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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CATERPILLAR INC.
.............................................................................
(Name of Registrant as Specified In Its Charter)
RICHARD P. KONRATH, SECURITIES COUNSEL
..............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: _/
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
_/ Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
......................................................
2) Form, Schedule or Registration Statement No.:
......................................................
3) Filing Party:
......................................................
4) Date Filed:
......................................................
Notes:
<PAGE>
CATERPILLAR INC.
(INCORPORATED IN DELAWARE)
100 NE Adams Street
Peoria, Illinois 61629
NOTICE AND PROXY STATEMENT
Annual Meeting of Stockholders
April 13, 1994
To Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Caterpillar Inc. (the "Company") to be held at the Loews Ventana Canyon Resort,
7000 North Resort Drive, Tucson, Arizona, on Wednesday, April 13, 1994, at 10:30
a.m., for the following purposes:
1. To elect five directors comprising the class of directors of the Company
to be elected for a three-year term expiring in 1997;
2. To approve the action of the Board of Directors in appointing Price
Waterhouse as independent auditors for 1994;
3. To act upon three stockholder proposals which are set forth and described
in the attached Proxy Statement; and
4. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
The close of business on February 14, 1994, has been fixed as the record date
for determination of stockholders entitled to notice of, and to vote at, the
annual meeting or any adjournment thereof. The transfer books will not close.
PLEASE NOTE THAT ATTENDANCE AT THE MEETING WILL BE LIMITED TO STOCKHOLDERS AS
OF THE RECORD DATE (OR THEIR AUTHORIZED PROXY HOLDER) HOLDING AN ADMISSION
TICKET. THE ADMISSION TICKET IS LOCATED ON THE LOWER PORTION OF YOUR PROXY CARD.
By Order of the Board of Directors
R. RENNIE ATTERBURY III
Dated: February 25, 1994 Secretary
IMPORTANT
Please immediately review these proxy materials and sign and return your proxy
in the enclosed stamped, addressed envelope. If you attend the meeting you may,
if you so desire, withdraw your proxy and vote in person. Please note that the
Company's audited financial statements and certain other financial information
are included as an Appendix to this Proxy Statement.
THANK YOU FOR ACTING PROMPTLY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Notice of Annual Meeting.......................................................... Cover
Matters to be Brought Before the Meeting.......................................... 1
Voting Rights..................................................................... 2
Proposal 1--Election of Directors................................................. 2
Nominees for Election as Directors for Terms Expiring in 1997................... 3
Directors Continuing in Office in the Class of 1995............................. 5
Directors Continuing in Office in the Class of 1996............................. 6
Board of Directors' Meetings and Committees....................................... 7
Compensation of Directors......................................................... 9
Equity Security Ownership of Management and Certain Other Beneficial Owners....... 10
Report of the Compensation Committee.............................................. 11
Performance Graph................................................................. 16
Compensation Committee Interlocks and Insider Participation....................... 16
Executive Compensation............................................................ 17
Pension Program................................................................... 19
Certain Relationships and Related Transactions.................................... 20
Proposal 2--Approval of the Appointment of Independent Auditors................... 21
Proposal 3--Stockholder Proposal.................................................. 21
Proposal 4--Stockholder Proposal.................................................. 22
Proposal 5--Stockholder Proposal.................................................. 24
Filings Pursuant to Section 16 of the Securities Exchange Act of 1934............. 25
Stockholder Proposals for the 1995 Annual Meeting................................. 25
Stockholder Nominations........................................................... 26
Solicitation...................................................................... 26
Stockholder List.................................................................. 26
Revocability of Proxy............................................................. 26
Appendix--General and Financial Information--1993................................. A-1
</TABLE>
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Caterpillar Inc.
100 NE Adams Street, Peoria, Illinois 61629 February 16, 1994
PROXY STATEMENT
This statement is being mailed on or about February 25, 1994, to all
stockholders of record at the close of business on February 14, 1994, the
record date for the determination of stockholders entitled to vote at the
annual meeting of stockholders of Caterpillar Inc. (the "Company") to be held
on April 13, 1994. This statement is furnished in connection with the
solicitation by the Board of Directors of proxies for the annual meeting and
is accompanied by the Annual Report of the Company for the year ended December
31, 1993, including certain financial information.
MATTERS TO BE BROUGHT BEFORE THE MEETING
The Board intends to present to the meeting the election of five directors
comprising the class of directors of the Company to be elected for a three-
year term expiring in 1997 or until their successors have been elected and
qualified. The Board also intends to present a proposal to approve the
appointment of Price Waterhouse as independent auditors for 1994. In
addition, notice has been given by certain stockholders of their intention to
present three proposals at the meeting, which are set forth on pages 21-25.
Shares can be voted only if the stockholder is present in person or by
proxy. Whether or not you plan to attend in person, you are encouraged to sign
and return the enclosed proxy card. Your vote is important. If you wish to
give your proxy to a person or persons other than those listed on the enclosed
proxy card, a signed proxy card, with the two names listed on the card crossed
out and replaced with the name or names of the other person or persons (but no
more than two), must be presented by you or your authorized proxy holder at
the meeting.
The representation in person or by proxy of at least one-third of the
outstanding shares entitled to vote is necessary to provide a quorum at the
meeting. Directors are elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote.
In all matters other than the election of directors, the affirmative vote of
the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Pursuant to the Company's bylaws and consistent with the laws
of the State of Delaware, abstentions and "non-votes" are counted as present
in determining whether the quorum requirement is satisfied. Abstentions and
"non-votes" have the same effect as votes against proposals presented to
stockholders except with respect to the election of directors. A "non-vote"
occurs when a nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
In accordance with the Company's confidential voting policy, all proxies,
ballots and voting materials will be kept confidential except for the
independent third parties engaged to receive, tabulate and certify the proxies
and ballots. No vote of any stockholder will be disclosed to the Company or
its employees, or to any third party, except (i) as may be required by law,
(ii) as requested
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by a particular stockholder, or (iii) in certain circumstances such as the
event of a contested election or initiation of other concerted action with
respect to voting at a stockholder meeting.
The Board does not know of any other matter to be acted upon at the meeting.
If any other matter should come before the meeting, holders of the proxies
solicited hereby (the "proxy holders") will vote thereon in their discretion.
The Company's bylaws prescribe that matters may be brought before the meeting
by a stockholder only by giving advance written notice to the Company. For
purposes of the 1994 annual meeting, such notice regarding matters other than
nominations for director must be received by the Secretary at the Company
address not later than March 12, 1994.
VOTING RIGHTS
Only holders of common stock of record at the close of business on February
14, 1994, are entitled to vote at the 1994 annual meeting. Each share of stock
so held entitles the holder to one vote upon each matter to be voted upon. As
of January 28, 1994, there were 102,042,810 shares of common stock of the
Company (the "Common Stock") outstanding.
PROPOSAL 1-ELECTION OF DIRECTORS
The Board of Directors is classified into three classes whose terms are
staggered to expire in different years. The term of office of one class of
directors expires each year in rotation so that one class is elected at each
annual meeting of stockholders for a full three-year term. The terms of five
of the present directors are expiring at this annual meeting. During 1993, the
Board increased the number of directors from ten to thirteen. Directors
elected at the annual meeting will hold office for a three-year term expiring
in 1997 or until their successors are elected and qualified. The other
directors will continue in office for the remainder of their terms.
If any nominee in this Proxy Statement should for any reason become
unavailable for election, the proxy holders will vote for such other nominee
as may be proposed by the Board of Directors or, alternatively, the Board of
Directors may reduce the number of directors to be elected at the meeting.
Certain information about the five nominees and the other directors
continuing in office follows.
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NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1997
PRINCIPAL OCCUPATION AND OTHER INFORMATION
LILYAN H. AFFINITO, 62, retired in 1991 as Vice
Chairman of Maxxam Group Inc. (formerly Simplicity
Pattern Co. Inc.). Ms. Affinito joined Simplicity
Pattern Co. Inc. in 1968, following a number of
years with a national accounting firm. She was
[PHOTO OF elected President and Treasurer in 1976 and Vice
LILYAN H. AFFINITO] Chairman in 1987. She is a member of the Board of
Trustees of Cornell University, the Board of
Directors of the National Multiple Sclerosis
Society; Mayo Foundation; and the Metropolitan
Transportation Authority. Other directorships:
Chrysler Corporation; Tambrands, Inc.; Jostens
Inc.; Kmart Corporation; Lillian Vernon
Corporation; and New York Telephone Company (a
subsidiary of Nynex Corporation). Ms. Affinito has
been a director of the Company since 1980.
DONALD V. FITES, 60, Chairman and chief executive
officer. Mr. Fites joined Caterpillar in 1956 and
subsequently advanced through various management
positions in marketing, residing in Africa and
Europe for several years. In 1971 he was elected a
director of Caterpillar Mitsubishi with
responsibilities for marketing and sales. In 1976
he was named manager of Products Control Department
in General Offices, and in 1979 became President of
Caterpillar Brasil S.A. He was elected a Vice
President of Caterpillar Tractor Co. in 1981, in
charge of the Company's pricing, scheduling,
product source planning, products control and
economic forecasting functions. In 1985 he was
elected an Executive Vice President, and effective
June 1, 1989, was elected President and chief
[PHOTO OF operating officer. He was elected Chairman of the
DONALD V. FITES] Board and chief executive officer effective July 1,
1990. He is a trustee of the Farm Foundation and a
member of The Business Council; The National
Foreign Trade Council; the Advisory Committee for
Trade and Policy Negotiations; and the Business
Roundtable Policy Committee. He is chairman of the
Equipment Manufacturers Institute and Vice Chairman
of the U.S.-Japan Business Council. He is also a
trustee of The Methodist Medical Center of
Illinois, Peoria; a trustee of Knox College,
Galesburg, Illinois; and a member of the Salvation
Army Advisory Board. Other directorships: First
Chicago Corporation; Georgia-Pacific Corporation;
Mobil Corporation; Valparaiso University; and Keep
America Beautiful. Mr. Fites has been a director of
the Company since 1986.
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NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1997 (cont.)
Principal Occupation and Other Information
JOHN W. FONDAHL, 69, Civil Engineer, retired as Charles H.
Leavell Professor of Civil Engineering at Stanford
University, Stanford, California, in 1990. Mr. Fondahl
joined the Stanford University faculty in 1955. He has
served as Visiting Professor of Construction Engineering at
the University of Sydney; Kyoto University; the University
of Cape Town; the Swiss Federal Institute; the Technical
University of Denmark; the University of the Andes in
Colombia; and the Catholic University of Chile. Mr. Fondahl
has been a director of the Company since 1976.
[PHOTO OF JOHN
W. FONDAHL]
DAVID R. GOODE, 53, Chairman, President and chief executive
officer of Norfolk Southern Corporation, a holding company
(principal subsidiaries provide surface transportation
services). Mr. Goode joined Norfolk and Western Railway
Company, a predecessor of Norfolk Southern, in 1965. He was
elected a Vice President in 1985, Executive Vice President
in 1991, President later in 1991, and Chairman and chief
executive officer in 1992. He is a director of Georgia-
Pacific Corporation; Norfolk Southern Corporation; TRINOVA
Corporation; Association of American Railroads; the Business
Committee for the Arts, Inc.; and the Business Consortium
for Arts Support; a trustee of General Douglas MacArthur
Memorial Foundation; Hollins College; Norfolk Academy; and
The Virginia Foundation for Independent Colleges; and a
member of the Board of Visitors, Fuqua School of Business at
Duke University. Mr. Goode has been a director of the
Company since 1993.
[PHOTO OF DAVID
R. GOODE]
JOSHUA I. SMITH, 52, Chairman and chief executive officer of
The MAXIMA Corporation, a computer systems and management
information products and services firm. Mr. Smith joined
MAXIMA in 1978. He serves as chairman of the Federal
Communication Commission's Small Business Advisory
Committee. Other directorships include Federal Express
Corporation and Inland Steel Corporation. He was appointed
by former President George Bush to the U.S. Commission on
Minority Business Development, where he served as chairman;
the Executive Committee of the 1990 Economic Summit of
Industrialized Nations; and the Board of Trustees for The
John F. Kennedy Center for the Performing Arts. He has
received the Man of Achievement Award from the Anti-
Defamation League of B'Nai B'Rith and is chairman of the
National Urban Coalition. Mr. Smith has been a director of
the Company since 1993.
[PHOTO OF
JOSHUA I. SMITH]
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<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1995
Principal Occupation and Other Information
WALTER H. HELMERICH, III, 71, Chairman and a
director of Helmerich & Payne, Inc., involved in
well drilling, crude oil and natural gas
production, real estate, and the manufacture of
chemicals. Mr. Helmerich joined Helmerich & Payne
in 1950. He is a Director of Liberty Bancorp Inc.;
[PHOTO OF First National Bank and Trust Co. of Tulsa; Liberty
WALTER H. HELMERICH, III] National Bank and Trust Co. of Oklahoma City;
Independent Petroleum Association of America;
Oklahoma Medical Research Foundation; Oklahoma
Health Sciences Foundation, Inc.; Atwood Oceanics,
Inc.; Natural Gas Odorizing, Inc.; and a trustee of
Hillcrest Medical Center and Retina Research
Foundation. Mr. Helmerich has been a director of
the Company since 1982.
JERRY R. JUNKINS, 56, Chairman, President and chief
executive officer of Texas Instruments
Incorporated, one of the world's leading
high-technology companies. Mr. Junkins joined Texas
Instruments in 1959. He became President and chief
executive officer in 1985, and Chairman of the
[PHOTO OF Board in 1988. In addition to his Texas Instruments
JERRY R. JUNKINS] duties, he is a member of the Dallas Citizens
Council; the Board of Trustees of Southern
Methodist University; The Business Roundtable; and
the Business Council. He is a presidential
appointee to the Defense Policy Action Committee on
Trade. He serves as a member of the Board of
Directors of Procter & Gamble Company. Mr. Junkins
has been a director of the Company since 1988.
CHARLES F. KNIGHT, 58, Chairman of the Board, chief
executive officer and a director of Emerson
Electric Co., manufacturer of electrical and
electronic equipment. Mr. Knight joined Emerson
Electric in 1973 as Vice Chairman of the Board. He
was elected Chairman and chief executive officer in
1974. Prior to joining Emerson Electric, Mr. Knight
[PHOTO OF was President and chief executive officer of Lester
CHARLES F. KNIGHT] B. Knight & Associates, Inc. from 1969 to 1973. He
is a trustee of Missouri Botanical Garden and Olin
Foundation. Other directorships include:
Anheuser-Busch Companies, Inc.; The British
Petroleum Company p.l.c., London, England;
International Business Machines; and Southwestern
Bell Corporation. Mr. Knight has been a director of
the Company since 1986.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1995 (cont.)
Principal Occupation and Other Information
GEORGE A. SCHAEFER, 65, former Caterpillar Chairman of the
Board and chief executive officer. Mr. Schaefer joined
Caterpillar in 1951 and subsequently advanced through
various management positions in auditing and accounting. He
was named chief accountant at the San Leandro Plant in 1960
and was finance and accounting manager of Caterpillar France
S.A. from 1962 to 1968. He was Manager of Corporate
Accounting in General Offices in 1968 and was Manager of
Manufacturing Systems Development from 1969 until being
appointed Manager of the Decatur Plant in 1973. In June of
1976 he was elected Vice President in charge of the
Company's financial and data processing functions. He was
elected an Executive Vice President in 1981, Vice Chairman
of the Board in 1984 and Chairman of the Board and chief
executive officer effective February 1, 1985. Mr. Schaefer
is a director of Aon Corporation; Helmerich & Payne, Inc.;
McDonnell Douglas Corporation; and Morton International,
Inc. Mr. Schaefer has been a director of the Company since
1983.
[PHOTO OF
GEORGE A. SCHAEFER]
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1996
Principal Occupation and Other Information
JAMES P. GORTER, 64, joined Goldman, Sachs & Co. in 1956
and became a General Partner in 1965. He served as a member
of Goldman Sachs Management Committee from 1976 to 1988 and
served as Co-Head of the Investment Banking Division and
Managing Partner of the Chicago office. He became a Limited
Partner in 1988. He is currently Chairman of the Board of
Baker, Fentress & Company; and a director of Consolidated-
Tomoka Land Co. He is Chairman of the Board of Trustees of
Lake Forest College and a member of the Advisory Council of
the Kellogg School of Management at Northwestern University.
Mr. Gorter was elected a director of the Company in 1990.
[PHOTO OF JAMES
P. GORTER]
PETER A. MAGOWAN, 51, Chairman of Safeway Inc. and President
and managing general partner of the San Francisco Giants.
During his 25 years at Safeway, his responsibilities have
included managing the company's international operations in
Canada, the United Kingdom, West Germany and Australia. He
has been chairman of Safeway since 1980. In addition to
Safeway, Mr. Magowan also serves as a director of Chrysler
Corporation and The Vons Companies. He is a member of the
Advisory Council of the School of Advanced International
Studies of Johns Hopkins University and a public member of
the Hudson Institute. Mr. Magowan has been a director of the
Company since 1993.
[PHOTO OF PETER
A. MAGOWAN]
6
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DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1996 (CONT.)
Principal Occupation and Other Information
JAMES W. WOGSLAND, 62, Vice Chairman of
Caterpillar. Mr. Wogsland joined Caterpillar in
1957 and subsequently advanced through various
management positions in finance. He transferred to
Caterpillar Overseas in Geneva in 1964 and was
named Secretary-Treasurer of that subsidiary in
1970. He was elected Treasurer of Caterpillar
Tractor Co. in 1976, and held that position until
being named Director-President of Caterpillar
Brasil S.A. in Sao Paulo in 1981. He was elected an
[PHOTO OF Executive Vice President in 1987 and Vice Chairman
JAMES W. WOGSLAND] in 1990. Mr. Wogsland is a member of the Advisory
Board of St. Francis Hospital, Peoria, Illinois;
and a Trustee of Eureka College, Eureka, Illinois.
Other directorships: Protection Mutual Insurance
Company; CIPSCO Incorporated and Central Illinois
Public Service Company, Springfield, Illinois; and
First of America Bank Corporation, Kalamazoo,
Michigan, and its subsidiary First of America
Bank-Illinois, N.A. Mr. Wogsland has been a
director of the Company since 1987.
CLAYTON K. YEUTTER, 63. Most recently Mr. Yeutter
served as Counselor for Domestic Affairs to
President George Bush. Mr. Yeutter was appointed
chairman of the Republican National Committee in
1991 after serving as Secretary of the U.S.
Department of Agriculture from 1989. From 1985 to
1989, Mr. Yeutter served as U.S. Trade
Representative. Prior to that, he was President and
Chief Executive Officer of the Chicago Mercantile
Exchange since 1978. He was a senior partner of the
[PHOTO OF law firm of Nelson, Harding, Yeutter & Leonard in
CLAYTON K. YEUTTER] Lincoln, Nebraska during 1977-78. He served as
Deputy Special Trade Representative, Executive
Office of the President from 1975 to 1977. Earlier,
Mr. Yeutter held several additional positions with
the Department of Agriculture and also spent
several years as a faculty member of the Department
of Agricultural Economics at the University of
Nebraska. Other directorships: ConAgra, Texas
Instruments Incorporated, Oppenheimer Funds, FMC,
B.A.T. Industries and Lindsay Manufacturing Co. Mr.
Yeutter was a Director of the Company from June
1991 to February 1992 and he was reelected a
Director of the Company in December 1992.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1993, the Board of Directors held six meetings. For the incumbent
Board of Directors as a whole, attendance exceeded 96% of the aggregate of (1)
the total number of meetings of the Board of Directors and (2) the total
number of meetings of all committees of the Board on which they served (during
the periods they served). All incumbent directors, except Mr. Knight, attended
at least 75% of such meetings. In addition, the Company's directors take part
in the consideration of Company matters and documents and in communications
with the Chairman of the Board and others wholly apart from such meetings.
The Board of Directors has four standing committees: the Audit Committee,
the Compensation Committee, the Nominating Committee and the Public Policy
Committee.
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The Audit Committee reviews management's recommendation for selection of the
Company's independent public accountants and makes recommendations to the
Board regarding retention or non-retention of the independent accountants. The
Committee makes all necessary inquiries of management and the independent
accountants concerning established standards of corporate conduct and
performance with regard to accounting and reporting principles. The Committee
also reviews with Company management, independent accountants, and director of
internal audit, the Company's general internal accounting and financial
reporting policies and procedures. The Committee meets periodically with the
public accountants and the Company's internal audit manager to review their
respective audit plans for the current year and the status of their work,
including the public accountants' audit fees. Prior to public release,
management and independent public accountants review with the Committee:
results of audits made by the independent accountants; the Company's
consolidated financial statements; and significant transactions not a normal
part of the Company's operations. The Committee also reviews the Management's
Discussion and Analysis ("MD&A") contained in the Company's Form 10-K to
ensure it is consistent with the financial statements and adequately describes
the Company's business and financial affairs. In addition, the Committee
reviews management's plans to engage the Company's public accountants to
perform non-audit services; evaluates the cooperation received by independent
accountants during their examination; and meets periodically in private
session with the public accountants, the Company's internal audit manager and
other persons the Committee deems appropriate. The Committee is composed
exclusively of directors who are not employees and who are, in the opinion of
the Board of Directors, free from any relationship that would interfere with
the exercise of independent judgment as a Committee member. Present members of
the Audit Committee are Ms. Lilyan H. Affinito (who is chairperson) and
Messrs. John W. Fondahl, David R. Goode, James P. Gorter, Charles F. Knight,
and George A. Schaefer. During 1993, the Committee held four meetings.
The Compensation Committee reviews the Company's employee and management
compensation practices. The Committee also approves and recommends standards
for the Company's compensation programs and plans, including, but not limited
to, the Company's various incentive compensation, retirement and other similar
plans. The Committee administers the Company's 1977 and 1987 Stock Option
Plans, including the granting of options thereunder. Annually, the Committee
establishes objectives for the CEO and meets privately to evaluate his
performance. The Committee is composed exclusively of directors who are not
employees or former employees of the Company ("outside directors"). Also, no
officer of the Company serves on the compensation committee or as a director
of a company of which a Committee member or Company director is an employee.
The Committee has no authority with respect to the granting of options to
directors eligible to receive stock options under the 1987 Stock Option Plan.
Present members of the Committee are Messrs. James P. Gorter (who is
chairman), David R. Goode, Walter H. Helmerich, III, Jerry R. Junkins, Peter
A. Magowan, and Clayton K. Yeutter. During 1993, the Committee held five
meetings.
The Nominating Committee develops and recommends to the Board of Directors
criteria for the selection of candidates for director, seeks out and receives
suggestions concerning possible candidates, reviews and evaluates the
qualifications of possible candidates and recommends to the Board candidates
for vacancies and new director positions occurring from time to time and for
the slate of directors to be proposed on behalf of the Board of Directors at
the annual meeting of stockholders. The Committee also advises the Board
concerning possible candidates for the position of Chairman of the Board and
chief executive officer, as well as for other executive officer positions
within the Company. The Committee considers nominees recommended by
stockholders and procedures for the nomination of directors by stockholders
are referenced on page 26. Present members of the Committee are Messrs. Walter
H. Helmerich, III (who is chairman), Donald V. Fites, Peter A. Magowan, George
A. Schaefer, and Joshua I. Smith. During 1993, the Committee held four
meetings.
The Public Policy Committee is a new committee responsible for making
recommendations to the Board with respect to matters of public and social
policy affecting the Company, including charitable
8
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and political contributions of the Company or any political action committee
or foundation affiliated with the Company, and consumer and community
relations issues. The Committee also provides general oversight of the
Company's Code of Worldwide Business Conduct and Operating Principles and
Policy Letters, and of the Company's environmental, disclosure, Foreign
Corrupt Practices Act and other specific and general programs regarding
compliance with laws relating to the Company. The Committee is responsible for
reviewing major litigation, legislative proposals, proposed regulations, and
stockholder proposals involving matters not falling within the auspices of
another committee of the Board, and Company responses to any such proposals.
Present members of the Committee are Ms. Lilyan H. Affinito and Messrs.
Clayton K. Yeutter (who is chairman), Donald V. Fites, John W. Fondahl, Jerry
R. Junkins, and Joshua I. Smith. During 1993, the Committee held one meeting.
COMPENSATION OF DIRECTORS
Upon election of the nominees proposed herein, the Board of Directors will
consist of thirteen members, of whom two are salaried employees of the
Company. Those directors who are salaried employees receive no additional
compensation for their service as directors. Directors who are not salaried
employees of the Company ("non-employee directors") are paid a retainer of
$30,000 per year and fee of $1,000 for each meeting of the Board of Directors
and each meeting of any committee of the Board of Directors attended, together
with the expenses of attendance. The chairman of each committee receives an
additional annual stipend of $5,000.
Non-employee directors are eligible to receive stock options pursuant to the
Company's 1987 Stock Option Plan. In 1993, options for 1,000 shares of Common
Stock were received by each director under the 1987 Stock Option Plan. The
Board of Directors also has adopted a pension plan for non-employee directors.
Under the directors' pension plan, all non-employee directors who are 70 years
of age and who have served as directors for five years are eligible to retire
and be paid retirement income equal to the annual retainer paid to them as
directors at the time of their retirement. Fifty percent of the annual pension
amount payable to a retired director shall be paid to a retired director's
spouse who survives him or her.
On an annual basis, each non-employee director is eligible to participate in
the Directors' Deferred Compensation Plan which allows the deferral of fifty
percent or more of the annual compensation (excluding expense reimbursement)
payable from time to time as a result of services performed on behalf of the
Company. Ms. Affinito and Messrs. Gorter and Yeutter have elected to defer
their compensation for 1994. Directors participating in this Plan may elect to
have the deferred compensation invested in an interest-bearing account, a
share equivalent account representing the Company's common stock, or a
combination of the two. The interest-bearing account accrues interest at the
applicable prime rate. Deferred compensation in the share equivalent account
is treated as though it were invested in Common Stock. If a participant makes
a share election, dividend equivalents accrue to a participant's account
quarterly and each account is adjusted to reflect share ownership changes
resulting from events such as a stock split. Participants have no voting
rights with respect to the share equivalent account. All distributions from
accounts are made in cash.
All directors of the Company participate in the Directors' Charitable Award
Program ("Program"). The total amount of award payable with respect to each
participant under the Program is $1 million. Payments under the Program are
made in 10 annual installments and commence at the death of a director. The
first five installments are paid to charities designated by the director and
the last five installments are paid to the Company's Charitable Foundation.
Directors derive no financial benefit from this Program since all charitable
deductions accrue solely to the Company.
9
<PAGE>
EQUITY SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
OTHER BENEFICIAL OWNERS (AS OF DECEMBER 31,1993)
The following table sets forth the beneficial ownership (as defined by the
rules of the Securities and Exchange Commission) of Company Common Stock by
all directors (including all nominees for director), the officers named in the
Summary Compensation Table on page 17, and all directors and executive
officers as a group. No director beneficially owns, directly or indirectly,
more than one-tenth of one percent of Company Common Stock. All directors and
executive officers as a group beneficially own less than one percent of
Company Common Stock. The Company has no other class of equity securities
outstanding.
TABLE OF EQUITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Shares
Beneficially
Owned
- ------------------------------------------------------------ ------------
<S> <C>
Lilyan H. Affinito 4,200 (1)
Glen A. Barton 29,127 (2)
Vito H. Baumgartner 9,126 (3)
Donald V. Fites 78,254 (4)
Gerald S. Flaherty 40,362 (5)
John W. Fondahl 4,500 (6)
David R. Goode 500
James P. Gorter 3,000 (7)
Walter H. Helmerich, III 5,000 (8)
Jerry R. Junkins 3,200 (9)
Charles F. Knight 5,000 (10)
Peter A. Magowan 1,000
George A. Schaefer 37,651 (11)
Joshua I. Smith 0
James W. Wogsland 35,282 (12)
Clayton K. Yeutter 100
All directors and officers as a group 509,601 (13)
- ------------------------------------------------------------ ------------
</TABLE>
(1) Includes 4,000 shares subject to outside director stock options exercisable
within 60 days. In addition to the shares listed above, Ms. Affinito has
deferred a portion of her director compensation pursuant to the Director's
Deferred Compensation Plan representing an equivalent value as if such
compensation had been invested on December 31, 1993 in 1,125 shares of
Common Stock.
(2) Includes 23,137 shares subject to employee stock options exercisable within
60 days. In addition to shares listed above, Mr. Barton has deferred a
portion of his compensation pursuant to a supplemental employee investment
plan representing an equivalent value as if such compensation had been
invested on December 31, 1993 in 257 shares of Common Stock.
(3) Includes 3,333 shares subject to employee stock options exercisable within
60 days.
(4) Includes 55,133 shares subject to employee stock options exercisable within
60 days. Also includes 211 shares over which Mr. Fites does not have sole
voting and investment power.
(5) Includes 29,900 shares subject to employee stock options exercisable within
60 days. In addition to shares listed above, Mr. Flaherty has deferred a
portion of his compensation pursuant to a supplemental employee investment
plan representing an equivalent value as if such compensation had been
invested on December 31, 1993 in 270 shares of Common Stock.
(6) Includes 4,000 shares subject to outside director stock options exercisable
within 60 days. Also includes 500 shares over which Mr. Fondahl does not
have sole voting and investment power. In addition to the shares listed
above, Mr. Fondahl has deferred a portion of his director compensation
pursuant to the Director's Deferred Compensation Plan representing an
equivalent value as if such compensation had been invested on December 31,
1993 in 671 shares of Common Stock.
(7) Includes 2,000 shares subject to outside director stock options exercisable
within 60 days.
(8) Includes 4,000 shares subject to outside director stock options
exercisable within 60 days.
(9) Includes 3,000 shares subject to outside director stock options exercisable
within 60 days.
(10) Includes 4,000 shares subject to outside director stock options exercisable
within 60 days.
(11) Includes 21,000 shares subject to outside director and employee stock
options exercisable within 60 days.
(12) Includes 18,833 shares subject to employee stock options exercisable
within 60 days. In addition to shares listed above, Mr. Wogsland has
deferred a portion of his compensation pursuant to a supplemental employee
investment plan representing an equivalent value as if such compensation
had been invested on December 31, 1993 in 670 shares of Common Stock.
(13) Includes 327,765 shares subject to employee and outside director stock
options exercisable within 60 days. Also includes 100 shares for which
voting and investment power is shared and 1,100 shares for which
beneficial ownership has been disclaimed.
-10-
<PAGE>
Listed below are certain persons who, to the knowledge of the Company, own
beneficially, as of December 31, 1993, more than five percent of the Company's
Common Stock.
TABLE OF EQUITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
VOTING DISPOSITIVE TOTAL AMOUNT PERCENT
AUTHORITY AUTHORITY OF BENEFICIAL OF
NAME AND ADDRESS SOLE SHARED SOLE SHARED OWNERSHIP CLASS
<S> <C> <C> <C> <C> <C> <C>
Joint filing by FMR Corp.
and Edward C. Johnson 3d 560,361 0 7,686,556 0 7,686,556 7.56%
82 Devonshire Street
Boston, MA 02109
Joint filing by The
Capital Group, Inc. 980,130 0 6,469,630 0 6,469,630 6.36%
and Capital Research
and Management Company
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION POLICIES
For each year, the Compensation Committee ("Committee") establishes
compensation guidelines and targets for the performance of the Company, of
business units within the Company, and of individual executive officers. For
purposes of this discussion, there are 23 executive officers. The Committee
believes the guidelines and targets discussed below provide an executive
compensation program designed to improve cost effectiveness and stockholder
return.
In developing compensation plans and setting compensation levels for 1993,
the Committee reviewed compensation studies conducted by consultants.
Consultant studies were used in determining both long and short-term
compensation. Their data was based on an examination of officer compensation
at 24 companies comparable to the Company in size, market capitalization and
principal undertaking as manufacturers of heavy equipment ("Comparator
Companies"). All companies surveyed by these consultants are included in the
S&P 500 index and three companies, in addition to the Company, are included in
the S&P Machinery (Diversified) Index. Compensation levels for Company
executives are below average with respect to Comparator Companies.
EXECUTIVE OFFICER COMPENSATION
BASE SALARY
Base salaries of individual executive officers are reviewed by the Committee
annually. In determining adjustments to base salary for a particular year, the
Committee relies on reports from consultants regarding salaries at Comparator
Companies. With the assistance of the officers' superiors, the Committee also
makes subjective determinations regarding the performance of individual
officers.
Adjustments to salary are not based upon a formulaic consideration of
specified performance factors. However, Company and relevant business unit
profitability are taken into consideration when evaluating individual
performance and may determine whether salaries will be frozen for a particular
year or subject to increase based on comparison studies and subjective
analysis. For example, officer salaries were frozen for 1992 in light of
anticipated Company performance for that year. Because improved performance
was anticipated for 1993, effective January 1 of that year, the Committee
increased officer base salaries, including the salaries of named executive
officers, to bring those
11
<PAGE>
salaries to what the Committee considered, based on consultant reports,
minimally competitive levels. Despite these increases, officer base salaries
still are below average with respect to Comparator Companies.
INCENTIVE COMPENSATION
CORPORATE INCENTIVE COMPENSATION PLAN
Executive officers, together with most management and salaried employees,
participate in the Company's Corporate Incentive Compensation Plan ("Incentive
Plan"). The purpose of the Incentive Plan is to provide contingent benefits to
employees to reflect their contribution to Company profitability and to serve
as an incentive to contribute to future Company success.
Payouts under the Incentive Plan are calculated by taking into account (a)
annual base salary, (b) a specific percentage of base salary, which increases
for higher positions within the Company, thereby placing a greater percentage
of compensation at risk for those with greater responsibilities, and (c) the
Company's achievement of specific levels of return on assets ("ROA"). Before
any amount can be awarded under the Incentive Plan, the Company must achieve a
minimum ROA level, with increasing amounts to be awarded if the Company
achieves a target ROA or maximum ROA. In 1993, the target ROA level under the
Incentive Plan was met and executive officers received an Incentive Plan
payout, as reflected for the named executive officers in the "Bonus" column of
the "Summary Compensation Table." Eighteen other officers also received an
Incentive Plan payout.
In addition to an Incentive Plan award based on Company ROA, an individual
award may be made under the Incentive Plan to an officer by the Committee
based on a subjective determination of individual performance. The aggregate
of individual awards to all officers cannot exceed the amount available in a
discretionary pool established for such awards. The discretionary pool amount
is part of the total pool and is based on the achievement of Company ROA
levels discussed above. In 1993, each named executive officer received an
individual award, included in the "Bonus" column of the "Summary Compensation"
table. Eighteen other officers also received an individual award.
BUSINESS UNIT INCENTIVE COMPENSATION PLANS
Some executive officers also participate in incentive plans applicable to
their respective business units. The Company has 114 incentive compensation
plans applicable to business units and divisions within those units. Each
business unit within the Company has its own criteria for determining
incentive compensation for its employees. With the exception of eight business
unit plans, at least 25% of the payout under a business unit plan must be
based on Company achievement of ROA levels applicable to the Incentive Plan.
Other factors determining business unit payout include, but are not limited
to, return on sales for the particular unit, unit ROA, unit profit, operating
expenses, percentage of industry sales, percentage of potential sales, and
customer satisfaction. In addition, units providing administrative services to
other units within the Company may have a portion of their incentive
compensation tied to the performance of those other units. The two most widely
used factors determining payouts under the business unit plans are return on
sales for the unit and unit ROA.
Executive officers participating in their respective business unit incentive
plans generally are eligible to receive fifty percent of the amount that would
have been awarded if he or she had participated solely in the business unit
plans, and fifty percent of the amount that would have been awarded had the
officer participated solely in the Incentive Plan. Thirteen executive officers
received payments based on the 1993 performance of their business units.
Based on competitive concerns, the Company does not believe it is
appropriate for purposes of this report to disclose specific performance
factors applicable to each individual business unit. Because these factors
reflect the Company's view regarding criteria essential for each unit's long-
term
12
<PAGE>
success, disclosure of such factors on a unit by unit basis would be
detrimental to the Company and its stockholders by giving competitors a
comprehensive blueprint, dissected by business unit, for attacking the Company
in the marketplace. In 1993, a total of $110 million was earned by Company
employees under the corporate and business unit incentive plans. That amount
represents 4.9% of total wages and salaries before incentive pay for 1993.
STOCK OPTIONS
A stock option permits the holder to buy Company stock at a specific price
during a specific time period. As the price of Company stock rises, the option
increases in value. The Company has a plan permitting the Committee to award
stock options to executive officers and other key employees of the Company.
The intent of such awards is to provide the recipient with an incentive to
perform at levels that will result in better Company performance and enhanced
stock value.
Whether or not an option grant is made and the size of a particular grant
depend upon an individual's salary grade and the Committee's subjective
evaluation of an individual's overall performance. A formulaic interpretation
of particular Company performance criteria is not involved.
To ensure that executive officers and key management employees retain
significant stockholdings in the Company, the Committee encourages them to own
a number of shares at least equal to the average number of shares for which
they received options in their last three option grants. For 1993, if sixty
percent of the minimum ownership guideline was not met, significant progress
had not been made to achieve the desired ownership level, or a satisfactory
explanation for failure to meet the guideline had not been presented, the
Committee reduced the number of shares included in the officer's 1993 option
grant.
During 1993, executive officers, including the named executive officers,
were granted stock options based on a subjective assessment of their
individual performance by the Committee. In 1993, two officers were penalized
for low share ownership in receiving stock options. One of the named executive
officers, Vito H. Baumgartner, was so penalized. Mr. Baumgartner's reduced
share ownership resulted from a liquidation of assets necessary to purchase a
home in Switzerland following his return to that country from a foreign
assignment with the Company. As of December 31, 1993, Mr. Baumgartner was in
compliance with share ownership guidelines applicable to stock options.
LONG-TERM INCENTIVE COMPENSATION
Company executive officers, together with certain other senior managers,
also participate in a long-term incentive supplement to the stock option plan
("LTIP"). The LTIP, adopted by stockholders at the Company's 1993 annual
meeting, is designed to provide an incentive to executives to contribute to
the Company's long-term goals and objectives.
Under the LTIP, a three-year performance period is established each year,
with participants receiving a payout (50% in cash and 50% in restricted stock)
if certain minimum, target or maximum performance thresholds are achieved at
the end of that period. The Committee has the discretion to apply different
performance criteria for different three-year performance periods. The
Committee also has the discretion during a performance period to adjust
performance measures set for that period to reflect changes in accounting
principles and practices; mergers, acquisitions or divestitures; major
technical innovations; or extraordinary, nonrecurring or unusual items.
In 1993, the Committee established a three-year performance period to end in
1995. Amounts that can be paid at the end of the period depend upon an
executive's base salary, a predetermined percentage of that salary that varies
based on an executive's position, and whether certain ROA thresholds have been
achieved. For an executive to receive any payout under the LTIP, the Company
13
<PAGE>
must achieve a threshold ROA level for the performance period. If a target ROA
level is achieved, a larger amount would be received, while attaining a
certain maximum ROA level would yield the maximum amount payable under the
plan. If applicable ROA levels are achieved, the first LTIP payout would occur
in 1996 after termination of the first performance period. In 1994, a new
three year performance period was established for 1994 - 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
BASE SALARY
Effective January 1, 1993, Mr. Fites' base salary was increased. In
providing this increase, the Committee considered that, under Mr. Fites' first
two years of leadership, the Company maintained its position as the world's
leading manufacturer of construction and mining equipment. Through his efforts
to complete the organizational restructuring of the Company and the Company's
comprehensive factory modernization program, it was believed Mr. Fites had
made good progress toward returning the Company to profitability and a more
appropriate level of stockholder return. Decisive steps were taken to make the
Company a stronger international competitor and better investment for
stockholders by efforts to achieve annual gains in product and service
quality, to develop stronger relationships with principal stockholders,
dealers and employees, to improve product lines and to dispose of unproductive
assets and operations, all with a view to enhancing the Company's long-term
prospects, as well as his selective involvement in public policy issues of
importance to the Company's worldwide competitive position. Another factor
considered by the Committee was Mr. Fites' efforts to realize a labor
agreement with the United Auto Workers Union that would permit the Company to
remain globally competitive from a U.S. manufacturing base.
The Committee believes these efforts laid the groundwork for the Company's
substantially improved performance in 1993. The Committee considers its
assessment of Mr. Fites' leadership to have been substantiated, in that during
the past year the Company has recorded a profit of $681 million (excluding an
extraordinary loss of $29 million). In addition, the Company's stock price
increased approximately 66%. The Committee believes the factors serving as a
basis for Mr. Fites' salary increase will continue to have a positive impact
on the Company.
In adjusting Mr. Fites' salary, the Committee also examined consultant
reports regarding base salaries of chief executives at Comparator Companies.
Based on those reports, the Committee concluded that Mr. Fites' salary did not
reflect accurately his contributions to overall Company performance and the
adjustment given was necessary to bring his salary to a minimally competitive
level. Despite Mr. Fites' salary increase, his salary remained below average
with respect to chief executives at Comparator Companies.
INCENTIVE COMPENSATION
Mr. Fites participates in the Incentive Plan. Because the Company achieved
its target ROA level under the Incentive Plan in 1993, Mr. Fites received an
Incentive Plan payout, as reflected in the "Bonus" column of the "Summary
Compensation Table."
That payout amount includes an individual award to Mr. Fites under the
Incentive Plan. The Committee believes such award is warranted, given that Mr.
Fites has provided leadership during a year in which Company profitability has
improved substantially, Company market share in most lines of its business has
increased, new products have been introduced, existing product quality has
been retained or enhanced, and cost reductions have occurred. In addition, Mr.
Fites has made significant contributions to the industry as a whole through
his efforts regarding the North American Free Trade Agreement and the General
Agreement on Tariffs and Trade.
14
<PAGE>
STOCK OPTIONS
During 1993, Mr. Fites received option grants covering 20,000 shares of
Company stock, as reflected in the Summary Compensation Table and Option
Grants in 1993 table. Like other executive officers, Mr. Fites received
options in 1993 based upon a subjective analysis by the Committee of his
individual performance, rather than a formulaic assessment of specific Company
performance criteria. These factors reflect the contributions referenced in
the discussion above on Mr. Fites' base salary and individual incentive award.
Mr. Fites' option grants were not subject to the penalty described above in
respect to officer share ownership.
LONG-TERM INCENTIVE COMPENSATION
Mr. Fites participates in the LTIP, receiving payouts based on the criteria
discussed above. Specific reference to minimum, target, and maximum amounts
that could be received by Mr. Fites under criteria currently applicable to the
LTIP are referenced in the Long-Term Incentive Plans/Awards in 1993 table on
page 19. Like other executive officers, Mr. Fites is not eligible to receive a
payout under the LTIP until 1996, and then only if the minimum ROA is
achieved.
IMPACT OF TAX LAW CHANGES
Recently, the Revenue Reconciliation Act of 1993 amended Section 162 of the
Internal Revenue Code to eliminate the deductibility of certain compensation
over $1 million paid to the chief executive officer and other named executive
officers. The change was effective January 1, 1994.
The Committee believes it is in the best interests of the Company and
stockholders not to take action at this time to adjust its compensation
programs to qualify for certain exceptions to the deductibility limitation. It
appears that under the new tax law, payments pursuant to compensation plans
that give compensation committees flexibility to adjust performance criteria
for differing performance periods (e.g., the Company's LTIP) may not qualify
for deductibility. The Committee believes the ability to adjust performance
criteria for successive performance periods to ensure that short and long-term
incentive compensation is tied to areas in which improved Company performance
may be required is crucial to the success of such plans and their enhancement
of stockholder value.
Given the inflexibility that could result in seeking to meet the most
restrictive interpretations of those changes, the cost of coming within the
exceptions to the deductibility limitation would outweigh the benefits
derived, given that only the compensation of Messrs. Fites and Wogsland would
be expected potentially to exceed the deductibility cap at this time. The
Committee notes, however, that further developments, including adoption of
regulations proposed on December 15, 1993, may result in a reconsideration of
this position in future years.
James P. Gorter (Chairman) Clayton K. Yeutter
Walter H. Helmerich, III David R. Goode
Jerry R. Junkins Peter A. Magowan
15
<PAGE>
PERFORMANCE GRAPH
The following graph reflects a comparison of the cumulative total return
(change in stock price plus reinvested dividends) of the Company's Common
Stock for the five-year period from December 31, 1988 through December 31,
1993 with the Standard & Poor's 500 Composite Index and the Standard & Poor's
Machinery (Diversified) Index. The comparisons are not intended to forecast or
be indicative of possible future performance of the Company's stock. In
addition, the Company's principal competitors are located outside the United
States and are not included in published industry indexes.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
AMONG CATERPILLAR, S&P 500 INDEX AND S&P MACHINERY (DIVERSIFIED) INDEX
<CAPTION>
Measurement Period S&P S&P MACHINERY
(Fiscal Year Covered) CATERPILLAR 500 INDEX (DIVERSIFIED)
- -------------------- ----------- --------- -------------
<S> <C> <C> <C>
Measurement Pt-
12/31/88 $100.00 $100.00 $100.00
FYE 12/31/89 $ 92.31 $131.59 $118.99
FYE 12/31/90 $ 76.74 $127.49 $102.64
FYE 12/31/91 $ 73.49 $166.17 $122.03
FYE 12/31/92 $ 90.85 $178.81 $124.52
FYE 12/31/93 $152.07 $196.75 $184.35
</TABLE>
The Company notes that from January 1, 1993 through December 31, 1993, the
price of Company stock increased 66%. For that period, the value of the S&P
500 Composite Index increased 10%, while the value of the S&P Machinery
(Diversified) Index increased 48%.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Present members of the Compensation Committee are Messrs. James P. Gorter
(Chairman), David R. Goode, Walter H. Helmerich, III, Jerry R. Junkins, Peter
A. Magowan, and Clayton K. Yeutter. Mr. Gorter also is a limited partner of
Goldman, Sachs & Co. ("Goldman") which performed various investment banking
services for the Company during 1993 and is anticipated to perform such
services in 1994. As a limited partner, Mr. Gorter is not directly involved in
the day-to-day business operations of Goldman.
16
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's chief
executive officer and to each of the Company's four most highly compensated
executive officers other than the chief executive officer for services
rendered to the Company for the years ended December 31, 1993, 1992 and 1991.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------------------------- ------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus (1) Compensation Options (2) Compensation (3)
- ------------------ ---- ------ --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites, 1993 $670,000 $339,024 $-0- 20,000 $32,160
Chairman and Chief 1992 550,000 -0- -0- 42,000 26,400
Executive Officer 1991 522,500 -0- -0- 20,000 23,100
J. W. Wogsland, 1993 $490,000 $246,928 $-0- 11,700 $23,520
Vice Chairman 1992 400,000 -0- -0- 31,000 17,333
1991 380,000 -0- -0- 11,700 15,200
G.A. Barton, 1993 $325,000 $148,395 $-0- 7,650 $11,983
Group President 1992 285,000 -0- -0- 18,000 11,400
1991 277,500 -0- -0- 8,800 11,100
G.S. Flaherty, 1993 $325,000 $148,395 $-0- 7,650 $13,000
Group President 1992 285,000 -0- -0- 18,000 11,400
1991 277,500 -0- -0- 7,650 11,100
V. H. Baumgartner, 1993 $335,762 $ 87,968 $-0- 4,500 $ -0-
Vice President (4) 1992 344,070 -0- -0- 10,000 -0-
1991 319,065 -0- -0- 5,100 -0-
</TABLE>
(1) Consists of cash payments made in 1994 pursuant to the Corporate
Incentive Compensation Plan with respect to 1993 performance.
(2) Number of Options granted under the 1987
Stock Option Plan.
(3) Consists of matching Company contributions for the Employees' Investment
Plan and Supplemental Employees' Investment Plan.
(4) Dollar amounts are based on compensation in Swiss Francs converted to
U.S. dollars and are affected by fluctuating exchange rates.
The following tables set forth certain information at December 31, 1993 and
for the fiscal year then ended with respect to stock options and stock
appreciation rights granted to and exercised by the individuals named in the
Summary Compensation Table above. No options have been granted at an option
price below fair market value on the date of grant.
17
<PAGE>
OPTION GRANTS IN 1993
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual rates of Stock
Price Appreciation for Option
Individual Grants Term(1)
------------------------------------------------------------------ --------------------------------
Number of
Securities % of Total
Underlying Options Granted
Options to Employees in Exercise Price
Name Granted(2) 1993 (3) Per Share Expiration Date 5% 10%
- ------------------- ---------- ---------------- ---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites 20,000 2.69% $75.0625 06/06/2003 $944,129 $2,392,605
J. W. Wogsland 11,700 1.57% $75.0625 06/06/2003 $552,315 $1,399,674
G. A. Barton 7,650 1.03% $75.0625 06/06/2003 $361,129 $915,171
G. S. Flaherty 7,650 1.03% $75.0625 06/06/2003 $361,129 $915,171
V. H. Baumgartner 4,500 .60% $75.0625 06/06/2003 $212,429 $538,336
Executive Group 144,860 19.47% $75.0625 06/06/2003 $6,838,324 $17,329,639
All Stockholders(4) N/A N/A N/A N/A $4,779,020,313 $12,110,965,092
Executive Group N/A N/A N/A N/A .14% .14%
Gain as % of all
Stockholder Gain
</TABLE>
(1) The dollar amounts under these columns use the 5% and 10% rates of
appreciation prescribed by the Securities and Exchange Commission. The 5%
and 10% rates of appreciation would result in per share prices of $122.27
and $194.69, respectively. The Company expresses no opinion regarding
whether this level of appreciation will be realized and expressly
disclaims any representation to that effect.
(2) Options are exercisable upon completion of one full year of employment
following the grant date (except in the case of death or retirement) and
vest at the rate of one-third per year over the three years following the
grant. Upon exercise, option holders may surrender shares to pay the
option exercise price.
(3) In 1993, options for 144,860 shares were granted to all executive officers,
as a group; options for 8,000 shares were granted to all directors who are
not executive officers, as a group; and options for 599,280 shares were
granted to all employees other than executive officers, as a group.
(4) For "All Stockholders" the potential realizable value is calculated from
$75.0625, the price of Common Stock on June 8, 1993, based on the
outstanding shares of Common Stock on that date.
AGGREGATED OPTION/SAR EXERCISES IN 1993,
AND 1993 YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options / SARs at In-the-Money Options / SARs at
1993 Year-End at 1993 Year-End(1)
Shares Acquired Value Realized ------------------------------- -------------------------------
Name on Exercise (2) (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------------ -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites 29,150 $593,382 55,133 54,667 $1,474,183 $1,344,679
J. W. Wogsland 37,960 958,338 18,833 36,267 469,199 911,489
G. A. Barton 16,240 415,844 23,137 22,583 648,405 566,293
G. S. Flaherty 7,777 274,997 29,900 22,200 854,822 551,906
V. H. Baumgartner 17,160 376,290 3,333 12,867 97,074 320,751
</TABLE>
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date or year-end, as the case may be, minus the
exercise price.
(2) Upon exercise, option holders may surrender shares to pay the option
exercise price. The amounts provided are gross amounts absent netting
for share surrender.
18
<PAGE>
The following table sets forth certain information regarding estimated
potential awards to named executive officers pursuant to the Long-Term
Incentive Supplement to the Company's 1987 Stock Option Plan.
LONG-TERM INCENTIVE
PLANS/AWARDS IN 1993
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Non-Stock Price-Based Plans
------------------------------
Performance or
Other Period Until
Name Maturation or Payout Threshold Target Maximum
- --------------- -------------------- --------- ------ -------
<S> <C> <C> <C> <C>
D. V. Fites 1993-1995 $240,000 $480,000 $720,000
J. W. Wogsland 1993-1995 165,000 330,000 495,000
G. A. Barton 1993-1995 90,000 180,000 270,000
G. S. Flaherty 1993-1995 90,000 180,000 270,000
V. H. Baumgartner 1993-1995 65,000 129,000 194,000
</TABLE>
The first payment under this Supplement will not be made, if at all, until
1996 based on the aggregate performance of the Company for the years of 1993,
1994 and 1995. Payment of awards is based upon a proposed percentage rate
being applied to each employee's annual salary rate and is dependent upon the
Company's achievement of specified levels of return on assets over the three
year period. The target amount will be earned if 100% of targeted return on
assets is achieved. The threshold amount will be earned if 70% of targeted
return on assets is achieved, and the maximum award amount will be earned at
130% of targeted return on assets. Current salary levels were used to
calculate the estimated dollar value of future payments.
PENSION PROGRAM
Under the Company's pension program covering officers and other management
employees, annual benefits are payable upon retirement. The full cost of this
pension program is paid by the Company. Officers are required to retire at age
65. Most other management employees may, under federal law, work indefinitely.
Retirement prior to age 62 results in an appropriate pension reduction. The
amounts shown in the following table are the estimated aggregate annual
benefits for various levels of earnings and years of benefit service payable
in the event of retirement after age 62 and not later than age 65.
19
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Remuneration Years of Service
- ------------ ------------------------------------------------
15 20 25 30 35
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
- ----------------------------------------------------------------
$150,000 33,750 45,000 56,250 67,500 78,750
- ----------------------------------------------------------------
$200,000 45,000 60,000 75,000 90,000 105,000
- ----------------------------------------------------------------
$250,000 56,250 75,000 93,750 112,500 131,250
- ----------------------------------------------------------------
$300,000 67,500 90,000 112,500 135,000 157,500
- ----------------------------------------------------------------
$350,000 78,750 105,000 131,250 157,500 183,750
- ----------------------------------------------------------------
$400,000 90,000 120,000 150,000 180,000 210,000
- ----------------------------------------------------------------
$450,000 101,250 135,000 168,750 202,500 236,250
- ----------------------------------------------------------------
$500,000 112,500 150,000 187,500 225,000 262,500
- ----------------------------------------------------------------
$550,000 123,750 165,000 206,250 247,500 288,750
- ----------------------------------------------------------------
$650,000 146,250 195,000 243,750 292,500 341,250
- ----------------------------------------------------------------
$750,000 168,750 225,000 281,250 337,500 393,750
- ----------------------------------------------------------------
$850,000 191,250 255,000 318,750 382,500 446,250
- ----------------------------------------------------------------
$950,000 213,750 285,000 356,250 427,500 498,750
- ----------------------------------------------------------------
$1,100,000 247,500 330,000 412,500 495,000 577,500
- ----------------------------------------------------------------
</TABLE>
The compensation covered by the pension program is generally based on an
employee's annual salary and bonus. Amounts payable pursuant to a defined
benefit supplementary pension plan are included. As of December 31, 1993, the
persons named in the Summary Compensation Table had the following estimated
credited years of benefit service for purposes of the pension program: D. V.
Fites - 35 years*; J. W. Wogsland - 35 years*; G. A. Barton - 33 years; G. S.
Flaherty - 35 years; and V. H. Baumgartner - 29 years**. The amounts payable
under the pension program are computed on the basis of an ordinary life annuity
and are generally not subject to deductions for Social Security benefits or
other amounts.
_______________
*Although having served 36 years with the Company, amounts payable under the
plan are based on a maximum of 35 years of service.
**Mr. Baumgartner is covered by the pension plan of a subsidiary of the
Company which is intended to provide benefits comparable to those under the
Company's pension program. There are no material differences between Mr.
Baumgartner's pension plan benefits and those disclosed in the table.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For disclosure regarding a reportable relationship involving Mr. James P.
Gorter, a director of the Company, see page 16, "Compensation Committee
Interlocks and Insider Participation."
Mr. Siegfried R. Ramseyer, a Vice President of the Company, was Managing
Director of Caterpillar Overseas S.A. ("Subsidiary") until December 31, 1992,
and is indebted to that Subsidiary in the amount of approximately $302,826.
The loan relates to a home purchase by Mr. Ramseyer in Switzerland and is
collateralized by a mortgage on the property. The primary purpose of the
transaction was to permit Mr. Ramseyer to retain his home in Switzerland and
to purchase a home in the United States where he has been assigned. The loan
is interest free and repayable to the Subsidiary no later than December 31,
2002. If for any reason Mr. Ramseyer returns to Switzerland or ceases to act
as a Vice President of the Company prior to December 31, 2002, the Subsidiary
is entitled to request repayment of the loan upon giving 60 days prior written
notice. During Mr. Ramseyer's assignment in the United States, the Subsidiary
may lease the property and receive rental income.
20
<PAGE>
PROPOSAL 2 - APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors wishes to obtain from the stockholders an indication
of their approval or disapproval of the Board's action in appointing Price
Waterhouse as independent auditors of the Company for the year 1994.
Price Waterhouse have been the auditors of the Company since its
incorporation in 1925. No relationship exists other than the usual
relationship between independent public accountant and client.
In the event the appointment of Price Waterhouse as independent auditors for
1994 is not approved by the stockholders, the adverse vote will be considered
as a direction to the Board of Directors to consider the selection of other
auditors for the following year. However, because of the difficulty in making
any substitution of auditors so long after the beginning of the current year,
it is contemplated that the appointment for the year 1994 will be permitted to
stand unless the Board finds other good reason for making a change. The
directors recommend a vote 'FOR' the approval of the appointment of Price
Waterhouse.
Representatives of Price Waterhouse are expected to be present at the annual
meeting of stockholders on April 13, 1994, with the opportunity to make a
statement if they desire to do so. Such representatives are also expected to
be available to respond to appropriate questions.
PROPOSAL 3 - STOCKHOLDER PROPOSAL
Mr. Bill Casstevens, Secretary-Treasurer of the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW"), advises that, on behalf of the UAW (owner of 19 shares of Company
stock), he or another representative intends to present for consideration and
action at the annual meeting, the following resolution:
RESOLUTION PROPOSED BY STOCKHOLDER
BE IT RESOLVED: that the shareholders of Caterpillar Inc. ("Caterpillar" or
"company") request the Board of Directors to take the steps necessary to amend
the bylaws of the company to provide that any nominations of directors by a
stockholder pursuant to Article III, Section 1(d)(ii), will be included in the
proxy statement and ballot sent to stockholders, said steps to include but not
be limited to revising the time period in which such nominations are to be
made.
SUPPORTING STATEMENT OF PROPONENT
Article III, Section 1(d) of Caterpillar's bylaws appears to provide for a
very open, democratic method of making nominations for the company's Board of
Directors. Subsection (i) provides that the board of directors or a committee
of it may make nominations. Subsection (ii) provides that a stockholder may
make a nomination at a stockholder's meeting.
The provision for nominations by a stockholder, however, is an empty one
since they can only be made at a stockholders' meeting. The vast majority of
stockholders cast their ballots by proxy weeks before a stockholders' meeting.
Although a stockholder attending the meeting can change his or her ballot at
that time, only a minuscule fraction of stockholders attend such meetings in
person.
To provide for meaningful stockholder nominations, the company's bylaws
should be changed to provide that the nominations must be made early enough to
be included in the proxy statement and proxy ballot that is sent to
shareholders.
21
<PAGE>
Given the company's marginal performance in recent years, it is clear that
new directors willing to take the board in a fresh direction are needed.
Stockholder nominations that appear in proxy materials and on the proxy ballot
would be an ideal way to achieve that. Even if such nominations fail, they
will increase the current board's accountability.
STATEMENT IN OPPOSITION TO PROPOSAL
Currently, stockholders who want to nominate their own candidates to the
Company's Board of Directors have several options. They may accept the
Company's invitation to attend the Annual Meeting of Stockholders and forward
their director nominations at that time, as long as written notice of such
nomination is received by the Secretary of the Company not later than ninety
days in advance of such meeting. Indeed, the Company's proxy statement details
procedures required under Company bylaws for the nomination of directors by
stockholders. Other stockholders attending the annual meeting may vote for
nominated directors, even if such a vote would change a vote previously
submitted by proxy.
Alternatively, the federal securities laws provide another mechanism. The
stockholder may file with the Securities and Exchange Commission and
distribute to stockholders its own proxy statement and ballot soliciting votes
for its own slate of director nominees or for an individual director.
These mechanisms provide stockholders ample opportunity to change the
composition of the Board if they believe "new directors willing to take the
board in a fresh direction are needed." It is important to note, however, that
the Company's current Board provided guidance for the efforts that led to the
past year's substantially improved performance. From January 1, 1993 through
December 31, 1993, Company stock increased in value by approximately 66% and
for 1993 the Company recorded a profit of $681 million or $6.72 per share
(excluding an extraordinary loss of $29 million). In fact, the UAW's
characterization of the Board, in light of recent Company performance, raises
the question whether this proposal is designed to further the interests of
stockholders as a whole or merely to harass the Company in an attempt to force
acceptance of the international union's so-called pattern labor agreement.
Adoption of this proposal would not permit inclusion of stockholder
nominations in the Company's proxy materials. That would require an amendment
to the Company's bylaws by stockholders at a future stockholders' meeting.
Approval of the amendment by not less than 75% of the outstanding stock
entitled to vote would be required at that meeting for the proponent's
proposal to be implemented.
The Board of Directors recommends a vote AGAINST the proposal.
PROPOSAL 4 - STOCKHOLDER PROPOSAL
Mr. Dana L. Wiggins, Business Representative for the Northern Nevada
Carpenters Pension Trust ("Fund"), advises that, on behalf of the Fund (owner
of 2,500 shares of Company stock), he or another representative of the Fund
intends to present for consideration and action at the annual meeting the
following resolution:
RESOLUTION PROPOSED BY STOCKHOLDER
BE IT RESOLVED: That the shareholders of Caterpillar Inc. ("Company") urge
that the Board of Directors take the necessary steps, in compliance with
Delaware state law, to declassify the Board of Directors for the purpose of
director elections. The Board declassification shall be done in a manner that
does not affect the unexpired terms of directors previously elected.
22
<PAGE>
SUPPORTING STATEMENT OF PROPONENT
The election of corporate directors is the primary avenue in the American
corporate governance system for shareholders to influence corporate affairs
and exert accountability on management. We strongly believe that our Company's
financial performance is closely linked to its corporate governance policies
and procedures, and the level of management accountability they impose.
Therefore, as shareholders concerned about the value of our investment, we are
very disturbed by our Company's current system of electing only one-third of
the board of directors each year. We believe this staggering of director terms
prevents shareholders from annually registering their views on the performance
of the board collectively and each director individually.
Concerns that the annual election of all directors would leave our Company
without experienced Board members in the event that all incumbents are voted
out is unfounded. If the owners should choose to replace the entire board, it
would be obvious that the incumbent directors' contributions were not valued.
Additionally, concerns that the annual election of all directors would expose
shareholders to takeover attempts at below full value is also unfounded. Our
Company's poison pill is a virtually insurmountable takeover defense which
forces potential acquirers to negotiate offers with the Board.
Most alarming is that the staggered Board can help insulate directors and
senior executives from the consequences of poor performance by denying
shareholders the opportunity to replace an entire Board which is pursuing
failed policies. The performance of Caterpillar's stock since the staggered
Board was implemented in 1986 emphasizes this point. According to the
performance chart on 13 of the Company's 1993 proxy statement, Caterpillar has
underperformed its peer group, the S&P Machinery (Diversified) Index, and the
S&P 500 in 1987, 1988, 1989, 1990, 1991 and 1992 for a cumulative shareholder
return of 31 percent below the peer group and 55 percent below the S&P 500.
Underperformance relative to our Company's peer group is primarily
attributable to mismanagement, not market forces.
Additionally, Caterpillar was the 910th worst company out of 1,000 in the
United Shareholders Association's 1993 ranking of the Fortune 1,000 on
performance and corporate governance. On long-term performance (10 year
shareholders returns measured by stock price appreciation plus dividends),
Caterpillar's score was 6.6 out of 25, a score which was worse than 863 other
companies.
The poor performance of our Company over the previous five and ten year
periods is a compelling reason to reconsider the wisdom of a staggered Board.
We believe that allowing shareholders to annually register their views on the
performance of the Board collectively and each director individually is one of
the best methods to insure that our Company will be managed in the best
interests of the shareholders.
STATEMENT IN OPPOSITION TO PROPOSAL
In 1986, Company stockholders voted, by a significant majority, to divide
the Board of Directors into three approximately equal classes, with one class
elected each year for a three-year term. Last year, stockholders affirmed
their support for the classified structure by rejecting a proposal to
eliminate it. Certain institutional stockholders, such as Teachers Insurance
and Annuity Association -- College Retirement Equities Fund ("TIAA-CREF"), as
a matter of policy do not support stockholder proposals to eliminate a
classified board structure.
The Board continues to believe the classified structure is in the best
interests of the Company and its stockholders for the following reasons.
First, the structure is designed to provide continuity and stability in the
management of Company affairs, since, at any given time, a majority of the
Board generally will have had prior experience as directors of the Company. At
the same time, the classified
23
<PAGE>
structure, by permitting annual elections with respect to one-third of the
Board, affords stockholders a significant opportunity to express their views
regarding Board performance.
Second, the classified structure is designed to enhance management's ability
to negotiate in the best interests of all stockholders with a person seeking
control of the Company, since, absent a negotiated acquisition, at least two
annual stockholder meetings would be required to effect a change in control of
the Board. Contrary to the proponent's assertion, the Company's stockholder
rights plan is not an "insurmountable takeover defense." In fact, the plan
provides that the Company is required to redeem plan rights if requested by
two-thirds of the Company's outstanding shares. Similarly, the classified
structure is not an "insurmountable" takeover defense. Rather, it protects the
interests of stockholders in the event of a takeover attempt.
It should be noted that adoption of this proposal would not in itself
eliminate Board classification. That would require the Board to submit an
amendment to the Company's bylaws for action by stockholders at a future
stockholders' meeting. Approval of that amendment by not less than 75% of the
outstanding stock entitled to vote would be required for the 1986 stockholder
vote to be reversed and the classified structure eliminated.
It should also be noted that the proponent's characterization of Company
performance contains an omission that renders the characterization misleading.
The omitted fact is that the value of Company stock has increased
approximately 66% during fiscal year 1993 and for 1993 the Company recorded a
profit of $681 million or $6.72 per share (excluding an extraordinary loss of
$29 million).
The Board of Directors recommends a vote AGAINST the proposal.
PROPOSAL 5 - STOCKHOLDER PROPOSAL
Mr. Thomas P.V. Masiello, Administrator for the Massachusetts Laborers'
Pension Fund ("Pension Fund"), advises that on behalf of the Pension Fund
(owner of 2,000 shares of Company stock) he or another representative intends
to present for consideration and action at the annual meeting, the following
resolution:
RESOLUTION PROPOSED BY STOCKHOLDER
BE IT RESOLVED: that the stockholders of Caterpillar, Inc. ("Caterpillar" or
"Company"), assembled in annual meeting in person and by proxy, hereby request
the Board of Directors to take the steps necessary to provide for cumulative
voting in the election of directors, which means each stockholder shall be
entitled to as many votes as shall equal the number of shares he or she owns
multiplied by the number of directors to be elected, and he or she may cast
all of such votes for a single candidate, or any two or more of them as he or
she may see fit.
SUPPORTING STATEMENT OF PROPONENT
Cumulative voting is one of the few ways stockholders can attempt to elect
members who they believe better represent their views.
It is vitally needed at Caterpillar, where the current board has sat
passively by, collecting its annual retainer of $30,000 and accruing a
lifetime pension at that amount, while the company has underperformed the
market and its industry group for the past five years.
Cumulative voting maximizes a stockholder's voting power by allowing him or
her to concentrate their votes for a single nominee or combination of
nominees.
24
<PAGE>
For example, Caterpillar has 10 directors. Without cumulative voting, the
owners of 10 percent of the company's stock do not have a realistic chance of
electing a director. They would only be able to cast their 10 percent for each
nominee. However, with cumulative voting, those same owners would be able to
actually elect a nominee by lumping all of their votes for that nominee.
Even if dissedent stockholders do not have enough votes to elect nominees,
cumulative voting ensures that management and the board will consider their
views.
Please mark your ballot in support of this proposal.
STATEMENT IN OPPOSITION TO PROPOSAL
In 1986, stockholders approved a Company proposal that, among other things,
eliminated cumulative voting in the election of directors. Only 20% of
stockholders voted against elimination. Statistics reveal that a substantial
majority of public companies do not provide for cumulative voting in the
election of directors. Certain large institutional holders, such as TIAA-CREF,
consistently oppose proposals to institute such voting.
Cumulative voting promotes special interest representation on the Board
rather than representation for the benefit of all stockholders. Where
cumulative voting is in effect, a minority block of stockholders may be able
to elect one or more directors by giving all of their votes to those
candidates. Directors so elected may be concerned with acting in the interests
of the group electing them rather than stockholders as a whole. Factionalism
and contention among directors could result to the disadvantage of the Company
and its stockholders.
The Company's current Board has represented stockholders during a period in
which the groundwork was laid for a year of substantially improved
performance. They have not "sat passively by ... while the company has
underperformed the market and its industry group..." In fact, since January 1,
1993, stockholders have watched the value of Company stock increase by
approximately 66%.
The Board of Directors recommends a vote AGAINST the proposal.
FILINGS PURSUANT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Based upon a review of Company records, it appears that one executive
officer, Mr. James E. Despain, failed to file one report on Form 4 in a timely
manner. The report relates to one transaction involving 162 shares occurring
on November 3, 1993. A Form 4 was filed with respect to that transaction on
January 13, 1994.
STOCKHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission, stockholders
wishing to submit proposals for inclusion in the Company's Proxy Statement for
the annual meeting of stockholders to be held in 1995 must submit such
proposals so as to be received by the Company's Secretary at 100 NE Adams
Street, Peoria, Illinois 61629 on or before October 25, 1994.
25
<PAGE>
STOCKHOLDER NOMINATIONS
A stockholder may also nominate an individual for election as a director at
the annual meeting but, pursuant to the Company's bylaws, written notice of
such nomination must be received by the Secretary of the Company at 100 NE
Adams Street, Peoria, Illinois 61629, not later than ninety days in advance of
such meeting. A copy of the Company's bylaws specifying the requirements for
stockholder nominations will be furnished to any stockholder without charge
upon written request to the Secretary.
SOLICITATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors. The cost of soliciting proxies will be borne by the Company. Such
solicitation is being made by mail and may also be made by telephone or in
person using the services of directors, officers and regular employees of the
Company. In addition, the Company has engaged Georgeson & Co. for a fee of
$20,000 plus out-of-pocket expenses to assist in the solicitation. Banks,
brokerage firms and other custodians, nominees, and fiduciaries will be
reimbursed by the Company for reasonable expenses incurred in sending proxy
material to beneficial owners of Company Common Stock.
STOCKHOLDER LIST
A listing of the Company's stockholders of record will be available for
examination by stockholders during normal business hours at the Loews Ventana
Canyon Resort, 7000 North Resort Drive, Tucson, Arizona, at least ten days
prior to the annual meeting.
REVOCABILITY OF PROXY
A stockholder giving the enclosed proxy may revoke it at any time before it
is exercised by filing with the Company a written notice of revocation or by a
duly executed and presented proxy bearing a later date or by voting in person
at the meeting.
Dated: February 25, 1994
26
<PAGE>
[Caterpillar logo]
<PAGE>
APPENDIX
CATERPILLAR INC.
GENERAL AND FINANCIAL INFORMATION
1993
A-1
<PAGE>
DESCRIPTION OF BUSINESS
Caterpillar Inc. together with its consolidated subsidiaries (the company)
operates in three principal business segments:
(1) Machinery-Design, manufacture, and marketing of earthmoving,
construction, and materials handling machinery - track and wheel
tractors, track and wheel loaders, lift trucks, self-guided materials
handling vehicles, pipelayers, motor graders, wheel tractor-scrapers,
track and wheel excavators, backhoe loaders, log skidders, log loaders,
off-highway trucks, articulated trucks, paving products, and related
parts.
(2) Engines-Design, manufacture, and marketing of engines for earthmoving and
construction machines, on-highway trucks, and locomotives; marine,
petroleum, agricultural, industrial, and other applications; electric
power generation systems; and related parts. Caterpillar diesel and
spark-ignited engines meet power needs ranging from 54 to 8,000
horsepower. Turbines range from 1,340 to 15,000 horsepower (1,000 to
10,500 kilowatts).
(3) Financial Products-Provides financing alternatives for Caterpillar and
noncompetitive related equipment, and extends loans to Caterpillar
customers and dealers. Also provides various forms of insurance to
Caterpillar dealers and customers to help support their purchase and
financing of Caterpillar equipment.
The company conducts operations in the Machinery and Engines segments of its
business under highly competitive conditions, including intense price
competition. It places great emphasis upon the high quality and performance of
its products and the service support for such products which is supplied by its
dealers. Although no one competitor is believed to produce all of the same types
of machines and engines produced by the company, there are numerous companies,
large and small, which compete with the company in the sale of each of its
products.
The company's products are sold primarily under the marks "Caterpillar,"
"Cat," "Solar," and "Barber-Greene." Machines are distributed principally
through a worldwide organization of independent full-line dealers, and one
company-owned dealership, 65 located in the United States and 118 located
outside the United States. Worldwide, these dealers have more than 1,250 places
of business. Diesel and spark-ignited engines are sold through the worldwide
dealer organization and to other manufacturers for use in products manufactured
by them. Caterpillar dealers do not deal exclusively in the company's products,
although in most cases sales and servicing of the company's products are the
dealers' principal business. Turbines are sold through a sales force employed
by Solar Turbines Incorporated, a wholly owned subsidiary, or its subsidiaries
and associated companies. These employees are from time to time assisted by
independent sales representatives.
Financial Products consists primarily of Caterpillar Financial Services
Corporation and its subsidiaries, and Caterpillar Insurance Co. Ltd.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Management....................................... A-3
Report of Independent Accountants.......................... A-3
Consolidated Financial Statements and Notes................ A-4
Eleven-year Financial Summary.............................. A-24
Management's Discussion and Analysis (MD&A)
Results of Operations
-1993 Compared with 1992............................. A-26
-1992 Compared with 1991............................. A-30
Liquidity and Capital Resources......................... A-31
Employment.............................................. A-31
Other Matters........................................... A-32
1994 Outlook............................................ A-34
Supplemental Stockholder Information....................... A-36
Directors and Officers..................................... A-37
</TABLE>
A-2
<PAGE>
REPORT OF MANAGEMENT CATERPILLAR INC.
- --------------------------------------------------------------------------------
The management of Caterpillar Inc. has prepared the accompanying consolidated
financial statements for the years ended December 31, 1993, 1992, and 1991, and
is responsible for their integrity and objectivity. The statements were prepared
in conformity with generally accepted accounting principles and, reflecting
management's best judgment, present fairly the company's results of operations,
financial position, and cash flows.
Management maintains a system of internal accounting controls which has been
designed to provide reasonable assurance that: transactions are executed in
accordance with proper authorization, transactions are properly recorded and
summarized to produce reliable financial records and reports, assets are
safeguarded, and the accountability for assets is maintained.
The system of internal controls includes statements of policies and business
practices, widely communicated to employees, which are designed to require them
to maintain high ethical standards in their conduct of company affairs. The
internal controls are augmented by careful selection and training of supervisory
and other management personnel, by organizational arrangements that provide for
appropriate delegation of authority and division of responsibility, and by an
extensive program of internal audit with management follow-up.
The financial statements have been audited by Price Waterhouse, independent
accountants, in accordance with generally accepted auditing standards. They have
made similar annual audits since initial incorporation of the company. Their
role is to render an objective, independent opinion on management's financial
statements. Their report appears below.
Through its Audit Committee, the board of directors reviews the company's
financial and accounting policies, practices, and reports. The Audit Committee
consists exclusively of five directors who are not salaried employees and who
are, in the opinion of the board of directors, free from any relationship that
would interfere with the exercise of independent judgment as a committee member.
The Audit Committee meets several times each year with representatives of
management, the internal auditing department, and the independent accountants to
review the activities of each and satisfy itself that each is properly
discharging its responsibilities. Both the independent accountants and the
internal auditors have free access to the Audit Committee and meet with it
periodically, with and without management representatives in attendance, to
discuss, among other things, their opinions as to the adequacy of internal
controls and to review the quality of financial reporting.
[SIGNATURE]
(Donald V. Fites)
Chairman of the Board
[SIGNATURE]
(James W. Owens)
Chief Financial Officer
January 21, 1994
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
<LOGO> (Price Waterhouse)
TO THE STOCKHOLDERS OF CATERPILLAR INC.:
In our opinion, the accompanying consolidated financial statements, Statements 1
through 4, present fairly, in all material respects, the financial position of
Caterpillar Inc. and subsidiaries at December 31, 1993, 1992, and 1991, and
their results of operations and cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, in 1992 the
company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions"; the provisions of SFAS 112, "Employers' Accounting for Postemployment
Benefits"; and the provisions of SFAS 109, "Accounting for Income Taxes."
[SIGNATURE]
(Price Waterhouse)
Peoria, Illinois
January 21, 1994
A-3
<PAGE>
STATEMENT 1
CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31
(Millions of dollars except per share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- ------
<S> <C> <C> <C>
MACHINERY AND ENGINES:
Sales (note 1B)............................................................ $11,235 $ 9,840 $ 9,838
------- ------- -------
Operating costs:
Cost of goods sold........................................................ 9,075 8,444 8,451
Selling, general, and administrative expenses............................. 1,262 1,263 1,245
Research and development expenses (note 4)................................ 319 310 272
Provision for plant closing and consolidation costs (note 6).............. - - 262
Gain on sale of lift truck assets (note 7)................................ - (53) -
------- ------- -------
10,656 9,964 10,230
------- ------- -------
Operating profit (loss).................................................... 579 (124) (392)
Interest expense........................................................... 268 324 294
------- ------- -------
311 (448) (686)
Net interest income on U.S. tax settlement (note 9)........................ 251 - -
Other income (note 8)...................................................... 92 75 65
------- ------- -------
Profit (loss) before taxes................................................. 654 (373) (621)
------- ------- -------
FINANCIAL PRODUCTS:
Revenues (note 1B)......................................................... 380 354 344
------- ------- -------
Operating costs:
Selling, general, and administrative expenses............................. 161 146 132
Interest expense.......................................................... 172 173 175
------- ------- -------
333 319 307
------- ------- -------
Operating profit........................................................... 47 35 37
Other income (note 8)...................................................... 21 20 13
------- ------- -------
Profit before taxes........................................................ 68 55 50
------- ------- -------
CONSOLIDATED PROFIT (LOSS) BEFORE TAXES..................................... 722 (318) (571)
Provision (credit) for income taxes (note 9)............................... 42 (114) (152)
------- ------- -------
Profit (loss) of consolidated companies.................................... 680 (204) (419)
Equity in profit (loss) of affiliated companies (notes 1A and 13).......... 1 (14) 15
------- ------- -------
PROFIT (LOSS) BEFORE EXTRAORDINARY LOSS AND
EFFECTS OF ACCOUNTING CHANGES............................................. 681 (218) (404)
Extraordinary loss on early retirement of debt (note 16)................... (29) - -
Effects of accounting changes (note 2)..................................... - (2,217) -
------- ------- -------
PROFIT (LOSS).............................................................. $ 652 $(2,435) $ (404)
======= ======= =======
PROFIT (LOSS) PER SHARE OF COMMON STOCK:
Profit (loss) before extraordinary loss and effects of accounting changes.. $ 6.72 $ (2.16) $ (4.00)
Extraordinary loss on early retirement of debt............................. (.29) - -
Effects of accounting changes.............................................. - (21.96) -
------- ------- -------
Profit (loss).............................................................. $ 6.43 $(24.12) $ (4.00)
======= ======= =======
Dividends declared per share of common stock................................ $ .60 $ .60 $ 1.05
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-4
<PAGE>
STATEMENT 2 CATERPILLAR INC.
CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31
(Dollars in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK (NOTE 18):
Balance at beginning of year............................... $ 799 $ 798 $ 795
Common shares issued, including treasury shares reissued:
1993 - 909,565; 1992 - 40,464; 1991 - 5,642............... 36 1 3
------ ------- ------
Balance at year-end........................................ 835 799 798
------ ------- ------
PROFIT EMPLOYED IN THE BUSINESS:
Balance at beginning of year............................... 643 3,138 3,648
Profit (loss).............................................. 652 (2,435) (404)
Dividends declared......................................... (61) (60) (106)
------ ------- ------
Balance at year-end........................................ 1,234 643 3,138
------ ------- ------
MINIMUM PENSION LIABILITY ADJUSTMENT (NOTE 5A).............. (40) - -
------ ------- ------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (NOTE 3):
Balance at beginning of year............................... 133 108 97
Aggregate adjustment for year.............................. 37 25 11
------ ------- ------
Balance at year-end........................................ 170 133 108
------ ------- ------
STOCKHOLDERS' EQUITY AT YEAR-END............................ $2,199 $ 1,575 $4,044
====== ======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-5
<PAGE>
STATEMENT 3
FINANCIAL POSITION AT DECEMBER 31
(Dollars in millions)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED
(Caterpillar Inc. and subsidiaries)
-----------------------------------
1993 1992 1991
-----------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments....................................... $ 83 $ 119 $ 104
Receivables--trade and other.......................................... 2,637 2,190 2,009
Receivables--finance (note 10)........................................ 988 758 664
Refundable income taxes (note 9)...................................... -- 86 154
Deferred income taxes and prepaid expenes............................. 838 709 718
Inventories (notes 1C and 11)......................................... 1,525 1,675 1,921
---------------------------------
Total current assets.................................................... 6,071 5,537 5,570
Land, buildings, machinery, and equipment--net (notes 1D and 12)........ 3,827 3,954 4,049
Long-term receivables--trade and other.................................. 132 140 124
Long-term receivables--finance (note 10)................................ 2,152 1,767 1,481
Investments in affiliated companies (notes 1A and 13)................... 395 345 346
Investments in Financial Products subsidiaries.......................... -- -- --
Deferred income taxes (note 9).......................................... 1,321 1,254 --
Intangible assets (note 1E)............................................. 353 357 120
Other assets............................................................ 556 581 352
---------------------------------
TOTAL ASSETS.............................................................. $14,807 $13,935 $12,042
=================================
LIABILITIES
Current liabilities:
Short-term borrowings (note 15)....................................... $ 822 $ 941 $ 474
Accounts payable and accrued expenses................................. 2,055 1,772 1,662
Accrued wages, salaries, and employee benefits........................ 957 828 718
Dividends payable..................................................... 15 15 15
Deferred and current income taxes payable............................. 111 59 109
Long-term debt due within one year (note 16).......................... 711 612 881
---------------------------------
Total current liabilities............................................... 4,671 4,227 3,859
Long-term debt due after one year (note 16)............................. 3,895 4,119 3,892
Liability for postemployment benefits (note 5).......................... 4,018 3,995 86
Deferred income taxes (note 9).......................................... 24 19 161
---------------------------------
TOTAL LIABILITIES......................................................... 12,608 12,360 7,998
---------------------------------
CONTINGENCIES (NOTE 17)
STOCKHOLDERS' EQUITY (STATEMENT 2)
Common stock of $1.00 par value (note 18):
Authorized shares: 200,000,000
Outstanding shares (1993--101,861,828; 1992-100,952,263;
and 1991--100,911,799 [after deducting 501,663; and 542,127
treasury shares for 1992 and 1991, respectively]) at paid-in amount... 835 799 798
Profit employed in the business......................................... 1,234 643 3,138
Minimum pension liability adjustment (note 5A).......................... (40) -- --
Foreign currency translation adjustment (note 3)........................ 170 133 108
---------------------------------
TOTAL STOCKHOLDERS' EQUITY................................................ 2,199 1,575 4,044
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $14,807 $13,935 $12,042
=================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-6
<PAGE>
STATEMENT 3 CATERPILLAR INC.
FINANCIAL POSITION AT DECEMBER 31
(Dollars in millions)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental consolidating data
---------------------------------------------------
MACHINERY AND ENGINES
(Caterpillar Inc. with
Financial Products on
the equity basis) FINANCIAL PRODUCTS
----------------------------------------------------
1993 1992 1991 1993 1992 1991
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments..................................... $ 62 $ 104 $ 79 $ 21 $ 15 $ 25
Receivables--trade and other........................................ 2,612 2,201 2,029 63 56 59
Receivables--finance (note 10)...................................... -- -- -- 988 758 664
Refundable income taxes (note 9).................................... -- 86 154 -- -- --
Deferred income taxes and prepaid expenes........................... 869 734 717 2 1 1
Inventories (notes 1C and 11)....................................... 1,525 1,675 1,921 -- -- --
----------------------------------------------------
Total current assets.................................................. 5,068 4,800 4,900 1,074 830 749
Land, buildings, machinery, and equipment--net (notes 1D and 12)...... 3,456 3,673 3,764 371 281 285
Long-term receivables--trade and other................................ 132 140 124 -- -- --
Long-term receivables--finance (note 10).............................. -- -- -- 2,152 1,767 1,481
Investments in affiliated companies (notes 1A and 13)................. 395 345 346 -- -- --
Investments in Financial Products subsidiaries........................ 457 375 347 -- -- --
Deferred income taxes (note 9)........................................ 1,334 1,269 -- -- -- --
Intangible assets (note 1E)........................................... 353 357 120 -- -- --
Other assets.......................................................... 398 437 164 158 144 184
----------------------------------------------------
TOTAL ASSETS............................................................ $11,593 $11,396 $ 9,765 $ 3,755 $ 3,022 $ 2,699
====================================================
LIABILITIES
Current liabilities:
Short-term borrowings (note 15)..................................... $ 139 $ 398 $ 141 $ 683 $ 543 $ 333
Accounts payable and accrued expenses............................... 1,925 1,669 1,533 201 196 204
Accrued wages, salaries, and employee benefits...................... 955 827 717 2 1 1
Dividends payable................................................... 15 15 15 -- -- --
Deferred and current income taxes payable........................... 71 25 97 40 34 12
Long-term debt due within one year (note 16)........................ 218 120 319 493 492 562
----------------------------------------------------
Total current liabilities............................................. 3,323 3,054 2,822 1,419 1,266 1,112
Long-term debt due after one year (note 16)........................... 2,030 2,753 2,676 1,865 1,366 1,216
Liability for postemployment benefits (note 5)........................ 4,018 3,995 86 -- -- --
Deferred income taxes (note 9)........................................ 23 19 137 14 15 24
----------------------------------------------------
TOTAL LIABILITIES....................................................... 9,394 9,821 5,721 3,298 2,647 2,352
----------------------------------------------------
CONTINGENCIES (NOTE 17)
STOCKHOLDERS' EQUITY (STATEMENT 2)
Common stock of $1.00 par value (note 18):
Authorized shares: 200,000,000
Outstanding shares (1993--101,861,828; 1992--100,952,263;
and 1991--100,911,799 [after deducting 501,663; and 542,127
treasury shares for 1992 and 1991, respectively]) at paid-in amount. 835 799 798 258 238 228
Profit employed in the business....................................... 1,234 643 3,138 206 141 117
Minimum pension liability adjustment (note 5A)........................ (40) -- -- -- -- --
Foreign currency translation adjustment (note 3)...................... 170 133 108 (7) (4) 2
----------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY.............................................. 2,199 1,575 4,044 457 375 347
----------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $11,593 $11,396 $ 9,765 $ 3,755 $ 3,022 $ 2,699
===================================================
</TABLE>
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 note 1A on page A-10 for a definition
of the groupings in these statements.
A-7
<PAGE>
STATEMENT 4
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
(Millions of dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED
(Caterpillar Inc. and subsidiaries)
-----------------------------------
1993 1992 1991
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit (loss)......................................................... $ 652 $(2,435) $ (404)
Adjustments for noncash items:
Depreciation and amortization....................................... 668 654 602
Effects of accounting changes, net of tax........................... -- 2,217 --
Gain on sale of lift truck assets................................... -- (53) --
Nonrecurring charges, net of current year cash payments............. (25) (19) 356
Profit of Financial Products........................................ -- -- --
Other............................................................... (128) 15 (67)
Changes in assets and liabilities:
Receivables--trade and other.......................................... (524) (251) 190
Inventories........................................................... 154 188 189
Accounts payable and accrued expenses................................. 315 165 (57)
Other--net............................................................ 293 22 (168)
-----------------------------------
Net cash provided by operating activities............................... 1,405 503 641
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--excluding equipment leased to others............ (417) (515) (653)
Expenditures for equipment leased to others........................... (215) (125) (121)
Proceeds from disposals of land, buildings, machinery, and equipment.. 90 57 55
Proceeds from sale of lift truck assets............................... -- 141 --
Additions to finance receivables...................................... (2,204) (1,601) (1,269)
Collections of finance receivables.................................... 1,389 1,198 999
Other--net............................................................ (41) (78) (87)
-----------------------------------
Net cash used for investing activities.................................. (1,218) (923) (1,076)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................................ (61) (60) (121)
Common stock issued, including treasury shares reissued............... 36 1 --
Proceeds from long-term debt issued................................... 1,218 1,044 1,573
Payments on long-term debt............................................ (936) (1,140) (481)
Short-term borrowings--net............................................ (451) 585 (560)
-----------------------------------
Net cash provided by financing activities............................... (194) 430 411
-----------------------------------
Effect of exchange rate changes on cash................................. (29) 5 18
-----------------------------------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS.................. (36) 15 (6)
Cash and short-term investments at the beginning of the period.......... 119 104 110
-----------------------------------
Cash and short-term investments at the end of the period................ $ 83 $ 119 $ 104
===================================
</TABLE>
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.
A-8
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental consolidating data
------------------------------------------------------------
Machinery and Engines
(Caterpillar Inc. with Financial
Products on the equity basis) Financial Products
------------------------------------------------------------
1993 1992 1991 1993 1992 1991
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit (loss)........................................................ $ 652 $(2,435) $(404) $ 43 $ 39 $ 32
Adjustments for noncash items:
Depreciation and amortization....................................... 598 591 548 70 63 54
Effects of accounting changes, net of tax........................... -- 2,220 -- -- (3) --
Gain on sale of lift truck assets................................... -- (53) -- -- -- --
Nonrecurring charges, net of current year cash payments............. (25) (19) 356 -- -- --
Profit of Financial Products........................................ (43) (39) (32) -- -- --
Other............................................................... (176) 14 (55) 48 1 (12)
Changes in assets and liabilities:
Receivables--trade and other......................................... (488) (242) 168 (7) 3 (22)
Inventories.......................................................... 154 188 189 -- -- --
Accounts payable and accrued expenses................................ 322 183 (93) (28) -- 45
Other--net........................................................... 279 (26) (174) 5 22 6
------------------------------------------------------------
Net cash provided by operating activities............................. 1,273 382 503 131 125 103
------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--excluding equipment leased to others........... (415) (513) (650) (2) (2) (3)
Expenditures for equipment leased to others.......................... (12) (6) (5) (203) (119) (116)
Proceeds from disposals of land, buildings, machinery, and equipment. 57 26 35 33 31 20
Proceeds from sale of lift truck assets.............................. -- 141 -- -- -- --
Additions to finance receivables..................................... -- -- -- (2,024) (1,601) (1,269)
Collections of finance receivables................................... -- -- -- 1,389 1,198 999
Other--net........................................................... (85) (118) (24) 15 41 (38)
------------------------------------------------------------
Net cash used for investing activities................................ (455) (470) (644) (792) (452) (407)
------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid....................................................... (61) (60) (121) -- (15) --
Common stock issued, including treasury shares reissued.............. 36 1 -- 30 10 10
Proceeds from long-term debt issued.................................. 201 427 882 1,017 617 691
Payments on long-term debt........................................... (419) (572) (70) (517) (568) (411)
Short-term borrowings--net........................................... (620) 310 (563) 169 275 3
------------------------------------------------------------
Net cash provided by financing activities............................. (863) 106 128 699 319 293
------------------------------------------------------------
Effect of exchange rate changes on cash............................... 3 7 18 (32) (2) --
------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS................ (42) 25 5 6 (10) (11)
Cash and short-term investments at the beginning of the period........ 104 79 74 15 25 36
------------------------------------------------------------
Cash and short-term investments at the end of the period.............. $ 62 $ 104 $ 79 $ 21 $ 15 $ 25
============================================================
</TABLE>
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 note 1A on page A-10 for a definition
of the groupings in these statements.
A-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF CONSOLIDATION
The accompanying financial statements include the accounts of Caterpillar Inc.
and all its subsidiaries.
Affiliated companies (50% interest or less) are accounted for by the equity
method. Accordingly, the company's share of the affiliates' profit or loss is
included in Statement 1 as "Equity in profit (loss) of affiliated companies" and
the company's investments in these affiliates, including its share of their
retained profits, are included in Statement 3 as "Investments in affiliated
companies." Financial information of the affiliated companies is included in
note 13.
Information in the accompanying financial statements and supplemental
consolidating data, where applicable, has been grouped as follows:
CONSOLIDATED - represents the consolidated data of Caterpillar Inc. and
subsidiaries, in accordance with Statement of Financial Accounting Standards
(SFAS) 94.
MACHINERY AND ENGINES - company operations excluding the Financial Products
subsidiaries; consists primarily of the company's manufacturing, marketing, and
parts distribution operations.
FINANCIAL PRODUCTS - the company's finance and insurance subsidiaries,
primarily Caterpillar Financial Services Corporation and Caterpillar Insurance
Co. Ltd.
Certain amounts for prior years have been reclassified to conform with the
current year financial statement presentation.
B. SALES AND REVENUE RECOGNITION
Sales of machines and engines are generally unconditional sales that are
recorded after product is shipped and invoiced to independently owned and
operated dealers or customers.
Revenues primarily represent finance and rental revenues of Caterpillar
Financial Services Corporation, a wholly owned subsidiary of Caterpillar Inc.
Finance revenues are recognized over the term of the contract at a constant rate
of return on the scheduled uncollected principal balance, and rental revenues
are recognized in the period earned. Recognition of income is suspended when
collection of future income is not probable. Income recognition is resumed if
the receivable becomes contractually current and collection doubts are removed;
previously suspended income is recognized at that time.
C. INVENTORIES
The cost of inventories is determined principally by the LIFO (last-in, first-
out) method of inventory valuation. This method was first adopted for the major
portion of inventories in 1950. The value of inventories on the LIFO basis
represented approximately 90% of total inventories at current cost value on
December 31, 1993, 1992, and 1991.
If the FIFO (first-in, first-out) method had been in use, inventories would
have been $1,818, $1,950, and $1,971 higher than reported at December 31, 1993,
1992, and 1991, respectively.
D. DEPRECIATION
Depreciation is computed principally using accelerated methods. These methods
result in a larger allocation of the cost of buildings, machinery, and equipment
to operations in the early years of the lives of assets than does the straight-
line method, which allocates costs evenly over the lives of assets.
When an asset becomes fully depreciated, its cost is eliminated from both the
asset and the accumulated depreciation accounts.
E. AMORTIZATION
The cost of purchased intangibles is amortized using the straight-line method.
Amortization periods are based on estimated remaining useful lives which, at
December 31, 1993, averaged 20 years. Accumulated amortization was $178, $172,
and $162, at December 31, 1993, 1992, and 1991, respectively.
When a purchased intangible becomes fully amortized, its cost is eliminated
from the reported accumulated amortization.
2. ACCOUNTING CHANGES
Effective January 1, 1992, the company adopted SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions"; SFAS 112, "Employers'
Accounting for Postemployment Benefits"; and SFAS 109, "Accounting for Income
Taxes." The effect of these changes, as of January 1, 1992, was as follows:
<TABLE>
<CAPTION>
Profit
(loss)
per share
Profit of common
(loss) stock
-------- ----------
<S> <C> <C>
Postretirement benefits other than pensions,
net of applicable income taxes (note 5B)..... $(2,141) $(21.21)
Postemployment benefits, net of applicable
income taxes (note 5C)....................... (29) (.29)
Income taxes (note 9)......................... (47) (.46)
------- -------
$(2,217) $(21.96)
------- -------
</TABLE>
In addition to the transition effects, incremental expense for 1992 resulting
from the accounting changes was $117 before tax, $28 after tax, and $.28 per
share.
3. FOREIGN EXCHANGE
The U.S. dollar is the functional currency for substantially all of
Caterpillar's consolidated companies. The functional currency for equity-basis
companies is the local currency of the country in which the company is located.
Net foreign exchange gains or losses for companies with the U.S. dollar as their
functional currency are included in "Other income" in Statement 1, except as
noted below. For all other companies, the exchange effects from translating all
assets and liabilities at current exchange rates are reported as "Foreign
currency translation adjustment" in Statements 2 and 3.
Net foreign exchange gains arising from operations in Brazil's highly
inflationary economy are removed from "Other income" in Statement 1 and included
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 and interest income, respectively.
Similarly, exchange gains on local currency liabilities subject to monetary
correction are offset against the related expense. Exchange gains were
reclassified as follows:
A-10
<PAGE>
CATERPILLAR INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest expense............ $ 72 $102 $ 57
Cost of goods sold.......... 33 15 14
Provision for income taxes.. 11 4 4
---- ---- ----
$116 $121 $ 75
---- ---- ----
</TABLE>
Profit of consolidated companies for 1993, 1992, and 1991 included net foreign
exchange gains (losses) of $(25), $(5), and $9, respectively. The respective
aftertax net gains (losses) were $(19), $3, and $22. Certain gains or losses may
impact either taxes or pretax income, when stated in U.S. dollars, without
impacting the other and; accordingly, the relationship between the pretax and
aftertax effects may be disproportionate.
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. The gains and losses on these contracts are included in income when
the operating revenues and expenses are recognized and, for assets and
liabilities, in the period in which the exchange rates change. The cash flows
from forward and option contracts accounted for as hedges of identifiable
transactions or events are classified consistent with the cash flows from the
transactions or events being hedged. Prior to 1992, the company also entered
into option contracts and combination option contracts that were designated and
effective as hedges of probable anticipated, but not firmly committed, foreign
currency transactions. Gains and losses on such transactions were deferred and
recognized in income in the same period as the hedged transaction. Although the
company continues to enter into option contracts and combination option
contracts to hedge future currency transactions, their use is limited to
situations in which, according to current accounting requirements, gains and
losses may be deferred and recognized concurrent with the hedged transaction.
At December 31, 1993, 1992, and 1991, the company had approximately $1,345,
$1,705, and $2,375, respectively, in contracts to buy or sell foreign currency
in the future. At December 31, 1993 and 1992, the carrying value of such
contracts was an asset (liability) of $(2) and $10 and the fair value, based on
quoted market prices of comparable instruments, was a liability of $16 and $70,
respectively. The value of the contracts upon ultimate settlement is dependent
upon actual currency exchange rates at the various maturity dates, which range
through 1995.
There were no option contracts hedging anticipated transactions at December
31, 1993 or 1992. Included in the total contracts outstanding at December 31,
1991, were $40 of option contracts hedging anticipated sales denominated in
foreign currencies. The net gain deferred on such contracts as of December 31,
1991, totaled $5.
4. RESEARCH AND ENGINEERING EXPENSES
Research and engineering expenses are charged against operations as incurred.
The portions of these expenses related to new product development and major
improvements to existing products are classified as "Research and development
expenses" in Statement 1. The remaining portions, attributable to engineering
expenses incurred during the early production phase, as well as ongoing efforts
to improve existing products, are included in "Cost of goods sold" in Statement
1.
5. POSTEMPLOYMENT BENEFIT PLANS
A. PENSION PLANS
The company has pension plans covering substantially all employees. These
defined benefit plans provide a benefit based on years of service and/or the
employee's average earnings near retirement. Pension expense for 1993, 1992, and
1991 was $95, $72, and $43, respectively. The company's funding policy for these
plans is to contribute amounts which comply with applicable laws and regulations
and are tax deductible.
Cost components of consolidated pension expense were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
Service cost - benefits earned
during the period.............. $ 103 $ 96 $ 91
Interest cost on projected
benefit obligation.............. 387 366 346
Return on plan assets:/(1)/
Actual..................... $(674) $(553) $(672)
Deferred................... 248 138 264
----- ----- -----
Recognized...................... (426) (415) (408)
Amortization of:
Net asset existing at
adoption of SFAS 87............ (22) (24) (24)
Prior service cost/(2)/......... 51 47 38
Net actuarial (gain) loss....... 2 2 -
----- ----- -----
Pension expense/(3)/............ $ 95 $ 72 $ 43
----- ----- -----
</TABLE>
/(1)/ Although the actual return on plan assets is shown, the expected long-term
rate of return on plan assets of 9.9%, 9.9%, and 9.6% was used in
determining consolidated pension expense for 1993, 1992, and 1991,
respectively. The difference between the actual return and the recognized
return on plan assets is shown as deferred return on plan assets.
/(2)/ Prior service costs are amortized using a straight-line method over the
average remaining service period of employees expected to receive
benefits from the plan amendment.
/(3)/ 1991 pension expense excludes pension expense of $51 and a gain on
curtailment of $16 related to the probable closing of the company's York,
Pennsylvania, facility (note 6).
A reconciliation of the funded status of both U.S. and non-U.S. pension plans
at their plan year-end (November 30 for U.S. plans and September 30 for non-U.S.
plans) with the amount recognized in Statement 3 is presented in Table I on page
A-12.
For certain pension plans with accumulated benefits in excess of plan assets,
an additional long-term liability was recorded as required by SFAS 87. This
amount is included in Table I as "Adjustment required to recognize minimum
liability." A related intangible asset of $323, $329, and $86 was recorded at
December 31, 1993, 1992, and 1991. As the intangible asset may not exceed
unrecognized prior service cost, at December 31, 1993, this adjustment resulted
in a reduction to stockholders' equity of $40 (after deferred taxes of $24).
Plan assets consist principally of common stocks, corporate bonds, and U.S.
government obligations. The actuarial present value of benefits was determined
using a weighted average discount rate of 7.3%, 7.9%, and 8.4% for 1993, 1992,
and 1991, respectively. The projected benefit, for those plans with benefit
payments based upon earnings near retirement, includes an
A-11
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE I
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------- ------------------------- -------------------------
Assets Accumulated Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets Benefits Assets
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation..................... $(2,453) $(2,047) $(2,197) $(1,838) $(2,001) $(1,236)
Nonvested benefit obligation................... (190) (476) (181) (482) (205) (532)
------- ------- ------- ------- ------- -------
Accumulated benefit obligation................. $(2,643) $(2,523) $(2,378) $(2,320) $(2,206) $(1,768)
======= ======= ======= ======= ======= =======
Actuarial present value of projected benefit
obligation.................................... $(2,928) $(2,587) $(2,699) $(2,395) $(2,629) $(1,781)
Plan assets at market value.................... 3,257 1,922 2,999 1,800 2,906 1,504
------- ------- ------- ------- ------- -------
Funded status at plan year-end................. 329 (665) 300 (595) 277 (277)
Unrecognized net asset existing at adoption of
SFAS 87....................................... (160) 13 (192) 18 (186) (24)
Unrecognized prior service cost................ 115 351 125 402 93 200
Unrecognized net actuarial (gain) loss......... (124) 63 (96) (37) (87) (77)
Adjustment required to recognize minimum
liability..................................... - (387) - (329) - (86)
------- ------- ------- ------- ------- -------
Prepaid pension cost (pension liability) at
December 31................................... $ 160 $ (625) $ 137 $ (541) $ 97 $ (264)
======= ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
expected annual rate of increase in future compensation of 4.1%, 5.0%, and 6.0%
for 1993, 1992, and 1991, respectively.
A point-in-time comparison of the projected benefit obligation to the market
value of assets is only one indicator of the pension plans' ability to pay
benefits when due. The benefit information is based on estimated conditions over
many future years, while the asset information relates to market values
prevailing at a specific moment. The plans' long-range ability to pay benefits
also depends on the future financial health of the company.
B. Other postretirement benefit plans
The company has defined benefit retirement health care and life insurance plans
for substantially all U.S. employees. Most of the plans are non-contributory
although some plans require retiree contributions. Effective January 1, 1992,
the company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS 106 requires recognition of the cost of providing
postretirement health care and life insurance benefits over the employee service
period. Caterpillar, like most U.S. companies, formerly charged the cost of
providing these benefits against operations as claims were incurred. This
standard does not affect cash flow, but merely accelerates recognition of costs.
The company recognized the liability for past service (the transition
obligation) as of January 1, 1992, of $2,141, net of income taxes of $1,247, as
a one-time charge to earnings.
During the second quarter of 1992, the company announced several changes to
its retiree health care plans. Among the changes was the establishment of
contractual agreements with certain health care providers at most U.S. locations
in which the company operates. The agreements set base prices for certain
medical procedures and limit future inflationary increases. In addition,
eligibility requirements for plan benefits based on age and years of service
were established. During the fourth quarter of 1992, limits were placed on the
company's contribution to substantially all future retirees' health care
benefits. Such limits will be effective January 1, 2000.
Cost components of postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Service cost - benefits earned during the period.. $ 79 $ 98
Interest cost on accumulated benefit obligation... 227 260
Amortization of:
Prior service cost /(1)/........................ (189) (104)
Net actuarial (gain) loss....................... 1 -
----- -----
Postretirement benefit expense.................... $ 118 $ 254
===== =====
</TABLE>
/(1)/ Prior service costs are amortized using a straight-line method over the
average remaining service period of employees impacted by the plan
amendment.
The company makes contributions to Voluntary Employees' Beneficiary
Association (VEBA) trusts for payment of certain employee benefits for
substantially all active and retired U.S. employees. In accordance with the
company's prior accounting policy, trust assets and earnings were not previously
reflected in the company's financial statements. In conjunction with the
adoption of SFAS 106, the fair value of previously unrecognized trust assets of
$201 for future retiree health care and life insurance benefits were recorded as
investments and as a liability for postretirement benefits. The SFAS 106
transition obligation is the accumulated postretirement benefit obligation at
January 1, 1992, less the amount recognized from trust assets. Trust assets are
reflected in Statement 3 as a component of "Other assets." 1993 and 1992
earnings from trust assets of $34 and $17, respectively are included in
Statement 1 as a component of "Other income" (note 8). As of December 31, 1993
and 1992, the carrying value of trust assets was $220 and $232, respectively.
The components of the liability for postretirement benefits (other than
pensions) as of December 31, were as follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................... $(1,965) $(1,820)
Fully eligible active plan participants....... (323) (370)
Other active plan participants................ (722) (699)
------- -------
(3,010) (2,889)
Unrecognized prior service cost................. (861) (1,029)
Unrecognized net actuarial (gain) loss.......... 132 161
------- -------
Liability for postretirement benefits
(other than pensions)......................... $(3,739) $(3,757)
======= =======
</TABLE>
A-12
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation at December 31, 1993, was 10.2% for 1994,
declining gradually to 4.5% in 2001. Postretirement benefit expense for 1993 and
the accumulated postretirement benefit obligation at December 31, 1992, were
determined using a health care cost trend rate of 11.5% for 1993, declining
gradually to 5.0% in 2001. Postretirement benefit expense for 1992 was
determined using a health care cost trend rate of 12% for 1993, declining
gradually to 5.5% in 2001. Increasing the assumed health care trend rate by 1%
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1993 and 1992, by approximately $234, and $279, respectively, and
the aggregate of the service and interest cost components of 1993 and 1992
postretirement benefit expense by approximately $25 and $62, respectively. The
accumulated postretirement benefit obligation was determined using a weighted
average discount rate of 7.4% and 8.0% for 1993 and 1992, respectively.
The adoption of SFAS 106 decreased 1992 earnings before effects of accounting
changes by $113 before tax, $65 after tax, and $.64 per share. As previously
stated, prior to 1992, the cost of providing such benefits was charged against
operations as claims were incurred. For 1991, these costs totaled $101.
C. OTHER POSTEMPLOYMENT BENEFIT PLANS
The company offers various other postemployment benefits to substantially all
U.S. employees. These benefits are provided to former or inactive employees
after employment but before retirement. Inactive employees are those who are not
currently rendering service but have not been terminated, excluding those who
have not been terminated but have been laid off for greater than one year.
Postemployment benefits include disability benefits, supplemental unemployment
benefits, workers' compensation benefits, and continuation of health care
benefits and life insurance coverage.
Effective January 1, 1992, the company adopted SFAS 112, "Employers'
Accounting for Postemployment Benefits." SFAS 112 requires recognition of the
cost of providing postemployment benefits when it is probable that such benefits
will be provided, generally when the employee becomes inactive. The company
previously accounted for certain types of these benefits, primarily disability
benefits and continuation of health care benefits, on a pay-as-you-go basis.
As of January 1, 1992, the effect of adopting SFAS 112 was a charge to
earnings of $29, net of income taxes of $17. The adoption of the standard
decreased 1992 earnings before effects of accounting changes by $11 before tax,
$7 after tax, and $.07 per share.
D. SUMMARY
The components of the long-term liability for postemployment benefits at
December 31 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ -----
<S> <C> <C> <C>
Pensions..................................... $ 387 $ 329 $ 86
Postretirement benefits other than pensions.. 3,566 3,598 -
Other postemployment benefits................ 65 68 -
------ ------ -----
$4,018 $3,995 $ 86
------ ------ -----
</TABLE>
6. PROVISION FOR PLANT CLOSING AND CONSOLIDATION COSTS
In 1991, the company recorded provisions for plant closing and consolidation
costs totaling $262. Included in this total are charges related to the probable
closing of the company's York, Pennsylvania, facility; the consolidation of the
North American operations of the Building Construction Products Division; the
consolidation of the company's Brazilian operations at its facility in
Piracicaba; and charges to reflect lower estimates of the market value of
previously closed U.S. facilities.
In April 1991, the company announced plans to consolidate the North American
operations of the Building Construction Products Division at a new facility in
Clayton, North Carolina. As a part of the consolidation, the company's Brampton,
Ontario, Plant was closed during the year.
In December 1991, the company announced the probable closing of the Component
Products Division's York, Pennsylvania, facility. The company has determined
that unless significant cost reductions are made, the unit will be closed. The
company has notified the United Auto Workers union, which represents
approximately 1,200 of the 1,500 active employees of the York facility, of its
willingness to negotiate a labor agreement that would allow the unit to remain
open.
The charge related to Brazil resulted from the planned consolidation of all
Brazilian operations; which include manufacturing, parts distribution, and
office functions, at the company's existing Piracicaba facility, and the planned
closing of the facility in Sao Paulo.
These provisions include the estimated costs of employee severance benefits,
the estimated net losses on disposal of land, buildings, machinery, and
equipment, and other costs incidental to the closing and planned consolidation
processes.
The noncash portion of the provision for plant closings, as well as the other
nonrecurring charges, are included in Statement 4 in the line titled
"Nonrecurring charges, net of current year cash payments."
7. SALE OF LIFT TRUCK ASSETS
In July 1992, the company formed three lift truck joint ventures with Mitsubishi
Heavy Industries, Ltd. (MHI). The joint ventures are known as Mitsubishi
Caterpillar Forklift (MCF) America Inc., MCF Asia Pte Ltd, and MCF Europe B.V.
MHI owns 80% of each joint venture; the company owns 20% of each. The joint
venture companies design, manufacture and distribute lift trucks, other
materials handling equipment, and related parts. The company received $141 in
cash for assets sold to the joint ventures. A pretax gain of $53 was recognized
from the sales in 1992. The gain, which includes $51 resulting from liquidations
of inventory valued on a LIFO basis, is net of related disposal costs.
8. OTHER INCOME
The components of other income were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Foreign exchange gains (losses).. $(25) $ (5) $ 9
Investment and interest income... 97 78 54
License fees..................... 28 32 40
Miscellaneous income (expense)... 13 (10) (25)
---- ---- ----
$113 $ 95 $ 78
==== ==== ====
</TABLE>
A-13
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
9. INCOME TAXES
Effective January 1, 1992, the company adopted SFAS 109, "Accounting for
Income Taxes." Prior years' financial statements have not been restated. For
years prior to 1992, income taxes were computed based on Accounting Principles
Board Opinion (APB) 11. Net assets as of January 1, 1992, were reduced by $47 as
a result of the adoption of SFAS 109. Except for a $7 reduction to translation
loss, adoption of SFAS 109 had no effect on 1992 pretax income from continuing
operations. The 1992 credit for income taxes was $37 larger than the amount
which would have resulted from applying APB 11. Additionally, tax credit of $52
was recorded in 1992 based on current year expense under SFAS 106 and 112. This
credit would not have been recorded under APB 11.
The provision (credit) for income taxes for the years ended December 31 was:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Machinery and Engines................ $ 19 $(131) $(170)
Financial Products................... 23 17 18
----- ----- -----
Provision (credit) for income taxes.. $ 42 $(114) $(152)
===== ===== =====
</TABLE>
The components of the provision (credit) for income taxes were as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Current tax provision (credit):
U.S. federal taxes................. $ 63 $ (63) $ (53)
Foreign taxes...................... 25 28 15
U.S. state taxes................... 10 (2) (2)
----- ----- -----
98 (37) (40)
----- ----- -----
Deferred tax provision (credit):
U.S. federal taxes................. (51) (61) (102)
Foreign taxes...................... (2) (1) (1)
U.S. state taxes................... (3) (15) (9)
----- ----- -----
(56) (77) (112)
----- ----- -----
Total provision (credit) for
income taxes....................... $ 42 $(114) $(152)
===== ===== =====
</TABLE>
Current tax provision (credit) is the amount of income taxes reported or
expected to be reported on the company's tax returns.
Income taxes paid (refunded) in 1993, 1992, and 1991 totaled $10, $(26), and
$48, respectively.
During 1993, the company reached a settlement with the U.S. Internal Revenue
Service (IRS) covering tax years 1979 through 1987. As a result of this
settlement, credits of $134 and $10 were recorded to U.S. federal and U.S. state
taxes, respectively. Net interest income associated with the settlement was $251
upon which U.S. federal taxes of $88 and U.S. state taxes of $7 were provided.
Refundable income taxes of $86 at December 31, 1992 resulted from the
carryback of tax credits from prior years for U.S. federal income tax purposes.
Refunds related to these carrybacks were received in connection with the IRS
settlement. No refundable income taxes were recorded at December 31, 1993.
In August 1993, the U.S. federal income tax rate for corporations was
increased from 34% to 35% effective January 1, 1993. As a result of the rate
increase, net U.S. deferred tax assets were increased $36, and a credit of the
same amount was recorded to the 1993 provision for income taxes.
Differences between accounting rules and tax laws cause differences between
the bases of certain assets and liabilities for financial reporting purposes and
tax purposes. The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities under SFAS 109,
and consisted of the following components at December 31:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
U.S. federal, U.S. state, and foreign taxes:
Deferred tax assets:
Postemployment benefits other than pensions.. $1,345 $1,316
Inventory valuation method................... 66 71
Unrealized profit excluded from inventories.. 193 209
Plant closing and consolidation costs........ 58 69
Net operating loss carryforwards............. 253 239
Warranty reserves............................ 67 50
Accrued vacation............................. 29 30
Qualified deficits........................... 54 40
Foreign tax credit carryforwards............. 62 11
Minimum tax credit carryforwards............. 18 30
Other........................................ 126 40
------ ------
2,271 2,105
Deferred tax liabilities:
Capital assets............................... (77) (68)
Pension...................................... (22) (49)
------ ------
(99) (117)
------ ------
Valuation allowance for deferred tax assets... (284) (265)
------ ------
Deferred taxes -- net......................... $1,888 $1,723
====== ======
</TABLE>
From December 31, 1992, to December 31, 1993, the valuation allowance for
deferred tax assets increased by $19. This was the result of origination and
reversal of temporary differences, and changes in exchange rates, at certain
foreign locations where valuation allowances are recorded. During 1993, no
changes occurred in the conclusions regarding the need for a valuation allowance
in any tax jurisdictions.
SFAS 109 requires that individual tax paying entities of the company offset
all current deferred tax liabilities and assets within each particular tax
jurisdiction and present them as a single amount in the Statement of Financial
Position. A similar procedure is followed for all noncurrent deferred tax
liabilities and assets. Amounts in different tax jurisdictions cannot be offset
against each other. After offsetting all appropriate amounts, deferred taxes
appear in Statement 3, at December 31, on the following lines:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
ASSETS:
Deferred income taxes and prepaid expenses. $ 584 $ 491
Deferred income taxes...................... 1,321 1,254
------ ------
1,905 1,745
------ ------
Liabilities:
Deferred and current income taxes payable.. (2) (3)
Deferred income taxes...................... (15) (19)
------ ------
(17) (22)
------ ------
Deferred taxes -- net....................... $1,888 $1,723
====== ======
</TABLE>
For 1991, the tax effect of timing differences under APB 11 represented
deferred income tax provision (credit) reported in the financial statements
because the following items were recognized in the results of operations in
different years than in the tax returns:
A-14
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
U.S. federal, U.S. state, and foreign taxes:
Asset lives used for determining depreciation.. $ 1
Unrealized profit excluded from inventories.... (5)
Inventory capitalization....................... -
Plant closing and consolidation costs.......... (83)
Pension expense................................ 10
General insurance liability.................... (12)
Other - net.................................... (23)
-----
Deferred tax provision (credit)................ $(112)
=====
</TABLE>
The provision (credit) for income taxes was different than would result from
applying the U.S. statutory rate to profit (loss) before taxes for the reasons
set forth in the following reconciliation:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Taxes computed at U.S. statutory rates.......... $ 253 $(108) $(194)
Increases (decreases) in taxes resulting from:
Subsidiaries' results subject to tax rates
other than U.S. statutory rates................ (9) 67 71
Benefit of Foreign Sales Corporation........... (21) (20) (11)
Foreign exchange............................... 3 (7) (16)
Qualified deficits............................. (12) (21) -
IRS settlement................................. (144) - -
Change in U.S. tax rate........................ (36) - -
State income taxes - net of federal taxes...... 11 (11) (7)
Research and experimentation credit............ (4) - -
Other - net.................................... 1 (14) 5
----- ----- -----
Provision (credit) for income taxes............. $ 42 $(114) $(152)
===== ===== =====
</TABLE>
U.S. income taxes, net of foreign taxes paid or payable, have been provided on
the undistributed profits of subsidiaries and affiliated companies, except in
those instances where such profits have been permanently invested and are not
considered to be available for distribution to the parent company. In accordance
with this practice, the consolidated "Profit employed in the business" in
Statement 3 at December 31, 1993 and 1992 included the company's share of
undistributed profits of subsidiaries and affiliated companies, totaling $680
and $718, respectively, on which U.S. income taxes, net of foreign taxes paid or
payable, have not been provided. If for some reason not presently contemplated,
such profits were to be remitted or otherwise become subject to U.S. income
taxes, available credits would reduce the amount of taxes otherwise due.
Determination of the amount of unrecognized deferred tax liability related to
these permanently invested profits is not practicable.
The domestic and foreign components of profit (loss) before taxes of
consolidated companies were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ----- -----
<S> <C> <C> <C>
Domestic....................... $611 $(215) $(491)
Foreign........................ 111 (103) (80)
----- ----- -----
$ 722 $(318) $(571)
===== ===== =====
</TABLE>
The foreign component of profit before taxes comprises the profit of all
consolidated subsidiaries located outside the United States. This profit
information differs from that reported in note 22B, which shows operating profit
for foreign geographic segments based only on the company's manufacturing and
financing operations located outside the United States.
Taxation of a multinational company involves many complex variables, such as
differing tax structures from country to country and the effect of U.S. taxation
of foreign profits. These complexities do not permit meaningful comparisons of
the U.S. and foreign components of profit before taxes and the provision for
income taxes. Additionally, current relationships between the U.S. and foreign
components are not reliable indicators of such relationships in future periods.
Net operating loss carryforwards were available in various foreign tax
jurisdictions at December 31, 1993. The amounts and expiration dates of these
carryforwards are as follows:
<TABLE>
<S> <C>
1994....................................... $ 4
1995....................................... 4
1996....................................... 4
1997....................................... 101
1998....................................... 3
1999....................................... 23
Unlimited.................................. 474
----
Total...................................... $613
====
</TABLE>
A valuation allowance has been recorded for all of the deferred tax assets
related to these carryforwards to the extent the assets are not offset with
deferred tax liabilities in the same tax jurisdiction. For United States federal
tax purposes, the company was not in a net operating loss carryforward position.
Additionally, qualified deficits of $153, as defined by Internal Revenue Code
section 952, are available for an indefinite future period to offset the future
profits of certain foreign entities whose earnings are subject to U.S. taxation
when earned.
The following tax credit carryforwards were available in the United States at
December 31, 1993:
<TABLE>
<CAPTION>
Expiration
Amount Date
------ ----------
<S> <C> <C>
Minimum Tax Credit........................ $18 Unlimited
Regular Foreign Tax Credit................ 62 1995-1998
</TABLE>
10. FINANCE RECEIVABLES
Finance receivables are receivables of Caterpillar Financial Services
Corporation, which generally may be repaid or refinanced without penalty prior
to contractual maturity. Contractual maturities of outstanding receivables at
December 31, 1993, were:
<TABLE>
<CAPTION>
Installment Financing
Amounts Due In Contracts Leases Notes Total
- -------------- ----------- --------- ------ ------
<S> <C> <C> <C> <C>
1994....................... $ 416 $ 392 $ 362 $1,170
1995....................... 304 297 288 889
1996....................... 190 198 220 608
1997....................... 71 117 115 303
1998....................... 14 56 123 193
Thereafter................. 1 75 70 146
----- ------ ------ ------
996 1,135 1,178 3,309
Residual value............. - 220 - 220
Less: Unearned Income...... (119) (229) - (348)
----- ------ ------ ------
Total...................... $ 877 $1,126 $1,178 $3,181
===== ====== ====== ======
</TABLE>
Total finance receivables reported in Statement 3 are net of an allowance for
credit losses. Activity relating to the allowance was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year........ $ 37 $ 31 $ 31
Provision for credit losses......... 20 20 13
Less: Receivables, net of
recoveries, written off............. (19) (14) (13)
Other - net......................... 3 - -
---- ---- ----
Balance at end of year.............. $ 41 $ 37 $ 31
==== ==== ====
</TABLE>
A-15
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
At December 31, 1993 and 1992, the fair value of finance receivables
(excluding tax-oriented leases classified as finance receivables with net
carrying value of $333 and $272, respectively) was $2,822 and $2,275,
respectively. Fair value was estimated by discounting the future cash flows
using the current rates at which receivables of similar remaining maturities
would be entered into. Historical bad debt experience was also considered.
Cat Financial's "Net investment in financing leases" at December 31 consisted
of the following components:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Total minimum lease payments receivable.... $1,135 $ 982 $ 893
Estimated residual value of leased assets:
Guaranteed............................... 71 55 65
Unguaranteed............................. 149 124 98
------ ------ ------
1,355 1,161 1,056
Less: Unearned income...................... 229 212 182
------ ------ ------
Net investment in financing leases......... $1,126 $ 949 $ 874
====== ====== ======
</TABLE>
11. INVENTORIES
Inventories at December 31, by major classification, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Raw materials and work-in-process.......... $ 545 $ 505 $ 604
Finished goods............................. 812 1,006 1,150
Supplies................................... 168 164 167
------ ------ ------
$1,525 $1,675 $1,921
====== ====== ======
</TABLE>
Reductions in LIFO inventories decreased cost of goods sold for 1993, 1992,
and 1991 by $38, $30, and $23, respectively.
The company has entered into commodity price swap and option agreements to
reduce the company's exposure to changes in the price of material purchased from
various suppliers resulting from underlying commodity price changes. The results
of these hedging transactions become a part of the cost of the related inventory
transactions. At December 31, 1993, 1992, and 1991, the company had entered into
contracts hedging future commodity purchases of approximately $29, $37, and $13,
respectively. At December 31, 1993, the carrying value of the contracts was
approximately zero, and the fair value, based on quoted market prices, was a
liability of $4. At December 31, 1992, both the carrying value and the fair
value were approximately zero.
12. LAND, BUILDINGS, MACHINERY, AND EQUIPMENT
Land, buildings, machinery, and equipment at December 31, by major
classification, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
Land - at original cost.................... $ 105 $ 109 $ 110
Buildings.................................. 2,485 2,479 2,433
Machinery and equipment.................... 3,594 3,458 3,428
Patterns, dies, jigs, etc.................. 428 405 411
Furniture and fixtures..................... 613 589 572
Transportation equipment................... 28 27 37
Equipment leased to others................. 536 429 430
Construction-in-process.................... 176 346 369
------- ------- -------
7,965 7,842 7,790
Accumulated depreciation................... (4,138) (3,888) (3,741)
------- ------- -------
Land, buildings, machinery, and
equipment - net............................ $ 3,827 $ 3,954 $ 4,049
======= ======= =======
</TABLE>
The company had commitments for the purchase or construction of capital assets
of approximately $165 at December 31, 1993. Capital expenditure plans are
subject to continuous monitoring, and changes in such plans could reduce the
amount committed.
Maintenance and repair expense for 1993, 1992, and 1991 was $458, $451, and
$466, respectively.
EQUIPMENT LEASED TO OTHERS
Equipment leased to others, primarily of Caterpillar Financial Services
Corporation, consisted of the following components at December 31:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Equipment leased to others - at cost...... $536 $429 $430
Less:
Accumulated depreciation.................. 150 134 129
---- ---- ----
Equipment leased to others - net.......... $386 $295 $301
==== ==== ====
</TABLE>
Scheduled minimum rental payments to be received for equipment leased to
others during each of the years 1994 through 1998, and in total thereafter, are
$106, $86, $58, $31, $17, and $9, respectively.
13. AFFILIATED COMPANIES
The company's investments in affiliated companies consist principally of a 50%
interest in Shin Caterpillar Mitsubishi Ltd., Japan ($364). 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 (note 3), was as follows:
<TABLE>
<CAPTION>
Years ended
September 30,
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Results of Operations
Sales.......................... $2,776 $2,450 $2,627
====== ====== ======
Profit (loss) before effect of
accounting change............. $ 1 $ (41) $ 33
====== ====== ======
Profit (loss).................. $ 1 $ (65) $ 33
====== ====== ======
</TABLE>
Profit for the year ended September 30, 1991, includes $17 representing the
aftertax gain on the sale of surplus assets.
<TABLE>
<CAPTION>
September 30,
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Financial Position
Assets:
Current assets.................... $1,691 $1,880 $1,682
Land, buildings, machinery, and
equipment - net................... 750 712 538
Other assets...................... 310 250 273
------ ------ ------
2,751 2,842 2,493
------ ------ ------
Liabilities:
Current liabilities............... 1,441 1,649 1,384
Long-term debt due after one year. 449 396 369
Other liabilities................. 90 85 55
------ ------ ------
1,980 2,130 1,808
------ ------ ------
Ownership......................... $ 771 $ 712 $ 685
====== ====== ======
</TABLE>
A-16
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
At December 31, 1993, the company's consolidated "Profit employed in the
business" included $84 representing its share of undistributed profit of the
affiliated companies. In 1993, 1992, and 1991, the company received $3, $2, and
$10, respectively, in dividends from affiliated companies.
14. CREDIT COMMITMENTS
The company has arrangements with a number of U.S. and non-U.S. banks to provide
lines of credit. These credit lines are changed as the company's anticipated
needs vary and are not indicative of the company's short-term borrowing
capacity.
At December 31, 1993, the company had confirmed credit lines with banks
totaling $2,795 (U.S. $1,911 and non-U.S. $884), of which $1,386 was unused. For
the purpose of computing unused credit lines, the total of borrowings under
these lines and outstanding commercial paper supported by these lines was
considered to constitute utilization.
The company has maintained compensating balances for a portion of the credit
lines in the United States. During 1993, such balances averaged less than
1 1\2% of the total U.S. lines of credit.
MACHINERY AND ENGINES
Of the total confirmed credit lines outstanding at December 31, 1993, $1,285
(U.S. $1,026 and non-U.S. $259) related to Machinery and Engines, of which $35
was utilized as backup for outstanding commercial paper, $77 for bank
borrowings, and $1,173 was unused. $500 of the total credit lines outstanding
related to Machinery and Engines consisted of two revolving credit agreements
with a group of commercial banks. Prior to November 30, 1993, there was one $425
($500 at December 31, 1991) long-term agreement. On that date, this long-term
agreement was reduced to $250 and a new $250 364-day agreement was established.
The long-term agreement currently expires in 1996, and may be extended on an
annual basis subject to mutual agreement. The 364-day agreement currently
expires on October 31, 1994, and may be extended for an additional 182 days on a
semi-annual basis subject to mutual agreement. Based on the long-term agreement,
$425 and $450 of commercial paper outstanding at December 31, 1992 and 1991,
respectively, was classified as long-term debt due after one year. No commercial
paper was classified as long-term at December 31, 1993.
FINANCIAL PRODUCTS
The remaining $1,510 of confirmed credit lines outstanding (U.S. $885 and non-
U.S. $625) related to Financial Products, of which $797 was utilized as backup
for outstanding commercial paper, $173 for commercial paper guarantees, $327 for
bank borrowings, and $213 was unused. Included in the total credit lines
outstanding related to Financial Products is a $455 ($370 and $340 at December
31, 1992 and 1991, respectively) revolving credit agreement with a group of
banks entered into by Caterpillar Financial Services Corporation. The agreement
currently expires in 1996, and may be extended on an annual basis subject to
mutual agreement. Based on this agreement, $455, $370, and $340 of commercial
paper outstanding at December 31, 1993, 1992, and 1991, respectively, was
classified as long-term debt due after one year.
15. SHORT-TERM BORROWINGS
Short-term borrowings at December 31 consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Machinery and Engines:
Notes payable to banks........... $104 $184 $141
Commercial paper................. 35 214 -
---- ---- ----
139 398 141
Financial Products:
Notes payable to banks........... 336 195 32
Commercial paper................. 342 344 299
Other............................ 5 4 2
---- ---- ----
683 543 333
---- ---- ----
$822 $941 $474
==== ==== ====
</TABLE>
Interest paid on short-term borrowings for 1993, 1992, and 1991 was $94, $123,
and $134, respectively (interest paid in 1993, 1992, and 1991 was $166, $225,
and $191, respectively, excluding the reclassification described in note 3).
At December 31, 1993 and 1992, the carrying value of short-term borrowings
approximated fair value.
16. LONG-TERM DEBT
Debt due after one year at December 31 consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Machinery and Engines:
Commercial paper supported by revolving
credit agreement (note 14)................ $ - $ 425 $ 450
Notes - 9 3/8% due 1993.................... - - 100
Notes - Zero coupon due 1994............... - 117 102
Notes - 9 1/8% due 1996.................... 150 150 150
Notes - 8% extendable to 1997.............. - 3 3
Notes - 9 3/8% due 2000.................... 149 149 149
Notes - 9 3/8% due 2001.................... 183 199 199
Debentures - 8.60% due through 1999........ - - 58
Debentures - 8 3/4% due through 1999....... - - 48
Debentures - 8% due through 2001........... - 92 122
Debentures - 9% due 2006................... 202 248 248
Debentures - 6% due 2007................... 124 121 118
Debentures - 9 3/8% due 2011............... 123 149 149
Debentures - 10 1/8% due 1998-2017......... - - 100
Debentures - 9 3/4% due 2000-2019.......... 200 300 300
Debentures - 9 3/8% due 2021............... 236 250 250
Debentures - 8% due 2023................... 199 - -
Medium-term notes.......................... 379 451 29
Other...................................... 85 99 101
------ ------ ------
2,030 2,753 2,676
Financial Products:
Commercial paper supported by revolving
credit agreement (note 14)................ 455 370 340
Notes...................................... 1,410 996 876
------ ------ ------
1,865 1,366 1,216
------ ------ ------
$3,895 $4,119 $3,892
====== ====== ======
</TABLE>
The aggregate amounts of maturities and sinking fund requirements of long-term
debt during each of the years 1994 through 1998, including that due within one
year and classified as current are:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Machinery and Engines...... $220 $ 90 $159 $121 $ 43
Financial Products......... 493 487 247 240 216
---- ---- ---- ---- ----
$713 $577 $406 $361 $259
==== ==== ==== ==== ====
</TABLE>
A-17
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- ------------------------------------------------------------------------------
Interest paid on total long-term borrowings, excluding the reclassification
described in note 3, for 1993, 1992, and 1991 was $308, $314, and $231,
respectively.
In 1993, portions of various long-term debt issuances with total principal of
$203 were repurchased on the open market by utilizing a portion of the proceeds
received from the tax settlement with the IRS (note 9). As a result, the company
incurred an extraordinary loss on early retirement of debt of $29 (net of income
tax benefit of $19). The extraordinary loss consisted primarily of redemption
premiums paid to holders.
In 1992, the company utilized a portion of the proceeds received from the sale
of lift truck assets (note 7) for the in-substance defeasance of the $100
10 1/8% sinking fund debentures. Sufficient funds were deposited in an
irrevocable trust to redeem the principal, plus accrued interest through the
redemption date of January 21, 1993.
The zero coupon notes were issued outside the United States by a wholly owned
subsidiary and are guaranteed by the parent company. Other than the zero coupon
notes and the notes of the Financial Products subsidiaries, all outstanding
notes and debentures itemized above are unsecured direct obligations of the
parent company.
The zero coupon notes and the 6% debentures were sold at significant original
issue discounts. These issues are carried net of the unamortized portion of
their respective discounts, which are amortized as interest expense over the
lives of the issues.
The zero coupon notes due in 1994, with principal at maturity of $136 and
original issue discount of $109, have an effective annual cost of 13.0%. The 6%
debentures, with a principal at maturity of $250 and original issue discount of
$144, have an effective annual cost of 13.3%.
The zero coupon notes and the 6% debentures may be redeemed at any time, at
the company's option, at an amount equal to the respective principal at
maturity.
The company may, at its option, redeem annually an additional amount for the
9 3/4% sinking fund debenture issue, without premium, equal to 200% of the
amount of the sinking fund requirement. The company may also, at its option,
redeem additional portions of the sinking fund debentures by the payment of
premiums which, starting in 1999, decrease periodically. The premium at the
first redemption date of June 1, 1999, is 4.875%.
The 8% extendable notes are payable at their principal amount, at the holders'
option, and are redeemable at their principal amount, at the company's option,
in 1994. The interest rate applicable to the extendable notes was adjusted from
8 3/4% to 8% on July 15, 1991, and will be adjusted on July 15, 1994, to a
rate not less than 102% of the then-current effective rate on U.S. Treasury
obligations with three-year maturities.
All other notes and debentures are not redeemable prior to maturity.
The medium-term notes are offered on a continuous basis through agents and are
primarily at fixed rates. Machinery and Engines' medium-term notes may have
maturities from nine months to 30 years. At December 31, 1993, these notes had a
weighted average interest rate of 6.7% with about six months to ten years
remaining to maturity.
The notes of the Financial Products subsidiaries primarily represent medium-
term notes having a weighted average interest rate of 6.1% with maturities up to
15 years at December 31, 1993.
At December 31, 1993 and 1992, the fair value of long-term debt, including
that due within one year, was approximately $2,646 and $3,125, respectively, for
Machinery and Engines and $2,397 and $1,890, respectively, for Financial
Products. For Machinery and Engines notes and debentures, the fair value was
estimated based on quoted market prices. For other issues and for Financial
Products, the fair value was estimated using discounted cash flow analyses,
based on the company's current incremental borrowing rates for similar types of
borrowing arrangements.
The company has entered into a variety of interest rate contracts, including
interest rate swap and cap agreements, options, and forward rate agreements. The
differentials to be paid or received on swaps and caps are accrued as interest
rates change and are recognized over the lives of the agreements. The premiums
paid on forward rate agreements are deferred and recognized over the lives of
the agreements.
The notional amounts of swap and forward rate agreements outstanding as of the
end of the periods were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ----- -----
<S> <C> <C> <C>
MACHINERY AND ENGINES:
Interest rate swaps:
Fixed to floating rate..... $ 500 $250 $ -
====== ==== ====
Financial Products:
Interest rate swaps:
Floating to fixed rate..... $1,051 $527 $586
Fixed to floating rate..... 629 338 38
Floating to floating rate.. 867 80 50
------ ---- ----
$2,547 $945 $674
====== ==== ====
Forward rate agreements..... $ 246 $ 59 $ 17
====== ==== ====
</TABLE>
In association with swap agreements with notional amounts totaling $100 at
December 31, 1993 for Machinery and Engines, and $95, $75, and $40 at December
31, 1993, 1992, and 1991, respectively, for Financial Products, the company has
entered into option agreements which allow the counterparty to enter into swap
agreements at some future date or alter the conditions of certain swap
agreements.
For Machinery and Engines, the carrying value of interest rate swaps and
options in a net receivable position was $1 at both December 31, 1993 and 1992,
and the fair value was $8 and $2 at December 31, 1993 and 1992, respectively.
For Financial Products, at December 31, 1993 and 1992, the carrying value of
interest rate swaps and options in a net receivable position was $3 and $1,
respectively, and the fair value was $8 and $3, respectively. The carrying value
of interest rate swaps and options in a net payable position (Financial Products
only) was $7 at both December 31, 1993 and 1992 and the fair value was $24 and
$22 at December 31, 1993 and 1992, respectively. The fair values represent the
estimated amount that the company would receive or pay to terminate the
agreements taking into account current interest rates.
17. LITIGATION
On July 18, 1990 and July 20, 1990, two class action complaints were filed
against the company and certain of its officers and directors in United States
District Court for the Central District of Illinois ("District Court") on behalf
of all persons (other than the defendants) who purchased or otherwise acquired
common
A-18
<PAGE>
CATERPILLAR INC.
- -------------------------------------------------------------------------------
stock of the company and certain options relating to common stock of the company
between January 19, 1990 and June 26, 1990 (the "Class Period"), alleging, among
other things, violations of certain provisions of the federal securities laws.
The two cases were consolidated on April 2, 1991 ("Consolidated Class Actions").
The consolidated complaint alleged that the defendants fraudulently issued
public statements and reports during the Class Period which were misleading in
that they failed to disclose material adverse information relating to the
company's Brazilian operations, its factory modernization program and its
reorganization plan.
The plaintiffs and the defendants, with the active participation and approval
of the company's directors and officers liability insurer (the "Insurer"), have
reached an agreement regarding settlement of the Consolidated Class Actions. The
settlement is contingent upon approval by the District Court and certain other
contingencies.
Pursuant to the directors and officers liability policy (the "Policy"), the
company has requested that the Insurer acknowledge that 100% of the amount to be
paid under the settlement agreement, beyond the company's self-insured retention
under the Policy, is covered by the Policy. Because the company is named as a
co-defendant in the Consolidated Class Actions, the insurer has denied coverage
for a portion of the settlement amount, claiming that some liability must be
attributable to the company and not covered under the Policy. The company has
been advised that the position of the Insurer is contrary to applicable law and
the company has brought an action in the District Court against the Insurer for
breach of contract and declaratory relief ("Declaratory Judgment Action"). The
company believes a successful recovery against the Insurer is likely in this
Declaratory Judgment Action. If that recovery is obtained, the company believes
that its cost with respect to the settlement of the Consolidated Class Actions
will approximate costs necessary to litigate the Consolidated Class Actions to a
successful conclusion at trial. Regardless of whether the company is successful
in the Declaratory Judgment Action, the company does not believe the settlement
of the Consolidated Class Actions will have a materially negative impact on the
company's financial condition or results of operations.
On May 12, 1993, a Statement of Objections ("Statement") was filed by the
Commission of European Communities against Caterpillar Inc. and certain overseas
subsidiaries. The Statement alleges that certain service fees payable by
dealers, certain dealer recordkeeping obligations, a restriction which prohibits
a European Community ("EC") dealer from appointing subdealers, and certain
export pricing practices and parts policies violate EC competition law under
Article 85 of the European Economic Community Treaty. The Statement seeks
injunctive relief and unspecified fines. Based on an opinion of counsel, the
company believes it has strong defenses to each allegation set forth in the
Statement.
On November 19, 1993, the Commission of European Communities informed the
company that a new complaint has been received by it alleging that certain
export parts policies violate Article 85 and Article 86 of the European Economic
Community Treaty. The Commission advised the company that it intends to deal
with the new complaint within the framework of the proceedings initiated on May
12, 1993. Based on an opinion of counsel, the company believes it has strong
defenses to the allegations set forth in the new complaint.
The company is party to other litigation matters and claims which are normal
in the course of its operations, and while the results of litigation and claims
cannot be predicted with certainty, management believes, based on advice of
counsel, the final outcome of such matters will not have a materially adverse
effect on the consolidated financial position.
18. CAPITAL STOCK
A. STOCK OPTIONS
In 1977 and 1987, stockholders approved plans providing for the granting to
officers and other key employees of options to purchase common stock of the
company. In 1988, the 1987 plan was amended to annually grant each non-employee
director options to purchase 1,000 shares each year of the company's common
stock. The 1987 plan provided an additional 3,000,000 shares for grants. In 1993
and 1991, the 1987 plan was amended to provide an additional 1,000,000 and
3,500,000 shares, respectively, for grants. Options granted under both plans
carry prices equal to the average market price on the date of grant and
therefore, in accordance with APB 25, no compensation expense is incurred in
association with the options. Options are exercisable upon completion of one
full year of service following the grant date (except in the case of death or
retirement) and vest at the rate of one-third per year over the three years
following the grant. Common shares issued under stock options, including
treasury shares reissued, totaled 909,565; 40,464; and 5,642 in 1993, 1992, and
1991, respectively. No treasury stock was held at December 31, 1993. At December
31, 1992, and 1991, 501,663 and 542,127 shares, respectively, were held as
treasury stock.
Stock appreciation rights may be granted as part of 1977 or 1987 plan options
or as separate rights to holders of options previously granted. Stock
appreciation rights permit option holders to exchange exercisable options for
shares of common stock, cash, or a combination of both. No stock appreciation
rights have been issued since 1990. Compensation expense related to stock
appreciation rights was not material in 1993, 1992, or 1991. Of the shares
covered by options outstanding at December 31, 1993, 6% were the subject of
stock appreciation rights.
Changes in the status of common shares subject to issuance under options were
as follows:
<TABLE>
<CAPTION>
Shares
-----------------------------------
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Options outstanding at
beginning of year..................... 5,006,365 4,164,779 3,661,480
Granted to officers and key employees
in 1993,1992, and 1991 at
$75.06, $59.88, and $51.44
per share, respectively............... 744,140 1,034,670 737,050
Granted to outside directors in
1993, 1992, and 1991 at $60.75,
$48.19, and $47.13
per share, respectively............... 8,000 10,000 11,000
Exercised.............................. (2,061,184) (123,495) (22,819)
Lapsed................................. (21,421) (79,589) (221,932)
---------- --------- ---------
Options outstanding at year-end........ 3,675,900 5,006,365 4,164,779
========== ========= =========
</TABLE>
A-19
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -----------------------------------------------------------------------------
Options outstanding at December 31, 1993, had exercise prices ranging from
$33.94 to $75.06 per share with an average exercise price of $62.38 per share
and had expiration dates ranging from June 7, 1994, to June 6, 2003.
At December 31, unissued common shares were reserved for potential stock
option grants and for issuance to other employee benefit plans in the following
amounts:
<TABLE>
<CAPTION>
Shares
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
1977 stock option plan... 1,273,652 1,273,082 1,261,640
1987 stock option plan... 2,212,616 1,943,905 2,920,428
Employee investment and
other benefit plans..... 5,700,089 5,700,089 5,700,089
--------- --------- ---------
9,186,357 8,917,076 9,882,157
========= ========= =========
</TABLE>
B. STOCKHOLDERS' RIGHTS PLAN
The company is authorized to issue 5,000,000 shares of preferred stock, of which
2,000,000 shares have been designated as Series A Junior Participating Preferred
Stock of $1.00 par value. None of the preferred shares or the Series A Junior
Participating Preferred Stock have been issued.
On December 1, 1986, the company distributed a dividend of one preferred stock
purchase right for each outstanding share of common stock. Each right entitles
the holder to purchase one one-hundredth of a share of the Series A Junior
Participating Preferred Stock, $1.00 par value, for $150, subject to adjustment.
The rights are exercisable only after a third party acquires 20% or more of the
company's common stock or after commencement of a tender offer by a third party,
which upon consummation, would result in such party's control of 30% or more of
the company's common stock. The rights, which do not have voting rights, expire
on December 1, 1996, and may be redeemed by the company at a price of 5c per
right at any time until ten days after a 20% ownership position has been
acquired, unless such period is extended. The right of redemption may be
reinstated under certain circumstances. In addition, the company amended the
stockholder rights plan in December 1992 to permit stockholders, by a two-thirds
vote taken at a special meeting of stockholders, to require the redemption of
outstanding rights if a cash tender offer is made for all shares of common stock
by a person owning not more than 5% of the outstanding common stock and if
certain other requirements are satisfied.
If the company is acquired in a merger or other business combination at any
time after the rights become exercisable and the company is not the surviving
corporation or its common stock is changed or exchanged or 50% or more of the
company's assets or earning power is sold or transferred, each such right will
entitle its holder to purchase common shares of the acquiring company having a
market value of twice the exercise price of each right (i.e., at a 50%
discount). If a 20% or greater holder acquires the company and the company is
the surviving corporation and its common stock is not changed or exchanged, or
such holder engages in one or more "self-dealing" transactions as set forth in
the Rights Agreement or increases its beneficial ownership of the company by
more than 1% in a transaction involving the company, each right will entitle its
holder, other than the acquirer, to purchase common stock of the company (or
under certain circumstances to receive cash, preferred stock, or other
securities of the company), at a similar 50% discount from market value at that
time.
19. LEASES
The company leases certain computer and communications equipment, transportation
equipment, and other property through operating leases. Lease expense on these
leases is charged to operations as incurred. Total rental expense for operating
leases was $137, $138, and $133 for 1993, 1992, and 1991, respectively. Minimum
payments for operating leases having initial or remaining non-cancelable terms
in excess of one year are:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1994.......................... $ 91
1995.......................... 68
1996.......................... 50
1997.......................... 25
1998.......................... 13
Thereafter.................... 56
----
Total lease commitments....... $303
====
</TABLE>
20. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the company to credit risk
consist primarily of trade and finance receivables and short-term and long-term
investments.
Trade receivables are primarily short-term receivables from independently
owned and operated dealers which arise in the normal course of business. The
company performs regular credit evaluations of its dealers. The company
generally doesn't require collateral, and the majority of its trade receivables
are unsecured. The company does make use of various devices such as security
agreements and letters of credit to protect its interests as it deems necessary.
No single dealer or region represents a significant concentration of credit
risk. At December 31, 1993 and 1992, the carrying value of trade receivables
approximated fair value.
Finance receivables primarily represent receivables under installment sales
contracts, receivables arising from leasing transactions, and notes receivable.
The company generally maintains a secured interest in the equipment financed.
Receivables from customers in construction-related industries made up
approximately 31%, 33%, and 33% of total finance receivables at December 31,
1993, 1992, and 1991, respectively. No single customer or region represents a
significant concentration of credit risk. Fair value information on finance
receivables is included in note 10.
The company has short-term and long-term investments with high quality
institutions and, by policy, limits the amount of credit exposure to any one
institution. At December 31, 1993 and 1992, the carrying value of short-term
investments approximated fair value. Long-term investments are held by
Caterpillar Insurance Co. Ltd. and VEBA trusts (note 5B) and are a component of
"Other assets" on Statement 3. At December 31, 1993 and 1992, the carrying value
of long-term investments was $362 and $353, respectively, which, based on quoted
market prices, approximated fair value.
21. ENVIRONMENTAL MATTERS
Based on a preliminary environmental assessment, during 1992 Solar Turbines
Incorporated (Solar), a subsidiary of Caterpillar since 1981, estimated that
assessment, remediation, and preventative expenditures for contamination of its
Harbor Drive facility in San Diego, California, will be approximately $30 to $50
expended over the next 25 years, a significant portion of which will be capital
expenditures. The contamination of Harbor Drive, a manufacturing facility for
over 60 years, involves cleaning
A-20
<PAGE>
CATERPILLAR INC.
- -----------------------------------------------------------------------------
solvents, petroleum products, and metal products, which have been found in both
soil and groundwater samples. Solar has been working closely with the state and
local agencies and is not currently subject to a clean-up order. While subject
to further analysis, Solar believes that a substantial portion of the
expenditures may be recoverable from third parties who previously conducted
manufacturing or other operations on or adjacent to the site. A reserve of $13
was recorded in 1992 with respect to this matter. Remediation expenses with
respect to Solar were $3 for 1993.
Also in 1992, a reserve of $5 was recorded with respect to estimated costs of
remediation of soil and groundwater contamination at other facilities. This
reserve includes $4 made for estimated costs to remediate potential groundwater
contamination at a former Caterpillar facility located in San Leandro,
California. Remediation efforts have been ongoing, and Caterpillar has been
working closely with the California Department of Toxic Substances Control in
its remediation efforts. Remediation expenses with respect to San Leandro were
less than $1 for 1993.
Based on an assessment of environmental matters, management believes that it
is unlikely that any identified matters, either individually or in the
aggregate, will have a material adverse effect on the company's consolidated
financial position, results of operations or capital expenditures.
22. SEGMENT INFORMATION
A. BUSINESS SEGMENTS
The company operates in three principal business segments: Machinery
(Earthmoving, Construction, and Materials Handling), Engines, and Financial
Products. The company designs, manufactures, and markets products in both the
Machinery and Engines segments. Financial Products includes the company's
finance and insurance subsidiaries.
"Operating profit (loss)" for 1992 includes incremental operating expense
resulting from the accounting changes (note 2) of $141 which is included in the
Machinery and Engines segments and "General corporate expenses" in the amounts
of $101, $38, and $2, respectively. In addition, "Operating profit (loss)" for
1992 includes the gain on sale of lift truck assets of $53 (note 7) included in
the Machinery segment and charges for environmental clean-up, employee
redundancy costs, and write-off of surplus assets of $29 included in the
Machinery and Engines segments in the amounts of $14 and $15, respectively.
"Identifiable assets" for 1992 includes asset increases (decreases) resulting
from the accounting changes (note 2) of $1,416 which are included in the
Financial Products segment, "General corporate assets" and "Investments in
affiliated companies" in the amounts of $(43), $1,471, and $(12), respectively.
"Operating profit (loss)" for 1991 includes provisions for plant closing and
consolidation costs of $262 (note 6) and additional charges of $111 for other
employee redundancy costs and the write-off of surplus assets. These costs are
included in the Machinery and Engines segments in the amounts of $293 and $80,
respectively.
The high degree of integration of the company's manufacturing operations
necessitates the use of a substantial number of allocations in the determination
of business segment information. Intersegment sales and revenues, which
primarily represent intersegment engine sales, are valued at prices comparable
to those for unaffiliated customers.
Information on the company's business segments was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
For the years ended December 31:
Sales:
Machinery................................ $ 8,132 $ 7,209 $ 7,397
Engines.................................. 3,735 3,225 3,045
Elimination of intersegment engine sales.. (632) (594) (604)
------- ------- -------
Consolidated sales........................ 11,235 9,840 9,838
Financial Products revenues............... 380 354 344
------- ------- -------
Sales and Revenues........................ $11,615 $10,194 $10,182
======= ======= =======
Operating profit (loss):
Machinery................................ $ 436 $ (107) $ (281)
Engines.................................. 226 79 (10)
Financial Products....................... 47 35 37
------- ------- -------
709 7 (254)
General corporate expenses................ (83) (96) (101)
------- ------- -------
Operating profit (loss)................... $ 626 $ (89) $ (355)
======= ======== ========
Capital expenditures - including
equipment leased to others:
Machinery................................ $ 243 $ 338 $ 467
Engines.................................. 154 153 171
Financial Products....................... 205 121 119
General corporate........................ 30 28 17
------- ------- -------
$ 632 $ 640 $ 774
======= ======= =======
Depreciation and Amortization:
Machinery................................ $ 405 $ 410 $ 367
Engines.................................. 163 155 151
Financial Products....................... 70 63 54
General corporate........................ 30 26 30
------- ------- -------
$ 668 $ 654 $ 602
======= ======= =======
At December 31:
Identifiable assets:
Machinery............................... $ 5,260 $ 5,420 $ 5,479
Engines................................. 2,265 2,114 2,229
Financial Products...................... 3,676 2,956 2,696
------- ------- -------
11,201 10,490 10,404
General corporate assets................. 3,212 3,100 1,292
Investments in affiliated companies...... 394 345 346
------- ------- -------
Total assets............................. $14,807 $13,935 $12,042
======= ======= =======
</TABLE>
B. GEOGRAPHIC SEGMENTS
Manufacturing activities of the Machinery and Engines segments are carried on in
24 plants in the United States, three in France, and one each in Australia,
Belgium, Brazil, Indonesia, Italy, Mexico, and the United Kingdom. Contract
manufacturers are located in the United States and the United Kingdom. Three
major distribution centers are located in the United States and eight are
located outside the United States. While the majority of the activity of the
Financial Products segment is carried on in the United States, it also conducts
operations in Australia, Canada, and Europe.
Caterpillar is a highly integrated company. The product of subsidiary
companies' manufacturing operations located outside the United States, in most
instances, consists of components manufactured or purchased locally which are
assembled with components purchased from related companies. As a result, the
profits of these operations do not bear any definite relationship to their
assets, and individual subsidiaries' results cannot be viewed in isolation.
Prices between Caterpillar companies are established at levels deemed equivalent
to those which would prevail between unrelated parties.
A-21
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -----------------------------------------------------------------------------
For 1992, incremental operating expense resulting from the accounting changes
(note 2) of $141 is included in "Operating profit (loss)" for "United States"
and "General corporate expenses" in the amounts of $139 and $2, respectively.
The gain on sale of lift truck assets of $53 (note 7) is included in "Operating
profit (loss)" for "United States." In addition, charges for environmental
clean-up, employee redundancy costs, and write-off of surplus assets of $29 are
included in "Operating profit (loss)" for "Europe" and "All other" in the
amounts of $8 and $21, respectively.
For 1991, provisions for plant closing and consolidation costs of $262 (note
6), additional charges of $111 for other employee redundancy costs, and the
write-off of surplus assets are included in "Operating profit (loss)" for
"United States," "Europe," and "All other" in the amounts of $263, $48, and $62,
respectively.
Information on the company's geographic segments, based on the location of the
company's manufacturing operations for Machinery and Engines, was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
For the years ended December 31:
Sales from:
United States.......................... $ 9,159 $ 7,462 $ 7,471
Europe................................. 1,678 1,908 1,824
All other.............................. 737 748 856
Elimination of intersegment sales from:
United States.......................... (154) (144) (166)
Europe................................. (97) (61) (56)
All other.............................. (88) (73) (91)
------- ------- -------
Consolidated sales...................... 11,235 9,840 9,838
Revenues:
United States.......................... 309 298 293
All other.............................. 71 56 51
------- ------- -------
Sales and revenues...................... $11,615 $10,194 $10,182
======= ======= =======
Operating profit (loss):
Machinery and Engines:
United States......................... $ 620 $ (3) $ (137)
Europe................................ 46 (3) (48)
All other............................. (4) (22) (106)
------- ------- -------
662 (28) (291)
------- ------- -------
Financial Products:
United States.......................... 43 34 32
All other.............................. 4 1 5
------- ------- -------
Total Financial Products................ 47 35 37
------- ------- -------
709 7 (254)
General corporate expenses.............. (83) (96) (101)
------- ------- -------
Operating profit (loss)................. $ 626 $ (89) $ (355)
======= ======= =======
At December 31:
Identifiable assets:
Machinery and Engines:
United States.......................... $ 5,770 $ 5,584 $ 5,563
Europe................................. 1,101 1,211 1,289
All other.............................. 654 739 856
------- ------- -------
7,525 7,534 7,708
------- ------- -------
Financial Products:
United States.......................... 2,896 2,448 2,342
All other.............................. 780 508 354
------- ------- -------
3,676 2,956 2,696
------- ------- -------
11,201 10,490 10,404
General corporate assets................ 3,212 3,100 1,292
Investments in affiliated companies..... 394 345 346
------- ------- -------
Total Assets............................ $14,807 $13,935 $12,042
======= ======= =======
</TABLE>
C. NON-U.S. SALES
Sales outside the United States were 49% of consolidated sales for 1993, 55% for
1992, and 59% for 1991. Information on the company's sales outside the United
States, based on dealer location, was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
For the years ended December 31:
Sales of U.S. manufactured product:
Asia/Pacific.......................... $1,172 $ 938 $1,011
Europe................................ 645 608 656
Latin America......................... 570 628 610
Africa/Middle East.................... 577 606 781
Canada................................ 625 417 481
------ ------ ------
3,589 3,197 3,539
------ ------ ------
Sales of non-U.S. manufactured product:
Asia/Pacific.......................... 440 371 400
Europe................................ 933 1,177 1,124
Latin America......................... 279 280 263
Africa/Middle East.................... 225 286 367
Canada................................ 59 108 87
------ ------ ------
1,936 2,222 2,241
------ ------ ------
Total sales outside the United States:
Asia/Pacific......................... 1,612 1,309 1,411
Europe............................... 1,578 1,785 1,780
Latin America........................ 849 908 873
Africa/Middle East................... 802 892 1,148
Canada............................... 684 525 568
------ ------ ------
$5,525 $5,419 $5,780
====== ====== ======
</TABLE>
23. SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Financial information for interim periods was as follows:
<TABLE>
<CAPTION>
1993 Quarter
-------------------------------
1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and revenues $2,697 $2,905 $2,845 $3,168
Less: Revenues........................ 89 95 95 101
------ ------ ------ ------
Sales................................. 2,608 2,810 2,750 3,067
Cost of goods sold.................... 2,172 2,298 2,224 2,381
------ ------ ------ ------
Gross margin.......................... 436 512 526 686
Profit before extraordinary loss...... 34 67 432 148
Profit................................ 34 67 432 119
Profit per share of common stock:
Profit before extraordinary loss..... $ .34 $ .66 $ 4.26 $ 1.46
Profit............................... $ .34 $ .66 $ 4.26 $ 1.17
</TABLE>
Third quarter 1993 results included after-tax nonrecurring gains of $300
related to the settlement with the IRS for taxes and related interest for the
period 1979-1987 and of $36 related to revaluation of the company's net U.S.
deferred tax asset position as a result of the increase in the U.S. federal
corporate tax rate (note 9).
Fourth quarter 1993 results included an extraordinary loss on early retirement
of debt of $29, net of tax (note 16).
A-22
<PAGE>
CATERPILLAR INC.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1992 Quarter
---------------------------------
1st 2nd 3rd 4th
-------- ------- ------ ------
<S> <C> <C> <C> <C>
Sales and revenues............. $ 2,183 $2,600 $2,677 $2,734
Less: Revenues................. 87 86 91 90
------- ------ ------ ------
Sales.......................... 2,096 2,514 2,586 2,644
Cost of goods sold............. 1,916 2,173 2,140 2,215
------- ------ ------ ------
Gross margin................... 180 341 446 429
Profit (loss) before effects
of accounting changes......... (157) (64) 5 (2)
Profit (loss).................. (2,374) (64) 5 (2)
Profit (loss) per share of
common stock:
Profit (loss) before effects
of accounting changes....... $ (1.56) $ (.63) $ .05 $ (.02)
Profit (loss)................ $(23.53) $ (.63) $ .05 $ (.02)
</TABLE>
In the fourth quarter of 1992, the company adopted three new accounting
standards effective January 1, 1992 (note 2). Fourth quarter 1992 results
included a pretax nonrecurring gain of $56, primarily from the sale of lift
truck assets (note 7).
A-23
<PAGE>
ELEVEN-YEAR FINANCIAL SUMMARY
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991 1990
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31:
Sales and revenues...................................... $11,615 10,194 10,182 11,436
Sales.................................................. $11,235 9,840 9,838 11,103
Percent inside the United States...................... 51% 45% 41% 45%
Percent outside the United States..................... 49% 55% 59% 55%
Revenues............................................... $ 380 354 344 333
Profit (loss) before effects of accounting changes (1).. $ 652 (218) (404) 210
Effects of accounting changes (note 2).................. $ - (2,217) - -
Profit (loss)(1)........................................ $ 652 (2,435) (404) 210
Profit (loss) per share of common stock: (1) (2)
Profit (loss) before effects of accounting changes(1).. $ 6.43 (2.16) (4.00) 2.07
Effects of accounting changes (note 2)................. $ - (21.96) - -
Profit (loss).......................................... $ 6.43 (24.12) (4.00) 2.07
Dividends declared per share of common stock............ $ .60 .60 1.05 1.20
Return on average common stock equity................... 34.6% (86.7%) (9.4%) 4.7%
Capital expenditures:
Land, buildings, machinery, and equipment.............. $ 417 515 653 926
Equipment leased to others............................. $ 215 125 121 113
Depreciation and amortization........................... $ 668 654 602 533
Research and engineering expenses....................... $ 455 446 441 420
As a percent of sales and revenues..................... 3.9% 4.4% 4.3% 3.7%
Provision (credit) for income taxes(3).................. $ 42 (114) (152) 78
Wages, salaries, and employee benefits.................. $ 3,038 2,795 3,051 3,032
Average number of employees............................. 50,443 52,340 55,950 59,662
AT DECEMBER 31:
Total receivables:
Trade and other........................................ $ 2,769 2,330 2,133 2,361
Finance................................................ $ 3,140 2,525 2,145 1,891
Inventories............................................. $ 1,525 1,675 1,921 2,105
Total assets:
Machinery and Engines.................................. $11,131 10,979 9,346 9,626
Financial Products..................................... $ 3,676 2,956 2,696 2,325
Long-term debt due after one year:
Machinery and Engines.................................. $ 2,030 2,753 2,676 2,101
Financial Products..................................... $ 1,865 1,366 1,216 789
Total debt:
Machinery and Engines.................................. $ 2,387 3,271 3,136 2,873
Financial Products..................................... $ 3,041 2,401 2,111 1,848
Ratios - excluding Financial Products:
Ratio of current assets to current liabilities......... 1.53 to 1 1.57 to 1 1.74 to 1 1.67 to 1
Percent of total debt to total debt
and stockholders' equity.............................. 52.1% 67.5% 43.7% 38.8%
</TABLE>
/1/ 1993 profit was after extraordinary loss on early retirement of debt;
profit before extraordinary loss was $681, $6.72 per share of common stock.
1987 profit was after extraordinary tax benefit; profit before extraordinary
tax benefit was $319, $3.20 per share of common stock.
/2/ Computed on weighted average number of shares outstanding.
/3/ As discussed in note 2, the company adopted SFAS 109 in 1992. Prior to
1992, the tax provision was determined in accordance with APB 11. The 1987
provision for income taxes, including the reduction for the $31
extraordinary tax benefit, was $87.
A-24
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985 1984 1983
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31:
Sales and revenues.................................... 11,126 10,435 8,294 7,380 6,760 6,597 5,429
Sales................................................ 10,882 10,255 8,180 7,321 6,725 6,576 5,424
Percent inside the United States.................... 47% 50% 52% 54% 56% 58% 54%
Percent outside the United States................... 53% 50% 48% 46% 44% 42% 46%
Revenues............................................. 244 180 114 59 35 21 5
Profit (loss) before effects of accounting changes (1) 497 616 350 76 198 (428) (345)
Effects of accounting changes (note 2)................ - - - - - - -
Profit (loss)(1)...................................... 497 616 350 76 198 (428) (345)
Profit (loss) per share of common stock: (1) (2)
Profit (loss) before effects of accounting changes(1) 4.90 6.07 3.51 .77 2.02 (4.47) (3.74)
Effects of accounting changes (note 2)............... - - - - - - -
Profit (loss)........................................ 4.90 6.07 3.51 .77 2.02 (4.47) (3.74)
Dividends declared per share of common stock.......... 1.20 .86 .56 .63 .50 1.25 1.50
Return on average common stock equity................. 11.6% 16.0% 10.4% 2.4% 6.7% (13.8%) (10.1%)
Capital expenditures:
Land, buildings, machinery, and equipment............ 984 732 463 290 228 234 313
Equipment leased to others........................... 105 61 30 41 55 23 14
Depreciation and amortization......................... 471 434 425 453 485 497 507
Research and engineering expenses..................... 387 334 298 308 326 345 340
As a percent of sales and revenues................... 3.5% 3.2% 3.6% 4.2% 4.8% 5.2% 6.3%
Provision (credit) for income taxes(3)................ 162 262 118 21 25 (115) (264)
Wages, salaries, and employee benefits................ 2,888 2,643 2,284 2,184 2,173 2,426 2,142
Average number of employees........................... 60,784 57,954 53,770 54,024 55,815 61,189 58,402
AT DECEMBER 31:
Total receivables:
Trade and other...................................... 2,353 2,349 2,044 1,755 1,305 1,135 1,458
Finance.............................................. 1,498 1,222 795 466 108 64 67
Inventories........................................... 2,120 1,986 1,323 1,211 1,139 1,246 1,193
Total assets:
Machinery and Engines 9,100 8,226 6,647 6,134 5,951 6,084 6,849
Financial Products................................... 1,826 1,460 984 627 235 169 96
Long-term debt due after one year:
Machinery and Engines................................ 1,797 1,428 900 963 1,177 1,384 1,894
Financial Products................................... 491 525 387 171 87 4 5
Total debt:
Machinery and Engines................................ 2,561 2,116 1,484 1,582 1,404 1,861 2,247
Financial Products................................... 1,433 1,144 712 370 130 26 7
Ratios - excluding Financial Products:
Ratio of current assets to current liabilities....... 1.78 to 1 1.76 to 1 1.55 to 1 1.50 to 1 1.69 to 1 1.43 to 1 2.07 to 1
Percent of total debt to total debt
and stockholders' equity............................ 36.4% 34.0% 29.4% 33.4% 31.4% 39.5% 40.2%
</TABLE>
A-25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussions of Results of Operations, and Liquidity and Capital Resources
are grouped as follows:
CONSOLIDATED - Represents the consolidated data of Caterpillar Inc. and
subsidiaries, including the Financial Products subsidiaries.
MACHINERY AND ENGINES - Company operations excluding the Financial Products
subsidiaries. This category consists primarily of the company's manufacturing,
marketing, and parts distribution operations, which are highly integrated.
Unless attributed to a particular subsidiary, items discussed in Management's
Discussion and Analysis reflect the consolidated effect of contributions by
worldwide operations.
FINANCIAL PRODUCTS - The company's Financial Products subsidiaries, primarily
Caterpillar Financial Services Corporation and Caterpillar Insurance Co. Ltd.
Cat Financial and its subsidiaries in Australia, Canada, and Europe derive
earnings from financing sales and leases of Caterpillar products and
noncompetitive related equipment and from loans extended to Caterpillar
customers and dealers. Cat Insurance provides insurance services to Caterpillar
dealers and customers to help support their purchase and financing of
Caterpillar equipment.
RESULTS OF OPERATIONS
- ---------------------
1993 COMPARED WITH 1992
Profit for 1993 was $681 million or $6.72 per share excluding an extraordinary
loss of $29 million. A 14% improvement in sales and revenues was the most
significant reason for the turnaround from last year's loss of $218 million
(excluding the transition effect of new accounting standards adopted in 1992).
Sales and revenues were $11.62 billion, up $1.42 billion - a substantial
improvement from 1992.
When comparing 1993 with 1992, several material nonrecurring items should be
considered. In 1992, the reported loss of $2,435 million included a $2,217
million charge for transition effects of three new accounting standards. In
1993, the reported profit of $652 million included a $29 million extraordinary
loss net of taxes related to premiums paid on the early retirement of $203
million of relatively high interest rate debt. In addition, 1993 included two
nonrecurring income tax related items that favorably affected after-tax profit
by $336 million: 1) a $300 million after-tax impact related to the settlement
with the Internal Revenue Service of interest and taxes for the period 1979-
1987; and 2) a tax credit of $36 million related to the 1% increase in the U.S.
federal corporate tax rate enacted during the year. The credit was the result of
revaluing the company's net U.S. deferred tax asset position.
Excluding the extraordinary loss and the effect of the tax-related items,
profit was $345 million, a $563 million improvement compared with the 1992 loss
of $218 million before the transition effect of new accounting standards. The
following table summarizes the items mentioned above:
<TABLE>
<CAPTION>
AFTER TAX
-----------------
1993 1992
-----------------
(MILLIONS)
<S> <C> <C>
Profit (Loss)............................................... $ 652 $(2,435)
1992 Item
- ---------
. Transition Effects of New Accounting Standards............ (2,217)
1993 Items
- ----------
. Extraordinary Loss........................................ (29)
. Nonrecurring Income Tax Related Gains..................... 336
------- -------
Profit Excluding the Above Items............................ $ 345 $ (218)
======= =======
- --------------------------------------------------------------------------------
</TABLE>
MACHINERY AND ENGINES
Sales of $11.24 billion were $1.40 billion higher than in 1992. Profit before
tax related to Machinery and Engines was $654 million. Excluding the interest
portion of the tax refund, profit before tax was $403 million - a $776 million
improvement over 1992.
PROFIT (LOSS) BEFORE TAX AND BEFORE
THE INTEREST EFFECTS OF THE TAX REFUND
<TABLE>
<CAPTION>
BEFORE TAX
-------------
1993 1992
-------------
(MILLIONS)
<S> <C> <C>
Profit (Loss)................................................... $ 654 $(373)
Less: Interest Effects of the Tax Refund........................ 251
----- -----
$ 403 $(373)
===== =====
</TABLE>
- --------------------------------------------------------------------------------
The primary reasons for the increase in profit were:
. A 14% increase in sales - 10% higher physical sales volume and a 4%
improvement in price realization. The higher volume was primarily due to an
increased share of industry sales and improved U.S. industry demand. The
increase was partially offset by the effect of dealer inventory reductions
and the absence of most lift-truck-related sales because of the lift truck
joint venture established in July 1992 with Mitsubishi Heavy Industries,
Ltd. The improvement in price realization was the result of price increases
since the beginning of last year and a favorable shift in the geographic mix
where sales occurred, partially offset by exchange rates that caused sales
in European currencies to translate into fewer U.S. dollars;
. Lower costs as a result of weaker European currencies as expenses incurred
in those currencies translated into fewer U.S. dollars;
. The full-year effect of employee benefit plan changes implemented during
1992;
. Lower average employment, despite the increase in physical sales volume;
. Lower interest expense due to lower average debt and lower interest rates;
and
. An $8 million increase in LIFO (last-in, first-out) inventory decrement
benefits ($38 million in 1993 vs. $30 million in 1992).
A-26
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
These favorable factors were somewhat offset by the effect of inflation on
costs; absence of the $53 million net gain related to the sale of lift truck
assets recorded in 1992; a change in the mix of sales as relatively more lower
margin machines and engines were sold than in 1992; the impact of the stronger
yen on purchases from Japan; and a $20 million increase in currency exchange
losses.
Results of the company's Brazilian operations improved, but remained
unprofitable. They continued to have a material adverse effect on consolidated
results.
FINANCIAL PRODUCTS
For 1993, Financial Products generated before-tax profit of $68 million,
compared with $55 million in 1992. The increase was primarily due to a larger
portfolio of earning assets and a lower cost of borrowed funds.
Revenues totaled $380 million, an increase of $26 million from 1992. The
increase in revenues, despite the low interest rate environment, resulted
primarily from a larger portfolio of earning assets. Cat Financial financed new
retail business of $1.97 billion, a $436 million or 28% increase, compared with
1992.
Receivables of $19 million were written off against the allowance for credit
losses in 1993, compared with $14 million in 1992. At year-end, the allowance
was $41 million or 1.3% of finance receivables, compared with $37 million or
1.4% at year-end 1992.
AFFILIATED COMPANIES
The company's share of affiliated companies' results was a profit of $1 million,
a $15 million improvement from the loss in 1992. The improvement was primarily
due to lower net interest and cost-cutting measures implemented at the company's
50%-owned affiliate, Shin Caterpillar Mitsubishi Ltd. in Japan.
FOURTH-QUARTER RESULTS
Caterpillar reported fourth-quarter profit of $148 million or $1.46 per share
excluding the extraordinary loss of $29 million related to the early retirement
of certain high interest rate debt. Including the extraordinary loss, profit was
$119 million or $1.17 per share of common stock.
Excluding the extraordinary loss, profit improved $150 million from the $2
million loss recorded in the fourth quarter 1992. Sales and revenues were $3.17
billion, an increase of $434 million, or 16%.
Income taxes for the fourth quarter were $64 million. The fourth quarter
included an unfavorable year-to-date adjustment of $7 million as actual taxes
for the year were slightly higher than the estimated annual rate used for the
first nine months.
The company's share of affiliated companies' earnings was less than $1
million, compared with a $5 million loss in the fourth quarter 1992. The
improvement was principally at Shin Caterpillar Mitsubishi and was primarily due
to lower net interest and cost-cutting measures.
MACHINERY AND ENGINES
Profit before tax related to Machinery and Engines was $195 million, a $209
million improvement from the $14 million loss a year ago. Sales of $3.07 billion
were up $423 million - 12% higher physical sales volume and a 4% improvement in
price realization.
Sales volume improved significantly inside the United States but was about
flat outside the United States. The improvement inside the United States was due
to improved U.S. industry demand, increased share of industry sales, and an
increase in dealer inventories.
The improvement in price realization was the result of price increases taken
over the past year and a favorable shift in the geographic sales mix. These
gains were partially offset by the impact of weaker European currencies as sales
translated into fewer U. S. dollars.
The improvement in profit was due primarily to the higher sales and the effect
of the stronger U.S. dollar on costs in European currencies, partially offset by
the absence of last year's $53 million net gain on the sale of lift-truck-
related assets, and a shift in the mix of sales as relatively more lower margin
machines and engines were sold. All other costs, adjusted for volume, were about
the same as last year's fourth quarter.
Results of the company's Brazilian operations improved, but remained
unprofitable. They continued to have a material adverse effect on consolidated
results.
FINANCIAL PRODUCTS
The Financial Products before-tax profit was $17 million, an improvement of $5
million over the fourth quarter 1992. The improvement was primarily due to
Caterpillar Insurance Co. Ltd.
Revenues were $101 million, up $11 million from fourth quarter 1992. The
increase in revenues resulted primarily from a larger portfolio of earning
assets at Caterpillar Financial Services Corporation. Cat Financial financed new
retail business of $656 million, a $229 million or 53% increase, compared with
the fourth quarter 1992.
1993 SALES
<TABLE>
<CAPTION>
1993 1992 1991
----------------------
(BILLIONS)
<S> <C> <C> <C>
Sales................................................... $11.24 $ 9.84 $ 9.84
- --------------------------------------------------------------------------------
</TABLE>
Caterpillar's worldwide sales totaled $11.24 billion in 1993, a $1.40 billion or
14% increase over 1992. Most lift truck sales were excluded for 1993, but only
for the second half of 1992 due to the commencement of the lift truck joint
venture. Excluding lift truck sales for both years, Caterpillar sales increased
$1.60 billion.
For the year, total physical sales volume increased about 10%. This
improvement was due to an increased share of industry sales and higher industry
demand which more than offset reductions in dealer inventories and lift truck
sales. Geographically, significant increases in the United States, the
Asia/Pacific region, and Canada more than offset moderate declines in Europe,
the Africa/Middle East region, and Latin America.
A-27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
SALES BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------
(BILLIONS)
<S> <C> <C> <C>
Machinery........................................... $ 8.14 $7.21 $7.40
Engines............................................. 3.10 2.63 2.44
------ ----- -----
$11.24 $9.84 $9.84
====== ===== =====
- --------------------------------------------------------------------------------
</TABLE>
Worldwide sales for the Machinery segment increased 13% from 1992. Most of the
improvement was due to an increased share of industry sales both inside and
outside the United States. Higher industry demand also contributed to the gain
with a significant increase in the United States, which more than offset a
decline in the rest of the world. The gain was tempered by the phase out of the
lift truck business and by a reduction in dealer inventories as decreases
outside the United States more than offset increases inside.
Engine segment sales increased 18% over 1992 levels. Sales volume increased
significantly in the United States and Canada due to much higher truck engine
industry demand and an improved share of industry sales. Company engine sales
also rose considerably in the Asia/Pacific region. Worldwide, company sales of
both diesel and turbine engines reached all-time highs.
<TABLE>
<CAPTION>
Sales Inside/Sales Outside
(Billions of Dollars)
(ON SCALE FROM $0 TO $12 BILLION)
<S> <C> <C> <C>
Measurement Period Inside Outside Total
Fiscal Year Covered Sales Sales Sales
FYE 12/31/89 5.13 5.75 10.88
FYE 12/31/90 5.02 6.08 11.10
FYE 12/31/91 4.05 5.78 9.83
FYE 12/31/92 4.42 5.42 9.84
FYE 12/31/93 5.71 5.52 11.23
</TABLE>
CATERPILLAR SALES INSIDE THE UNITED STATES
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------
(BILLIONS)
<S> <C> <C> <C>
Machinery................................... $ 4.27 $ 3.23 $ 3.01
Engines..................................... 1.44 1.19 1.05
------ ------ ------
$ 5.71 $ 4.42 $ 4.06
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
Caterpillar sales inside the United States were $5.71 billion, a $1.29 billion
or 29% increase over 1992, resulting primarily from much stronger industry
demand for both machines and engines. The increase also reflects a significantly
improved share of industry sales and higher price realization. Sales inside the
United States represented 51% of the worldwide total, up considerably from 45%
in 1992.
The higher industry demand for machinery reflects increased replacement buying
because of low interest rates, improved cash flow and generally improving levels
of activity in most applications. While most activity levels improved during the
course of the year, none except housing was noticeably higher for the year as a
whole, confirming the important role interest rates and cash flow played in
stimulating sales. The introduction over the past two years of many new models
also contributed to the increase in replacement purchases and to the increased
share of industry sales.
As a result of the higher industry demand and improved share of industry
sales, dealer sales of Caterpillar machinery increased significantly in 1993.
Dealer machine sales into most construction sectors increased substantially:
. Commercial, industrial and governmental building sector sales were higher
for the second year in a row, although sales fell off slightly in the second
half. Building construction levels in these sectors remained at 1992 levels
despite an improving trend through the year.
. Sales to highway contractors continued the improvement begun in mid-1992 in
response to the higher highway construction and repair spending authorized
by Congress in December 1991.
. Sales to housing contractors also rose for the second consecutive year in
response to a 7% increase in housing starts stimulated by mortgage rates
that reached a 25-year low. Sales growth was particularly strong late in the
year when housing starts began to increase rapidly.
Dealer machine sales into the commodity sector increased significantly -
although results were mixed by sector:
. Sales into coal mining increased moderately, although coal production
declined slightly in response to the United Mine Workers strike and mild
temperatures. Coal prices also declined during the year.
. Sand and quarry mining sales increased significantly, although mine
production was flat.
. Sales into metal mining were moderately higher, but trended down in the
second half. Metal mine production rose slightly, while prices were lower
for the year.
. Forestry sales considerably exceeded 1992 levels, but also trended down in
the second half. Forest production was unchanged, but prices were
substantially higher due primarily to environmental restrictions on supply.
. Sales into agriculture were significantly higher as the farm economy
improved.
. Petroleum sales declined moderately as natural gas pipeline construction
decreased, oil prices fell, and drilling rig activity remained at relatively
low levels.
Dealer machine sales into other sectors rose considerably. Sales to industrial
applications (primarily the manufacture and sale of building materials)
increased significantly, while sales to solid waste applications rose
moderately.
Engine segment sales rose 21% in 1993 due to much stronger diesel engine
sales, particularly heavy-duty truck engines. Diesel engine sales were up
sharply due both to higher industry demand and an increased share of industry
sales. The truck
A-28
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
engine industry registered particularly strong growth in 1993 as low interest
rates and increased economic activity stimulated a significant increase in
on-highway truck sales by Original Equipment Manufacturers (OEMs). Sales in the
United States of turbine engines declined moderately.
Direct sales of machines and engines to the U.S. Department of Defense fell
2% to $53 million in 1993.
CATERPILLAR SALES OUTSIDE THE UNITED STATES
<TABLE>
<CAPTION>
1993 1992 1991
-----------------------
(BILLIONS)
<S> <C> <C> <C>
Machinery............................................ $3.87 $3.98 $4.39
Engines.............................................. 1.66 1.44 1.39
----- ----- -----
$5.53 $5.42 $5.78
===== ===== =====
- ------------------------------------------------------------------------------
</TABLE>
Caterpillar sales outside the United States totaled $5.53 billion, a $106
million or 2% increase from 1992. These sales represented 49% of the worldwide
total, down from 55% in 1992.
Sales increased slightly from 1992 levels as an increased share of industry
sales and higher price realization were partially offset by dealer inventory
reductions, fewer lift truck sales, and lower industry demand. Geographically,
higher sales in the Asia/Pacific region and Canada were offset by lower sales in
Europe, Africa/Middle East, and Latin America.
The decline in Machinery segment sales is wholly attributable to the absence
of most lift-truck-related sales in 1993. Even with an adjustment for lift
trucks, however, machinery sales would not have shown any growth in 1993 due to
dealer inventory reductions primarily in Europe and the Africa/Middle East
region.
Engine segment sales rose 15%. Diesel engine sales rose considerably due to a
significant increase in truck engine demand by OEMs in Canada. Elsewhere, sales
of diesel engines registered smaller gains with the exception of Latin America
and the Africa/Middle East region where sales fell moderately. Company sales of
turbine engines increased moderately.
ASIA/PACIFIC
Sales rose about 23% after declining in 1992.
Sales were up moderately in Australia as the economy continued to strengthen
in response to low interest rates and fiscal stimulus. Sales of machines to end-
users were up in most applications including metal and non-metal mining and
housing. Sales to the coal mining sector declined. Sales of diesel engines to
OEMs and end-users rose considerably.
The ongoing recession in Japan led to another year of lower private
construction activity and a third year of industry decline. Dealer machine sales
of U.S.-built product fell moderately, but the impact on company sales was
offset by less inventory reduction in 1993 than in 1992.
In the rest of the Asia/Pacific region, sales rose significantly, reversing a
two-year decline. Easier monetary and fiscal policies stimulated better economic
growth throughout the region leading to higher machine end-user demand in all
market applications except large public construction projects. Sales rose in all
major countries except South Korea. China in particular registered excellent
economic growth and machine sales rose considerably. Sales of diesel engines
also rose significantly in the Asia/Pacific region.
EUROPE
Sales declined about 12% as most of Western Europe remained mired in the worst
recession since World War II. A prolonged period of tight monetary policy
resulted in negative economic growth for Europe in 1993, and sales declined in
nearly all Western European countries. Exceptions were the United Kingdom, where
economic recovery is underway, and several Scandinavian countries as well as
Switzerland where interest rates fell substantially. In contrast to the 12%
decline in company sales, dealer sales to users declined only slightly for both
machines and engines, reflecting the impact of inventory reductions on company
sales.
Sales into the Commonwealth of Independent States (CIS) rose significantly as
a result of several large transactions to provide equipment for oil and mining
sectors.
Sales to Eastern European countries continued to increase, but remained
limited due to balance of payments constraints.
LATIN AMERICA
Sales were flat excluding a decline in turbine engine sales due to the
completion in 1992 of a large turbine engine project in Venezuela. In Brazil,
company sales were up slightly as the economy recovered from recession in 1992.
Outside Brazil, an end to dealer inventory increases resulted in flat machine
and diesel engine sales despite moderately higher sales to end-users and
moderate economic growth. Mexico was an exception where both company and end-
user sales fell considerably due to the weak economy.
AFRICA/MIDDLE EAST
Sales declined about 10%. Reductions occurred in both the Middle East and
Africa. In Iran, government financial difficulties resulted in significantly
lower sales which more than offset sizable gains in several other Middle East
countries.
Sales in South Africa declined considerably reflecting political uncertainty
and the lingering effect of the four-year recession. Sales in developing Africa
also declined, primarily due to weak commodity prices and a generally poor
economic climate.
CANADA
Sales rose about 30% following three years of decline. The improvement reflects
moderately higher industry growth as well as an increased share of industry
sales.
The investment climate improved considerably in 1993 as the economy posted
moderate growth. Lower interest rates and improved cash flow contributed to
machine growth in all market applications except metal mining and government
construction projects. Diesel engine sales rose very significantly, primarily to
OEMs.
DEALER INVENTORIES OF NEW MACHINES AND ENGINES
U.S. dealers' new machine inventories rose considerably in 1993, and at year-end
were about normal relative to current selling rates. U.S. dealer engine
inventories at year-end were
A-29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- --------------------------------------------------------------------------------
slightly below 1992 levels but about normal relative to current selling rates.
Outside the United States, dealers' new machine inventories declined
significantly in 1993 and by year-end were slightly below normal relative to
current selling rates. Engine inventories were slightly above 1992 levels, but
about normal relative to current selling rates.
1992 COMPARED WITH 1991
Excluding the effects of new accounting standards, the company incurred a loss
of $190 million or $1.88 per share of common stock for 1992. Including
incremental expense of $28 million due to the new standards, the loss was $218
million or $2.16 per share of common stock. Consolidated sales and revenues for
the year were $10.19 billion, about the same as 1991.
In the fourth quarter of 1992, the company adopted three new accounting
standards effective January 1, 1992: Statement of Financial Accounting Standards
(SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions"; SFAS 112, "Employers' Accounting for Postemployment Benefits"; and
SFAS 109, "Accounting for Income Taxes." The transition effect of the new
accounting standards resulted in an additional loss of $2,217 million after tax.
Including this effect, the 1992 loss was $2,435 million or $24.12 per share of
common stock.
In 1991, the company incurred a loss of $404 million or $4.00 per share. This
included $373 million of pretax nonrecurring charges, primarily for plant
closing and consolidation and other employee redundancy costs.
Of the $190 million loss in 1992 excluding the effects of adopting the new
accounting standards, approximately one-half can be attributed to losses from
Brazilian operations.
From November 1991 through April 1992, several of the company's facilities
were struck by the United Auto Workers (UAW) union. The strike did not, however,
have a material effect on 1991 or 1992 results.
The Consolidated pretax loss was $318 million - a $373 million loss from
Machinery and Engines, partially offset by a $55 million profit from Financial
Products. The 1992 Consolidated pretax loss excludes the transition adjustment
related to the new accounting standards, but includes 1992 incremental pretax
expense of $117 million related to the new standards. The Consolidated pretax
loss is $253 million less than the pretax loss of $571 million in 1991.
A $114 million tax benefit was recorded in 1992, compared with a tax benefit
of $152 million in 1991.
The company's share of the loss of affiliated companies was $14 million
compared with a profit of $15 million in 1991. The difference was principally
attributable to the company's 50%-owned affiliate, Shin Caterpillar Mitsubishi
Ltd. in Japan, and was due to lower sales and the absence of gains on the 1991
sale of surplus assets.
MACHINERY AND ENGINES
1992 sales of $9.84 billion were the same as 1991 sales. The before-tax loss
related to Machinery and Engines was $373 million. Excluding $117 million of
incremental pretax expenses related to the new accounting standards, the before-
tax loss was $256 million, compared with a $621 million pretax loss in 1991.
Losses in both years were affected by nonrecurring items - $373 million of
expense in 1991 and income of $24 million in 1992. The 1991 expenses included
$262 million for plant closings and consolidations, and $111 million for
employee redundancy costs other than for plant closings and the write-off of
some machinery and equipment. The $24 million of income in 1992 was the result
of a $53 million net gain from the sale of assets to the new lift truck joint
venture ($51 million of the net benefit was a result of the LIFO inventory
decrement related to sale of inventory assets), partially offset by $29 million
of other nonrecurring costs. Included in these costs are a $13 million charge
for voluntary environmental clean-up at Solar Turbines Incorporated, a wholly
owned subsidiary; various smaller environmental clean-up charges at other sites;
charges for employee redundancy at various locations; and other smaller asset
write-offs.
Excluding the incremental expenses related to accounting changes in 1992 and
excluding the nonrecurring items in both years, the before-tax loss was $280
million in 1992, compared with a pretax loss of $248 million in 1991.
The favorable items affecting results were:
. Improved price realization. Although total sales were about the same as
1991, price realization improved about 4 1/2% while sales volume
declined about 4 1/2%. The improvement in price realization was the
result of price increases and the effect of a weaker dollar as sales in
European currencies translated into more dollars. The benefit of the weaker
dollar was reduced by currency hedges covering a portion of sales of U.S.
manufactured products sold into Europe. The hedges were put in place in 1991
to protect margins against potential strengthening of the U.S. dollar;
. Adjustments to cost of goods sold relating to inventory as a result of
periodic reconciliation of inventory stock records to the accounting
records;
. LIFO inventory decrement benefits increased $7 million, from $23 million in
1991 to $30 million in 1992 (excluding benefits that occurred as a result of
the sale of inventory to the lift truck joint venture).
The unfavorable items were:
. A 4 1/2% decline in physical sales volume caused by a decline in market
demand;
. Higher costs resulting from a weaker dollar, as costs in European currencies
translated into more U.S. dollars. While the weakening of the dollar
affected both costs and sales, the net effect on results was unfavorable;
. Unfavorable changes in the mix of sales as relatively more lower margin
machines and engines were sold;
. Higher costs as a result of inflation, particularly for wages and benefits.
Although costs were higher, much of the effect of inflation was offset by
employment reductions on all payrolls;
. Increased depreciation and amortization of $43 million;
A-30
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
. Higher interest expense; and
. Currency exchange losses of $11 million in 1992. 1991 gains were $9 million.
FINANCIAL PRODUCTS
Financial Products' pretax profit was $55 million, a $5 million improvement over
1991. Revenues were $354 million, $10 million higher than in 1991. The new
accounting standards did not have a significant effect on Financial Products'
pretax results.
The net improvement in revenues was due to an increase in Caterpillar
Financial Services' portfolio, partially offset by Caterpillar Insurance
discontinuing a casualty insurance program for dealers. Cat Financial's
portfolio totaled $2.81 billion at year-end 1992, compared with $2.44 billion at
the end of 1991.
The $5 million improvement in pretax profit was principally due to the growth
in Cat Financial's revenues.
The provision recorded for credit losses was $20 million, $7 million higher
than 1991. Receivables of $14 million were written off against the allowance for
credit losses in 1992, compared with $13 million in 1991. At year-end, the
allowance was $37 million or 1.4% of finance receivables, compared with $31
million or 1.4% at year-end 1991.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Consolidated cash generated by operating activities totaled $1.40 billion in
1993, compared with $503 million in 1992.
Total debt was $5.43 billion, a decrease of $244 million from year-end 1992.
Over this period, debt related to Machinery and Engines decreased $884 million,
and debt related to Financial Products increased $640 million.
MACHINERY AND ENGINES
Cash provided from operating activities related to Machinery and Engines totaled
$1.27 billion, compared with $382 million in 1992. The improvement in cash flow
is primarily the result of improved profitability, including the impact of the
tax refund, and a decrease in inventory, partially offset by higher receivables
due to the increase in sales.
Capital expenditures, excluding equipment leased to others, totaled $415
million in 1993, compared with $513 million a year ago - the fourth consecutive
year of decline, reflecting the completion of the company's plant modernization
program and improved asset management. 1994 capital expenditures, excluding
equipment leased to others, are expected to be slightly higher than 1993.
During 1993, Machinery and Engines debt dropped $884 million. Long-term debt
totaling $408 million matured, was called, or was repurchased in the market. New
long-term debt totaling $200 million was issued.
The percent of debt to debt plus equity (excluding Financial Products) was
52%, at December 31, 1993 - down significantly from 68% a year ago.
In October 1993, the company received a net tax refund and related interest
totaling $300 million. This refund was used to reduce outstanding debt,
including the market repurchase of long-term debt totaling $203 million. The
repurchase of debt completed the planned retirement announced in September.
FINANCIAL PRODUCTS
Cash flows from operations related to Financial Products totaled $131 million in
1993, compared with $125 million a year ago.
Cash used to purchase equipment leased to others totaled $203 million in 1993.
In addition, at December 31, 1993, net finance receivables increased $615
million from December 31, 1992 levels.
Financial Products' debt was $3.04 billion at year-end 1993, an increase of
$640 million compared with year-end 1992.
At the end of the year, finance receivables past due over 30 days were 1.9%,
compared with 2.5% at the end of 1992.
The ratio of debt to equity of Cat Financial was 7.3:1 at December 31, 1993,
compared with 6.8:1 at December 31, 1992.
Financial Products had outstanding credit lines totaling $1.51 billion at
year-end 1993, which included a $455 million revolving credit agreement. Credit
lines of $1.24 billion were utilized for backup for commercial paper,
discounting of bank trade bills, bank borrowings, and a credit/liquidity
enhancement facility. The balance was available to support the issuance of
additional commercial paper and for other borrowings.
DIVIDENDS
Quarterly dividends paid per share of common stock for the last three years were
as follows:
<TABLE>
<CAPTION>
QUARTER 1993 1992 1991
- ------------------------------------------
<S> <C> <C> <C>
First................ $ .15 $ .15 $ .30
Second............... .15 .15 .30
Third................ .15 .15 .30
Fourth............... .15 .15 .30
----- ----- -----
$ .60 $ .60 $1.20
===== ===== =====
</TABLE>
EMPLOYMENT
- ----------
At year-end, Caterpillar's worldwide employment was 51,250, an increase of 501
from the end of 1992. Hourly employment increased 725 to 29,458 from year-end
1992. Salaried and management employment decreased 224 to 21,792 despite the
sales volume increase.
<TABLE>
<CAPTION>
YEAR-END EMPLOYMENT 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Inside United States............. 38,103 37,311
Outside United States
Europe......................... 7,999 8,011
Latin America.................. 3,735 4,088
Asia/Pacific................... 1,235 1,155
Canada......................... 91 97
Other.......................... 87 87
------ ------
13,147 13,147 13,438 13,438
------ ------
Total Employment................. 51,250 50,749
====== ======
- -----------------------------------------------------------------
A-31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- -------------------------------------------------------------------------------
OTHER MATTERS
- -------------
ENVIRONMENTAL MATTERS
The company's facilities and products are subject to extensive environmental
laws and regulations. Research, engineering, and operating expenses relating to
environmental protection totaled approximately $126 million in 1993, and are
expected to remain relatively constant for 1994. Such expenses include
depreciation expenses of approximately $10 million, but exclude reserves
described hereinafter. Capital expenditures for pollution abatement and control
for 1993 were approximately $11 million, approximately 2.5% of total capital
expenditures. For 1994, the company estimates that such capital expenditures
will approximate $17 million.
It is expected that these expenditure levels will continue and may increase
over time. However, the ultimate cost of future compliance is uncertain due to a
number of factors such as the evolving nature and interpretation of
environmental laws and regulations, the extent of remediation which may be
required at sites identified by the Environmental Protection Agency (EPA), or
comparable state authorities, and evolving technologies. The 1990 Amendments to
the Clean Air Act provide, among other things, for more stringent air emission
standards which may require significant expenditures to bring the company's
facilities into compliance and to redesign certain of the company's products.
The 1990 Amendments are scheduled to be implemented throughout the 1990s and the
first decade of the 21st century. However, a large number of the regulations
which will be required to achieve that implementation have not yet been proposed
or promulgated. In 1993, capital and operating expenditures attributed to
compliance with the 1990 Amendments were approximately $15 million. Expenditures
for 1994 are expected to be approximately $19 million.
Based on a preliminary environmental assessment, during 1992 Solar Turbines
Incorporated (Solar), a subsidiary of Caterpillar Inc. since 1981, estimated
that assessment, remediation, and preventative expenditures for contamination of
its Harbor Drive facility in San Diego, California, will be approximately $30 to
$50 million expended over the next 25 years, a significant portion of which will
be capital expenditures. The contamination of Harbor Drive, a manufacturing
facility for over 60 years, involves cleaning solvents, petroleum products, and
metal products, which have been found in both soil and groundwater samples.
Solar has been working closely with state and local agencies on this issue.
While subject to further analysis, Solar believes that a substantial portion of
the expenditures may be recoverable from third parties who previously conducted
manufacturing or other operations on or adjacent to the site. A reserve of $13
million was recorded in the third quarter of 1992 with respect to this matter.
Remediation expenses with respect to Harbor Drive were $3 million for 1993.
Also in 1992, a reserve of $5 million was recorded with respect to estimated
costs of remediation of soil and groundwater contamination at locations at other
company facilities. This reserve includes $4 million for estimated costs to
remediate potential groundwater contamination at a former Caterpillar facility
located in San Leandro, California. Remediation efforts have been ongoing, and
the company has been working closely with the California Department of Toxic
Substances Control in its remediation efforts. Remediation expenses with respect
to San Leandro were less than $1 million for 1993.
As of December 31, 1993, the company, in conjunction with numerous other
parties, has been identified as a potentially responsible party (PRP) at 18
active sites identified by the EPA, or similar state authorities for remediation
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA), or comparable federal or state statutes (CERCLA sites).
Lawsuits and claims involving additional environmental matters are likely to
arise from time to time.
CERCLA and facility sites are in varying stages of investigation and
remediation. As a result, management's assessment of potential liability and
remediation costs have been based on currently available facts, the stage of the
proceedings, the number of PRPs identified, documentation available, currently
anticipated and reasonably identifiable remediation costs, amounts contributed
by the company on a pro-rata basis toward investigation and remediation costs,
existing technology, presently enacted laws and regulations, and other factors.
While the company may have rights of contribution or reimbursement under
insurance policies, such issues are not factors in management's estimation of
liability.
Based on the foregoing factors, management believes that it is unlikely that
any identified matters, either individually or in the aggregate, will have a
material adverse effect on the company's consolidated financial position,
results of operations or capital expenditures. Remediation and monitoring
expenses actually incurred in 1993 in respect of CERCLA sites and soil and
groundwater contamination at company facilities (including Harbor Drive and San
Leandro sites noted above) were approximately $4 million.
LITIGATION
On July 18, 1990 and July 20, 1990, two class action complaints were filed
against the company and certain of its officers and directors in United States
District Court for the Central District of Illinois ("District Court") on behalf
of all persons (other than the defendants) who purchased or otherwise acquired
common stock of the company and certain options relating to common stock of the
company between January 19, 1990 and June 26, 1990 (the "Class Period"),
alleging, among other things, violations of certain provisions of the federal
securities laws. The two cases were consolidated on April 2, 1991 ("Consolidated
Class Actions"). The consolidated complaint alleged that the defendants
fraudulently issued public statements and reports during the Class Period which
were misleading in that they failed to disclose material adverse information
relating to the company's Brazilian operations, its factory modernization
program and its reorganization plan.
The plaintiffs and the defendants, with the active participation and approval
of the company's directors and officers liability insurer (the "Insurer"), have
reached an agreement regarding settlement of the Consolidated Class Actions. The
settlement is contingent upon approval by the District Court and certain other
contingencies.
Pursuant to the directors and officers liability policy (the "Policy"), the
company has requested that the Insurer acknowledge that 100% of the amount to be
paid under the settlement
A-32
<PAGE>
CATERPILLAR INC.
- -------------------------------------------------------------------------------
agreement, beyond the company's self-insured retention under the Policy, is
covered by the Policy. Because the company is named as a co-defendant in the
Consolidated Class Actions, the insurer has denied coverage for a portion of the
settlement amount, claiming that some liability must be attributable to the
company and not covered under the Policy. The company has been advised that the
position of the Insurer is contrary to applicable law and the company has
brought an action in the District Court against the Insurer for breach of
contract and declaratory relief ("Declaratory Judgment Action"). The company
believes a successful recovery against the Insurer is likely in this Declaratory
Judgment Action. If that recovery is obtained, the company believes that its
cost with respect to the settlement of the Consolidated Class Actions will
approximate costs necessary to litigate the Consolidated Class Actions to a
successful conclusion at trial. Regardless of whether the company is successful
in the Declaratory Judgment Action, the company does not believe the settlement
of the Consolidated Class Actions will have a materially negative impact on the
company's financial condition or results of operations.
On May 12, 1993, a Statement of Objections ("Statement") was filed by the
Commission of European Communities against Caterpillar Inc. and certain overseas
subsidiaries. The Statement alleges that certain service fees payable by
dealers, certain dealer recordkeeping obligations, a restriction which prohibits
a European Community ("EC") dealer from appointing subdealers, and certain
export pricing practices and parts policies violate EC competition law under
Article 85 of the European Economic Community Treaty. The Statement seeks
injunctive relief and unspecified fines. Based on an opinion of counsel, the
company believes it has strong defenses to each allegation set forth in the
Statement.
On November 19, 1993, the Commission of European Communities informed the
company that a new complaint has been received by it alleging that certain
export parts policies violate Article 85 and Article 86 of the European Economic
Community Treaty. The Commission advised the company that it intends to deal
with the new complaint within the framework of the proceedings initiated on May
12, 1993. Based on an opinion of counsel, the company believes it has strong
defenses to the allegations set forth in the new complaint.
ACCOUNTING CHANGES
In the fourth quarter of 1992, effective January 1, 1992, Caterpillar adopted
SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions"; SFAS 112, "Employers' Accounting for Postemployment Benefits"; and
SFAS 109, "Accounting for Income Taxes."
SFAS 106 requires recognition of the cost of providing postretirement health
care and life insurance benefits over the employee service period. Caterpillar,
like most U.S. companies, formerly charged the cost of providing these benefits
against operations as claims were incurred. SFAS 112 requires recognition of the
cost of providing other postemployment benefits when it is probable that the
benefit will be provided. Such benefits include disability and workers'
compensation benefits and continuation of health care benefits. Caterpillar had
previously charged the cost of providing certain types of these benefits,
primarily health care benefits, against operations as claims were incurred. SFAS
109 requires changing the method of accounting for income taxes from the
deferred method to the liability method. None of the accounting changes affect
cash flows.
The effect of the changes, as of January 1, 1992, was as follows:
</TABLE>
<TABLE>
<CAPTION>
PROFIT
(LOSS)
PER SHARE
PROFIT OF COMMON
(LOSS) STOCK
----------------------
<S> <C> <C>
(DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA)
Postretirement benefits other than
pensions, net of applicable
income taxes (SFAS 106).......................... $(2,141) $(21.21)
Postemployment benefits, net
of applicable income taxes
(SFAS 112)....................................... (29) (.29)
Income taxes (SFAS 109)............................ (47) (.46)
------- -------
$(2,217) $(21.96)
======= =======
</TABLE>
- -------------------------------------------------------------------------------
In addition to the above transition effects, incremental expense for 1992
resulting from the accounting changes was as follows:
<TABLE>
<CAPTION>
(EXPENSE)/INCOME
--------------------------
BEFORE TAX AFTER TAX
--------------------------
(MILLIONS)
<S> <C> <C>
Postretirement benefits other than
pension (SFAS 106)............................... $(113) $(65)
Postemployment benefits
(SFAS 112)....................................... (11) (7)
Income taxes (SFAS 109)............................ 7 44
----- ----
$(117) $(28)
===== ====
</TABLE>
- -------------------------------------------------------------------------------
INCOME TAXES
SFAS 109, "Accounting for Income Taxes," requires, among other things, the
separate recognition, measured at currently enacted tax rates, of deferred tax
assets and deferred tax liabilities for the tax effect of temporary differences
between the financial reporting and tax reporting bases of assets and
liabilities, and net operating loss and tax credit carryforwards for tax
purposes. A valuation allowance must be established for deferred tax assets if
it is "more likely than not" that all or a portion will not be realized.
At the end of 1993, foreign net operating loss carryforwards of $613 million
were available in various tax jurisdictions. Of these carryforwards, $139
million are available for limited periods of time, expiring between 1994 and
1999 based on local tax law. The balance of $474 million is available for an
unlimited time period. Management believes it is likely that tax benefits will
be realized for net deferred tax assets in those foreign tax jurisdictions in
which the company has a net operating loss carryforward. However, there is not
sufficient objective positive evidence as required by SFAS 109 to substantiate
recognition in the financial statements. Accordingly, a valuation allowance
totaling $284 million has been recorded for all deferred tax assets at these
foreign subsidiaries to the extent the assets are not offset with deferred tax
liabilities in the same tax jurisdiction.
A-33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- -------------------------------------------------------------------------------
The company's domestic operations recorded pretax profits of $611 million in
1993, a significant turnabout from the $215 million and $491 million losses
recorded by its domestic operations in 1992 and 1991, respectively. However,
when the three years are combined, the company is still in a cumulative loss
position.
Certain U.S. federal tax credits are still available for a limited
carryforward period in the United States. Additionally, qualified deficits, as
defined by Internal Revenue Code section 952, are available for an indefinite
future period to offset the future profits of certain foreign entities whose
earnings are subject to U.S. taxation when earned. Management has concluded that
it is "more likely than not" that the company will ultimately realize the full
benefit of its U.S. deferred tax assets related to future deductible items, tax
credit carryforwards and qualified deficits. Accordingly, a valuation allowance
is not required for $1,630 million of U.S. deferred tax assets in excess of
deferred tax liabilities, of which $1,345 million is associated with future
deductible items related to other postretirement and postemployment benefits
under SFAS 106 and SFAS 112.
Because of the recent history of profits and losses, tax benefits of only $109
million for existing net U.S. deferred tax assets can be realized by offsetting
the tax liability of prior periods. The remainder can only be realized through
the generation of future taxable income. The amount of future income required,
based on currently enacted tax rates applied to the U.S. deferred tax asset
amount, is approximately $4.7 billion. Of this amount, approximately $3.5
billion can be earned over an extended number of years in order to realize the
deferred tax assets associated with postretirement and postemployment benefits.
Following is a summary of positive evidence leading to the conclusion that a
valuation allowance is not necessary for net deferred tax assets in the U.S. tax
jurisdiction:
. The profits recorded in 1993 were a significant turnabout from the losses
recorded in 1992 and 1991, and are consistent with the improvements in the
U.S. economy. Additional improvement in volume and profit are expected as
global economic conditions improve, as evidenced by significant sales growth
following previous recessions.
. Losses in 1992 and 1991 can be largely attributed to poor global economic
conditions and the resultant decline in sales volume.
. Market position has improved in recent years, and price increases have been
implemented.
. The competitive strength of the company's parts distribution network is
recognized throughout the industry.
. A huge field population of machines and engines is expected to generate
significant continuing demand for profitable replacement parts.
. The product line continues to be aggressively updated.
. The 1990 reorganization into 13 profit centers and four service divisions
has made the company more efficient, with a more focused accountability on
profit.
. Losses in 1991 were significantly impacted by nonrecurring charges related
to plant closing and consolidation costs.
. The market value of assets is significantly in excess of the book and tax
value of assets at those entities where income is required to obtain a tax
benefit for the qualified deficits.
. The $2 billion factory modernization program is virtually complete and began
making a positive contribution to results in 1992.
. Cost reduction has been a priority as reflected by employment reductions of
9,159 (15%) since year-end 1989. Additionally, health care initiatives
implemented in 1992, will limit future increases in employee medical costs.
. Caterpillar's size, organizational structure, and operating methods present
significant potential for tax planning strategies, in the event that the
company is unable to generate sufficient future taxable income from ordinary
and recurring operations to realize the tax benefit for its U.S. deferred
tax assets. Actions which could be taken to generate substantial amounts of
taxable income include changing inventory valuation methods for tax purposes
from the LIFO method to the FIFO (first-in, first-out) method and revising
tax basis depreciation methods.
Excluded from the net deferred tax assets discussed above are $193 million of
taxes paid by the seller on the profit generated from intercompany sale of
inventory remaining within the consolidated group as of the financial statement
date. This deferred tax asset represents the tax effect of a past event and is
not considered when assessing the need for a valuation allowance.
Reconciliations of the company's U.S. income (loss) before taxes for financial
statement purposes to U.S. taxable income for the years ended December 31 were
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------
(MILLIONS)
<S> <C> <C> <C>
Pretax accounting
income (loss)........................................ $611 $(215) $(491)
Exclusion of income of Foreign
Sales Corporation and other
permanent differences................................ 112 (97) 4
State income taxes..................................... (7) 17 11
Temporary differences:
Depreciation......................................... (20) (34) (16)
Plant closing and
consolidation costs................................ (16) (20) 211
Pension expense...................................... 12 (28) (31)
General insurance liability.......................... 7 (4) 34
Postemployment benefits.............................. (62) 141 -
Foreign exchange..................................... 16 51 27
Warranty............................................. 46 (5) (6)
Other................................................ (26) (30) 66
---- ----- -----
U.S. taxable income (loss)............................. $673 $(224) $(191)
==== ===== =====
</TABLE>
- -------------------------------------------------------------------------------
1994 ECONOMIC AND INDUSTRY OUTLOOK
- ----------------------------------
The economic outlook for 1994 is for moderate growth in North America and
Australia, but continued weakness in Europe and Japan. In the developing world,
excellent growth is forecast in the Far East, with moderate growth in other
regions.
A-34
<PAGE>
CATERPILLAR INC.
- -------------------------------------------------------------------------------
The U.S. economy registered very good growth late in 1993, but the tax
increases for deficit reduction are likely to slow the growth rate for 1994 back
to moderate levels. Interest rates are forecast to remain relatively low, and
corporate cash flow is expected to improve moderately. These factors, combined
with expected increases in most market activities Caterpillar serves (housing
for example), should lead to a moderate increase in machine industry demand. A
moderate improvement in the industry also is forecast for Canada where economic
growth is expected to accelerate in 1994.
In Western Europe, weak economic growth is forecast for the year since
interest rates in many countries are still too high for stronger recoveries to
begin. Further interest rate cuts are expected by mid-year which should
stimulate economic growth in the second half. Industry demand is likely to begin
improving sometime during the year, but is unlikely to start soon enough for the
industry to grow for the year as a whole. The United Kingdom is an exception,
where continued moderate economic growth should lead to a second year of
industry improvement.
In Japan, recession-like conditions are expected to last throughout the year
resulting in virtually no economic or industry growth. Moderate economic growth
is likely to continue in Australia although a dramatic reduction in federal
highway spending is expected to limit sales growth for construction equipment.
Recession and political turmoil are likely to continue in the CIS, but sales
to the natural resource sector should continue. Economic recoveries have begun
in some Eastern European countries but sales are forecast to remain limited.
The economic outlook for developing countries varies significantly by region.
Excellent growth is forecast to continue for the Asia/Pacific region, especially
China. Moderate growth is expected to continue in Latin America with a
significant improvement in Mexico due to the passage of NAFTA, lower interest
rates, and higher government spending. While moderate growth is forecast for
Brazil, political and economic uncertainties remain. Slower economic growth is
expected in the Africa/Middle East region due to continuing low commodity prices
and debt problems. Industry sales to these developing regions as a whole are
forecast to increase slightly with gains in the Asia/Pacific region and Latin
America more than offsetting a decline in the Africa/Middle East area.
1994 COMPANY SALES/PROFIT OUTLOOK
- ---------------------------------
Worldwide, company sales of machines and engines should improve moderately,
primarily due to continued increases in North America.
Labor conditions remain an uncertainty. Negotiations with the United Auto
Workers (UAW) union have not resumed. While the UAW strike ended in April 1992,
a new contract has not been signed. Production and shipment volumes from UAW-
represented facilities, however, continue to meet or exceed plans. Quality
levels continue to exceed pre-strike levels.
The company expects higher profits in 1994, excluding the net positive effect
of the nonrecurring items included in 1993 profit. The improvement is due to
expected moderate increases in worldwide sales of machines and engines. Results
could be influenced by uncertainties related to labor and economic conditions.
MANAGEMENT'S DISCUSSION AND ANALYSIS / /
A-35
<PAGE>
SUPPLEMENTAL STOCKHOLDER INFORMATION
ANNUAL MEETING
On Wednesday, April 13, 1994, at 10:30 a.m., MDT, the annual meeting of
stockholders will be held at the Loews Ventana Canyon Resort, Tucson, Arizona.
Requests for proxies are being sent to stockholders with this report mailed on
or about February 25, 1994.
STOCK TRANSFER AGENT
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
Telephone: (201) 324-0498
STOCK EXCHANGE LISTINGS
Caterpillar common stock is listed on stock exchanges in the United States,
Belgium, France, Germany, Great Britain, and Switzerland.
NUMBER OF STOCKHOLDERS
Stockholders of record at year-end totaled 29,968, compared with 33,651 at the
end of 1992. Approximately 5% of the outstanding shares are held by about 29,600
individuals. The remaining shares are held by trustees, banks, and other
institutions for additional thousands of owners.
Employees' investment and profit-sharing plans acquired 849,956 shares of
Caterpillar stock in 1993. Investment plans, for which membership is voluntary,
held 7,191,237 shares for employee accounts at 1993 year-end. Profit-sharing
plans, in which membership is automatic for most U.S. and Canadian employees in
eligible categories, held 121,124 shares at 1993 year-end.
COMMON STOCK PRICE RANGE
Quarterly price ranges of Caterpillar common stock on the New York Stock
Exchange, the principal market in which the stock is traded, were:
<TABLE>
<CAPTION>
1993 1992
-------------- --------------
Quarter HIGH LOW High Low
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First................................. 60 5/8 53 7/8 52 3/4 41 1/4
Second................................ 78 1/4 57 3/4 62 1/8 47 1/8
Third................................. 83 1/4 72 3/4 56 46 5/8
Fourth................................ 93 1/8 79 1/8 56 7/8 48 1/8
</TABLE>
AUTOMATIC DIVIDEND REINVESTMENT PLAN
An Automatic Dividend Reinvestment Plan - administered by First Chicago Trust
Company of New York - is available to stockholders. The plan provides a
convenient, low-cost method for stockholders to increase their ownership in
Caterpillar common stock. In addition, stockholders who elect to participate can
make optional cash payments to purchase more Caterpillar shares. Participation
may begin with any regularly scheduled dividend payment if an authorization form
is completed and returned to the administrator prior to the dividend record
date. Stockholders wishing further information may contact First Chicago Trust
Company of New York, P.O. Box 13531, Newark, New Jersey 07188-0001.
PUBLICATIONS FOR STOCKHOLDERS
Single copies of the company's 1993 annual report on Securities and Exchange
Commission Form 10-K (without exhibits) will be provided without charge to
stockholders after March 31, 1994, upon written request to:
Secretary
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-7310
The company also makes available to stockholders copies of its quarterly
financial reports, annual meeting report, and Form 10-Q reports. The quarterly
reports are mailed in April, July, and October. The annual meeting report is
mailed in May; 10-Q reports are available in May, August, and November.
INVESTOR INQUIRIES
For those seeking additional information about the corporation -
Institutional analysts, portfolio managers, and representatives of financial
institutions should contact:
Len A. Kuchan
Director of Investor Relations
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-5310
Telephone: (309) 675-4549
Facsimile: (309) 675-4457
Individual stockholders should contact:
Laurie J. Huxtable
Assistant Secretary
Caterpillar Inc.
100 N.E. Adams Street
Peoria, IL 61629-7310
Telephone: (309) 675-4610
A-36
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
DIRECTORS
<S> <C>
Lilyan H. Affinito/1,4/ Former Vice Chairman, Maxxam Group Inc.
Donald V. Fites/3,4/ Chairman and Chief Executive Officer, Caterpillar Inc.
John W. Fondahl/1,4/ Former Professor of Civil Engineering, Stanford University
David R. Goode/1,2/ Chairman, Chief Executive Officer & President, Norfolk Southern Corporation
James P. Gorter/1,2/ Chairman, Baker, Fentress & Company
Walter H. Helmerich, III/2,3/ Chairman, Helmerich & Payne, Inc.
Jerry R. Junkins/2,4/ Chairman, President, and Chief Executive Officer, Texas Instruments Incorporated
Charles F. Knight/1/ Chairman and Chief Executive Officer, Emerson Electric Co.
Peter A. Magowan/2,3/ Chairman, Safeway, Inc.; President & Managing General Partner, San Francisco Giants
George A. Schaefer/1,3/ Former Chairman, Caterpillar Inc.
Joshua I. Smith/3,4/ Chairman & Chief Executive Officer, The MAXIMA Corporation
James W. Wogsland Vice Chairman, Caterpillar Inc.
Clayton K. Yeutter/2,4/ Former U.S. Secretary of Agriculture, Former U.S. Trade Representative, Former Chairman
of the Republican National Committee, and Former Counselor for Domestic Affairs
</TABLE>
/1/Member of Audit Committee (Lilyan H. Affinito, chairman)
/2/Member of Compensation Committee (James P. Gorter, chairman)
/3/Member of Nominating Committee (Walter H. Helmerich, III, chairman)
/4/Member of Public Policy Committee (Clayton K. Yeutter, chairman)
OFFICERS
Donald V. Fites Chairman
James W. Wogsland Vice Chairman
Glen A. Barton Group President
Gerald S. Flaherty Group President
R. Rennie Atterbury III Vice President, General Counsel, and Secretary
James W. Baldwin Vice President
Vito H. Baumgartner Vice President
James S. Beard Vice President
Richard A. Benson Vice President
Ronald P. Bonati Vice President
James E. Despain Vice President
Robert C. Dryden Vice President
Roger E. Fischbach Vice President
Donald M. Ings Vice President
Keith G. Johnson Vice President
James W. Owens Vice President
Gerald Palmer Vice President
Robert C. Petterson Vice President
Siegfried R. Ramseyer Vice President
Alan J. Rassi Vice President
Gary A. Stroup Vice President
Richard L. Thompson Vice President
Wayne M. Zimmerman Vice President
Len A. Kuchan Director of Investor Relations
Robert R. Gallagher Controller
Rudolf W. Wuttke Treasurer
Robin D. Beran Assistant Treasurer
Mary J. Callahan Assistant Secretary
Laurie J. Huxtable Assistant Secretary
__________
Note: All director/officer information above is as of December 31, 1993.
A-37
<PAGE>
NOTES
- --------------------------------------------------------------------------------
A-38
<PAGE>
NOTES
- --------------------------------------------------------------------------------
A-39
<PAGE>
Please mark your 1433
[X] votes as in this
example.
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposal 2, and AGAINST proposals 3, 4 and 5
The Board of Directors recommends a vote FOR election of directors and proposal
2.
FOR WITHHELD
1. Election of Directors [_] [_]
(See reverse)
FOR AGAINST ABSTAIN
2. Appointment of Independent [_] [_] [_]
Auditors
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposals 3, 4 and
5.
FOR AGAINST ABSTAIN
3. Stockholder proposal [_] [_] [_]
4. Stockholder proposal [_] [_] [_]
5. Stockholder proposal [_] [_] [_]
SIGNATURE(S)_______________________ DATE________________
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
+ FOLD AND DETACH HERE +
ADMISSION TICKET
CATERPILLAR INC.
Annual Meeting of Stockholders
Wednesday, April 13, 1994
10:30 a.m.
Loews Ventana Canyon Resort
7000 North Resort Drive
Tucson, Arizona
<PAGE>
P R O X Y
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS--APRIL 13, 1994
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints C.K. YEUTTER and G.A. SCHAEFER, and each of
them, proxies with power of substitution to vote the stock of the undersigned at
the Annual Meeting of Stockholders of the Company on April 13, 1994, or at any
adjournments thereof, on the following matters, and, in their discretion, on any
other matters that may come before the meeting.
Election of Directors. Nominees:
L.H. Affinito, D.V. Fites, J.W. Fondahl, D.R. Goode, J.I. Smith
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
SEE REVERSE
SIDE
(LOGO) Printed on recycled paper
+ FOLD AND DETACH HERE +
SOME THOUGHTS ABOUT CATERPILLAR FROM THE CHAIRMAN:
"When it comes to today's global economy, if you're not competitive
everywhere--you're not competitive anywhere.''
Equipment Manufacturers' Institute
100th Convention
September 27, 1993
"Somehow people have the notion that manufacturing has been hollowed out here in
the Midwest and everybody is flipping hamburgers. But at Caterpillar, as
with many other companies here, we're slimmed down and muscled up."
Wall Street Journal
January 3, 1994
"The final word on modernization is this: Caterpillar's factories and
manufacturing processes are now ready for the 21st century . . . and
distinguish us as one of a handful of U.S.-headquartered, world class,
heavy-duty iron cutters." New York Society of Security Analysts
November 15, 1993
"Caterpillar people deserve the credit for our success . . . they are as
tough and tenacious as the products they build."
Antique Caterpillar Machinery Owners' Club
November 9, 1993
"Caterpillar has turned it around. We're not yet as good as we can be . . . or
will be. But we do have momentum . . . and we do remain a solid investment
for current and future stockholders."
New York Society of Security Analysts
November 15, 1993
DONALD V. FITES
Donald V. Fites
(CATERPILLAR LOGO) Chairman & CEO
<PAGE>
Please mark your 9050
[X] votes as in this
example.
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposal 2, and AGAINST proposals 3, 4 and 5
The Board of Directors recommends a vote FOR election of directors and proposal
2.
FOR WITHHELD
1. Election of Directors [_] [_]
(See reverse)
FOR AGAINST ABSTAIN
2. Appointment of Independent [_] [_] [_]
Auditors
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposals 3, 4 and
5.
FOR AGAINST ABSTAIN
3. Stockholder proposal [_] [_] [_]
4. Stockholder proposal [_] [_] [_]
5. Stockholder proposal [_] [_] [_]
SIGNATURE(S)_______________________ DATE________________
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
+ FOLD AND DETACH HERE +
ADMISSION TICKET
CATERPILLAR INC.
Annual Meeting of Stockholders
Wednesday, April 13, 1994
10:30 a.m.
Loews Ventana Canyon Resort
7000 North Resort Drive
Tucson, Arizona
<PAGE>
VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING--APRIL 13, 1994
This voting authorization is solicited on behalf of the Board of Directors
The undersigned hereby authorizes THE NATIONAL TRUST COMPANY LTD., TORONTO, as
Trustee, to appoint C.K. YEUTTER and G.A. SCHAEFER, and each or either of them,
with power of substitution, proxies to vote at the Annual Meeting of
Stockholders of the Company on April 13, 1994, or at any adjournments thereof,
all shares of the Company's stock credited to the accounts of the undersigned
under the Employees' Investment Plan Trust and the Caterpillar Inc. Investment
Trust at the close of business on February 14, 1994, as directed below on the
following matters, and, in their discretion, on any other matters that may come
before the meeting.
Election of Directors. Nominees:
L.H. Affinito
D.V. Fites
J.W. Fondahl
D.R. Goode
J.I. Smith
THE TRUSTEE CANNOT VOTE YOUR SHARES UNLESS YOU DATE AND SIGN THIS CARD ON THE
REVERSE SIDE.
(LOGO RECYCLED) / / Printed on recycled paper
/ / FOLD AND DETACH HERE / /
SOME THOUGHTS ABOUT CATERPILLAR FROM THE CHAIRMAN:
"When it comes to today's global economy, if you're not competitive
everywhere--you're not competitive anywhere.''
Equipment Manufacturers' Institute
100th Convention
September 27, 1993
"Somehow people have the notion that manufacturing has been hollowed out here in
the Midwest and everybody is flipping hamburgers. But at Caterpillar, as
with many other companies here, we're slimmed down and muscled up."
Wall Street Journal
January 3, 1994
"The final word on modernization is this: Caterpillar's factories and
manufacturing processes are now ready for the 21st century . . . and
distinguish us as one of a handful of U.S.-headquartered, world class,
heavy-duty iron cutters." New York Society of Security Analysts
November 15, 1993
"Caterpillar people deserve the credit for our success . . . they are as
tough and tenacious as the products they build."
Antique Caterpillar Machinery Owners' Club
November 9, 1993
"Caterpillar has turned it around. We're not yet as good as we can be . . . or
will be. But we do have momentum . . . and we do remain a solid investment
for current and future stockholders."
New York Society of Security Analysts
November 15, 1993
DONALD V. FITES
Donald V. Fites
(CATERPILLAR LOGO) Chairman & CEO
<PAGE>
Please mark your 1433
[X] votes as in this
example.
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposal 2, and AGAINST proposals 3, 4 and 5
The Board of Directors recommends a vote FOR election of directors and proposal
2.
FOR WITHHELD
1. Election of Directors [_] [_]
(See reverse)
FOR AGAINST ABSTAIN
2. Appointment of Independent [_] [_] [_]
Auditors
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST stockholder proposals 3, 4 and
5.
FOR AGAINST ABSTAIN
3. Stockholder proposal [_] [_] [_]
4. Stockholder proposal [_] [_] [_]
5. Stockholder proposal [_] [_] [_]
SIGNATURE(S)_______________________ DATE________________
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
+ FOLD AND DETACH HERE +
ADMISSION TICKET
CATERPILLAR INC.
Annual Meeting of Stockholders
Wednesday, April 13, 1994
10:30 a.m.
Loews Ventana Canyon Resort
7000 North Resort Drive
Tucson, Arizona
<PAGE>
VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING--APRIL 13, 1994
This voting authorization is solicited on behalf of the Board of Directors
The undersigned hereby authorizes THE FIRST NATIONAL BANK OF CHICAGO and THE
NORTHERN TRUST COMPANY, as Trustees, to appoint C.K. YEUTTER and G.A. SCHAEFER,
and each or either of them, with power of substitution, proxies to vote at the
Annual Meeting of Stockholders of the Company on April 13, 1994, or at any
adjournments thereof, all shares of the Company's stock credited to the accounts
of the undersigned under the Employees' Investment Plan Trust and the
Caterpillar Inc. Investment Trust at the close of business on February 14, 1994,
as directed below on the following matters, and, in their discretion, on any
other matters that may come before the meeting.
Election of Directors. Nominees:
L.H. Affinito
D.V. Fites
J.W. Fondahl
D.R. Goode
J.I. Smith
THE TRUSTEE CANNOT VOTE YOUR SHARES UNLESS YOU DATE AND SIGN THIS CARD ON THE
REVERSE SIDE.
(LOGO RECYCLED) / / Printed on recycled paper
/ / FOLD AND DETACH HERE / /
SOME THOUGHTS ABOUT CATERPILLAR FROM THE CHAIRMAN:
"When it comes to today's global economy, if you're not competitive
everywhere--you're not competitive anywhere.''
Equipment Manufacturers' Institute
100th Convention
September 27, 1993
"Somehow people have the notion that manufacturing has been hollowed out here in
the Midwest and everybody is flipping hamburgers. But at Caterpillar, as
with many other companies here, we're slimmed down and muscled up."
Wall Street Journal
January 3, 1994
"The final word on modernization is this: Caterpillar's factories and
manufacturing processes are now ready for the 21st century . . . and
distinguish us as one of a handful of U.S.-headquartered, world class,
heavy-duty iron cutters." New York Society of Security Analysts
November 15, 1993
"Caterpillar people deserve the credit for our success . . . they are as
tough and tenacious as the products they build."
Antique Caterpillar Machinery Owners' Club
November 9, 1993
"Caterpillar has turned it around. We're not yet as good as we can be . . . or
will be. But we do have momentum . . . and we do remain a solid investment
for current and future stockholders."
New York Society of Security Analysts
November 15, 1993
DONALD V. FITES
Donald V. Fites
(CATERPILLAR LOGO) Chairman & CEO
<PAGE>
GRAPHICAL MATERIAL CROSS-REFERENCE PAGE
PHOTOS OF THE DIRECTORS AND NOMINEES APPEAR NEXT TO EACH RESPECTIVE
NAME ON PAGES 3 THROUGH 7.
A PERFORMANCE GRAPH SHOWING A COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL STOCKHOLDER RETURN AMONG S&P 500 COMPOSITE INDEX,
CATERPILLAR INC., AND S&P MACHINERY (DIVERSIFIED) INDEX APPEARS ON
PAGE 16. (THE NUMBERS USED IN THE GRAPH APPEAR ON PAGE 16.)
A GRAPH SHOWING TOTAL SALES FOR 1989 THROUGH 1993 COMPARED TO SALES
INSIDE AND OUTSIDE THE UNITED STATES APPEARS ON PAGE A-28. (THE
NUMBERS USED IN THE GRAPH APPEAR ON PAGE A-28.)
