International Harvester Company
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QQQ INTERNATIONAL HARVESTER COMPANY INTERNATIONAL HARVESTER COMPANY (A NEW JERSEY CORPORATION) RALPH BUDD SYDNEY G. MCALLISTER CYRUS MCCORMICK TERM EXPIRES 1940 HAROLD F. McCORMICK ADDIS E. McKINSTRY ALBERT A. SPRAGUE THOMAS E. DONNELLEY MAURICE F. HOLAHAN DIRECTORS ARNOLD B. KELLER • TERM EXPIRES 1941 HAROLD F. McCORMICK, Chairman CHAUNCEY McCORMICK FOWLER McCORMICK JUDSON F. STONE JOHN A. CHAPMAN WILLIAM S. ELLIOTT JAMES R. LEAVELL TERM EXPIRES 1942 GEORGE A. RANNEY JOHN STUART JOHN P. WILSON ADDIS E. McKINSTRY SYDNEY G. MCALLISTER HAROLD F. McCORMICK EXECUTIVE GEORGE A. RANNEY COMMITTEE JOHN P. WILSON ADDIS E. MCKINSTRY, Chairman JUDSON F. STONE MAURICE F. HOLAHAN iALBER T A. SPRAGUE SYDNEY G. MCALLISTER President MAURICE F. HOLAHAN First Vice-President FOWLER McCORMICK Second Vice-President WILLIAM S. ELLIOTT Vice-President and General Counsel CHARLES R. MORRISON Vice-President JOHN MORROW, Jr. Vice-President OFFICERS GEORGE E. ROSE Vice-President LEON P. THAYER Vice-President ALBERT W. SCARRATT Vice-President ARNOLD B. KELLER Treasurer SANFORD B. WHITE Secretary CHRISTIAN E. JARCHOW Comptroller GUARANTY TRUST COMPANY OF NEW YORK, New York TRANSFER OFFICES < INTERNATIONAL HARVESTER COMPANY, Chicago THE NEW YORK TRUST COMPANY, New York REGISTRARS FOR STOCK CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY, Chicago GENERAL OFFICES •\^ Harvester Building, 180 North Michigan Avenue, Chicago 1939 REPORT TO STOCKHOLDERS OF INTERNATIONAL HARVESTER COMPANY Sales in the United States during 1939 were 6.4% less than in 1938. This decrease was due primarily to two reasons, the lower prices which our farmer customers received for their products during the greater part of the year including the principal selling seasons, and the change-over to a new line of tractors and related implements involving interruptions in production and lag in sales. Motor truck sales increased about 12% during 1939. Collections in the United States were good. Sales in foreign countries, including Canada, during 1939 were 7.5% less than in 1938. This decrease was partially due to poor crops and low prices in a few countries, but was principally due to the unsettled political and economic conditions that prevailed during much of the year in many of the countries in which the Company conducts business. Numerous foreign countries have increasingly restricted the volume of their imports and the amounts of exchange to be used in payment therefor. A comparison of 1939 and 1938 sales follows: In the United States: 1939 1938 Tractors $ 49,985,000 $ 60,668,000 Farm implements 47,653,000 60,249,000 Motor trucks 70,426,000 62,899,000 Steel, binder twine, etc 19,714,000 16,814,000 Total United States $187,778,000 $200,630,000 In Foreign Countries: All products 79,249,000 85,661,000 Grand Total $267,027,000 $286,291,000 NOTE: 193,8 sales (and selling expenses) have been revised to conform to 1939 reclassification of certain retail operations. PROFITS AND DIVIDENDS: The net income for 1939 was $12,980,000 compared with $18,472,000 in 1938, a reduction of 29.7%. The total dividends for 1939 were $12,509,000, leaving a net surplus for the year of $471,000. The net income for 1939 was equivalent to $1.71 per share of common stock after providing for preferred dividends, as compared to $3.00 per share in 1938. Dividends were paid at the regular rate on preferred stock and at the rate of $1.60 per share on common stock. The reduction in profits in 1939 as compared with 1938 was due to decreased sales volume, lower selling prices on many of the Company's products, and higher unit costs of manufacture due to reduced factory operations. THREE FINANCIAL POSITION: A comparison of the Company's financial position at the close of the last fiscal year with that of the previous year is as follows: Increase Working Capital: 1939 1938 Decrease* Cash and marketable securities $ 82,034,000 $ 59,490,000 $22,544,000 Receivables (less reserve) 87,760,000 101,122,000 13,362,000* Inventories (less reserve) 109,790,000 123,890,000 14,100,000* Total current assets $279,584,000 $284,502,000 $ 4,918,000* Less current liabilities 36,114,000 33,946,000 2,168,000 Working capital $243,470,000 $250,556,000 $ 7,086,000* Property: Real estate, plants, branch houses, etc $230,091,000 $222,016,000 $ 8,075,000 Less reserve for depreciation 113,854,000 106,992,000 6,862,000 Net property $116,237,000 $115,024,000 $ 1,213,000 Other assets and deferred charges less deferred credits $ 3,898,000 $ 3,653,000 $ 245,000 Net assets $363,605,000 $369,233,000 $ 5,628,000* Deduct: Reserves (special maintenance, development and extension, fire insurance, and foreign losses) 31,668,000 37,762,000 6,094,000* Minority interest in affiliated companies. 594,000 599,000 5,000* Net worth represented by preferred and com mon stock outstanding and earned surplus $331,343,000 $330,872,000 $ 471,000 The decrease in receivables of $13,362,000 and in inventories of $14,100,000 is largely reflected in the increase in cash and marketable securities. These changes are the result of the reduced volume of business and rate of manufacturing activities during the past year. At October 31, 1939 the working capital in the United States was $1,561,000 more than at the close of the previous year; and in foreign countries $8,647,000 less, largely due to lower exchange rates—a net decrease of $7,086,000. FOREIGN ASSETS: Of the total net assets of $363,605,000 at October 31, 1939, $61,831,000 was located in countries outside the United States, as compared with $69,515,000 at October 31, 1938. The location and division of these net assets at October 31, 1939 were as follows: FOUR Other Assets and Deferred Working Charges less Capital Property Deferred Credits Total Europe $10,585,000 $ 5,882,000 $ 302,000 $16,769,000 Canada, Australia, New Zealand, South Africa 21,218,000 5,648,000 147,000 27,013,000 South America 9,167,000 1,947,000 3,130,000 14,244,000 Other Foreign Countries 3,175,000 616,000 14,000 3,805,000 Total $44,145,000 $14,093,000 $3,593,000 $61,831,000 Foreign net current assets were valued at the exchange rates prevailing at October 31, 1939, or lower. The revaluation resulted in a decrease of $5,831,000 which was charged to Reserve for Foreign Losses and Exchange Fluctuations, thereby reducing the balance in this reserve from $14,056,000 at October 31, 1938 to $8,225,000. This balance was increased by a charge to Income Account of $2,500,000, representing approximately that portion of the 1939 net income of foreign subsidiary companies and branches which is not readily remittable to the United States, principally because of exchange restrictions. In order to provide further for the increased hazards abroad, a rearrangement of the general reserves of the Company was made whereby $9,500,000 was transferred from Special Maintenance Reserve through the Surplus Account to the Reserve for Foreign Losses and Exchange Fluctuations, bringing the balance in the latter account at October 31, 1939 to $20,225,000. The foreign business has frequently been subject to uncertainties and at times severe losses have actually occurred. However, the operating profits of this business have absorbed these losses and have shown a reasonable net return over the years. Moreover, the Company's export trade has absorbed its portion of the overhead costs of domestic factories, thereby lowering the cost of producing goods for the domestic trade, and has provided additional employment in this country. CAPITAL ADDITIONS: Capital expenditures during the fiscal year ended October 31, 1939, amounted to $8,984,000 compared with $13,436,000 for the previous year. Depreciation amounting to $7,604,000 was provided out of 1939 income at regular rates. This compares with $7,581,000 for 1938. TAXES: The amount of taxes for 1939 and 1938 was as follows: 1939 1938 Federal income $ 1,646,000 $ 3,784,000 Other federal, state, local, and foreign 7,245,000 7,399,000 Social Security: Federal old age and survivors insurance. 750,000 775,000 Unemployment insurance 2,370,000 2,271,000 Total $12,011,000 $14,229,000 FIVE DEVELOPMENT AND IMPROVEMENT OF COMPANY PRODUCTS: The Company has continued its activities in engineering development in its endeavor to improve its existing products, to introduce new products, and to make them available at attractive prices. Some of the new lines introduced in 1939 are illustrated on pages 16 and 17 of this report. EMPLOYMENT AND COMPENSATION: Employment in the United States during the first part of 1939 continued on the levels of the closing months of 1938. Although the average employment for 1939 was lower than the average for 1938, there was an improvement in the number of employes in the latter months of the year, which has continued into 1940. In October 1939, the average number of employes in the United States was 46,900 compared with 33,500 in October 1938. Total compensation received by employes in the United States and abroad (exclusive of executive officers) was $92,000,000 for the fiscal year 1939, compared with $96,000,000 for the previous year. Total compensation received by the fourteen executive officers of the Company amounted to $512,000 in 1939 compared with $520,000 in 1938. For a number of years the management has given study to the development of a plan to encourage savings by employes for their own security and providing for extra compensation to employes in years of good profits.