Contents 1—Financial Summary 2—Stockholders Letter 4—Special Information For Our Investors 6—Statement of Income 7—Statement of Financial Condition 8—Statement of Changes in Financial Position 9—Statement of Stockholders' Equity 10—Notes to Financial Statements 18—Auditors' Opinion 18—Summary of Operations and Management's Analysis 20—Statistical Data 22—Year in Brief 24—IH Today and Tomorrow 26—Agricultural Equipment Group 28—Truck Group 30—Pay Line Group Cover: A unique view of earth photographed 32—Solar Turbines International Group from space by American astronauts, and five stripes in colors of International Harvester's 34—Components Group new product line Groups symbolize assign 36—Directors ment of global responsibilities to the Groups under reorganization of IH undertaken in Inside Back Cover—Officers, Major Subsidiaries 1977 and made effective with the start of fiscal 1978. (Earth photo, courtesy of NASA.) Financial Summary (Dollars are in thousands, except per-share data) Percent 1977 1976 Change
For the Year Sales: In the United States $4,016,915 $3,457,581 16 Outside the United States $1,958,146 $2,030,542 (4) Total $5,975,061 $5,488,123 9
Income: Continuing operations $201,321 $173,074 16 Percent of sales 3.37% 3.15% Net income $203,737 $173,074 18 Return on stockholders' equity, beginning of year 13.03% 12.12%
Capital expenditures $168,040 $168,365 Depreciation and amortization $94,093 $90,083 4 Research and development $114,593 $97,950 17 Average number of employees: Worldwide 93,160 97,550 (5) United States 62,000 66,580 (7)
At Year End Working capital $1,276,194 $1,231,124 4 Long-term debt $926,345 $922,883 Stockholders' equity $1,733,806 $1,563,773 11 Ratio of current assets to current liabilities 2.2-1 2.2-1 Long-term debt as a percent of stockholders' equity plus long-term debt 35% 37%
Per Common Share Income: Continuing operations $6.84 $5.98 Net income $6.92 $5.98 Dividends paid $1.85 $1.70 Book value $57.75 $53.34
Source of Sales Dollar Distribution of Revenue Dollar
Trucks 45.2% 1. Materials, services, 4. Taxes 3.50 Agricultural equipment 39.1 % etc. 57.20 5. Income retained 2 40 Construction and industrial 2. Wages, salaries and 6. Depreciation and equipment 12.2% employee benefits 30.70 amortization 1.50 Turbo machinery 3.5% 3. Interest expense and 7. Dividends 1.00 financing charges 3.70 Stockholders' Letter
To Our Stockholders: Your Company set new records for net income of Gains in sales of agricultural equipment were $203.7 million and sales of $5,975 billion during made despite adverse conditions affecting farming fiscal 1977, representing a 17.7 percent increase in in most areas of the world. In the United States, earnings over the previous year on an 8.9 percent IH improved penetration of the market for two- increase in sales. The 1977 income amounted to wheel drive tractors over 100 horsepower. $6.92 per share of common stock, compared with This fall, the U.S. Court of Appeals affirmed the $5.98 per share the previous year. ruling of the U.S. District Court that IH's initial ac The 1977 achievement by the men and women quisition of 39 percent stock interest in Steiger of International Harvester is even more noteworthy Tractor, Inc., North Dakota manufacturer of high because it was accomplished during a year in horsepower farm tractors, was not in violation of which reorganization of the Company was achieved. antitrust laws. The district court had found that IH's It also represents continuing effort to control assets investment in Steiger would, in fact, lead to a "sig employed in our business, to reduce debt and to nificant increase in competition in the relevant increase stockholders' equity. markets." The year's results represent a satisfactory ad Overseas, IH increased sales in Great Britain of vance toward the performance goals your manage its worldwide medium horsepower tractor line, and ment has established for International Harvester. At continued to lead in agricultural tractor sales for the same time, those results confirmed our dissatis the German-French markets. faction with past levels of performance, and rein Gains in sales of Pay Line products were made forced our determination that greater improvements amid sluggish recovery of markets for construction will continue to be made in areas of cost reduction, and industrial equipment, compounded by wildcat asset management and profit improvement. strikes in the U.S. coal industry, a major Pay Line By product line, International Harvester sales of market. Sales by Solar Turbines International con fiscal 1977 came from trucks, a record $2,701 bil tinued to be adversely affected by the slow rate of lion, up 16.9 percent over fiscal 1976; agricultural economic recovery in Europe, and by lack of a equipment, a record $2,334 billion, up 3.2 percent; definitive national energy policy in the U.S. which Pay Line construction and industrial equipment, continued to stall capital investment plans of the $731 million, up 9.4 percent, and Solar turbo ma oil and gas industry. chinery, $208 million, down 15.9 percent. IH sales finance operations increased net earn Worldwide IH truck sales benefitted from a 22 ings to $53.7 million, up 11.8 percent over fiscal percent gain in U.S. sales of Internationals during 1976, primarily through gains of the International the year. International Harvester continued its his Harvester Credit Corporation in the U.S. toric leadership of the domestic heavy-duty market. The Company completed fiscal 1977 with an Sales of Scout sport/utility vehicles remained extremely strong fourth quarter, setting all-time strong. records for quarterly sales of $1,712 billion and Truck sales by the Australian subsidiary in quarterly earnings of $76.3 million. This represents creased 14 percent over last year. Sales and profit a 58.8 percent gain in earnings over the year earlier improvement were reported by Seddon Vehicles, period on a 10.5 percent increase in sales. Fourth Ltd., wholly-owned subsidiary in Great Britain, and quarter sales came from trucks, $829 million, up by DAF Trucks, IH joint venture in Holland. Sales im 16.1 percent over the year earlier period; agricul proved slightly in Canada, despite a soft economy. tural equipment, $602 million, about even; Pay Line construction and industrial equipment, $201 million, up 23.4 percent; and Solar turbo machinery, $80 million, up 15.1 percent. The sale of Wisconsin Steel Division provided $20 million toward debt reduction. Stockholders' equity increased $170 million during the year on a consolidated basis. In fiscal 1978, International Harvester faces mixed market trends in its various businesses. Worldwide truck sales probably will continue to in- crease, but at a somewhat slower rate than during the past year. Unfilled domestic orders on hand for medium-duty trucks are 25 percent higher than last year at this time. Truck Group expects continued acceleration of the trend to mid-range diesel en gines, where IH is strongly represented. Sales by the farm equipment industry will be generally level to slightly lower. Strong International Harvester representation with the high horsepower tractor line and new Axial-Flow combine should in crease IH market penetration. Pay Line and Solar Turbines International Groups anticipate marked improvement in sales, signalled by gains in the fourth quarter of 1977. In part, improved results of fiscal 1977 and the outlook for 1978 results are based on efficiencies resulting from reorganization of the Company into worldwide, free standing product Groups. Reas signment of responsibilities and personnel is now nearly complete. During the fourth quarter, Omer G. Voss and William E. Callahan assumed their pre viously announced positions as vice chairmen of the Board of Directors. We are pleased to advise you that the Board of Directors at its December 1, 1977, meeting voted to increase the regular quarterly dividend from 461/4 cents to 521/2 cents per common share. The dividend is payable on January 16 to stockholders of record on December 16. It will be the 237th con secutive quarterly dividend on common stock is sued by IH.
/?-* m. December 1,1977 Special Information for Our Investors The Business of International Harvester Fiscal Year International Harvester, a worldwide enterprise having The International Harvester Company fiscal year ends numerous subsidiaries, licensees and joint ventures in on October 31. both hemispheres, manufactures and markets self- propelled heavy machinery and vehicles for use on and World Headquarters off the highways. International Harvester Company's World Headquar The Company's principal products, some of which are ters is located at 401 North Michigan Avenue, Chicago, pictured in this report, are: Illinois 60611; Telephone: 312-670-2000. Gasoline and diesel powered truck/tractors used for local and long distance hauling of freight; cab and Form 10-K Available chassis units used for medium hauling and for hauling This Annual Report includes a substantial portion of heavy loads over rugged terrain and highways; chassis the financial information and certain other data required units for medium-sized school buses; and sports/ to be filed with the Securities and Exchange Commission utility vehicles used for personal transportation, rec and will be incorporated by reference in our Form 10-K. reation and commercial purposes. A copy of the Company's 1977 Annual Report on Form Agricultural tractors; grain harvesting equipment; 10-K to the Securities and Exchange Commission will be tillage equipment; crop production equipment; hay available to stockholders after February 1, 1978 upon and forage harvesting equipment; twine; materials written request to the Corporate Secretary, World Head handling equipment; and outdoor power products in quarters. cluding lawn and garden tractors and equipment. Earth-moving construction equipment including Annual Meeting crawler tractors and loaders, off-highway trucks and The next annual meeting of stockholders will take self-propelled scrapers used in road building, land place at 10:15 a.m., Thursday, January 19, 1978 at the reclamation and other heavy construction work; St. Petersburg Hilton, St. Petersburg, Florida. and rubber-tired equipment including logging tractors Stockholders are invited to attend this meeting, take and tractor loaders, hydraulic excavators, light and part in discussions of company affairs and meet per medium industrial tractors and allied equipment such sonally with the directors and officers responsible for the as loaders and backhoes used in home building, ma operations of International Harvester. terials handling and light construction work. A proxy statement and form of proxy will be mailed to Gas turbine driven compressor sets, pump pack each stockholder on or about December 13,1977. ages, and generator sets used for producing and trans porting crude oil and natural gas and providing About Your Stock electrical power in many different industries; and small International Harvester common stock is listed on the auxiliary power units for aircraft and ground power New York and Midwest stock exchanges and is quoted applications. as "Int Harv" in stock table listings in daily newspapers. Gasoline and diesel engines for installation in IH The abbreviated stock symbol is "HR." products and certain models marketed to other manu The principal transfer agent who can answer all in facturers. quiries about your International Harvester common stock Grey, malleable and nodular iron castings for use in is: IH products and selected original equipment manu Stockholder Services facturer markets. International Harvester Company The Company has finance subsidiaries in the United World Headquarters States and other countries which provide wholesale and Telephone: 312-670-2427 retail financing of IH products. Other subsidiaries offer The registrar and transfer agent for common stock is casualty and life insurance coverage and the leasing of the First National Bank of Chicago, One First National IH products to dealers, distributors and customers. Plaza, Chicago, Illinois 60670. International Harvester Company and Subsidiaries Dividends and Price Range Fourth Quarter Summary The accompanying table shows the dividends paid per Our results for August, September and October are sum share on common stock and the range of closing common marized as follows, in millions of dollars except per share stock prices for the past two fiscal years. data: 1977 1976 Dividends Paid Price Range Sales and other revenues $1,717.6 $1,568.3 1977 1976 Costs and expenses 1,621.6 1,516.6 Quarter 1977 1976 High Low High Low Taxes on income 43.9 18.9 1 1 Income of consolidated group 52.1 32.8 1st $ .46V4 $ .42 /2 $33 $25% $27% $21 /2 1 1 7 Income of nonconsolidated companies _ 24.2 14.5 2nd 46 /4 .42 /2 377/s 31 28 /e 24% 3rd 46V4 .421/2 37% 28% 321/2 25 Income from continuing operations 76.3 47.3 4th .46V4 .42V2 32 26 32 261/2 Wisconsin Steel Division — .8 Total ..$1.85 $1.70 Net income $ 76.3 $ 48.1 Income per share: Continuing operations $2.60 $1.62 Stockholder Statistics Wisconsin Steel Division — .03 International Harvester common stock is held by a variety Net income $2.60 $1.65 of stockholders. The distribution of stock holdings as of October 31,1977 was as follows: Sales for the fourth quarter of 1977 set an all-time quar terly record. Truck sales reflect improved demand for Distribution of Stock According to Type of Stockholder medium and heavy-duty trucks. Agricultural equipment Type of Number of Number of % of %of sales remained at the high levels of recent years. Continu Stockholder Holders Shares Holders Shares ing improvement in markets for construction and industrial Female 42,818 5,567,578 33.3% 18.8% equipment and excellent acceptance of new models intro Male 38,623 4,885,921 30.1 16.5 Joint tenants 34,362 3,702,753 26.7 12.5 duced this year were major factors in the sharp increase in Fiduciaries 8,905 1,227,862 6.9 4.2 sales of Pay Line products." Nominees 1,586 12,273,316 1.2 41.5 Educational, religious Sales by major product group, in millions of dollars, were and charitable as follows: Percent institutions 925 282,121 .7 1.0 1977 1976 Change Brokers 119 405,955 .1 1.4 Investment Trucks $ 829.3 $ 714.0 16.1% companies 111 43,015 .1 Agricultural equipment 601.9 603.0 (.2) Insurance, indemnity Construction and and assurance industrial equipment 200.9 162.9 23.4 companies 68 60,930 .1 .2 Turbo machinery _ 79.5 69.1 15.1 All others* 1,066 1,111,680 .8 3.8 Total $1,711.6 $1,549.0 10.5 Total 128,583 29,561,131 100.0% 100.0% Net income of $76 million in 1977 represents a 59% in Distribution of Stock According to Size of Holding Groups crease over last year and an all-time record for any quarterly Number of Number of % of % of earnings. Results for domestic Pay Line, Truck and Solar Share Group Holders Shares Holders Shares operations significantly contributed to the rise in 1977 in I to 10 12,374 79,334 9.6% .2% II to 25 16,449 317,208 12.8 1.1 come. Earnings of the sales finance subsidiaries, $18 mil 26 to 50 23,224 968,984 18.1 3.3 lion in 1977 versus $13 million in 1976 also contributed to 51 to 99 12,240 856,168 9.5 2.9 100 27,421 2,742,100 21.3 9.3 this increase. 101 to 500 33,194 7,558,439 25.8 25.6 See Note 26 to Financial Statements for additional quar 501 to 1000 2,397 1,745,764 1.9 5.9 terly information. 1001 to 3000 927 1,575,538 .7 5.3 Over 3000* 357 13,717,596 .3 46.4 Total 128,583 29,561,131 100.0% 100.0% Trademarks International, Loadstar, Paystar, Scout, Centaur, •Includes 405,016 shares held in Treasury by the Company. Mars, Saturn, Solar, Transtar, Pay, Cyclo, Farmall, Cadet and Cub Cadet are trademarks of Sale of Wisconsin Steel Division International Harvester Company. Wisconsin Steel Division was sold on July 31, 1977 to EDC Holding Company, a wholly owned subsidiary of Envirodyne, Inc. For more information on the sale refer to Note 4 to Financial Statements. Income International Harvester Company and Subsidiaries (Thousands of dollars, except per-share data) For the Years Ended October 31,1977 and 1976 1977 1976 Sales and Other Revenues Sales (Note 2) $5,975,061 $5,488,123 Interest income (Note 8) 20,579 22,097 Other income, less sundry deductions 7,087 27,043 Total sales and other revenues 6,002,727 5,537,263 Costs and Expenses Cost of sales (Note 10) 4,924,693 4,538,685 Marketing and administrative expenses 593,704 547,276 Provision for losses on receivables 4,468 11,810 Financing charges on receivables sold to sales finance subsidiaries 114,050 98,786 Interest expense: Long-term debt 72,335 73,935 Other (Note 13) 42,580 47,361 Total costs and expenses 5,751,830 5,317,853 Income of Consolidated Group Income before taxes on income 250,897 219,410 Taxes on income (Note 7) 116,559 94,599 Income of consolidated group 134,338 124,811 Income of Nonconsolidated Companies Income before taxes on income 125,873 93,596 Taxes on income (Note 7) 58,890 45,333 Income of nonconsolidated companies 66,983 48,263 Income from Continuing Operations 201,321 173,074 Wisconsin Steel Division (Note 4) 2,416 Net Income $ 203,737 $ 173,074 Income Per Share Continuing operations $6.84 $5.98 Wisconsin Steel Division .08 Net income $6.92 $5.98 Average number of common shares outstanding (thousands) 28,729 28,085 See Notes to Financial Statements. Financial International Harvester Company and Subsidiaries Condition October 31, 1977 and 1976 (Thousands of dollars) ASSETS 1977 1976 Current Assets Cash $ 17,221 $ 40,032 Receivables, net (Note 9) 537,689 603,010 Inventories (Note 10) 1,729,477 1,584,387 Other current assets 39,801 45,333 Total current assets 2,324,188 2,272,762 Investments and Long-Term Receivables (Note 11) Equity in and advances to nonconsolidated companies 591,117 472,172 Long-term receivables and other investments, at cost 75,542 23,610 Total investments and long-term receivables 666,659 495,782 Property, net (Note 12) 771,235 710,310 Wisconsin Steel Division, estimated realizable value of assets (Note 4) — 65,827 Other Assets 26,052 30,151 Total Assets $3,788,134 $3,574,832 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities (Note 13) Notes payable 248,614 266,502 Accounts payable 411,610 382,364 Accrued liabilities 343,980 357,061 Current maturities of long-term debt 43,790 35,711 Total current liabilities 1,047,994 1,041,638 Long-Term Debt (Note 14) 926,345 922,883 Deferred Income Taxes 79,989 46,538 Stockholders' Equity Preferred stock—authorized 5,000,000 shares without par value; issued 500,000 shares $10 cumulative, Series A (Note 16) 50,000 50,000 Common stock—authorized 45,000,000 shares of $20 par value; issued 29,561,131 shares in 1977 and 28,843,168 shares in 1976 591,223 576,863 Capital in excess of par value 12,376 4,011 Income retained (Note 17) 1,093,057 947,651 1,746,656 1,578,525 Less common stock held in treasury, at cost; 1977—405,016 shares, 1976—464,954 shares 12,850 14,752 Total stockholders' equity 1,733,806 1,563,773 Total Liabilities and Stockholders' Equity $3,788,134 $3,574,832 See Notes to Financial Statements. Changes in International Harvester Company and Subsidiaries Financial Position For the Years Ended October 31, 1977 and 1976 (Thousands of dollars) 1977 1976 Financial Resources Were Provided By Income from continuing operations $ 201,321 $ 173,074 Items not affecting working capital: Depreciation and amortization 94,093 90,083 Undistributed earnings of nonconsolidated companies (72,204) (46,171) Deferred income taxes 8,847 13,812 Other 1,188 1,034 Financial resources provided by continuing operations 233,245 231,832 Wisconsin Steel Division 2,416 — Items not affecting working capital: Adjustment to provision for loss on disposal (2,416) — Deferred income taxes 28,416 5,724 Financial resources provided by Wisconsin Steel Division 28,416 5,724 Total financial resources provided by operations 261,661 237,556 Proceeds from sale of Wisconsin Steel Division 74,978 — Additions to long-term debt 78,422 37,489 Issuance of common stock 22,725 15,634 Other property disposals 8,862 15,302 Total financial resources provided 446,648 305,981 Financial Resources Were Used For Capital expenditures: Continuing operations 163,880 158,032 Wisconsin Steel Division 4,160 10,333 Cash dividends 58,223 52,804 Reduction of long-term debt 74,960 52,780 Increase in investments and long-term receivables 98,673 19,230 Other 1,682 8,351 Total financial resources used 401,578 301,530 Increase in Working Capital 45,070 4,451 Working Capital At beginning of the year. 1,231,124 1,226,673 At end of the year $1,276,194 $1,231,124 See Notes to Financial Statements. Changes in International Harvester Company and Subsidiaries Financial Position For the Years Ended October 31, 1977 and 1976 (Thousands of dollars) 1977 1976 Changes in Working Capital Current assets—increase (decrease): Cash $(22,811) $ (9,396) Receivables (65,321) (27,108) Inventories 145,090 (44,169) Other current assets (5,532) 958 Current liabilities—decrease (increase): Notes payable 17,888 203,009 Accounts payable (29,246) (17,689) Accrued liabilities 13,081 (101,198) Current maturities of long-term debt.. (8,079) 44 Increase in Working Capital $ 45,070 $ 4,451 Stockholders' Equity (Thousands of dollars, except per-share data) Common Capital in Shares Preferred Common Excessof Income Treasury Outstanding Stock Stock ParValue Retained Stock Total Balance at October 31,1975, as previously reported 27,797,060 $50,000 $565,240 $ $843,375 $(14,752) $1,443,863 Adjustment for restatement of product warranty costs (Note 22) (15,994) (15,994) Balance at October 31, 1975, as restated 27,797,060 50,000 565,240 827,381 (14,752) 1,427,869 Issuance of common stock: Stock options (Note 19) 5,585 112 47 - 159 Sales to trustee of savings & investment program ... 575,569 - 11,511 3,964 - 15,475 Net income - 173,074 - 173,074 Cash dividends: Preferred, $10.00 per share . - (5,000) - (5,000) Common, $1.70 per share .. - (47,804) - (47,804) Balance at October 31,1976 ... 28,378,214 50,000 576,863 4,011 947,651 (14,752) 1,563,773 Issuance of common stock: Stock options (Note 19) 47,195 944 395 1,339 Sales to trustee of savings & investment program ... 568,931 - 11,379 6,847 — — 18,226 Sales to trustee of employee stock ownership plan .... 38,498 - 770 407 — — 1,177 Sales under automatic dividend and interest investment plan 63,339 - 1,267 716 1,983 Sale to officer (Note 20) ... 60,000 (108) 1,904 1,796 Purchase of stock (62) (2) (2) Net income 203,737 203,737 Cash dividends: Preferred, $10.00 per share . — — — (5,000) — (5,000) Common, $1.85 per share .. (53,223) (53,223) Balance at October 31,1977 ... 29,156,115 $50,000 $591,223 $12,376 511,093,05 7 $(12,850) $1,733,806 See Notes to Financial Statements. Notes to International Harvester Company and Subsidiaries Financial Statements 1. Summary of Accounting Policies In 1977, the Company adopted the accounting principles related to leasing transactions as prescribed by Statement Basis of Consolidation No. 13 of the Financial Accounting Standards Board The consolidated financial statements include the ac (FASB). The new accounting rules call for the capitalization counts of International Harvester Company and its signifi of any lease entered into on or after January 1, 1977 that cant subsidiary companies except for wholly-owned sales transfers substantially all of the benefits and risks of owner finance subsidiaries. ship to the lessee. Separate disclosure of these amounts Sales finance subsidiaries (Note 23), other nonconsoli has not been made because the amounts were not material. dated subsidiaries and corporate joint ventures are in The Company has not retroactively applied the Statement cluded in the consolidated financial statements at the Com to leases entered into prior to January 1, 1977. pany's equity in their net assets. Investments in dealerships Capital leases are, in general, amortized over the terms are carried at cost. of the respective leases. Lease amortization is included in depreciation expense. Taxes on Income The tax effect of each item in the statement of income is Retirement Plans recognized in the current period regardless of when the tax Income is charged with pension costs applicable to cur is paid. Taxes on amounts which affect financial and tax rent service and the amortization of prior service cost, able income in different periods are reported as deferred generally over the period ending in the year 2006, on the income taxes. basis of accepted actuarial methods. The costs of supple The investment tax credit is taken into income in the year mental allowance benefits resulting from retirements before it reduces the Company's tax liability. age 65 are charged to income as incurred. Inventory Valuation 2. Sales Inventories are valued generally at the lower of cost or Sales by major product group are as follows: market. Cost is determined substantially on the basis of average cost for the year including the cost of opening in 1977 1976 (Thousands of dollars) ventory. Market is considered as replacement value which, Trucks $2,701,249 45.2% $2,310,377 42.1% with respect to labor and overhead, is the cost considered Agricultural equip 2,334,422 39.1 2,262,068 41.2 attainable under normal operating conditions. Construction and industrial equip 731,353 12.2 668,385 12.2 Turbo machinery 208,037 3.5 247,293 4.5 Property Total sales $5,975,061 100.0% $5,488,123 100.0% The replacement of significant items of equipment and the expenditures for tooling and pattern equipment re Sales outside the United States accounted for 33% of quired because of increased capacity, new products and total sales in 1977 and 37% in 1976. changes in existing products or equipment are capitalized. Expenditures for major rebuilding of machine tools are also capitalized. Expenditures for maintenance and repairs and 3. Net Income for renewals of relatively minor items are charged to costs Net Income is summarized below by domestic operations and expenses as incurred. and by geographical areas (all net of taxes on income): Depreciation is computed substantially on the straight- 1977 1976 line basis. The useful lives of the various classes of proper (Thousands of dollars) ties are as follows: United States: Divisions: Buildings and building equipment—5 to 50 years Truck $ 38,158 $ 20,939 Land improvements—5 to 50 years Agricultural Equipment 75,159 83,922 Automotive equipment—3 to 5 years Pay Line 11,999 (4,645) Solar 12,165 20,692 Machinery—4 to 22 years Sales finance subsidiary 47,958 38,726 Auxiliary equipment—4 to 15 years Corporate expenses: Interest (34,078) (39,702) Furniture and fixtures, etc.—4 to 20 years Administrative (26,769) (19,891) Leasehold improvements are amortized over the terms of Other 4,334 16,410 the respective leases or the lives of the assets whichever is Total 128,926 116,451 shorter. Tooling and pattern equipment in the United States Wisconsin Steel Division 2,416 — and Canada is amortized generally on the straight-line Total United States 131,342 116,451 basis over a period of five years; in other countries such Outside United States: Canada 14,070 26,358 equipment is amortized over periods of three to six years. Europe and Africa 45,928 26,474 Gains and losses on property disposals are included Latin America 8,700 (4,640) in income. Pacific area 3,697 8,431 Total outside United States 72,395 56,623 Net income $203,737 $173,074 10 Notes to International Harvester Company and Subsidiaries Financial Statements Earnings of International Harvester Export Company, a Sales domestic marketing subsidiary, are included in the Other BILLIONS category of the United States although the earnings were Outside derived from sales made in other countries. Income of other United affiliates is classified according to the area in which they States are located. Net Income includes exchange losses of $4 million (after income tax benefits of $5 million) for 1977 and gains of United $12 million (including income tax benefits of $3 million) States for 1976. 1973 1974 1975 1976 1977 4. Wisconsin Steel Division In 1975, the decision was made to sell the Wisconsin Steel Division. On July 31, 1977, Wisconsin Steel Division was sold to EDC Holding Co., a subsidiary of Envirodyne, Inc. Under terms of the agreement, International Harvester received $15 million in cash and $50 million of 81/2% se cured notes. Principal payments on the notes begin in 1980 and continue through 1990. Ten million dollars of the notes Outside United are convertible into Envirodyne common stock at a price of States $10 per share. EDC also agreed to issue an 81/2% demand note during November 1977 payable to the Company for inventories in excess of a stipulated amount. The amount of the note will be determined in accordance with the agree United ment and is currently estimated to be approximately $10 States million. Under the agreement, EDC acquired all of the assets and assumed substantially all of the obligations of the Divi sion. The primary obligations assumed were unfunded pen 1977 sion liabilities to Wisconsin Steel Division employees and 1973 1974 1975 1976 responsibilities under iron ore joint venture agreements. The Company is contingently liable for certain of the obliga tions assumed by EDC. The effect of this transaction on 1977 net income was as Net Income/Dividends Paid (Per Common Share of Stock) follows, in thousands of dollars: $ PER SHARE Estimate Loss De Effect on 8 Reported termined 1977 Net in 1975 in 1977 Income 7 Gain (loss) on sale of assets $(66,023) $(53,314) $12,709 Taxes on income , 31,234 24,352 (6,882) 6 Net gain (loss) on sale of 5 assets (34,789) (28,962) 5,827 Operating loss from September 4 5, 1975 through July 31, 1977. (11,393) (30,418) (19,025) 3 Taxes on income 6,182 21,796 15,614 2 Dividends Net operating loss (5,211) (8,622) (3,411) Paid Total $(40,000) $(37,584) $ 2,416 1 5. Change in Accounting Estimate 1973 1974 1975 1976 1977 During 1977, International Harvester Credit Corporation (IHCC), a wholly-owned nonconsolidated sales finance subsidiary, assisted by the Company's independent certi fied public accountants, conducted a study to refine its a credit provision for losses on receivables in 1977 of $2.4 method of determining the provision for losses on receiv million, after taxes on income (8 cents per share). ables and evaluating the required level of allowance for IHCC plans to continue the study and, as additional data losses on receivables. The results of the study indicated regarding loss experience becomes available, anticipates that provisions for losses in prior years were considerably that a further reduction in the1 allowance for losses may be higher than actual losses experienced. Utilizing the results appropriate. of this study, the allowance for losses on receivables was established at October 31,1977 at a level which resulted in 11 Notes to International Harvester Company and Subsidiaries Financial Statements Research and Development The deferred income tax provision representing the tax $ MILLIONS effects of timing differences between financial and taxable income is analyzed as follows: 1977 1976 (Thousands of dollars) Excess of tax over book depreciation $ 746 $13,475 Retirement plan funding 2,770 10,120 Inventory writedowns, foreign 9,142 2,921 Gain on installment sale 11,211 — Wisconsin Steel Division 28,416 5,724 Unrealized exchange gain (loss), net (4,836) 3,175 Provision for retroactive pay 2,580 (2,580) 1973 1975 1977 Other, net (931) (2,078) Total $49,098 $30,757 An analysis of the variance from the United States statu tory rate follows: Capital Expenditures/ 1977 1976 Depreciation and Amortization MILLIONS U.S. statutory rate 48.0% 48.0% Increases (decreases) resulting from: Income (loss) from foreign sources including exchange adjustments .1 1.9 Capital Domestic international sales Expenditures company—DISC ( .6) (2.2) Investment tax credit (1.6) (4.5) Other, net (.9) 1.5 Depreciation Actual income tax rate 45.0% 44.7% and Amortization The parent Company's share in undistributed earnings of foreign companies and its DISC subsidiary was $380 mil lion at October 31,1977. An income tax provision of $1 mil lion was made on $25 million of these earnings which are expected to be remitted during 1978. The remaining undis 1975 1977 tributed earnings are considered to be reinvested. The Internal Revenue Service is examining Federal in come tax returns filed by the parent Company and its do mestic subsidiaries for 1973,1974 and 1975. Settlement of the tax liabilities for these years is not expected to have a significant effect upon the financial condition and results 6. Research and Development of operations of the Company. Research and development attributable to new product At October 31,1977, the Company had $19 million of net development totaled $115 million in 1977 and $98 million in operating loss carryforwards available to reduce future tax 1976. In addition to these costs, $45 million in 1977 and $42 able income in foreign countries, of which $12 million will million in 1976 were expended to improve existing products be available for an indefinite number of years. and the processes used in their manufacture. 8. Supplementary Income Statement Data 7. Taxes on Income Interest Income includes interest received from noncon The provision for taxes on income is analyzed by cate solidated companies of $2.6 million in 1977 and $4.2 million gory and by income statement classification as follows: in 1976. 1977 1976 Costs and Expenses includes the following: (Thousands of dollars) 1977 1976 Current: Federal $ 54,807 $ 66,626 (Thousands of dollars) Investment tax credit (5,530) (16,514) Maintenance and repairs $134,472 $123,759 Foreign 64,263 54,022 Taxes, other than taxes on income: State and local 4,079 5,041 Social security, unemployment and Deferred: other social insurance 109,675 99,852 Federal 33,574 18,949 Real estate, personal property, etc 40,993 39,919 Foreign 10,200 7,598 State and local 5,324 4,210 Total $166,717 $139,932 Consolidated group $116,559 $ 94,599 Nonconsolidated companies 58,890 45,333 Wisconsin Steel Division (8,732) — Total $166,717 $139,932 12 Notes to International Harvester Company and Subsidiaries Financial Statements 9. Receivables 12. Property Receivables at October 31 by major classifications are At October 31, Property includes the following: as follows: 1977 1976 1977 1976 (Thousands of dollars) (Thousands of dollars) Buildings, machinery and equipment, at cost: Trade notes $ 60,777 $ 82,250 Manufacturing $1,232,471 $1,161,425 Less unearned finance charges 3,844 4,396 Distribution 175,394 153,867 Sub-total 56,933 77,854 Other 31,910 30,019 Trade accounts 418,862 420,778 Total 1,439,775 1,345,311 Nonconsolidated companies 26,871 61,768 Less accumulated depreciation 781,618 742,448 Other 45,099 57,393 Net 658,157 602,863 Total 547,765 617,793 Tooling and pattern equipment, at cost, Less allowance for losses 10,076 14,783 less amortization of $86,850,000 in 1977 Receivables, net $537,689 $603,010 and $90,859,000 in 1976 84,574 78,369 Land 28,504 29,078 Included in trade notes at October 31,1977 is $8 million Property, net $ 771,235 $ 710,310 maturing after October 31, 1978 at interest rates which range from 5% to 24%. 13. Current Liabilities Sales finance subsidiaries purchase nearly all notes re The major classifications of Current Liabilities at October ceivable and some accounts receivable arising from sales 31 are analyzed as follows: by operations in Australia, Canada, New Zealand and the 1977 1976 (Thousands of dollars) United States and some receivables arising from sales by Notes payable: other affiliated companies. Banks $ 165,386 $ 215,424 Commercial paper 35,043 29,006 Trade 12,866 7,472 10. Inventories and Cost of Sales Nonconsolidated companies 8,118 7,133 Inventories at October 31 are summarized as follows: Other 27,201 7,467 Total notes payable 248,614 266,502 1977 1976 Accounts payable: (Thousands of dollars) Trade 335,592 307,855 Finished products $ 887,209 $ 776,805 Nonconsolidated companies .... 16,865 24,134 Work in process 321,739 306,048 Other 59,153 50,375 Raw materials and supplies 520,529 501,534 Total accounts payable 411,610 382,364 Total $1,729,477 $1,584,387 Accrued liabilities: Payrolls and commissions 100,098 83,347 The inventory used in computing cost of sales was less Taxes 83,132 115,098 Interest 14,435 19,616 than the inventory in the statements of financial condition Special compensation 22,115 19,578 as the latter includes items such as trade-ins, repossessions Deferred income taxes 12,722 3,411 and freight on shipments to sales outlets. Inventories used Other 111,478 116,011 in the computation for the years ended October 31, 1977 Total accrued liabilities 343,980 357,061 and 1976 were as follows, in thousands of dollars: Current maturities of long-term debt 43,790 35,711 Total current liabilities $1,047,994 $1,041,638 October 31: 1977 $1,662,827 Information regarding commercial paper and short-term 1976 1,531,060 1975 1,589,669 borrowings from lending institutions for the years ended October 31 is as follows: 11. Investments and Long-Term Receivables 1977 1976 (Thousands of dollars) Dividends received from nonconsolidated companies Aggregate borrowings outstanding: during 1977 and 1976 were $1.3 million and $2.1 million, Daily average $356,000 $479,000 Maximum month-end balance 429,000 582,000 respectively. Weighted average interest rate: Long-Term Receivables and Other Investments consists On average borrowings* 8.43% 8.16% primarily of $50 million of 8V2 % notes from the sale of Wis At October 31 9.33 9.44 •Calculated by dividing the actual interest expense for the year by the consin Steel Division in 1977 and investments in the stock average daily balance outstanding. of and long-term advances to dealerships. The 8V2 % notes are secured by liens on certain of the assets sold and by a The parent Company's unsecured lines of credit with pledge of the common stock of certain of the purchaser's various banks constitute business commitments, not legal subsidiaries. obligations of the lender. These lines of credit are subject to the usual terms and conditions applied by banks and are typically reviewed and renewed annually. At October 31, 1977, $885 million of these lines were unused of which $739 million were mutually available to both the parent Company and International Harvester Credit Corporation. 13 Notes to International Harvester Company and Subsidiaries Financial Statements Return on Stockholders' Equity 14. Long-Term Debt PERCENT Long-Term Debt at October 31, excluding amounts ma 16 i turing within one year, is summarized as follows: 14 1977 1976 12 (Thousands of dollars) 10 International Harvester Company: Eurodollar revolving credit agreement due 8 1979 at a variable interest rate which at October 31, 1976 was 7.2% $ $150,000 6 Short-term debt supported by revolving 4 credit agreement as described below 150,000 - 2 Term loan agreement, due serially to 1982, %V«^ at a variable interest rate which at October 31, 1977 was 9.6% 140,000 160,000 1973 1974 1975 1976 31/2% loan, repayable $5,000,000 annually to 1982 20,000 25,000 6%% note, due 1983 25,000 25,000 Total Borrowings 51/2 % bonds payable in Swiss francs, due $ MILLIONS 1984 (Face value $26,786,000 in 1977).. 26,757 24,557 5% debentures, due 1986 12,850 13,760 1,600 45/s% subordinated debentures,due 1988. 35,123 37,002 4.80% subordinated debentures, 1,400 | due 1991 41,416 43,653 s 1,200 8 /8% sinking fund debentures, due 1995 (Face value $100,000,000) 99,888 99,881 1 1,000 6 /4% sinking fund debentures, due 1998. 48,424 49,035 9% sinking fund debentures, due 2004 800 (Face value $150,000,000) 148,935 148,895 600 f &.ft' Capitalized lease obligations 11,320 8,718 Other 13,460 21,468 400 Subsidiaries—debt payable in United States dollars or United States dollar equivalents 200 of other currencies, interest rates from 5% to 17%, due 1997 or prior: 1973 1974 1975 1976 1977 Australian dollars 19,586 7,226 Canadian dollars 16,272 20,308 French francs 16,304 9,376 German marks 44,005 34,453 Swiss francs 35,714 32,787 U.S. dollars 14,328 4,282 Other 6,963 7,482 Total long-term debt $926,345 $922,883 There are no formal withdrawal restrictions on any cash The weighted average interest rate applicable to long- balances maintained at the various banks. The parent Com term debt at October 31, 1977 was 7.6% compared with pany and International Harvester Credit Corporation main 7.5% in 1976. tain average compensating balances over a twelve-month The aggregate annual maturities and sinking fund re period as determined by the bank ledger records adjusted quirements of long-term borrowings are as follows for the for uncollected funds. The most common informal arrange years ending October 31:1979, $88 million; 1980, $227 mil ments provide for balances to be maintained of 10% of the lion; 1981, $84 million and 1982, $60 million. lines available plus 10% of the amount of loans outstand The Company has a formal agreement, expiring Decem ing under such lines. ber 1979, with a consortium of banks pursuant to which it The compensating balances expected of the parent may borrow up to $150 million until the expiration date of Company and International Harvester Credit Corporation the agreement. The Company is obligated to pay a com under informal arrangements at October 31, 1977, includ mitment fee of 1/2 of 1 % on the unused portion, and borrow ing the mutual lines, were approximately $111 million and ings under the agreement are to be at 1 % above the London the estimated collected balances were $111 million. Be Interbank Offered Rate. At October 31, 1976, the Company cause the arrangements are based on a twelve-month aver had borrowed the entire $150 million at an effective rate of age balance, none of the cash balances are considered to 7.2%. At October 31,1977, the Company was not using any be restricted as of any specific date. portion of this facility and, therefore, has classified $150 Lines of credit arrangements of the consolidated sub million of short-term debt as long-term debt in accordance sidiaries are generally in connection with bank overdraft with Statement No. 6 of the FASB. and note facilities for which there are neither material com mitment fees nor compensating balance requirements. Un used lines of the consolidated subsidiaries at October 31, 15. Commitments and Contingent Liabilities 1977 were $239 million. At October 31,1977, commitments on appropriations for capital expenditures in progress were approximately $99 million. 14 Notes to International Harvester Company and Subsidiaries Financial Statements The Company was a guarantor of debt at October 31, panies of $335 million at October 31, 1977 and $263 million 1977 of nonconsolidated companies and distributors in the at October 31,1976 is included in Income Retained. amount of $39 million. In addition, certain subsidiaries were contingently liable for approximately $90 million primarily 18. Retirement Plans for notes receivable discounted and bills of exchange. The parent Company and its domestic and Canadian The Company remains contingently liable on certain subsidiaries have pension plans covering substantially all obligations assumed by the purchaser of Wisconsin Steel of their employees. Generally, the plans are noncontribu- Division. These obligations include approximately $45 tory for wage earners and benefits are related to an em million in connection with joint ventures, $5 million for ployee's length of service and wage rate. Plans covering pollution-control facilities financing and an undetermined salaried employees are both contributory and noncontribu- portion of unfunded vested pension benefits. The unfunded tory and benefits are related to the length of service, salary vested pension benefits liability for participants under the and contributions of the employee. plans covered by this contingent liability was approximately Most foreign subsidiaries have separate retirement plans $66 million as of January 1,1977. If the purchaser is unable that are integrated with and supplement the benefits pro to provide benefits due under the various pension plans, the vided by laws of the various countries. Company would not be required to make any payments for Total pension costs charged to income were $155 mil vested benefits until after the trust assets have been ex lion for 1977 and $121 million for 1976. This increase re hausted, the purchaser has made any required payments sults primarily from an increase in retirement benefit levels and the Federal Pension Benefit Guaranty Corporation has under the Company's domestic retirement plans. It is the made all payments required by law. If the Company is not Company's policy to fund accrued pension costs. The plans required to make any payments of such vested pension vary in the extent to which they are funded, but at October benefits by July 31, 1982, its commitments provide that a 31, 1977, all current funding obligations had been fulfilled. substantial portion of any remaining contingent liability At January 1, 1977, unfunded prior service costs for all shall terminate on that date. plans in the United States and Canada, exclusive of Wis Lawsuits pending against the parent Company, arising consin Steel Division, approximated $1,097 million. out of the conduct of its business, include several in which The actuarially computed value of vested benefits for all claims are made in substantial amounts. The Company's plans in the United States and Canada, exclusive of Wis liability in respect of such litigation was not determinable consin Steel Division, was estimated to exceed the total at October 31, 1977, but it is the opinion of the Company's market value of the pension funds by $929 million as of June counsel that any resulting liability will not materially affect 30,1977. the financial condition or results of operations of the parent Company and its consolidated subsidiaries. 19. Stock Option Plans The Company has two stock option plans that provide for The present value of minimum lease commitments on the granting of options to key employees for the purchase noncapitalized financing leases, as defined by the Securi of shares of common stock at a price equal to the fair mar ties and Exchange Commission, and the impact on net in ket value of the stock on date of grant. Authority to grant come if such leases had been capitalized were not material options under one of these plans expires on December 20, in relation to the financial statements. Gross rental expense 1977. Qualified options have a term, from date of grant, of arising from leases amounted to less than one percent of not more than five years and nonqualified options have a Sales and Other Revenues for 1977 and 1976. term of not more than ten years. Options are not exercisable 16. Preferred Stock during the first year. The Company may redeem, subject to certain condi The following summarizes changes in common stock tions, any number of its preferred shares outstanding after under option for the year ended October 31, 1977: ., k r ' Number January 14, 1980. The optional redemption price to Jan of Shares uary 14, 1981 is $110 per share, decreasing annually to Beginning of year 205,990 $100 per share after January 14, 1992. Beginning with Granted 105,585 Exercised (47,195) January 15,1981 and each January 15 thereafter, the Com Terminated (11,900) pany, in compliance with sinking fund provisions, is re End of year (149,105 shares exercisable) 252,480 quired to redeem 33,333 shares at $100 per share plus accrued dividends. The Company may elect on January 15, Stock options outstanding at October 31 by year of grant 1985, and each January 15 thereafter, to increase the num were as follows: Option Prices* ber of shares to be redeemed at $100 per share from 33,333 Total to a maximum of 100,000. Number of Shares Per Share 1977 1976 Year 1977 1976 (Thousands of dollars) 17. Income Retained 1977 104,205 — $31.50-$36.06 $3,285 $ - Under the terms of the most restrictive long-term debt 1976 52,005 64,665 27.25- 27.69 1,439 1,790 1975 42,450 54,190 26.69 1,133 1,446 agreement, $127 million of income retained remained avail 1974 35,120 45,980 26.00 913 1,195 able for the payment of cash dividends at October 31,1977. 1973 18,700 26,380 27.38- 34.75 644 908 Equity in undistributed earnings of nonconsolidated com 1972 — 14,775 29.13- 31.69 — 435 252,480 205,990 $7,414 $5,774 "Option price per share is same as market price. 15 Notes to International Harvester Company and Subsidiaries Financial Statements Stock options became exercisable as follows: October 31, 1985, which bears interest at 6%. The note is included in Other Assets in the 1977 statement of financial Market Price at Dates Options condition. Option Prices Became Exercisable The agreement also provides the basis for Mr. McCardell Total Total to earn an incentive compensation award each year through (Thousands (Thousands Year Shares Per Share of dollars) Per Share of dollars) fiscal 1984 which is to be applied as a reduction of the prin 1977 65,495 $27.25-$31.50 $1,816 $29.06-$31.63 $2,069 cipal of the note. The amount of any such award will be 1976 57,845 26.69 1,544 27.81 1,609 based upon the degree to which the Company exceeds certain objectives under Mr. McCardell's leadership. Stock options were exercised as follows: The plans are administered by the Committee on Com pensation and Organization of the Board of Directors. Market Price at Members of the Committee are not employees and are not Dates Options Option Prices Were Exercised eligible for participation in these plans. The Committee de Total Total termines the managerial employees who will be eligible (Thousands (Thousands for the respective incentive compensation plans and either Year Shares Per Share of dollars) Per Share of dollars) the amount to be granted to each individual or criteria to be 1977 47,195 $26.00-$34.75 $1,339 $30.06-$37.75 $1,662 applied. 1976 5,585 26.00- 34.75 159 30.81- 31.44 172 There were 1,434,300 and 1,527,985 shares available for 21. Assets by Geographical Area grant at October 31, 1977 and 1976, respectively. Net assets at October 31 by geographical area are analyzed as follows, in millions of dollars: 20. Management Incentive Programs 1977 1976 The parent Company's Management Performance Assur Non- ance Award Plan provides that a separate award determi Working current Noncurrent Net Net Capital Assets Liabilities Assets Assets nation be made at the conclusion of each fiscal year. Per United States $ 920 $1,143 $ 885 $1,178 $1,057 formance goals are established annually for selected Canada 77 79 17 139 130 employees having substantial responsibility in an executive Europe and Africa 232 153 80 305 268 or managerial capacity. Awards are based on the quality of Latin America 5 14 — 19 11 performance toward the attainment of such goals. Under Pacific area 42 75 24 93 98 the Plan, $5.5 million in 1977 and $4.2 million in 1976 were Total $1,276 $1,464 $1,006 $1,734 $1,564 charged to costs and expenses. Employees participating in this Plan are not eligible to participate in any otherCompany incentive compensation plan. 22. Product Warranty Costs The parent Company's Managerial Extra Compensation It has been the Company's policy in years prior to 1977 Plan, which was terminated October 31, 1976, provided to charge income with product warranty costs as incurred. that whenever International Harvester's pre-tax income, as Beginning in 1977, this policy was corrected to accrue for defined in the Plan, exceeded a prescribed level, an appro these costs as products are sold. The effect of this change, priation for extra compensation was made. Under provi which has been applied retroactively, was to reduce income sions of the Plan, $9 million was charged to costs and ex from continuing operations and net income by $1.8 million penses in 1976. (6 cents per share) for 1977 and $1.0 million (4 cents per As a part of the Management Performance Assurance share) for 1976. The cumulative effect of this change to Program, the Key Management Incentive Plan (KMIP) re October 31, 1975 amounted to $16 million and has been placed the Managerial Extra Compensation Plan effective deducted from Income Retained as of that date. November 1, 1976. Participants include managers above a certain level who are not participants in any other Company incentive compensation plan. The size of the KMIP award is 23. Nonconsolidated Sales Finance dependent upon the degree to which the Company and Subsidiaries divisions achieve the profit goals established in the annual The combined accounts of International Harvester Credit business plan as well as the annual achievement evaluation Corporation, a domestic subsidiary, and other sales finance of the participant. In 1977, $9 million was charged to costs subsidiaries in Australia, Bermuda, Canada, New Zealand and expenses to meet the provisions of the Plan. and Switzerland are included in the following summaries. On September 1, 1977, the Company loaned Mr. Archie International Harvester Finanz AG (Switzerland), previously R. McCardell, President and Chief Operating Officer, under consolidated with International Harvester Company and the terms of his compensation agreement, $1,796,250 with Subsidiaries, is included in the 1977 summaries below. This which he purchased from the Company 60,000 shares of subsidiary's income retained of $2.9 million at October 31, International Harvester Company common stock at market 1976 has been included in income retained—beginning of price on that date. The loan is evidenced by a note, due the year for 1977 in the following summary. 16 Notes to International Harvester Company and Subsidiaries Financial Statements The financial condition at October 31 was as follows: The credit provision for losses on receivables in 1977 1977 1976 includes the effect of a reduction in the allowance for losses Assets (Thousands of dollars) on receivables. Refer to Note 5 to Financial Statements for Cash $ 124,093 $ 73,335 Receivables 3,424,420 2,718,775 more information. Less: Allowance for losses (22,317) (29,343) Receivables from affiliated companies ... 69,669 58,174 Repossessions 5,787 4,311 24. Replacement Cost Information (Unaudited) Deferred income taxes 2,345 7,504 Securities and Exchange Commission (SEC) Accounting Other assets 13,996 11,854 Series Release No. 190 requires the disclosure of replace Total assets $3,617,993 $2,844,610 ment cost information. Under this Release, the Company is Liabilities and Stockholder's Equity to report the replacement cost of year-end inventories and Short-term notes payable $1,636,297 $1,339,902 of buildings, machinery and equipment with equivalent pro Accounts payable and accrued liabilities.. 70,118 53,757 Amounts due affiliated companies 24,164 59,618 ductive capacity to produce and distribute its products. The Long-term debt 1,367,419 978,683 Company is also to report the approximate effect replace Long-term debt due affiliated companies.. 15,125 19,445 ment cost would have had on cost of sales and on depre Capital stock 192,924 139,988 Capital in excess of par value 2,785 — ciation and amortization for the year. The replacement cost Income retained 309,161 253,217 information is intended to be an aid in understanding some Total liabilities and stockholder's equity. $3,617,993 $2,844,610 of the effects of inflation on the current costs of operating a business and on the capital required to replace certain Income and income retained for the fiscal years ended assets. October 31 was as follows: 1977 1976 Replacing plant and equipment generally requires a (Thousands of dollars) greater capital investment than was originally required to Revenues $341,153 $ 284,549 purchase the assets being replaced. Production costs also Interest expense , (180,986) (143,843) have increased as the result of rising price levels. Interest paid to affiliated companies (2,759) (4,267) Provision for losses on receivables 3,461 (6,928) The Company's Annual Report on Form 10-K to the SEC Operating expenses (15,468) (7,123) contains detailed replacement cost information. Stock Fees paid to affiliated companies (36,955) (31,354) holders may request a copy of Form 10-K by writing to the Income before taxes on income 108,446 91,034 Taxes on income (54,697) (42,940) Corporate Secretary, World Headquarters. Net income 53,749 48,094 Income retained—beginning of the year., 256,118 205,782 Dividends paid (706) (659) 25. Reclassification Income retained—end of the year $309,161 $253,217 Certain 1976 amounts have been reclassified to conform with the presentation used in the 1977 financial statements. Revenues include approximately $114 million in 1977 and $99 million in 1976 from affiliated companies. 26. Quarterly Financial Information (Unaudited) (Millions of dollars, except per-share data) IstQtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year 1977 1976 1977 1976 1977 1976 1977 1976 1977 1976 Sales $1,209.1 $1,079.6 $1,563.5 $1,478.5 $1,490.9 $1,381.0 $1,711.6 $1,549.0 $5,975.1 $5,488.1 Gross profit $ 197.3 $ 203.6 $ 286.4 $ 272.7 $ 256.1 $ 231.2 $ 310.6 $ 241.9 $1,050.4 $ 949.4 Income Continuing operations $ 25.2 $ 30.0 $ 57.6 $ 58.2 $ 42.2 $ 37.6 $ 76.3 $ 47.3 $ 201.3 $ 173.1 Wisconsin Steel Division — (.1) — (1.0) 2.4 .3 — .8 2.4 — Net income $ 25.2 $ 29.9 $ 57.6 $ 57.2 $ 44.6 $ 37.9 $ 76.3 $ 48.1 $ 203.7 $ 173.1 Income per share Continuing operations $ .84 $ 1.03 $ 1.97 $ 2.04 $ 1.43 $ 1.29 $ 2.60 $ 1.62 $ 6.84 $ 5.98 Wisconsin Steel Division — — — (.04) .08 .01 — .03 .08 — Net income $ .84 $ 1.03 $ 1.97 $ 2.00 $ 1.51 $ 1.30 $ 2.60 $ 1.65 $ 6.92 $ 5.98 Net income for the first quarter of 1977 included a charge of $6 mil reduce income from continuing operations and net income by $1.8 lion (21 cents per share) for a retroactive increase in vacation liability million (6 cents per share) for 1977 and $1 million (4 cents per share) negotiated in new labor agreements. for 1976. Because of the immateriality of the amounts involved, the an Net income for the fourth quarter of 1977 included a credit of $4.4 nual adjustments were included in net income of the fourth quarter of million (15 cents per share) for a reduction in the allowance for losses each respective year. on receivables of a nonconsolidated sales finance subsidiary. Refer to During each quarter of 1976, the estimated loss on disposal of Wis Note 5 to Financial Statements for more information. consin Steel Division was adjusted for the difference between actual The Company has corrected its policy of accounting for product operating results and the provision for anticipated future operating warranty costs as described in Note 22 to Financial Statements. The losses recorded in 1975. Refer to Note 4 to Financial Statements for effect of this change, which has been applied retroactively, was to more information on the sale of Wisconsin Steel Division. 17 Auditors' International Harvester Company and Subsidiaries Opinion HASKINS & SELLS 200 EAST RANDOLPH DRIVE INTERNATIONALLY CHICAGO, ILLINOIS 6O6OI DELOITTE, HASKINS & SELLS International Harvester Company, November 28,1977 its Directors and Stockholders: We have examined the statements of financial condition of International Harvester Company and subsidiaries as of October 31,1977 and 1976 and the related statements of income, changes in financial position, and stockholders' equity for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting rec ords and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying financial statements (pages 6 through 17) present fairly the finan cial position of International Harvester Company and subsidiaries at October 31, 1977 and 1976 and the results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis, after restatement for the change in accounting for product warranty costs described in Note 22 to Financial Statements. ^a^LUs Suifimarv Of International Harvester Company and Subsidiaries ' *" For the Years Ended October 31 Operations and Management's Analysis Summary of Operations (Millions of dollars, except per-share data) 1977 1976 1975 1974 1973 Sales $5,975.1 $5,488.1 $5,246.0 $4,863.5 $4,091.8 Cost of sales 4,924.7 4,538.7 4,383.0 4,089.2 3,431.0 Gross profit 1,050.4 949.4 863.0 774.3 660.8 Other expenses, less sundry income 570.5 509.9 491.9 428.1 411.5 Charges for financing services 114.1 98.8 86.0 78.8 61.6 Interest expense 114.9 121.3 148.4 118.1 74.8 Taxes on income 116.6 94.6 60.5 67.0 38.1 Income of nonconsolidated companies 67.0 48.3 40.4 32.0 31.5 Income from continuing operations 201.3 173.1 116.6 114.3 106.3 Wisconsin Steel Division, less taxes on income 2.4 — (44.6) 2.2 (1.9) Income before extraordinary item and cumulative effect of change in accounting policy 203.7 173.1 72.0 116.5 104.4 Extraordinary income — — — 6.1 7.4 Cumulative effect on prior years of change in accounting policy — — 8.1 — — Net income 203.7 173.1 80.1 122.6 111.8 Dividends paid on preferred stock 5.0 5.0 2.4 — — Earned on common stock 198.7 168.1 77.7 122.6 111.8 Income per share: Continuing operations $6.84 $5.98 $4.12 $4.11 $3.84 Wisconsin Steel Division .08 — (1.61) .08 (.07) Extraordinary — — .22 .27 Change in accounting policy .29 6.92 5.98 2.80 4.41 4.04 Dividends paid per share of common stock $1.85 $1.70 $1.70 $1.60 $1.50 Average number of common shares outstanding (thousands) 28,729 28,085 27,797 27,797 27,673 Notes to Summary of Operations Information concerning Wisconsin Steel Division appears in $1.8 million in 1977, $1 million in 1976, $1.5 million in 1974, Note 4 to Financial Statements. $2.5 million in 1973 and increased $.8 million in 1975. Net income includes exchange losses of $4 million in 1977 The 1975 change in accounting policy resulted from adopt and $15 million in 1973 and exchange gains of $12 million in ing the full absorption method of valuing domestic inventories. 1976, $9 million in 1975 and $8 million in 1974. The extraordinary income represents tax benefits on net Income from continuing operations and net income were re operating loss carryforwards of certain foreign subsidiaries. duced for the effects of the change in accounting for product Amounts earned per common share were based on the warranty costs described in Note 22 to Financial Statements of average of the number of shares outstanding. 18 Summary of International Harvester Company and Subsidiaries Operations and Management's Analysis Management's Discussion and Note 4 to Financial Statements for additional infor Analysis of Summary of Operations mation. 1977 Compared to 1976 1976 Compared to 1975 Worldwide sales for 1977 increased 9% com Worldwide sales increased nearly 5% in 1976 pared with 1976. Truck sales were 17% higher than over 1975; truck sales increased 16%, partially in 1976 due primarily to increased sales of heavy offset by a 25% decrease in construction and in duty trucks and service parts in the United States. dustrial equipment sales. The reduction in the con Sales of agricultural equipment increased 3% over struction and industrial equipment market was due 1976 despite adverse conditions affecting the farm to the soft demand in the mining and general con ing industry in most areas of the world. Construction struction industries. Agricultural equipment sales and industrial equipment sales increased 9% due increased 7%, remaining at the high level experi principally to improved markets for housing, non enced in 1975. Price increases instituted at various residential buildings and heavy construction. Solar intervals during 1976 contributed to the overall in turbo machinery sales, down 16%, reflect a con crease in sales for 1976. tinued reduction in demand from producers of oil, Cost of sales for 1976 as compared to 1975 in natural gas and electrical power. This is caused by creased nearly 4%. Economic increases in the many worldwide political and economic conditions, basic components of manufacturing costs were such as the lack of a definitive national energy partially offset by better utilization of capacity at our policy. Selective price increases at various inter United States truck manufacturing facilities and by vals during the year also contributed to the im increased emphasis on cost control programs cou provement in overall sales. pled with improved manufacturing efficiencies re Cost of sales increased 9% in 1977 compared sulting from recent capital expenditures. with 1976 due to increased sales volume and higher Charges for financing services on receivables costs for material, labor and overhead. In addition, sold to nonconsolidated sales finance subsidiaries 1977 cost of sales was further influenced by excess rose 15% in 1976 as compared to 1975, principally costs of alternate fuels caused by adverse weather due to increased volume of wholesale notes sold conditions and a cumulative charge for retroactive and receivable balances carried by these finance additional vacation negotiated in the new labor subsidiaries. Also contributing to this increase were agreement. liberalized terms on certain truck models. A de Other expenses, less sundry income was up 12% crease in borrowing interest rates experienced by from 1976. Marketing and administrative expenses sales finance subsidiaries exerted downward pres increased in line with sales. Another contributing sure on these charges. factor was an unfavorable foreign currency ex Interest expense in 1976 decreased 18% from change impact during 1977 versus favorable ex 1975. Most of this decrease was due to a reduction change adjustments in 1976. in the average borrowing required for working capi Charges for financing services increased nearly tal to support inventory and the balance was a result 16% from 1976 primarily due to an increased dollar of lower interest rates. volume of wholesale notes sold to nonconsolidated Taxes on income increased approximately 60% sales finance subsidiaries. in 1976 over 1975 primarily due to increased pre Taxes on income increased 23% over 1976 pri tax income of United States operations. marily in relation to the increase in pre-tax income. A 19% increase in income of the nonconsoli Income taxes vary with the amount and source of dated companies resulted from higher earnings by taxable income and differences in relative tax rates our sales finance subsidiaries reflecting higher note in the United States and other countries. balances and lower short-term interest rates. Income of nonconsolidated companies was up Net income for 1975 included a net charge of $40 39% from 1976. The increase was primarily due to million for the estimated loss on disposal of Wis higher earnings by our joint ventures and sales consin Steel Division and a net credit of $8.1 million finance subsidiaries. As described in Note 5 to resulting from a change in inventory valuation Financial Statements, earnings were favorably af method. fected by an adjustment to the allowance for losses Research and development expenditures rose on receivables by our domestic sales finance sub 16% in 1976 over 1975 as a result of upward ad sidiary. However, earnings of our nonconsolidated justment in wages, salaries and materials, and to companies outside of the United States were sig increased emphasis toward the development of nificantly reduced by foreign currency exchange new products to be introduced in future years. adjustments. The 12% increase in depreciation and amortiza Wisconsin Steel Division was sold to EDC Hold tion in 1976 over 1975 was a result of accelerated ing Co. on July 31, 1977. The effect of this transac capital expenditure programs during the past sev tion increased 1977 net income by $2.4 million. See eral years. 19 Statistical International Harvester Company and Subsidiaries Data (Millions of dollars, except per-share data) 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 Sales by Major Product Groups Trucks $2,701.3 $2,310.4 $1,999.0 $2,282.9 $2,118.1 $1,780.4 $1,522.8 $1,335.6 $1,318.7 $1,145.0 Agricultural equipment.. 2,334.4 2,262.0 2,105.7 1,656.7 1,242.1 1,028.0 857.1 776.6 762.0 847.4 Construction and indus trial equipment 731.4 668.4 886.8 751.9 627.2 497.3 447.6 426.5 408.8 383.0 Turbo machinery 208.0 247.3 254.5 172.0 104.4 107.2 102.4 97.3 85.1 84.4 Total $5,975.1 $5,488.1 $5,246.0 $4,863.5 $4,091.8 $3,412.9 $2,929.9 $2,636.0 $2,574.6 $2,459.8 Sales by Area of Final Sale United States $4,016.9 $3,457.6 $3,167.8 $3,375.0 $2,921.6 $2,551.2 $2,201.5 $1,955.8 $1,903.5 $1,823.4 Canada 454.8 466.8 422.1 407.9 338.8 269.1 199.6 150.9 172.2 158.7 Europe and Africa 1,014.6 1,057.2 1,097.5 651.0 536.1 358.5 301.3 285.1 263.9 249.8 Latin America 135.0 147.5 183.5 127.4 76.4 79.7 72.7 82.6 74.4 69.5 Pacific area 353.8 359.0 375.1 302.2 218.9 154.4 154.8 161.6 160.6 158.4 Total $5,975.1 $5,488.1 $5,246.0 $4,863.5 $4,091.8 $3,412.9 $2,929.9 $2,636.0 $2,574.6 $2,459.8 Net Income Amount $ 203.7 ; 173.1 80.1(b) $ 122.6(c) $ 111.8(c) $ 86.6 45.2 52.4 $ 63.8 I 75.4 Percent of sales 3.41 % 3.15% 1.53% 2.52% 2.73% 2.54% 1.54% 1.99% 2.48% 3.07% Return on stockholders' equity, beginning of year 13.03% 12.12% 5.95% 9.66% 9.33% 7.53% 3.94% 4.54% 5.54% 6.67% Net Assets, End of Year Current assets $2,324.2 $2,272.7 $2,352.5 $2,273.8 $1,910.7 $1,726.6 $1,461.3 $1,411.1 $1,304.9 $1,211.1 Less current liabilities .. 1,048.0 1,041.6 1,125.8 1,343.3 1,037.3 881.3 669.5 644.7 553.9 442.4 Working capital 1,276.2 1,231.1 1,226.7 930.5 873.4 845.3 791.8 766.4 751.0 768.7 Property, net 771.2 710.3 657.7 654.4 569.5 541.5 564.9 575.8 547.6 511.8 Investments 666.7 495.8 430.4 357.3 310.0 268.7 221.5 191.2 157.5 148.1 Other assets 26.0 96.0(a) 76.3(a) 58.2 37.7 37.5 27.3 39.2 19.2 21.4 Total 2,740.1 2,533.2 2,391.1 2,000.4 1,790.6 1,693.0 1,605.5 1,572.6 1,475.3 1,450.0 Less: Long-term debt 926.3 922.9 938.2 625.3 497.0 465.1 431.3 402.2 312.7 298.1 Deferred income taxes.. 80.0 46.5 25.0 27.7 24.3 29.9 24.7 23.6 7.4 Total 1,006.3 969.4 963.2 653.0 521.3 495.0 456.0 425.8 320.1 298.1 Total net assets . . . $1,733.8 $1,563.8 $1,427.9 $1,347.4 $1,269.3 $1,198.0 $1,149.5 $1,146.8 $1,155.2 $1,151.9 Other Statistical Data Capital expenditures ... $ 168.0 168.4 $ 173.2 $ 180.6 $ 106.5 $ 61.3 $ 62.7 $ 88.5 $ 97.0 $ 102.0 Depreciation and amortization 94.1 90.1 87.0 75.5 77.7 77.7 74.8 66.9 61.7 77.5 Per common share: Net income 6.92 5.98 2.80(b) 4.41(c) 4.04(c) 3.17 1.65 1.92 2.30 2.69 Dividends paid 1.85 1.70 1.70 1.60 1.50 1.40 1.60 1.80 1.80 1.80 Book value, end of year 57.75 53.34 49.57 48.47 45.66 43.87 42.10 42.06 41.70 41.14 Market price range: 1 1 3 High 37% 32% 30 /2 32 Ve 40 /2 39 33% 29 38 A 38 1 Low 25% 211/2 181/2 163/4 26 23 22% 22 25 /s 30% Ratios Current assets to cur rent liabilities 2.2-1 2.2-1 2.1-1 1.7-1 1.8-1 2.0-1 2.2-1 2.2-1 2.4-1 2.7-1 Long-term debt as a percent of stock holders' equity plus long-term debt 35% 37% 40% 32% 28% 28% 27% 26% 21% 21% Notes to Statistical Data (a) Includes $65.8 million in 1976 and $56.6 million in 1975 for esti (c) 1974 and 1973 include extraordinary income from the tax benefits mated realizable value of Wisconsin Steel Division assets. on net operating loss carryforwards of $6.1 million (22 cents per (b) 1975 includes a net charge of $40 million ($1.44 per share) for the share) and $7.4 million (27 cents per share), respectively. estimated loss on disposal of Wisconsin Steel Division and a net credit of $8.1 million (29 cents per share) resulting from a change in inventory valuation method. 20 Investing in the Future High-rise computerized warehouse has been built at East Moline plant; another is planned at Fort Wayne plant. Composite material in experimental Scout weighs half to a third as much as metal parts. New Brookfield, Wisconsin, center, lower left, will double IH computer capability. Gas wells in Southern Ohio now supplement fuel needs of plants. Year in Brief Company Announces Reorganization Archie McCardell Elected President In January, Chairman Brooks McCormick an Archie R. McCardell, former president of Xerox, nounced that International Harvester would change was elected president, chief operating officer and its organizational structure from a divisional con a member of the Board of Directors. Concurrently, cept to five free-standing, self-sufficient worldwide Brooks McCormick was elected chairman of the Groups, effective in fiscal 1978. board, and former executive vice presidents Wil liam E. Callahan and Omer G. Voss were named "S" Series Trucks Introduced vice chairmen. The new "S" series of conventional-cab, heavy trucks was announced, offering lower cost of Center to Double Computer Capacity ownership in both purchase price and lifetime Construction started on a multi-million dollar performance. Through standardization of compo computer center in Brookfield, Wisconsin, which nents and design innovation, the number of part will roughly double the capacity of IH's worldwide numbers was reduced 30 percent from previous computer network. models. Combine Raises Efficiency 17 Percent Financial Leaders Hosted at Superdome International Harvester announced its Axial-Flow In April, more than 400 stock analysts, bankers combine line which harvests grain an average of and other leaders of the nation's financial com 17 percent more efficiently than previous IH mod munity attended a meeting at the New Orleans els. While conventional combines process the crop Superdome to hear presentations by IH executive through two mechanisms, one for threshing grain officers and view a massive display of International and another for separating, the new design threshes Harvester products. and separates in one continuous, swirling action by a single, large-diameter rotor. Wisconsin Steel Division Sold International Harvester sold its Wisconsin Steel IH Gas Wells Supply Plants Division to EDC Holding Company, a wholly owned Natural gas from IH wells started flowing through subsidiary of Envirodyne, Inc., of Los Angeles. the pipelines this fall to offset fuel curtailments by Chairman Brooks McCormick commented that local utilities at International Harvester plants. IH capital required by the steel operations could be has sunk 16 producing wells in Ohio since drilling better employed in expansion of IH's basic busi started last February in conjunction with energy nesses — manufacturing and marketing of capital conservation programs within plants which reduced goods. consumption 15 percent. 530 PAY Loader Enters Market Factory Wages Average $8.11 Hourly The International 530 PAY loader, a small artic Production and maintenance employees at IH's ulated model, was introduced by Pay Line Group domestic manufacturing operations earned an av into the 21/2 to 31/2 cubic yard front-end loader erage of $8.11 per hour in straight time wages on market. October 31,1977. IH fringe benefits added another $5.71 per hour worked. This compares with $7.43 Mrs. Garst Joins Board straight time earnings and $4.55 per hour fringe cost a year earlier. Mrs. Mary Garst, manager of the Cattle Division of the Garst Company in Coon Rapids, Iowa, was elected to International Harvester's Board of Direc tors. IH News in Pictures Left, from top: New parts distribution center at West Chicago speeds shipments with advanced Solar Ships First "Mars" Model computer control console. Massed equipment at New Solar Turbines International Group shipped its Orleans Superdome provides background for IH first Mars turbine compressor set to a gas pipeline executives' report to financial community. Newly introduced 530 articulated PAY loader dumps into rock pumping station in Canada for field test. The 10,600 crusher. Bottom: Series 86 tractors and Cyclo planters horsepower turbine is the largest Solar has de continue to enjoy high acceptance by farmers. Right, from signed. top: Special trucks, like this 600 horsepower Transtar, are engineered and modified in shorter time at new Engineering Pilot Center at Fort Wayne. Two Solar 1,200 horsepower mechanical drive units power pumps for hydrostatic tests of trans-Alaska pipeline before flow of North Slope oil began this year. 22 Introducing IH Today and Tomorrow Traditionally, an anniversary is a time to look back In an environment astir with change, IH will con on the past, and International Harvester has a past tinue to concentrate in the foreseeable future on busi worthy of recognition in this, its 75th year. But it is a nesses in capital-intensive industries. Management reflection of IH's changed character that in this an must meet the heightened demand to generate capi niversary year, IH announced sweeping changes in tal, monitor changing conditions and choose quickly organization and a departure from the past. In that where best to apply the capital and other resources spirit, this and the following sections of the annual of the Company. report will introduce the reorganized International Harvester of today . . . and tomorrow. The direction of change Each of the five free-standing worldwide product- Meeting these challenges and others now only line Groups will be described. However, the financial dimly seen will require an International Harvester or information in the first half of this annual report should ganization combining flexibility and responsiveness not be directly applied to the discussions that follow. with tight financial control. It will call for extreme dedi There are significant differences between these new cation by the entire management organization borne Groups through which IH will operate in the future and of close personal identification with the goals and the divisions through which IH conducted its business accomplishments of the corporation. up to the end of fiscal 1977. Similarly, but in a broader The form the Company will take in the years ahead sense, investors must now look at the entire corpora is generally planned, but subject to pragmatic adjust tion in the light of its new organization and philoso ment for unforeseen conditions imposed on it in the phies in order to assess its future. future. However, major changes made by IH in the No one can claim to know the future in specifics or recent past indicate the direction of future improve with certainty. However, some general elements of ments. the future that IH faces are calculable. Those efforts to revitalize the Company started six years ago focused primarily on immediate improve Growing demands, faster change ment in business results. They have met or exceeded It is certain that there will be more and greater most of their short range goals. To the degree that demands on the corporation than ever before. Needs those changes contributed to the results reported of customers will increase with burgeoning tech earlier in this annual report, they qualify as significant nology and intensified competition by users of our accomplishment, especially considering the short time equipment in their own fast-changing industries. De it has taken to make such substantive changes. mands of government on private business will continue to proliferate. A society with continuously rising ex Long range impact pectations will require private corporations to take the However, this revitalization of the IH organization lead in solving broad social problems. The demands was made with consideration of long range impact, as of intensified worldwide competition will continue to well. The four major changes were designed to help feed upon and be fed by the clustering of national create a corporation that can meet the demands of the markets into regional markets, and regional markets future. into a closely interrelated world economy. The pace of change will accelerate continuously • The first major change was delegation by executive into the future, requiring faster and faster response management of greater operating responsibility and time from the corporation to manage its business com profit accountability. This decentralization of au petently. Radical changes in markets, technology and thority established a framework for faster response society that took decades in the past will occur in to the conditions of each of our businesses and scant years or months. greater flexibility in developing that response. At the same time, it clarified responsibility for generat ing profit and managing assets. • Establishment of the Planning/Management system made planning for the future synonymous with man agement at every level. It requires each manage ment person to monitor changes in his area of responsibility and to set future goals by which his future performance will be judged. • Installation of the managerial incentive program linked individual management performance with re ward. The improved compensation system links personal goals with corporate goals to encourage the dedication required in a winning corporation. 24 • Complete reorganization of the Company into five logical, cohesive product/market combination. Each basic business Groups with worldwide scope fur must be a unit that has a viable future in a competitive ther delegated authority and responsibility. It rec environment. ognizes the reality of the world markets in which In this ambitious and demanding process, the Com each Group must operate. It established the mech pany will be assembling the building blocks of Group anism to combine maximum financial control by the strategic planning. These, in turn, become the build parent corporation with maximum operating free ing blocks for a cohesive new corporate strategic dom by each Group. plan. With growing precision, management will be able to define the portfolio of businesses the Com These four major decisions join to form a system of pany should be in and their priority for its resources. management required to achieve a common corporate The information base for such an undertaking will objective. Each change and the system that together be its most demanding aspect. It will include docu they formed, pledged IH resources to a method of mentation—under constant refinement—of the poten dealing with the future of the Company. It is a future tials, risks, returns and resource requirements of each management has determined not to accept just as it business unit in the total portfolio. comes. Rather it is a future to be designed, using the best understanding of threat, risk and opportunity that Revitalization to prosperity can be acquired. But in such an approach to strategic planning, there Five major businesses can be no question at all about a favorable ratio of benefit to cost: The new organization defines five major businesses in which we can successfully put our resources to • it provides a systematic way to identify and evaluate work: agricultural equipment, trucks, construction the portfolio of businesses that are critical to the and industrial equipment (Pay Line), turbo machinery Company's future prosperity and growth. (Solar) and components. • it establishes clear priorities and long-term re The nature of each business Group is substantially source allocations for specific businesses, based unlike that of the other four in terms of products, mar on documented information that is generated by the kets and requirements for success. Each of them is major business Groups. As a result, Group manage also large enough to stand alone and to compete ef ment can undertake development plans with greater fectively in the markets it serves. Each of them makes assurance that necessary resources will be avail available, under single executive leadership, the full able when needed. advantages of our global distribution system, global • it sets up an explicit framework for developing and sourcing (engineering, manufacturing and materials) evaluating operating plans and performance con and of improved monetary control in a floating cur sistent with objectives and strategy. rency environment. • it focuses executive management attention where it Identifying five unique businesses only grinds the must be—on establishment of long-term objectives, lens for a much narrower and more critical focus on strategic allocation of resources and evaluation of IH business that will lead to further alteration. performance. At the same time, it gives Group man Management is even now defining, within each ma agement freedom to manage operating units ag jor business Group, the basic sources of its revenue, gressively with corporate knowledge and support profit and capital needs—the parts or units that con of Group objectives and strategy. tribute to, or detract from, the overall performance of each business Group and, in turn, of the corporation In short, it is an approach that will provide a rational as a whole. foundation for the basic function of management: to choose responsibly, in the present, among risk-taking Diversity in each business alternatives, those that will have validity in an unpre dictable future. For example, IH does not produce and sell to the It is an approach well-suited, we believe, to the agricultural equipment market, but to many market needs of this Company as it turns from the pasf ques segments within the broad economic area termed ag tion of its revitalization to a question of the degree of riculture. Some of those segments are new and grow its prosperity and growth in the future. ing, some are at a plateau and some are declining. Decisions on commitment of IH resources recognizes that kind of diversity in all our major businesses. IH will increasingly analyze opportunities in terms of this diversity. Each of these unique sub-units represents a set of related products in homogeneous markets, making it a 25 Introducing IH Agricultural Equipment Group The new worldwide Agricultural Equipment Group equipment and are demanding better dealer services. would rank among the top 100 in sales among industrial In the U.S., the number of farmers with gross receipts corporations in the United States if it were an indepen exceeding $100,000 continues to increase. In the not too dent business. It employs about 38,000 persons. World distant future, about 200,000 farmers, or seven percent wide assets exceed $1 billion. of the present total, are expected to produce 80 percent The Group combines most of the previous domestic of the nation's food and fiber needs. Agricultural Equipment Division and of the former Over Over the next 25 years, these farmer-businessmen will seas Division into a single organization. Three line use highly sophisticated management tools, like the com organizations administer business around the globe: puter, to achieve gains in machine efficiency. Developed North American Operations; Europe, Africa and Middle nations will follow the United States in the quest for higher East Operations; and Far East, Pacific and Latin Ameri capacity equipment. Emerging nations will continue to can Operations.The worldwide Group produces 16 prod demand greater mechanization. uct lines representing about 5,000 models. Beyond the next 25 years, changes are expected to be Those products are designed and developed in 12 even more significant. Satellite monitoring will be a com engineering centers and manufactured in 23 plants mon technique to assess crop inventory, weather stress, around the world. They are sold through a network of fertility deficiencies, crop disease and insect infestations. about 4,000 dealers and distributors. The Group's busi Engineers will perfect machines that guide themselves ness results chiefly from sale of agricultural equipment; across the field in a variety of crop operations. the balance from lawn and garden equipment. IH has taken the lead, with its XL program, in preparing The Group's product line is currently the strongest it its U.S. dealers for a more demanding future. This pro has been in recent years. In North America, Axial-Flow gram offers dealers the tools to improve their financial combines announced in September and Series 86 trac and management systems, computer services, inventory tor line introduced in 1976 strongly represent IH in the control, management training and other customer serv two biggest dollar segments of the market. ices. AE Group now monitors changes in the marketplace IH's worldwide tractors, covering the lower horse through a marketing section at each of nine regional power ranges, were updated last fall in Great Britain. In offices in the U.S. France and Germany, the Company expects to continue An exclusive IH dealer service, the Pro-Ag program, as the leader in sale of agricultural wheel tractors. IH provides computerized management to farmers. Using also expanded its conventional combine line in France Pro-Ag, a farmer can establish a computer model of his last year and updated its Australian tractor line. operation and try out management decisions to assess IH's competition falls into two major groups. One in their results. More than 5,000 customers have used the cludes a few well-financed international manufacturers program. offering a broad line of products. The other group con The overriding factor in the long term is the need for sists of many "short-line" firms specializing in a few food. While world population expands, agricultural types of equipment or limited markets. Some of the latter equipment will play a significant role in the future. group lack financial strength, but most of them enjoy cost advantages. In this competitive climate, the farmers of the world are increasingly turning toward bigger, more productive The combine of the future will be able to harvest up to 300 acres per day with 24-row gathering head. Robot grain carriers will detach from harvester when filled and deliver crop through computer control to storage silos. The world's first successful harvesting machine, McCormick's 1831 reaper, and the newest giant Axial Flow combine share the tradition of IH quality. § , ^ Introducing IH Truck Group Truck Group, which would rank among the nation's The world truck market is expected to show strong top 100 industrial firms, is historic leader in North Ameri growth in the near term. In North America, heavy-duty ca's heavy-duty truck market, and has a less prominent sales are expected to average about six percent increase presence in world markets. Its efforts will be directed in units per year. toward increased profit contribution to the corporation European sales will increase only slightly through and stronger, more consistent participation in the big, 1981. However, selected market segments, such as long growing markets of Europe, the Mid East, Africa, South distance inter-country hauling, are expected to grow America, Australia and Asia. rapidly. Latin America and the Far East markets will ex In the U.S., more than one out of four heavy-duty trucks pand about seven percent annually in the next five years. on the road is an International. IH's medium-duty trucks African growth will be dramatic, with an expected annual enjoy a slightly lower percentage of the market. However, average increase of nearly 15 percent. market share is not a goal in itself. Total truck sales volume of IH and its affiliates is pro About 40 percent of IH's heavy-duty unit sales are to jected to increase at a compounded rate of about 12 U.S. fleets, where extreme price competition narrows percent per year. Most outlays of capital for new product profit margins. Truck Group will continue to pursue these are either made or committed. Manufacturing facilities sales vigorously, but will sacrifice market share, if neces have undergone extensive modernization. sary, rather than participate at unacceptable profit levels. The Group's sales goals will not be achieved at the International's Scout line claims about 13 percent of expense of profitability. Realistic targets for return on the sport/utility market. An improved dealer network and sales and assets are set. Through U.S. operations, the introduction of the 1978 line will strengthen IH participa Group plans to generate most of the capital needed to tion in a market now approaching 250,000 units annually. improve performance overseas. In Canada, International expects to increase its present The next twenty-five years will bring dramatic evolu 20 percent share of the medium and heavy-duty market. tionary changes in the industry. Energy conservation will Truck Group plans expanded sales in Latin American be a major goal in vehicle design and manufacturing markets which represent about 182,000 medium and techniques. Composite materials will replace metal com heavy-duty vehicles per year and should increase to ponents. The diesel engine will remain the primary power 377,000 by 1985. The Group has assembly operations in source. Use of gasoline engines will continue to decline. Mexico and Venezuela. Truck sales outside North America and Europe will IH's medium/heavy truck representation in Europe is grow faster than in these mature markets. Trade barriers through a one-third interest in DAF Trucks, at Eindhoven, and competition in developing markets will require local Holland. DAF enjoys a dominant role in the Netherlands, truck manufacturing or assembly using increasingly an excellent reputation throughout Europe and strong higher local content to insure market participation. export business. Seddon Diesel Vehicles, Ltd., a wholly- The Truck Group expects to meet these new chal owned British subsidiary, serves the U.K. market. lenges and opportunities successfully with the expertise Products and factories are being updated in Australia, developed over decades of leadership in the U.S. market, the Philippines, New Zealand and South Africa, where and the strategic advantages of worldwide authority ac IH has been well represented for many years. In high- corded in reorganization of the Company. potential markets of Africa, the Mid East and Far East, IH aims for a larger share of the current 300,000 annual Present experimental trucks point toward this Very Energy truck sales, which are projected to double by 1985. Efficient Vehicle (VEEV) of the future. Aerodynamic design and fuel efficient components already have achieved 44 percent mileage improvement in experimental prototypes. From modest beginnings like the spindly 1907 auto buggy, IH has grown to America's leading producer of heavy trucks, like the S-line cement mixer Introducing IH Pay Line Group The new free-standing Pay Line Group is structured the 1975 recession. But there are bright spots. Construc according to function, with worldwide responsibility as tion in oil producing nations of the Middle East, Africa signed to manufacturing, marketing and engineering and Latin America has reached new highs. And gradual staffs of the Group. This type of organization is best suited resurgence of housing and commercial construction in to the construction and industrial equipment business the U.S. provides stimulus to the logging and materials because the characteristics and applications of Pay Line handling industries. Pay Line's best market will continue products are similar wherever they are used. to be coal mining, due to its importance in solving today's If it were an independent company, Pay Line would energy problems. rank in sales near the middle of America's largest 500 In the near future, growth of industries served by Pay industrial corporations. It competes in an industry with Line will depend on recovery of the U.S. economy. Con 1976 sales of $14 billion. The total is expected to rise tinued growth should spark economic activity in Europe to $18 billion over the next five years. During that period, and other industrialized nations. Economic recovery in Pay Line aims to increase its share of market from the the western world will also benefit developing countries current five percent to a minimum of six percent. That 20 through loans from the industrialized nations. percent improvement in penetration of a larger market All of this points to an increasing worldwide demand would push Group sales over one billion dollars. for construction and industrial products. Pay Line's chal Pay Line faces strongly financed, multinational com lenge is to secure its share of that demand. To do so, Pay petitors. IH ranks second to Caterpillar in the United Line will capitalize on its broad product line, global dis States market. Worldwide competitors, in addition, in tributor network, strong company identification and clude Clark, Komatsu, Fiat-Allis, Case, Terex, John worldwide manufacturing capabilities. A concentrated Deere, Poclain and Mitsubishi. effort will be made to improve support systems and up Pay Line's primary market advantage lies in having grade the distributor network, rationalize product lines one of the broadest product offerings in the industry. The among manufacturing facilities and improve profit mar Group's models range from a 25 horsepower utility trac gins. tor up to a 139-ton 1,075 horsepower PAY loader. The The construction market in the long term will shift in product line includes a wide variety of crawler loaders industrial nations from "new" construction to renewal and dozers, rubber tired loaders, backhoes, scrapers, projects in the world's urban centers. Developing nations off-highway dump trucks, excavators, utility tractors, will be the focus of new construction. forklifts, logging equipment and tow vehicles for aircraft. In the next 25 years, environmental, ecological and Manufacturing facilities are located in Melrose Park safety concerns will influence machine design more than and Libertyville, Illinois; Candiac, Canada; Bradford and ever in the past. Computer technology will become more Doncaster, Great Britain; Chaufailles and Genas, France; prominent in operator control centers. Ultimately, one Heidelberg, Germany; Japan; New Zealand and Mexico. individual will operate several machines from a central Pay Line products are distributed through a marketing control board on fully programmed job sites. organization divided into three areas—North America; Europe and the Middle East; and Asia, the Pacific and Latin America. Those products are distributed in 130 countries on every continent. Fast, versatile machines with sophisticated suspension systems, energized blades and rippers and maximum operator Outside the United States, the construction market comfort will work construction sites of the future. Computeriza continues to experience the sluggishness which followed tion will allow one operator to control several machines on the same job. Heavyweights of IH's construction equipment line include the first model, the 1910 Titan road roller, and the new 580 PAY loader with 21 cubic yard bucket. ^r ^J* „••» ***&' v% 'rW\ •it /t **V .^ i i mtm Introducing IH Solar Turbines International Group Solar Turbines International Group is a fully integrated Nevertheless, for the past few years Solar has had manufacturer of turbine-driven equipment serving a well over a 50 percent share of the market for industrial broad spectrum of industrial markets. The Group is in turbines below 10,000 horsepower. Today some 6,000 the business of producing energy conversion devices to of the Group's industrial engines are in service in 60 transform fuel energy into useful work. countries. More than three quarters of Solar's sales are Solar Turbines International is headquartered in San for export markets in every part of the world. Such diver Diego where it has three major manufacturing facilities. sified markets are subject to foreign political and eco Components are manufactured at the Harbor Drive plant nomic conditions, as well as domestic legislation that on the waterfront. Structural components for Solar's affects business expansion outside the United States. 1,200 to 10,600 horsepower turbine-driven gas com A major priority at Solar Turbines International is the pressor, generator and mechanical drive units are fab successful development of new products. These include ricated at Rose Canyon facility, which also houses a the 10,600 horsepower Mars turbine, a fuel-efficient en technical training center for customers and service per gine now undergoing field tests prior to production. sonnel. Turbine engines and packages are assembled, The Group is developing other turbo machinery prod tested and shipped from the $19 million Kearny Mesa ucts that should result in fuel efficiencies far surpassing plant dedicated in 1976. those of today's industrial power plants. In addition, Solar The Group has about 3,200 employees. Two recently is making a major effort to sell its existing line of turbine formed IH subsidiaries, Solar Turbines Ltd. and Solar generator sets for fuel-conserving, electrical co-genera Turbines International Company, market, sell and sup tion projects in cooperation with utilities. Electric power port Solar products overseas. produced by the generator set is either utilized by the The petroleum industry today accounts for about 82 firm where the set is located or it can be fed into the percent of Solar's sales. Turbine packages are used in utility's grid. The turbine's exhaust heat energy is used production and pipeline transportation of crude oil, natu for plant processes. This approach makes use of nearly ral gas and other liquid petroleum products. Growing all of the heat energy available from a given amount of demand for petroleum is expected to force exploration fuel. and production into remote areas where the compact Factors that could most affect the Group in the future ness, light weight and durability of turbine equipment is are world economic and political events that impact on particularly advantageous. demand for oil and natural gas, the need to develop Another 14 percent of Solar's business is in continu reliable electrical grids and other energy sources by ous-duty and standby generator sets for hospitals, com emerging nations, and U.S. international trade policies. puter centers, water and sewage treatment plants and In addition, the rising cost of fuels should create a strong telecommunications facilities. The remaining four per demand for the more efficient products that Solar Tur cent of sales involve small turbines used for auxiliary bines International is now developing. power on aircraft and on military generator units. In addition to competing with other turbine producers, Solar faces a large number of reciprocating engine mak ers in the marketplace. Among the firms with which Turbine co-generation plant of the 21st century will be able Solar competes are General Electric, Ingersoll-Rand, to burn a wide variety of fuels, including agricultural waste, Detroit Diesel Allison, Rolls Royce, Ruston, Cooper In kelp, manure, coal or shale oil to provide steam and supple dustries and others. mental electricity to an industrial/residential community of 20,000 population. The last of Solar's first line and the first of its latest line match a 1929 airplane with the 10,600 horsepower Mars turbine compressor set in Canada. Introducing IH Components Group Unlike other free-standing Groups formed by reorga bution system, serving customers of all product Groups, nization of International Harvester, Components Group is accountable for service parts procurement, warehous has not previously been separately identified as an IH ing and distribution. The other product Groups remain product-line segment. However, leadership of the Com responsible for parts marketing. pany in the four major areas that make up Components The fourth element of the Group is the West Pullman Group has long been recognized in industry. The Group complex in Chicago. This operation manufactures hy has global operating responsibility for engines, castings, draulic valves and cylinders, tapered and roller bearings miscellaneous components (hydraulic valves and cylin and fasteners. ders, bearings and fasteners) and the parts distribution Including those operations for which it has, or will system. have, operating control, the Group's employment is Components Group will not report its results exter about 16,000. Its projected dollar volume for 1978 is nally; instead, its sales and earnings will be consolidated about $2 billion. About 60 percent, or $1.2 billion, repre with the other product Groups. However, except for the sents chargeouts by the parts distribution division which parts distribution system, each division and unit within will be reported as sales by other product Groups. the Components Group is considered a profit center, Short term objectives of the manufacturing segments accountable for its performance using the same criteria of the Group include rationalization, standardization and applied to the product groups. The parts distribution consolidation of manufacturing operations and products. division is operated as a cost center, with its financial For example, the number of engine families offered by results evaluated, in part, on a basis of the ratio of ex IH worldwide has been reduced in recent years from 57 penses incurred to services performed. to 37, and continues under study. A parallel thrust will The engine division is responsible for design and be toward increased utilization of present production manufacture of gasoline and diesel engines. It has manu capacity. All combine to focus strong emphasis on the facturing operations at Indianapolis and Melrose Park, best possible use of the assets for which the Group is Illinois. Engine operations at Neuss, Germany, will be accountable. drawn into the Group during 1978. Engineering functions A small fraction of the Group's output from its manu are located at Melrose Park and at Fort Wayne, Indiana. facturing facilities is for outside customers. Production This division is the principal engine supplier for Agri and sales levels of the Agricultural Equipment, Pay Line cultural Equipment, Pay Line and Truck Groups. and Truck Groups will have a direct impact upon the The foundry division has operating responsibility for Components Group's results. grey, malleable and nodular iron foundries located at The Group's goals can also be achieved, in part, by Waukesha, Wisconsin; Indianapolis, Louisville and assuring a greater role as a supplier within the Company Memphis; and strategic responsibility for foundries lo and to pursue compatible outside business, particularly cated in France, Great Britain, Germany, Australia and for castings and gasoline engines. Mexico. This division's major customers for castings are Agricultural Equipment Group and within the Compo nents Group for production of engines. The parts distribution division operates IH's network Engine test center of the future will monitor a variety of of 19 parts distribution centers in the U.S., Canada, En designs competing to meet high standards of energy gland, France, Germany and Australia. The parts distri efficiency and environmental acceptability. High strength, low weight materials and precise control of internal com bustion will be key factors in engine design. A reputation for high quality engine production fostered at the former Milwaukee works in 1914, is furthered at Indianapolis plant today. Directors and Officers October 31, 1977 Board of Directors Roger E. Anderson, Chairman, Continental Illinois National Bank and Trust Company ot Chicago Karl D. Bays, Chairman and Chief Executive Officer, American Hospital Supply Corporation Manufacturer and distributor of health care products and services Andrew F. Brimmer, President, Brimmer and Company, Inc. Economic and financial consulting firm William E. Callahan, Vice Chairman, International Harvester Company Mary Garst, Manager, Cattle Division, Garst Company Diversified agri-business Arthur G. Hansen, President, Purdue University George E. Keck, President, Allied Management, Inc. Diversified manufacturer and retailer Joseph B. Lanterman, Chairman of the Board, AMSTED Industries, Inc. Manufacturer and supplier of products to railroads and heavy industry Archie R. McCardell, President and Chief Operating Officer, International Harvester Company Brooks McCormick, Chairman and Chief Executive Officer, International Harvester Company Louis W. Menk, Chairman and Chief Executive Officer, Burlington Northern, Inc. Transportation and resources company Graham J. Morgan, Chairman of the Board and Chief Executive Officer, United States Gypsum Company Manufacturer of building materials and industrial products Keith R. Potter, Executive Vice President-Finance, International Harvester Company John T. Rettaliata, Chairman of the Board, Banco di Roma (Chicago) Banking institution Harold Byron Smith, Chairman, Executive Committee, Illinois Tool Works, Inc. Manufacturer and supplier of tools, fasteners and industrial products Edson W. Spencer, President and Chief Executive Officer, Honeywell, Inc. Manufacturer and supplier of control and inlormation systems T. M. Thompson, Chairman of the Board and Chief Executive Officer, GATX Corporation Manufacturer and lessor of rail and ocean going transportation equipment Omer G. Voss, Vice Chairman, International Harvester Company Executive Audit Committee on Public Policy Committee Committee Compensation Committee The Executive The Audit Committee and Organization The Public Policy Committee represents supervises auditing of The Committee on Committee advises the Board between Company accounts by Compensation and Company management meetings in consulting representing the Board Organization approves by reviewing and with officers, consider in conferring with the employee compensa making recommenda ing matters of impor independent auditors; tion plans and benefit tions on corporate tance and either taking determining the man programs; determines policy and objectives, action or making ner of the audit, compensation of and generally advises recommendations to including methods of Company officers and management in areas the Board. The Com accounting to be fol other selected em of public responsibility mittee reports to the full lowed by the Company; ployees; and reviews policy. Members are: Board on all actions and considers, reviews organizational matters Arthur G. Hansen, taken by the Committee. and discusses with the referred to the Com Members are: auditors and the Com mittee by the Board or Chairman pany controller the the Chief Executive Andrew F. Brimmer Brooks McCormick auditors' reports. Officer. Members are: George E. Keck Chairman (Ex-Officio) Members are: Louis W. Menk John T. Rettaliata, Roger E. Anderson Edson W. Spencer Karl D. Bays Joseph B. Lanterman, Chairman George E. Keck Chairman Graham J. Morgan Joseph B. Lanterman Roger E.Anderson Harold Byron Smith Graham J. Morgan JohnT. Rettaliata T. M. Thompson Louis W. Menk JohnT. Rettaliata Harold Byron Smith Karl D. Bays (Alternate) Harold Byron Smith (Alternate) T M. Thompson Edson W. Spencer (First Alternate) Omer G. Voss (Second Alternate) 36 Major Subsidiaries of International Harvester Company October 31, 1977 Officers In the United States Brooks McCormick International Harvester Credit Corporation Chairman and Chief Executive Officer Robert E. LaVelle, President Archie R. McCardell Harco Holdings, Inc. President and Chief Operating Officer W. Stanley Pearce, President Omer G. Voss International Harvester Overseas Services Company Vice Chairman Archie R. McCardell, President William E. Callahan Wee Chairman In Canada Keith R. Potter International Harvester Company of Canada, Limited Executive Vice President-Finance William R. Fleming, President Ben H. Warren International Harvester Credit Corporation of Canada Limited Corporate Vice President and President, Agricultural Equipment Group E. R. Griffith, President James J. Doyle Sen/or Wee President, Administration and Development In Other Countries Rodger F. Ringham Harbour Assurance Company of Bermuda, Limited Corporate Vice President, Technical Affairs Frank R. Milnor, President Keith P. Mazurek International Harvester Acceptance Corporation Limited (Bermuda) Corporate Vice President and President, Components Group Frank R. Milnor, President William W. Crawford International Harvester Australia Limited Corporate Vice President, General Counsel and Secretary Ben G. Lasrich, Managing Director Robert D. Musgjerd International Harvester Credit Corporation of Australia Limited Corporate Vice President and President, Pay Line Group L. J. Makin, Managing Director James J. Harrington International Harvester Agricultural Equipment Europe S.A. Corporate Vice President and General Manager, Lewis H. Weaks, President and Managing Director Parts Distribution Operations, Components Group International Harvester France Roger J. Crise Clifford M. Halvorsen, Managing Director Corporate Vice President and Controller International Harvester Company m.b.H. (Germany) Frank R. Milnor Hans G. Proffen, Managing Director Corporate Vice President and Treasurer International Harvester Company of Great Britain, Limited Jules C. Laegeler L. A. Abbott, Managing Director Corporate Vice President and General Manager, International Harvester Macleod, Inc. (Philippines) Engine Operations, Components Group Richard L. Quinlan, President and Managing Director J. Patrick Kaine Corporate Vice President and President, Truck Group International Harvester Mexico, S.A. William J. Cole, Managing Director 0. Morris Sievert Corporate Vice President and President, International Harvester Company of New Zealand, Limited Solar Turbines International Group Allan J. A. Dewar, Chairman and Managing Director Charles D. Evans International Harvester Company (S.A.) Corporate Vice President, Manufacturing and Engineering Resources Proprietary Limited (South Africa) Duane A. Treadwell, Managing Director Robert E. La Veil e Corporate Vice President, Financial Services International Harvester Finanz AG (Switzerland) Jurg Brunner, Managing Director Henry J. Claycamp Corporate Vice President, Corporate Planning Manufacturing subsidiaries outside the United States sell their Robert C. Parker products in the countries in which they are located. They also Corporate Vice President, Operating Services export their products to other countries for resale and import and sell products manufactured in the United States or by other Arthur R. McQuiddy subsidiaries. In addition to the subsidiaries listed above, there are Corporate Vice President, Corporate Communications IH selling subsidiaries in Belgium, Denmark and Italy. International W.Grant Chandler Harvester is also a participant in manufacturing joint ventures in Corporate Vice President, Human Resources India, Japan, Netherlands, Turkey, Venezuela and the U.S. The Purpose of International Harvester International Harvester manufactures and markets products worldwide which provide man with mechanical power to ease the burden of his work, raise his living standard, and increase the enjoyment of his leisure. The Company is dedicated to innovative design, efficient production and broad distribution of diversified capital products, compatible with the environment, which offer customers high standards of quality and dependability at prices consistent with value. International Harvester Company 401 North Michigan Avenue Chicago, Illinois 60611