, and the total value of these awards using our stock price as of October 31, 2011, is approximately 60% of the grant date value of these awards.

Realized Value of NEO Fiscal Year 2011 Long-Term Incentive Awards