Exhibit 3.5 presents comparative income statements for International Harvester Company and Subsidiaries for the years 1972 through 1976. Using the information in these income statements (as well as any relevant balance sheet data provided in Problem 30 at the end of Chapter 2), describe the major changes that have occurred in the profitability of this company during the 5

-year period. (Hint: You might want to begin by expressing various income statement items as a percentage of sales.)

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EXHIBIT 3.5 International Harvester Company and Subsidiaries Income Statements For the Years 1972 through 1976 (Amounts in Millions Except per-Share Data) (Problem 38) 1972 1973 1974 Income Taxes Sales Cost of Goods Sold Gross Profit .... Selling and Administrative Expenses Interest Expense Income from Nonconsolidated $3,412.9 $4,091.8 (2,867.8) (3,425.9) $4,863.5 (4,086.2) $5,246.0 (4,384.5) $ 545.1 $ 665.9 $ 777.3 $ 861.5 1976 $5,488.1 (4,536.7) $ 951.4 1975 (347.2) (411.5) (428.1) (491.9) (509.9) (95.5) (136.4) (196.9) (234.4) (220.1) (46.0) (40.7) (68.5) (59.7) (95.6) Subsidiaries 28.9 31.5 32.0 40.4 48.3 Income from Continuing Operations. $ 85.3 $ 108.8 $ 115.8 $ 115.9 $ 174.1 Income (Loss) from Discontinued Operations 1.3 (1.9) 7.4 2.2 6.1 (44.6) Extraordinary Gains Adjustment for Change in Accounting Principle Net Income Earnings (Loss) Per Share: Continuing Operations Discontinued Operations Extraordinary Gains Change in Accounting Principle Net Income $ 86.6 $ 114.3 $ 124.1 69 GA 69 8.1 79.4 $ 174.1 3.12 .05 $ 3.93 $ (.07) .27 4.16 $ .08 4.09 (1.61) .22 .29 3.17 $ 4.13 69 4.46 2.77 S 6.02 - 6.02