FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
At June 30, 1994, 101,626,469 shares of common stock of the Registrant
were outstanding.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CATERPILLAR INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
Statement of Consolidated Results of Operations
(Unaudited)
(Millions of dollars except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
MACHINERY AND ENGINES:
Sales ................................ $3,492 $ 2,810 $ 6,673 $ 5,418
------ ------ ------ ------
Operating costs:
Cost of goods sold ................. 2,730 2,298 5,213 4,470
Selling, general and
administrative expenses .......... 329 308 642 597
Research and development expenses .. 84 79 160 151
------ ------ ------ ------
3,143 2,685 6,015 5,218
------ ------ ------ ------
Operating profit ..................... 349 125 658 200
Interest expense ..................... 50 72 101 141
------ ------ ------ ------
299 53 557 59
Other income ......................... 21 21 13 42
------ ------ ------ ------
Profit before taxes .................. 320 74 570 101
------ ------ ------ ------
FINANCIAL PRODUCTS:
Revenues ............................. 113 95 218 184
------ ------ ------ ------
Operating costs:
Selling, general and
administrative expenses .......... 47 40 90 75
Interest expense ................... 51 42 97 84
------ ------ ------ ------
98 82 187 159
------ ------ ------ ------
Operating profit ..................... 15 13 31 25
Other income (expense) ............... (1) 3 (6) 8
------ ------ ------ ------
Profit before taxes .................. 14 16 25 33
<PAGE>
CONSOLIDATED PROFIT BEFORE TAXES ....... 334 90 595 134
Provision for income taxes ........... 100 22 179 32
------ ------ ------ ------
Profit of consolidated companies ..... 234 68 416 102
Equity in profit (loss) of
affiliated companies (Note 6) ...... 6 (1) 16 (1)
------ ------ ------ ------
PROFIT ................................. $ 240 $ 67 $ 432 $ 101
====== ====== ====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 8):
Profit ............................... $ 2.36 $ 0.66 $ 4.25 $ 1.00
====== ====== ====== ======
Cash dividends paid per share of
common stock ......................... $ .15 $ .15 $ .30 $ .30
See accompanying notes to Consolidated Financial Statements.
<PAGE> CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
June 30, Dec. 31,
1994 1993
ASSETS
Current assets:
Cash and short-term investments ................. $ 173 $ 83
Receivables -- trade and other .................. 2,991 2,637
Receivables -- finance .......................... 1,050 988
Deferred income taxes and prepaid expenses ...... 805 838
Inventories (Notes 5 and 7) ..................... 1,672 1,525
------- -------
Total current assets .............................. 6,691 6,071
Land, buildings, machinery, and equipment -- net .. 3,718 3,827
Long-term receivables -- trade and other .......... 148 132
Long-term receivables -- finance .................. 2,421 2,152
Investments in affiliated companies (Note 6) ...... 417 395
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. 1,356 1,321
Intangible assets ................................. 353 353
Other assets ...................................... 341 556
------- -------
TOTAL ASSETS ........................................ $15,445 $14,807
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 778 $ 822
Accounts payable and accrued expenses ........... 2,347 2,055
Accrued wages, salaries, and employee benefits .. 1,049 957
Dividends payable ............................... 31 15
Deferred and current income taxes payable ....... 130 111
Long-term debt due within one year .............. 815 711
------- -------
Total current liabilities ......................... 5,150 4,671
Long-term debt due after one year ................. 3,946 3,895
Liability for postemployment benefits ............. 3,751 4,018
Deferred income taxes ............................. 26 24
------- -------
TOTAL LIABILITIES ................................... 12,873 12,608
------- -------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 200,000,000
Outstanding shares (Jun. 30, 1994 -- 101,626,469
[after deducting 235,359 treasury shares];
Dec. 31, 1993 -- 101,861,828) at paid-in amount . 803 835
Profit employed in the business ................... 1,621 1,234
Minimum pension liability adjustment............... (40) (40)
Foreign currency translation adjustment ........... 188 170
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 2,572 2,199
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $15,445 $14,807
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1993 amounts.
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
June 30, Dec. 31,
1994 1993
ASSETS
Current assets:
Cash and short-term investments ................. $ 151 $ 62
Receivables -- trade and other .................. 2,939 2,612
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 819 869
Inventories (Notes 5 and 7) ..................... 1,672 1,525
------- -------
Total current assets .............................. 5,581 5,068
Land, buildings, machinery, and equipment -- net .. 3,326 3,456
Long-term receivables -- trade and other .......... 148 132
Long-term receivables -- finance .................. - -
Investments in affiliated companies (Note 6) ...... 417 395
Investments in Financial Products subsidiaries .... 504 457
Deferred income taxes ............................. 1,360 1,334
Intangible assets ................................. 353 353
Other assets ...................................... 148 398
------- -------
TOTAL ASSETS ........................................ $11,837 $11,593
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 55 $ 139
Accounts payable and accrued expenses ........... 2,154 1,925
Accrued wages, salaries, and employee benefits .. 1,047 955
Dividends payable ............................... 31 15
Deferred and current income taxes payable ....... 88 71
Long-term debt due within one year .............. 101 218
------- -------
Total current liabilities ......................... 3,476 3,323
Long-term debt due after one year ................. 2,013 2,030
Liability for postemployment benefits ............. 3,751 4,018
Deferred income taxes ............................. 25 23
------- -------
TOTAL LIABILITIES ................................... 9,265 9,394
------- -------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 200,000,000
Outstanding shares (Jun. 30, 1994 -- 101,626,469
[after deducting 235,359 treasury shares];
Dec. 31, 1993 -- 101,861,828) at paid-in amount . 803 835
Profit employed in the business ................... 1,621 1,234
Minimum pension liability adjustment .............. (40) (40)
Foreign currency translation adjustment ........... 188 170
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 2,572 2,199
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $11,837 $11,593
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1993 amounts.
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
June 30, Dec. 31,
1994 1993
ASSETS
Current assets:
Cash and short-term investments ................. $ 22 $ 21
Receivables -- trade and other .................. 65 63
Receivables -- finance .......................... 1,050 988
Deferred income taxes and prepaid expenses ...... 3 2
Inventories (Notes 5 and 7) ..................... - -
------- -------
Total current assets .............................. 1,140 1,074
Land, buildings, machinery, and equipment -- net .. 392 371
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 2,421 2,152
Investments in affiliated companies (Note 6) ...... - -
Investments in Financial Products subsidiaries .... - -
Deferred income taxes ............................. - -
Intangible assets ................................. - -
Other assets ...................................... 193 158
------- -------
TOTAL ASSETS ........................................ $ 4,146 $ 3,755
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 723 $ 683
Accounts payable and accrued expenses ........... 223 201
Accrued wages, salaries, and employee benefits .. 2 2
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 42 40
Long-term debt due within one year .............. 714 493
------- -------
Total current liabilities ......................... 1,704 1,419
Long-term debt due after one year ................. 1,933 1,865
Liability for postemployment benefits ............. - -
Deferred income taxes ............................. 5 14
------- -------
TOTAL LIABILITIES ................................... 3,642 3,298
------- -------
<PAGE>
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 200,000,000
Outstanding shares (Jun. 30, 1994 -- 101,626,469
[after deducting 235,359 treasury shares];
Dec. 31, 1993 -- 101,861,828) at paid-in amount . 283 258
Profit employed in the business ................... 223 206
Minimum pension liability adjustment............... - -
Foreign currency translation adjustment ........... (2) (7)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 504 457
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 4,146 $ 3,755
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1993 amounts.
<PAGE>
CATERPILLAR INC.
Statement of Cash Flows for Six Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
(Caterpillar Inc.
and subsidiaries)
June 30, June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 432 $ 101
Adjustments for noncash items:
Depreciation and amortization ..................... 339 334
Profit of Financial Products ...................... - -
Other ............................................. 64 (51)
Changes in assets and liabilities:
Receivables -- trade and other .................. (349) (427)
Inventories ..................................... (147) 112
Accounts payable and accrued expenses ........... 258 130
Other -- net .................................... 96 113
------- -------
Net cash provided by operating activities ........... 693 312
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (171) (147)
Expenditures for equipment leased to others ....... (80) (84)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 53 24
Additions to finance receivables .................. (1,351) (891)
Collections of finance receivables ................ 782 615
Proceeds from sale of finance receivables.......... 241 -
Other -- net ...................................... (48) (47)
------- -------
Net cash used for investing activities .............. (574) (530)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (30) (30)
Common stock issued, including treasury
shares reissued ................................. 13 15
Treasury shares purchased.......................... (77) -
Proceeds from long-term debt issued ............... 548 600
Payments on long-term debt ........................ (403) (331)
Short-term borrowings -- net ...................... (82) (82)
------- -------
Net cash provided by/used for financing activities .. (31) 172
------- -------
Effect of exchange rate changes on cash ............. 2 4
------- -------
<PAGE>
Increase (decrease) in cash and
short-term investments ............................ 90 (42)
Cash and short-term investments at the
beginning of the period ........................... 83 119
------- -------
Cash and short-term investments at the
end of the period ................................. $ 173 $ 77
======= =======
All short-term investments, which consist primarily of highly liquid
investments with original maturities of three months or less, are considered
to be cash equivalents.
See accompanying notes to Consolidated Financial Statements.
<PAGE>
CATERPILLAR INC.
Statement of Cash Flows for Six Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis)
June 30, June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 432 $ 101
Adjustments for noncash items:
Depreciation and amortization ................... 294 300
Profit of Financial Products .................... (17) (20)
Other ........................................... 50 (56)
Changes in assets and liabilities:
Receivables -- trade and other .................. (322) (398)
Inventories ..................................... (147) 112
Accounts payable and accrued expenses ........... 204 96
Other -- net .................................... 111 124
------- -------
Net cash provided by operating activities ........... 605 259
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (170) (146)
Expenditures for equipment leased to others ....... (3) (7)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 7 13
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Other -- net ...................................... (39) (45)
------- -------
Net cash used for investing activities .............. (205) (185)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (30) (30)
Common stock issued, including treasury
shares reissued ................................. 13 15
Treasury shares purchased.......................... (77) -
Proceeds from long-term debt issued ............... 0 203
Payments on long-term debt ........................ (144) (110)
Short-term borrowings -- net ...................... (74) (201)
------- -------
Net cash used for financing activities .............. (312) (123)
------- -------
Effect of exchange rate changes on cash ............. 1 6
------- -------
<PAGE>
Increase (decrease) in cash and
short-term investments ............................ 89 (43)
Cash and short-term investments at the
beginning of the period ........................... 62 104
------- -------
Cash and short-term investments at the
end of the period ................................. $ 151 $ 61
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide supplemental disclosure of
information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
<PAGE> CATERPILLAR INC.
Statement of Cash Flows for Six Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
June 30, June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit ............................................ $ 17 $ 20
Adjustments for noncash items:
Depreciation and amortization ................... 45 34
Profit of Financial Products .................... - -
Other ........................................... 11 13
Changes in assets and liabilities:
Receivables -- trade and other .................. 0 28
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 16 (41)
Other -- net .................................... (1) (1)
------- -------
Net cash provided by operating activities ........... 88 53
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (1) (1)
Expenditures for equipment leased to others ....... (77) (77)
Proceeds from disposals of land, buildings,
machinery, and equipment ........................ 46 11
Additions to finance receivables .................. (1,351) (891)
Collections of finance receivables ................ 782 615
Proceeds from sale of finance receivables.......... 241 -
Other -- net ...................................... (34) (2)
------- -------
Net cash used for investing activities .............. (394) (345)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... - -
Common stock issued, including treasury
shares reissued ................................. 25 -
Treasury shares purchased.......................... - -
Proceeds from long-term debt issued ............... 548 397
Payments on long-term debt ........................ (259) (221)
Short-term borrowings -- net ...................... (8) 119
------- -------
Net cash provided by financing activities ........... 306 295
------- -------
Effect of exchange rate changes on cash ............. 1 (2)
------- -------
Increase (decrease) in cash and
short-term investments ............................ 1 1
<PAGE>
Cash and short-term investments at the
beginning of the period ........................... 21 15
------- -------
Cash and short-term investments at the
end of the period ................................. $ 22 $ 16
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide supplemental disclosure of
information about the Financial Products subsidiaries.
See accompanying notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) the
consolidated results of operations for the three- and six-month periods
ended June 30, 1994 and 1993, (b) the consolidated financial position at
June 30, 1994 and December 31, 1993, and (c) the consolidated statement
of cash flows for the six-month periods ended June 30, 1994 and 1993
have been made.
2. The results for the three- and six-month periods ended June 30, 1994 are
not necessarily indicative of the results for the entire year 1994.
3. The company removes certain components of foreign currency exchange
gains and losses arising from operations in Brazil's highly inflationary
economy from "Other income" on the Statement of Consolidated Results of
Operations and includes these amounts on the operating statement lines
where the related inflationary effects are reported. Consequently,
exchange gains and losses on local currency denominated debt and cash
deposits, where the interest rates reflect the rate of inflation, are
offset against interest expense or interest income, respectively.
Similarly, exchange gains on local currency liabilities subject to
monetary correction are offset against the related expense.
4. The company enters into contracts to buy and sell foreign currencies in
the future only to protect the U.S. dollar value of certain currency
positions and future foreign currency transactions. The company does
not engage in speculation. At June 30, 1994, the company had
approximately $1,044 in contracts to buy or sell foreign currency in the
future. The carrying value of such contracts was an asset of $1 and the
fair market value was a liability of $84.
5. In the first quarter of 1994, the company changed its method of computing
LIFO ("last-in, first-out") inventories from a single pool approach to a
multiple pool approach for substantially all of its inventories. The
company believes that the multiple pool method results in a better
matching of revenues and expenses. The cumulative effect of the change
on prior years was not determinable. This change is not expected to have
a material effect on 1994 or subsequent years' results of operations or
financial position.
<PAGE>
6. Affiliated Companies
The company's investments in affiliated companies consist principally of
a 50% interest in Shin Caterpillar Mitsubishi Ltd., Japan ($390). The
other 50% owner of this company is Mitsubishi Heavy Industries, Ltd.,
Japan.
Combined financial information of the affiliated companies, as
translated to U.S. dollars, was as follows:
Three Months Ended Six Months Ended
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1994 1993 1994 1993
RESULTS OF OPERATIONS
(Unaudited)
Sales ..................... $ 814 $ 664 $1,598 $1,482
====== ====== ====== ======
Profit (loss) ............. $ 9 $ (4) $ 25 $ (7)
====== ====== ====== ======
Mar. 31, Sep. 30,
1994 1993
FINANCIAL POSITION
(Unaudited)
Assets:
Current assets ................................. $1,793 $1,691
Land, buildings, machinery and equipment - net.. 763 750
Other assets ................................... 301 310
------ ------
2,857 2,751
------ ------
Liabilities:
Current liabilities ............................ 1,589 1,441
Long-term debt due after one year .............. 340 449
Other liabilities .............................. 115 90
------ ------
2,044 1,980
------ ------
Ownership ........................................ $ 813 $ 771
====== ======
7. Inventories (principally "last-in, first-out" method) comprised the
following:
Jun. 30, Dec. 31,
1994 1993
(unaudited)
Raw materials and work-in-process ................ $ 601 $ 545
Finished goods ................................... 882 812
Supplies ......................................... 189 168
------ ------
$1,672 $1,525
====== ======
<PAGE>
8. Following is a computation of profit per share:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
(Unaudited)
I. Net profit for period:
Profit - consolidated (A) ....... $ 240 $ 67 $ 432 $ 101
====== ====== ====== =======
II. Determination of shares (millions):
Weighted average number of
common shares outstanding (B) .. 101.7 101.1 101.8 101.0
Shares issuable on exercise of
stock options, net of shares
assumed to be purchased out
of proceeds at market price .... 1.2 0.8 1.1 0.8
------ ------ ------ -------
Average common shares
outstanding for fully diluted
computation (C) ................ 102.9 101.9 102.9 101.8
====== ====== ====== =======
III. Profit per share of common
stock:
Assuming no dilution (A/B) ...... $2.36 $0.66 $4.25 $1.00
Assuming full dilution (A/C) .... $2.34 $0.66 $4.20 $0.99
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED JUNE 30, 1994 VS. THREE MONTHS ENDED JUNE 30, 1993
The company reported the second consecutive quarter of record sales and
profit. Second-quarter profit of $240 million and profit per share of $2.36
were records (excluding nonrecurring items) -- continuing the strong trend of
quarterly profit improvements. This represents a $173 million improvement over
profit of $67 million or 66 cents per share for the second quarter of 1993.
Record sales and revenues of $3.61 billion were 24% higher than the same
quarter a year ago. A 21% increase in physical sales volume was the most
significant factor contributing to the improved profit.
On June 21, 1994, the United Auto Workers (UAW) union struck eight of the
U.S. facilities whose hourly employees are represented by the UAW. Prior to
this strike, but also during the second quarter, the UAW also struck various
plants on five different occasions. These five strikes ranged from one to
four and one-half days in duration. In the aggregate, the strikes had no
material effect on second-quarter financial results. The company has
maintained planned shipments through the dedicated team effort of its
salaried, management and non-striking hourly work force. (See Labor Update
and Outlook sections for additional information.)
Machinery and Engines
Sales of Machinery and Engines were $3.49 billion, $682 million higher
than the second quarter last year. The higher sales resulted from a 21%
increase in physical sales volume as well as a 3% increase in price
realization. Profit before tax was $320 million compared with profit of $74
million for the same quarter in 1993. The primary reason for the improved
profit was the increase in physical sales volume.
Sales volume improved significantly both inside and outside the United
States, a result of increased worldwide demand. The improvement in price
realization was principally the result of price increases taken over the past
year.
Margin (sales less cost of goods sold) increased $250 million, a result
of higher sales. As a percent of sales, the margin rate of 21.8% was 3.6
percentage points higher than the same quarter a year ago. The improvement
resulted from higher sales volume, improved price realization and strong cost
control, partially offset by an unfavorable change in sales mix. Cost
inflation was about offset by improved efficiencies. Hourly employment was up
about 7% while sales volume increased 21%.
Selling, general and administrative expenses of $329 million were $21
million higher than in second quarter 1993 because of increases in
volume-related parts distribution costs and incentive pay expense (related to
the higher profit). All other costs were about the same despite inflation.
Research and development expenses were $84 million, compared with $79
million in the same quarter last year. The increase was a result of new
product introduction programs.
Interest expense of $50 million was $22 million lower than a year ago as
average debt outstanding decreased $881 million compared with second quarter
1993.
Other income (expense) was income of $21 million, the same as second
quarter last year.
Results of Brazilian operations were significantly better than a year ago
and had no material effect on second-quarter 1994 results.
<PAGE>
Financial Products
Before-tax profit for Financial Products was $14 million, a $2 million
decline from the second quarter of 1993. The decrease was a result of a $4
million unrealized charge due to the mark to market valuation of interest rate
caps written by Caterpillar Financial Services Corporation, partially offset
by increased profit from Cat Financial's larger portfolio of earning assets.
Revenues were $113 million, up $18 million from the same quarter a year
ago. The increase was a result of Cat Financial's larger portfolio. Cat
Financial financed new retail business of $541 million, an $84 million or 18%
increase compared with the second quarter of 1993.
Selling, general and administrative expenses increased $7 million from
the second quarter last year. The increase was due to depreciation of
equipment on operating leases and certain volume-related expenses at Cat
Financial. Interest expense was $9 million higher, a result of increased
borrowings to support the larger portfolio.
Other income/expense was expense of $1 million, compared with income of
$3 million a year ago. The change was due to mark to market accounting for
the interest rate caps mentioned above.
Income Taxes
Tax expense of $100 million increased $78 million from the same quarter a
year ago. The increase was a result of higher before-tax profit and the use
of an estimated annual tax rate of 30%, compared with 24% used for the
second quarter of 1993.
Affiliated Companies
The company's share of affiliated companies' results was a profit of $6
million, a $7 million improvement from 1993. The increase was a result of
cost-cutting measures and $2 million of favorable non-recurring items at the
company's 50%-owned affiliate, Shin Caterpillar Mitsubishi Ltd. (SCM) in
Japan.
THREE MONTHS ENDED JUNE 30, 1994 VS. THREE MONTHS ENDED MARCH 31, 1994
Second-quarter profit of $240 million or $2.36 per share reflected an
improvement of $48 million over profit of $192 million or $1.89 per share in
the first quarter of this year. Sales and revenues of $3.61 billion were $319
million higher than first quarter 1994 and were the primary reason for the
increase in profit.
First quarter 1994 results for Financial Products differ from those
reported on April 20, 1994 because earnings of Caterpillar Financial Services
Corporation were revised on May 16, 1994 to reflect application of mark to
market accounting for interest rate caps and swaptions sold by Cat Financial
in conjunction with its overall funding strategy. A reduction in Machinery
and Engines costs, principally group insurance reserves, was made at the same
time. Consolidated first-quarter earnings, therefore, were unchanged from
those reported on April 20.
Machinery and Engines
Before-tax profit for Machinery and Engines was $320 million, compared
with profit of $250 million for the first quarter. Sales of $3.49 billion
increased $311 million from the previous quarter. Sales volume was up 9% as
industry demand remains strong and price realization was up 1% resulting from
price increases.
Margin of $762 million increased $64 million from the first quarter. The
increase was due to higher sales. Margin as a percent of sales was about the
same for the first and second quarters as the positive effects on the rate
resulting from higher volume were about offset by an unfavorable change in
sales mix.
<PAGE>
Selling, general and administrative expenses for the second quarter of
$329 million increased $16 million from the first quarter. The increase was
primarily the result of timing of expenses, as the first quarter is generally
a lower cost quarter for these types of expenses.
Research and development expenses increased $8 million from the previous
quarter. This was also a result of timing.
Interest expense of $50 million was $1 million lower than the first
quarter as average debt declined slightly.
Other income/expense was income of $21 million, compared with expense of
$8 million in the first quarter. The change resulted primarily from the
absence of a $17 million first-quarter charge related to the probable
settlement of two class action complaints filed against the company and
certain of its officers and directors in 1990. In addition, second-quarter
foreign exchange gains and losses were favorable compared with the first
quarter.
Financial Products
Before-tax profit for Financial Products was $14 million, compared with
$11 million in the first quarter. The primary reasons for the increase were
lower unrealized mark to market charges for written interest rate caps and a
larger portfolio of earning assets at Cat Financial.
Income Taxes
Tax expense was up $21 million from the first quarter, because of higher
before-tax profit.
Affiliated Companies
The company's share of affiliated companies' results was $6 million, down
$4 million from the first quarter of this year. The decline resulted from
the absence of a gain from the sale of surplus land at SCM recorded in the
first quarter, partially offset by $2 million of favorable non-recurring items
at SCM during the second quarter.
SIX MONTHS ENDED JUNE 30, 1994 VS. SIX MONTHS ENDED JUNE 30, 1993
Profit for the six months ended June 30, 1994 was $432 million or $4.25
per share of common stock, an improvement of $331 million over profit of $101
million or $1.00 per share for the first six months of 1993. Sales and
revenues of $6.89 billion were $1.29 billion higher than last year and were
the primary reason for the improvement in profit.
Machinery and Engines
Sales were $6.67 billion, an increase of $1.3 billion from the same
period last year. Before-tax profit was $570 million, an improvement of $469
million. The primary reason for the increase in profit was higher sales -- a
20% improvement in physical sales volume and a 3% improvement in price
realization.
Margin of $1.46 billion improved $512 million from the first six months
of 1993, primarily a result of higher sales. As a percent of sales, margin
was 21.9%, an increase of 4.4 percentage points from last year. The increase
was because of higher sales volume, improved price realization and strong cost
control. An unfavorable change in sales mix partially offset the increase.
Selling, general and administrative expenses were $45 million higher than
the same period a year ago because of increases in volume-related parts
distribution costs and incentive pay expense (related to the higher profit).
All other costs were about the same despite inflation.
Research and development expenses were up $9 million from the first six
months of last year, a result of new product introduction programs.
<PAGE>
Interest expense was $40 million lower because of lower debt. Average
debt during the period was $882 million lower than during the first six months
of 1993.
Other income/expense declined $29 million, to income of $13 million. The
decrease resulted from the $17 million charge for the probable settlement of
two class action complaints and reclassification of income from the company's
Voluntary Employees' Beneficiary Association (VEBA) trusts from other income
to a reduction of employee benefit expense. VEBA income included in operating
profit was $12 million in the first six months of 1994. VEBA income included
in other income/expense in the first six months of 1993 was $17 million.
Results of Brazilian operations were significantly better than a year ago
and had no material effect on year-to-date 1994 results.
Financial Products
Before-tax profit for Financial Products was $25 million, down $8 million
from the first six months of 1993. The decrease was a result of a $13 million
unrealized mark to market charge for interest rate caps and swaptions written
by Caterpillar Financial Services Corporation, partially offset by increased
profit from Cat Financial's larger portfolio of earnings assets.
Revenues were $218 million, compared with $184 million in the first six
months of 1993, reflecting Cat Financial's larger portfolio.
Selling, general, and administrative expenses increased $15 million from
a year ago. The increase was a result of depreciation of equipment on
operating leases, provision for credit losses, and other volume-related
expenses at Cat Financial. Interest expense was $97 million for the first six
months, up $13 million. The increase was due to higher borrowings to support
Cat Financial's larger portfolio, partially offset by lower borrowing rates.
Other income/expense was expense of $6 million, compared with income of
$8 million a year ago. The change resulted primarily from a $13 million
unrealized mark to market charge for interest rate caps and swaptions written
by Cat Financial.
Income Taxes
Tax expense was $179 million, $147 million higher than a year ago. The
increase was a result of higher before-tax profit and a change in the
estimated annual tax rate to 30%, compared with 24% for the first six months
of 1993.
Affiliated Companies
The company's share of affiliated companies' results improved $17 million
from the $1 million loss reported a year ago. The improvement was primarily
the result of a gain from the sale of surplus land and cost-cutting measures
implemented at Shin Caterpillar Mitsubishi Ltd.
SALES
Following are summaries of second-quarter company and dealer sales
compared with the same quarter in 1993.
Company Sales Inside the United States
Caterpillar sales inside the United States were $1.81 billion, a $365
million or 25% increase from the same quarter a year ago. The improvement was
due primarily to significantly higher dealer sales, the result of much
stronger industry demand for both machines and engines, and higher price
realization.
Sales inside the United States were 52% of total sales, compared with 51%
during second quarter 1993.
<PAGE>
U.S. Dealer Machine Sales to End-Users
Sales were up considerably from a year ago, with a significant increase
in construction sector market applications more than offsetting a moderate
decline in commodity sector applications.
Sales in all construction sectors increased significantly with the
exception of highways which were up moderately:
- Commercial, industrial and government building sector sales were higher
because of improved building construction levels.
- Sales to the housing sector registered another sizable gain in response
to much higher levels of housing starts.
- Highway-related sales were moderately above year-earlier levels as a
result of higher levels of highway construction and repair.
Sales declined in all commodity sectors except sand and quarry mining and
agriculture:
- Sand and quarry mining sector sales were moderately higher, reflecting
greater levels of construction.
- Sales for coal mining applications declined considerably despite higher
mine production earlier in the year.
- Metal mining-related sales were moderately lower than year-earlier
levels but are now trending up. Mine production was down slightly
although prices were moderately higher.
- Sales for agricultural applications were unchanged despite a generally
improved farm economy.
- Forest product-related sales were down slightly in response to
relatively flat forestry production and lumber prices.
- Sales to the petroleum sector were moderately lower. Pipeline
construction continued to trend down and second-quarter oil prices
averaged below year-ago levels.
Dealer machine sales increased moderately to industrial applications
(primarily the manufacture and sale of building materials), reflecting the
ongoing improvement in the construction industry. Sales were essentially flat
into solid waste applications.
U.S. Dealer New Machine Inventories
U.S. dealer new machine inventories were down moderately from the end of
the first quarter but were about normal relative to current selling rates.
Company Engine Sales Inside the United States
Sales of diesel engines were significantly higher than the same quarter
last year primarily due to higher demand for on-highway truck engines from
Original Equipment Manufacturers (OEMs). Truck sales by OEMs continue to be
considerably above year-earlier levels because of higher levels of economic
activity. Sales of turbine engines also were considerably higher.
Company Sales Outside the United States
Caterpillar sales outside the United States were $1.68 billion, a $317
million or 23% increase from second quarter 1993. The improvement was
primarily due to higher machine sales to dealers in response to increased
end-user demand. Less dealer inventory reduction during the quarter and
higher end-user demand for engines also contributed to the sales increase.
Sales outside the United States represented 48% of worldwide sales,
compared with 49% during the second quarter last year.
Dealer Machine Sales to End Users Outside the United States
Dealer sales outside the United States were up considerably from the
second quarter of 1993. Sales improved in most industrialized countries as
well as Latin America and the Commonwealth of Independent States but declined
again in the Middle East.
<PAGE>
Sales in the industrialized regions were considerably above year-earlier
levels due primarily to strong gains in Canada and Australia:
- Europe: Sales were moderately higher, reflecting the economic
recoveries under way in most countries. Sales were significantly above
year-earlier levels in about half the countries including the United
Kingdom, France, Spain and Scandinavia. Sales declined slightly in
Germany.
- Canada: End-user demand rose significantly as economic recovery
continued. Strong gains were registered in sand and quarry mining,
housing and industrial applications.
- Australia: Sales continued to rise sharply, particularly in mining
applications, reflecting the solid economic recovery.
- Japan's sales of imported product were moderately lower reflecting the
weak economy.
End-user demand in the developing regions rose considerably overall as
increases in some regions more than offset declines elsewhere:
- Latin America (excluding Brazil): Sales rose sharply for the region as
a whole and for Mexico in particular.
- Asia: End-user demand outside China was considerably higher in terms
of units but slightly lower in dollars as fewer large trucks and
tractors were sold. Sales in China were significantly lower reflecting
tighter government policies to control inflation.
- Africa and the Middle East: Sales were considerably lower for the
region, with the largest decline in the Mideast. Demand in South
Africa, however, was much improved.
- Commonwealth of Independent States (CIS): Pipeline and mine-related
sales posted another significant gain.
- Brazil: Sales were slightly higher as increases in agriculture,
forestry and housing applications more than offset declines in other
sectors.
Dealer New Machine Inventories Outside the United States
Dealer new machine inventories outside the United States were essentially
unchanged from the first quarter and were moderately below normal relative to
current selling rates.
Company Engine Sales Outside the United States
Sales of diesel engines rose considerably due to higher OEM demand for
truck engines in Canada and Mexico as well as higher end-user demand for
engines into power generation, marine, and petroleum applications. Sales of
turbine engines declined slightly.
EMPLOYMENT
At the end of the second quarter, Caterpillar's worldwide employment,
including UAW members on strike, was 52,712, compared with 50,109 one year
ago. Hourly employment increased 2,371 to 30,769, while salaried and
management employment increased 232 to 21,943.
LABOR UPDATE
On June 21, 1994, the United Auto Workers union struck eight of the U.S.
facilities whose employees are represented by the UAW. This strike and the
other brief local work stoppages had minimal impact on second-quarter results
because the company quickly and effectively implemented contingency plans
designed to maintain production and shipment levels to meet the needs of its
customers. Actions the company has taken to meet customer needs include:
- Encouraging striking workers to return to work. On June 30, more than
3,000 UAW-represented employees at struck facilities had returned to
work. This number continues to increase.
<PAGE>
- Assigning approximately 6,000 salaried and management employees to
factory operations.
- Utilizing retirees, as well as temporary and contract personnel.
- Accelerating the hiring of new, full-time hourly employees.
- Resourcing production to non-UAW facilities and suppliers.
At June 30, 1994, employees on strike represented less than 20% of
Caterpillar's total work force of 52,712.
The effort of all employees and the level of cooperation and teamwork
have been exceptional. Customer requirements are being met and Caterpillar's
traditional product quality has been maintained.
OUTLOOK
The economic outlook for 1994 is unchanged from what was reported at the
end of the first quarter with good growth expected for the United States,
Canada and Australia. Moderate growth is forecast for Europe in the second
half as recovery strengthens, but weak growth is expected to persist in Japan.
Moderate growth is forecast for the developing regions except Asia where
excellent growth is expected to continue.
Worldwide, moderate growth is expected for the industry in 1994 with
significant increases in the United States and Canada, a moderate increase in
Australia and a slight increase in Europe. Recent interest rate increases in
North America are expected to have little impact on demand. Little industry
growth is forecast for Japan, but moderately higher industry demand in Asia
and Latin America will more than offset a decline in Africa and the Middle
East. The recent introduction of a new currency in Brazil is not expected to
alter the forecast of moderate economic growth and improved industry demand.
However, considerable uncertainty continues and the outlook for Brazil could
change.
The outlook for company sales of machines and engines for 1994 is
unchanged from that reported at the end of the first quarter. Worldwide sales
are forecast to be stronger than expected at the beginning of the year.
Profit is also expected to be higher -- in line with the higher sales
forecast. If the strike continues throughout the third quarter there could be
some shifting of sales into the fourth quarter. However, because of reduced
labor costs associated with the striking UAW members, it is anticipated that
there will be little, if any, impact on third-quarter profit because of the
strike.
For the rest of 1994, labor conditions remain uncertain because of the
absence of contract negotiations with the UAW and the strike. However,
financial uncertainty has diminished in light of the company's demonstrated
ability to implement actions necessary to meet planned production schedules.
At this point, it appears the labor situation will have minimal impact on
sales and profit for the full-year 1994 even if the current strike continues.
B. Liquidity & Capital Resources
Consolidated operating cash flows totaled $541 million in the second
quarter of 1994, compared with $204 million in the second quarter of 1993.
Total debt at the end of the quarter was $5.54 billion, a decrease of $90
million from March 31 of this year. Over this period, debt related to
Machinery & Engines decreased $282 million, while debt related to Financial
Products increased $192 million.
Machinery and Engines
Operating cash flows totaled $538 million in the second quarter of 1994,
compared with $211 million in the second quarter of 1993. The cash flow
increase was primarily the result of increased profitability.
<PAGE>
Capital expenditures, excluding equipment leased to others, totaled $88
million in the second quarter compared with $78 million a year ago. The
percent of debt to debt plus stockholders' equity improved to 46% at June 30,
1994, from 51% at March 31, 1994.
Financial Products
Operating cash flows totaled $3 million in the second quarter of 1994,
compared with an outflow of $7 million in the second quarter of 1993.
Cash used to purchase equipment leased to others totaled $40 million in
the second quarter of 1994. In addition, second-quarter 1994 net finance
receivables increased $176 million from March 31 levels.
Financial Products' debt was $3.37 billion at June 30, 1994, an increase
of $192 million from March 31, 1994. At the end of the second quarter,
finance receivables past due over 30 days were 3.2%, compared with 1.9% in the
second quarter of 1993. The increase in past dues was primarily in the marine
and coal-mining industries.
On June 30, 1994, Cat Financial completed its first asset-backed
securitization which was comprised of $243 million of fixed-rate installment
sale contracts. The proceeds were used to reduce existing debt. No material
gain or loss was recognized on this transaction and fees will be received in
future months for servicing the sold receivables.
The ratio of debt to equity of Cat Financial was 7.3:1 at June 30, 1994,
compared with 7.5:1 at March 31, 1994.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In its Form 10-K for fiscal year 1993, the Company reported that an
agreement had been reached regarding the settlement of two class action
complaints filed against the Company and certain of its officers and directors
in United States District Court for the Central District of Illinois
("District Court"). At that time, the settlement was contingent upon approval
by the District Court. The settlement has been approved by the District Court
and the time for filing an appeal has expired. The amount to be paid out
under the settlement will depend on the number of valid claims received from
class members, but will not be greater than $23 million or less than $17
million. A provision of $17 million was made in the first quarter 1994 as
noted in Part I, Item 2, Management's Discussion and Analysis.
Item 4. Submission of Matters to a Vote of Security Holders
On August 5, 1994, a Special Meeting of Stockholders of Caterpillar Inc.
was held to determine whether the Company should amend its Certificate of
Incorporation to increase its authorized number of shares to facilitate a
two-for-one stock split in the form of a 100% stock dividend. Proxies were
solicited during the quarter with respect to the meeting. At the meeting the
proposal was approved by a vote of 80,656,831 FOR, 3,426,407 AGAINST, and
1,138,820 ABSTAINING.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
12 Statement Setting Forth Computations
of Ratio of Profit to Fixed Charges.
(The ratios of profit to fixed charges
for the three- and six-month periods
ended June 30, 1994 were 3.9 and 3.7,
respectively, and for the three-and
six-month periods ended June 30, 1993 were
1.7 and 1.5, respectively.
(b) On June 8, 1994, a report on Form 8-K was filed with respect to the
two-for-one stock split discussed in Item 4 above.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: August ___, 1994 By: /s/ J. W. Owens
J. W. Owens, Vice President
and Principal Financial Officer
Date: August ___, 1994 By: /s/ R. R. Atterbury III
R. R. Atterbury III, Secretary
<PAGE>
EXHIBIT INDEX
Number Description
12 Statement Setting Forth Computations
of Ratios of Profit to Fixed Charges
<PAGE>
EXHIBIT NUMBER 12
STATEMENT SETTING FORTH COMPUTATIONS OF RATIOS
OF PROFIT TO FIXED CHARGES
Caterpillar Inc., Consolidated Subsidiary Companies,
and 50%-owned Affiliated Companies
(Unaudited)
(Dollars in millions)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
Profit for period .............. $ 240 $ 67 $ 432 $ 101
Add:
Provision (credit) for
income taxes .............. 108 20 199 31
------ ------ ------ ------
Profit before taxes ............ $ 348 $ 87 $ 631 $ 132
------ ------ ------ ------
Fixed charges:
Interest and other costs
related to borrowed
funds(2) .................. $ 106 $ 120 $ 208 $ 237
Rentals at computed
interest factors(3) ....... 12 13 25 26
------ ------ ------ ------
Total fixed charges ............ $ 118 $ 133 $ 233 $ 263
------ ------ ------ ------
Profit before provision
for income taxes and
fixed charges ............... $ 466 $ 220 $ 864 $ 395
====== ====== ====== ======
Ratio of profit to
fixed charges(4) ............ 3.9 1.7 3.7 1.5
====== ====== ====== ======
(1)Interest expense as reported in the Consolidated Results of Operations
plus the Company's proportionate share of 50%-owned affiliated companies'
interest expense.
(2)Amounts represent those portions of rent expense that are reasonable
approximations of interest costs.
<PAGE>
