<PAGE>
CATERPILLAR INC.
(INCORPORATED IN DELAWARE)
100 NE Adams Street
Peoria, Illinois 61629
NOTICE and PROXY STATEMENT
Annual Meeting of Stockholders
April 12, 1995
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 Hotel,
7000 North Resort Drive, Tucson, Arizona, on Wednesday, April 12, 1995, at
10:30 a.m., for the following purposes:
1. To elect three directors comprising the class of directors of the
Company to be elected for a three-year term expiring in 1998;
2. To approve amendments to the 1987 Stock Option Plan as set forth and
described in the attached Proxy Statement;
3. To approve the action of the Board of Directors in appointing Price
Waterhouse LLP as independent auditors for 1995;
4. To act upon two stockholder proposals, if properly presented to the
meeting, which are set forth and described in the attached Proxy
Statement; and
5. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
The close of business on February 13, 1995 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 A TICKET IS REQUIRED FOR ADMISSION TO THE ANNUAL MEETING.
ATTENDANCE IS LIMITED TO STOCKHOLDERS OF RECORD AS OF THE RECORD DATE OR THEIR
AUTHORIZED PROXY HOLDER. TICKETS MAY BE OBTAINED BY SENDING A WRITTEN REQUEST TO
THE COMPANY SECRETARY. IF YOUR SHARES ARE HELD IN THE NAME OF YOUR BROKER, BANK
OR OTHER NOMINEE, YOU MUST INCLUDE IN YOUR REQUEST A LETTER FROM YOUR BROKER,
BANK OR OTHER NOMINEE INDICATING THAT YOU ARE THE BENEFICIAL OWNER OF A STATED
NUMBER OF SHARES OF STOCK AS OF THE RECORD DATE.
By Order of the Board of Directors
R. RENNIE ATTERBURY III
Dated: February 24, 1995 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 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
Page
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 1998........ 3
Directors Continuing in Office in the Class of 1996.................. 4
Directors Continuing in Office in the Class of 1997.................. 5
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 on Executive Compensation........... 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 Amendments to the 1987 Stock Option Plan........ 21
Proposal 3 - Approval of the Appointment of Independent Auditors......... 21
Proposal 4 - Stockholder Proposal........................................ 22
Proposal 5 - Stockholder Proposal........................................ 23
Filings Pursuant to Section 16 of the Securities and Exchange Act of
1934................................................................... 24
Stockholder Proposals for the 1996 Annual Meeting........................ 25
Stockholder Nominations.................................................. 25
Solicitation............................................................. 25
Stockholder List......................................................... 25
Revocability of Proxy.................................................... 25
Exhibit A - Caterpillar Inc. 1987 Stock Option Plan, as amended.......... 26
Appendix - General and Financial Information - 1994...................... A-1
i
<PAGE>
Caterpillar Inc.
100 NE Adams Street, Peoria, Illinois 61629 February 15, 1995
PROXY STATEMENT
This statement is being mailed on or about February 24, 1995, to all
stockholders of record at the close of business on February 13, 1995, 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 12, 1995. 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,
1994, including certain financial information.
MATTERS TO BE BROUGHT BEFORE THE MEETING
The Board intends to present to the meeting: (i) the election of three
directors comprising the class of directors of the Company to be elected for a
three-year term expiring in 1998 or until their successors have been elected
and qualified; (ii) a proposal to amend the 1987 Stock Option Plan to permit
the issuance of restricted stock awards to outside directors; and (iii) a
proposal to approve the appointment of Price Waterhouse LLP as independent
auditors for 1995. In addition, notice has been given by certain stockholders
of their intention to present two proposals at the meeting.
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 vote
your shares by signing and returning 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 along with an admission ticket
provided to the stockholder by the Company. The proxy card also serves as a
voting instruction card with respect to shares held by an individual through
the Company's Employee Investment Plans.
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 votes.
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
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.
1
<PAGE>
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 1995 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 13, 1995.
VOTING RIGHTS
Only holders of common stock of record at the close of business on February
13, 1995, are entitled to vote at the 1995 annual meeting. Each share of stock
so held entitles the holder to one vote upon each matter to be voted upon. As
of February 13, 1995, there were 200,400,594 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 three
of the present directors are expiring at this annual meeting. Directors elected
at the annual meeting will hold office for a three-year term expiring in 1998
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.
Two directors in the class of 1995 are not standing for re-election. As
previously announced, Mr. Charles F. Knight, chairman and chief executive
officer of Emerson Electric Co. resigned from the Board effective November 23,
1994, upon acquisition by Emerson of a competitor of the Company in certain
markets. Effective January 1, 1995, Mr. Gordon R. Parker was elected by the
Board to replace Mr. Knight. Pursuant to Board policy regarding mandatory
retirement, Mr. Walter H. Helmerich, III is retiring from the Board effective
April 12, 1995. The number of directors is being reduced accordingly.
Information about the three nominees and other directors continuing in
office follows.
2
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1998
Principal Occupation and Other Information
[Photo of Jerry R. Junkins appears to the left of the following paragraph]
JERRY R. JUNKINS, 57, 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 Board in 1988. In
addition to his Texas Instruments 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
Advisory Committee on Trade Policy and Negotiations. He serves as a member of
the Board of Directors of Proctor & Gamble Company and 3M. Mr. Junkins has been
a director of the Company since 1988.
[Photo of Gordon R. Parker appears to the left of the following paragraph]
GORDON R. PARKER, 59, Retired Chairman of Newmont Mining Corporation and
Newmont Gold Company. Mr. Parker joined Newmont in 1981 and served as Chief
Executive Officer of Newmont Mining and Newmont Gold from 1986 through October
1993, and as Chairman from 1986 through December 1994. Mr. Parker is a director
of The Williams Companies, Inc., Phelps Dodge Corporation, and Gold Fields of
South Africa. He was the inaugural Chairman of the World Gold Council. Mr.
Parker serves on the Board of Trustees of the Colorado Symphony Association,
the Denver Area Council of the Boy Scouts of America and is Chairman of the
Rocky Mountain Regional Advisory Board of the Institute of International
Education. Mr. Parker has been a director of the Company since 1995.
[Photo of George A. Schaefer appears to the left of the following paragraph]
GEORGE A. SCHAEFER, 66, former Caterpillar Inc. 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.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1996
Principal Occupation and Other Information
[Photo of James P. Gorter appears to the right of the following paragraph]
JAMES P. GORTER, 65, Chairman of the Board of Baker, Fentress & Company. Mr.
Gorter 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 a
director of Consolidated-Tomoka Land Co. and American Electronic Components,
Inc. He is a Trustee 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 Peter A. Magowan appears to the right of the following paragraph]
PETER A. MAGOWAN, 52, Chairman of Safeway Inc. and President and managing
general partner of the San Francisco Giants. During his 26 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 his position at Safeway,
Mr. Magowan serves as a director of Chrysler Corporation and The Vons
Companies. He is a former 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 James W. Wogsland appears to the right of the following paragraph]
JAMES W. WOGSLAND, 63, Vice Chairman of Caterpillar Inc. 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 Executive Vice President in 1987 and Vice Chairman 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. Mr. Wogsland has been a director
of the Company since 1987.
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1996 (cont.)
Principal Occupation and Other Information
[Photo of Clayton K. Yeutter appears to the left of the following paragraph]
CLAYTON K. YEUTTER, 64, Of Counsel to Hogan & Hartson, a Washington, D.C.
law firm. Mr. Yeutter served as Counselor for Domestic Affairs to President
George Bush in 1992. Mr. Yeutter was appointed chairman of the Republican
National Committee in 1991 after serving as Secretary 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 law firm of Nelson,
Harding, Yeutter & Leonard in 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, Vigoro Corporation 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.
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1997
Principal Occupation and Other Information
[Photo of Lilyan H. Affinito appears to the left of the following paragraph]
LILYAN H. AFFINITO, 63, 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 elected President and Treasurer in 1976 and Vice
Chairman in 1987. She is an Emeritus Trustee of Cornell University and a member
of 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 and New England Telephone
Company (subsidiaries of Nynex Corporation). Ms. Affinito has been a director
of the Company since 1980.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1997 (cont.)
Principal Occupation and Other Information
[Photo of Donald V. Fites appears to the right of the following paragraph]
DONALD V. FITES, 61, Chairman and chief executive officer of Caterpillar
Inc. 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 as Executive Vice President, and effective June 1, 1989, was elected
President and chief operating officer. He was elected Chairman of the 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 Advisory Committee for
Trade Policy and Negotiations; the Competitiveness Policy Council; and the
Business Roundtable Policy Committee. He is a director and past chairman of
both the Equipment Manufacturers Institute and The National Foreign Trade
Council. He is 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 National
Advisory Board. Other directorships: First Chicago Corporation; Georgia-Pacific
Corporation; Mobil Corporation; Valparaiso University; Keep America Beautiful
and National Association of Manufacturers. Mr. Fites has been a director of the
Company since 1986.
[Photo of John W. Fondahl appears to the right of the following paragraph]
JOHN W. FONDAHL, 70, 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.
6
<PAGE>
DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1997 (cont.)
Principal Occupation and Other Information
[Photo of David R. Goode appears to the left of the following paragraph]
DAVID R. GOODE, 54, 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; 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 Joshua I. Smith appears to the left of the following paragraph]
JOSHUA I. SMITH, 53, 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.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1994, the Board of Directors held six meetings. For the incumbent
Board of Directors as a whole, attendance was 100% 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). In addition, the Company's directors frequently 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.
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
7
<PAGE>
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 the Vice
President in charge 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 internal auditor 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 Vice President in charge of internal
audit 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.
Members of the Audit Committee for 1994 were Ms. Lilyan H. Affinito
(chairperson) and Messrs. John W. Fondahl, David R. Goode, James P. Gorter,
Charles F. Knight (through November 23, 1994) and George A. Schaefer. During
1994, the Committee held four meetings.
The Compensation Committee reviews the Company's employee and management
compensation practices. The Committee also approves 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. 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. Members of the Committee for 1994
were Messrs. James P. Gorter (chairman), David R. Goode, Walter H. Helmerich,
III, Jerry R. Junkins, Peter A. Magowan, and Clayton K. Yeutter. During 1994,
the Committee held four 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 such nomination are referenced on page 25.
Members of the Committee for 1994 were Messrs. Walter H. Helmerich, III
(chairman), Donald V. Fites, Peter A. Magowan, George A. Schaefer, and Joshua
I. Smith. During 1994, the Committee held three meetings.
The Public Policy Committee is responsible for making recommendations to the
Board with respect to matters of public and social policy affecting the
Company, including charitable 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.
Members of the Committee for 1994 were Ms. Lilyan H. Affinito and Messrs.
Clayton K. Yeutter (chairman), Donald V. Fites, John W. Fondahl, Jerry R.
Junkins, and Joshua I. Smith. During 1994, the Committee held four meetings.
8
<PAGE>
COMPENSATION OF DIRECTORS
Upon election of the nominees proposed herein, the Board of Directors will
consist of twelve 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
1987 Stock Option Plan. In 1994, an option for 1,000 shares of Common Stock was
granted to each director under the 1987 Stock Option Plan. The number of shares
underlying this option was effectively doubled as a result of the Company's
two-for-one stock split in the form of a 100% stock dividend effective
August 9, 1994. 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. Goode, Gorter and Yeutter have elected to
defer their compensation for 1995. 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 maximum amount of award payable with respect to each
participant under the Program is $1 million and is based upon the director's
length of service. A director continues to be eligible to participate in the
Program after he or she terminates Board service. 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. The
program is financed through the purchase of life insurance policies. Directors
derive no financial benefit from this Program since all charitable deductions
accrue solely to the Company. The purpose of the program is to acknowledge the
service of the Company's Directors, recognize the interest of the Company and
its Directors in supporting worthy educational institutions and charitable
organizations, provide an additional means of support to the Foundation, and
enhance the Company's Director benefit program so that the Company is able to
continue to attract and retain Directors of the highest caliber.
An amendment to the 1987 Stock Option Plan has been submitted for
stockholder approval that would permit annual awards of 200 shares of restricted
stock to each non-employee director commencing April 14, 1995. See page 21 for a
discussion of that proposed amendment.
9
<PAGE>
EQUITY SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS
(as of December 31, 1994)
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 10,400(1)
Glen A. Barton 36,454(2)
Vito H. Baumgartner 26,432(3)
Donald V. Fites 203,524(4)
Gerald S. Flaherty 85,693(5)
John W. Fondahl 11,000(6)
David R. Goode 1,000
James P. Gorter 8,000(7)
Walter H. Helmerich, III 12,000(8)
Jerry R. Junkins 8,400(9)
Peter A. Magowan 2,700
Gordon R. Parker 1,000
George A. Schaefer 45,508(10)
Joshua I. Smith 0(11)
James W. Wogsland 31,054(12)
Clayton K. Yeutter 1,266(13)
All directors and executive officers as a group 984,008(14)
</TABLE>
(1) Includes 10,000 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 Directors' Deferred Compensation Plan representing an equivalent value
as if such compensation had been invested on December 31, 1994 in 2,500
shares of Common Stock.
(2) Includes 20,306 shares subject to employee stock options exercisable within
60 days. In addition to the 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, 1994 in 1,057 shares of Common Stock.
(3) Includes 9,668 shares subject to employee stock options exercisable within
60 days.
(4) Includes 152,932 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. In addition to the shares listed above,
Mr. Fites 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, 1994 in 1,758 shares
of Common Stock.
(5) Includes 59,700 shares subject to employee stock options exercisable within
60 days. In addition to the 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, 1994 in 1,098 shares of Common Stock.
(6) Includes 10,000 shares subject to outside director stock options
exercisable within 60 days. Also includes 1,000 shares over which Mr.
Fondahl does not have sole voting or investment power. In addition to the
shares listed above, Mr. Fondahl has deferred a portion of his director
compensation pursuant to the Directors' Deferred Compensation Plan
representing an equivalent value as if such compensation had been invested
on December 31, 1994 in 1,353 shares of Common Stock.
(7) Includes 6,000 shares subject to outside director stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Gorter has
deferred a portion of his director compensation pursuant to the Directors'
Deferred Compensation Plan representing an equivalent value as if such
compensation had been invested on December 31, 1994 in 510 shares of Common
Stock.
(8) Includes 10,000 shares subject to outside director stock options
exercisable within 60 days.
(9) Includes 8,000 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) As of February 1, 1995, Mr. Smith holds 100 shares of Company Common Stock.
(12) Includes 7,800 shares subject to employee stock options exercisable within
60 days. In addition to the 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, 1994 in 1,351 shares of Common Stock.
(13) Includes 666 shares subject to outside director stock options exercisable
within 60 days. In addition to the shares listed above, Mr. Yeutter has
deferred a portion of his director compensation pursuant to the Directors'
Deferred Compensation Plan representing an equivalent value as if such
compensation had been invested on December 31, 1994 in 444 shares of Common
Stock.
(14) Includes 592,562 shares subject to employee and outside director stock
options exercisable within 60 days. Also includes 5,181 shares for which
voting and investment power is shared and 900 shares for which beneficial
ownership has been disclaimed.
10
<PAGE>
Listed below are persons who, to the knowledge of the Company, own
beneficially, as of December 31, 1994, more than five percent of the Company's
Common Stock.
Table of Equity Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Voting Dispositive
Authority Authority Total Amount Percent
------------------- --------------------- of Beneficial of
Name and Address Sole Shared Sole Shared Ownership Class
---------------- ---------- ------ ------------ ------ -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Joint filing by FMR Corp. 967,252 0 16,442,622 0 16,442,622 8.07%
and Edward C. Johnson 3d
82 Devonshire Street
Boston, MA 02109
The Capital Group 1,627,250 0 11,739,250 0 11,739,250 5.79%
Companies, Inc.
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Policies
The Compensation Committee ("Committee") establishes compensation guidelines
and targets based upon the performance of the Company, of business units within
the Company, and of individual executive officers. The Committee's goal is to
establish a compensation program that: strengthens the commonality of interest
between management and Company stockholders; links effectively executive
compensation with Company performance over the long term; and attracts and
retains executives of high caliber and ability. For 1994, that program
consisted of base salary, short-term incentive compensation, stock options, and
long-term incentive compensation.
The Committee believes this compensation program was a significant factor
contributing to the Company's success this past year. For 1994, the Company
recorded a profit of $955 million or $4.70 per share, reflecting four
consecutive quarters of record profit. The Company's stock price increased 24
percent, significantly outperforming the S&P 500 Composite Index and the
Company's peer group, the S&P Machinery (Diversified) Index. The impact of that
success on cumulative stockholder return is demonstrated in the performance
graph on page 16.
Base Salary
Executive Officers
- ------------------
Base salaries of individual executive officers and their applicable salary
ranges are reviewed annually by the Committee. In determining adjustments to
base salary and salary ranges for a particular year, the Committee relies on
reports from consultants regarding total short-term compensation (midpoint of
salary range plus applicable short-term incentive compensation) at companies
comparable to the Company in size, market capitalization or principal
undertaking. In making salary adjustments, the Committee also makes subjective
determinations regarding the performance of individual officers, with the
assistance of these officers' supervisors.
As of year-end 1993, two surveys conducted by separate compensation
consultants revealed that total short-term compensation of Company executive
officers was below market average. All companies surveyed are included in the
S&P 500 Composite Index and three companies surveyed, in addition to the
Company, are included in the S&P Machinery (Diversified) Index.
11
<PAGE>
In response, the Committee increased salary ranges applicable to executive
officers for 1994 by 5 percent. While this change made the short-term
compensation opportunity for executive officers minimally competitive at the
midpoint of the salary range, actual base salaries of executive officers and
their corresponding potential awards under the Corporate Incentive Compensation
Plan discussed below remained below market average for 1994 according to the
surveys discussed above.
In addition to this salary range adjustment, the Committee approved
increases in the base salary of all executive officers for 1994. These
increases were based upon a subjective analysis of each officer's individual
performance.
Chief Executive Officer
- -----------------------
Effective January 1, 1994, Mr. Fites' base salary was increased. In
providing this increase, the Committee considered Mr. Fites' contributions to
the Company and industry during his tenure, as well as consultant reports
comparing his base salary to that of other chief executive officers.
Since Mr. Fites became Chairman, the Company has maintained its position as
the world's leading manufacturer of construction and mining equipment, despite
substantial foreign and domestic competition. In fact, during Mr. Fites'
tenure, the Company's competitive position has improved. Mr. Fites has
spearheaded an organizational restructuring of the Company and a factory
modernization program that have been substantial contributors to the Company's
increasing profitability the past two years. During Mr. Fites' tenure, the
Company has developed stronger relationships with its principal stockholders,
dealers and employees. In addition, product lines have been improved and
unproductive assets and operations have been eliminated. As discussed in more
detail below, Mr. Fites has achieved these objectives while at the same time
addressing a difficult labor situation involving the International Union,
United Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW").
As Chairman, Mr. Fites' accomplishments have not been limited to the
Company. He has played an important role in several initiatives designed to
benefit the industry as a whole. Specifically, Mr. Fites made significant
contributions regarding the North American Free Trade Agreement and the General
Agreement on Tariffs and Trade. He has served as a director and former chairman
of the Equipment Manufactures Institute and the National Foreign Trade Council.
He is also chairman of the U.S.-Japan Business Council and a director of the
National Association of Manufacturers. Most recently, Mr. Fites was appointed
by the United States House of Representatives to the Competitiveness Policy
Council, a bi-partisan national commission that makes recommendations to the
President and Congress to enhance the productivity and international
competitiveness of U.S. industries.
At the end of 1993, survey results revealed Mr. Fites' salary was below
average with respect to surveyed companies. Surveys examined were those
described above with respect to officer base salaries. To bring Mr. Fites'
salary to a more competitive level and to reflect accurately his contributions
noted above, the Committee believed the salary increase was warranted. With
this increase, Mr. Fites' base salary remained below average with respect to
surveyed companies.
Short-Term Incentive Compensation
Executive Officers
- ------------------
In 1994, executive officers, together with most management and salaried
employees, participated in the Company's Corporate Incentive Compensation Plan
("Incentive Plan"). Payouts under the Incentive Plan for 1994 were based on a
team award incorporating Company return on assets ("ROA") for the year and an
individual award based on a subjective determination of individual performance.
In 1994, a total of approximately $190 million was earned by Company employees
under corporate and business unit incentive plans.
In 1994, the team award portion of the payout was calculated by multiplying
(a) annual base salary, (b) a specific percentage of base salary, which
increases for higher positions within the Company ("Position Percentage"),
thereby placing a greater percentage of compensation at risk for those with
greater responsibilities and opportunity to affect Company performance, and (c)
a performance factor based upon the Company's achievement of specific levels of
ROA.
l2
<PAGE>
Before any amount could be awarded under the Incentive Plan for 1994, a
minimum Company ROA level had to be achieved, with increasing amounts to be
awarded for Company achievement up to the maximum ROA. For 1994, the target ROA
level under the Incentive Plan was significantly exceeded (although the maximum
was not achieved) and all executive officers received a team award.
In 1994, the Position Percentage was adjusted upward by 5 percentage points
for executives other than the chief executive (see discussion below regarding a
Position Percentage adjustment for the chief executive). The Committee believed
these adjustments were necessary to more closely align total short-term
compensation of Company executive officers with those of executive officers at
companies surveyed (see discussion above under Base Salary regarding the details
of the comparison). As noted above, with this Position Percentage adjustment,
executive officer short-term compensation remains below average in relation to
companies surveyed.
In addition to a team award, all executive officers received an individual
award under the Incentive Plan in 1994 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 a specific percentage of team awards
paid to all executive officers.
In 1994, fifteen executive officers (including one named executive officer,
Mr. Vito H. Baumgartner) participated in incentive plans applicable to the
business unit for which they had primary responsibility. The Company has 168
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, for 1994, at least 25% of the payout under a
business unit plan had to be based on Company achievement of ROA levels
applicable to the Incentive Plan. Other factors determining business unit
payout in 1994 included return on sales for the particular unit ("ROS"), unit
ROA, unit profit, operating expenses, percentage of industry sales, and
customer satisfaction. In addition, units providing administrative services to
other units within the Company had 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 in 1994 were unit ROS and
unit ROA.
In 1994, executive officers participating in their respective business unit
incentive plans were eligible to receive fifty percent of the team award 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. Fifteen
executive officers (including Mr. Baumgartner) received payments based on 1994
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 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.
Chief Executive Officer
- -----------------------
Mr. Fites participates in the Incentive Plan. Because the Company exceeded
its target ROA level under the Incentive Plan for 1994, Mr. Fites received a
team award under the Incentive Plan. In 1994, the Position Percentage for Mr.
Fites' team award was adjusted upward by ten percentage points. The Committee
believed this adjustment was necessary to more closely align Mr. Fites' short-
term compensation with that of other chief executive officers at companies
surveyed (see discussion above under executive officer base salary regarding the
details of the comparison). Even with this Position Percentage adjustment, Mr.
Fites' total short-term compensation remains below average with respect to
short-term compensation of other chief executives surveyed.
Mr. Fites also received an individual award under the Incentive Plan for
1994. In making that award, the Committee considered Company performance during
1994, in particular, sales, revenues and after tax profit, as well as Mr.
Fites' individual performance during 1994.
13
<PAGE>
At the beginning of 1994, Mr. Fites discussed with the Committee his goals
and expectations regarding 1994 sales and revenues and profit after tax for the
Company. These goals were challenging and the Company well exceeded them under
Mr. Fites' leadership.
The Company achieved these results in the midst of a strike by the UAW
commencing June 21, 1994. At the beginning of the strike, Mr. Fites implemented
plans designed to meet the needs of Company customers and quickly ramped up
production schedules. As a result, the average production rate at struck
manufacturing facilities was 14% higher during the last six months of 1994 than
during the first six months of that year.
Under Mr. Fites' leadership, the strike had no impact on Company profit. For
1994, Company profit was significantly higher than for 1993, and sales and
revenues increased by 23%. The Committee recognizes that these accomplishments
also were due, in large part, to the dedication and teamwork of thousands of
hourly, salaried and management employees and temporary and contract personnel.
Stock Options
Executive Officers
- ------------------
In 1994, all executive officers, as well as other key employees, were
granted incentive (as defined in Section 422A of the Internal Revenue Code) and
non-qualified stock options under the Company's 1987 Stock Option Plan ("Option
Plan"). Incentive stock options were granted up to the maximum number of shares
which may be issued in accordance with U.S. tax law to an individual. The
remaining portion of any option grant not issued as an incentive stock option
was issued as a nonqualified stock option.
The number of options granted to a particular officer in 1994 depended upon
that officer's position in the Company and a subjective assessment of that
officer's individual performance. Specifically, a base stock option award was
determined for each officer level using position multiples for each level. The
award was then adjusted based on individual performance. Company performance
criteria were not considered.
To ensure executive officers 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 1994, if seventy-five 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 would have reduced the number
of shares included in the officer's grant. For 1994, no officer was penalized
for low share ownership in receiving stock options.
Chief Executive Officer
- -----------------------
In 1994, Mr. Fites received an option grant covering 60,000 shares of
Company stock, as reflected in the Summary Compensation Table and Option Grants
Table. Like other executive officers, Mr. Fites received this grant based upon
his position in the Company and an assessment of his individual performance.
Individual performance factors considered by the Committee are those discussed
above with respect to Mr. Fites' base salary increase and individual Incentive
Plan award.
Long-Term Incentive Compensation
Executive Officers
- ------------------
The Company has a long-term incentive supplement to the Option Plan
("Supplement"). Under the Supplement, a three-year performance period ("cycle")
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 the cycle. The Committee has discretion
to apply different performance criteria for different cycles. The Committee
also has discretion during a cycle 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. The first cycle was established in 1993
pursuant to stockholder approval. Accordingly, the first payout under the
Supplement will occur, if at all, in 1996.
14
<PAGE>
In 1994, the Committee established a cycle to end in 1996. Amounts that can
be paid at the end of that cycle depend upon an executive's base salary at the
end of the period, 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 cycle established in
1994, the Company must achieve a threshold ROA level for the cycle. 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
cycle. The threshold ROA level is 70% of the target level, while the maximum
ROA level is 130% of target. If applicable ROA levels are achieved, a payout
under the cycle established in 1994 would occur in 1997.
Chief Executive Officer
- -----------------------
Mr. Fites has the potential to receive in 1997 a payout under the Supplement
for the 1994-1996 cycle based on the criteria established in 1994 and discussed
above for executive officer awards under the Supplement. Specific reference to
minimum, target, and maximum amounts that could be received by Mr. Fites under
criteria for cycles established in 1993 and 1994 are referenced in the
Long-Term Incentive Plans/Awards table on page 19.
Impact of Section 162 of the Internal Revenue Code
Effective January 1, 1994, the Revenue Reconciliation Act of 1993 amended
Section 162 of the Internal Revenue Code to eliminate the deductability of
certain compensation over $1 million paid to the chief executive officer and
other named executive officers. In 1994, the Committee monitored
interpretations under amended Section 162 to assess potential impact upon
Company executive compensation. The Committee believes that based on transition
rules under amended Section 162, the Option Plan and Long-Term Incentive
Supplement would not be subject to the $1 million cap, if at all, until 1997.
In the interim, the Committee will continue to monitor developments under
Section 162 and its impact on those plans. The Committee believes that while
amounts under the Incentive Plan are currently subject to the cap, the impact
of such amounts on deductability is nominal, such that a change to the
Incentive Plan is not warranted at this time.
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, 1989 through December 31, 1994 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.
Comparison of Five Year Cumulative Total Stockholder
Return Among Caterpillar Inc., S&P 500 Composite Index,
and S&P Machinery (Diversified) Index
[GRAPH]
<TABLE>
<CAPTION>
December 31, 1989 1990 1991 1992 1993 1994
- ------------ ---- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Caterpillar 100 83.13 79.62 98.42 164.74 205.77
S&P 500 100 96.89 126.28 135.88 149.52 151.55
S&P Machinery
(Diversified) 100 86.26 102.55 104.65 154.93 150.84
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Compensation Committee during 1994 were 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 1994 and is anticipated to perform such
services in 1995. As a limited partner, Mr. Gorter is not involved in the
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, 1994, 1993 and 1992.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
---------------------------------------- -----------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus(2) Compensation Options(3) Compensation(1)
- ------------------ ---- -------- -------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites, 1994 $800,000 $772,800 $-0- 60,000 $38,400
Chairman and Chief 1993 670,000 339,024 -0- 40,000 32,160
Executive Officer 1992 550,000 -0- -0- 84,000 26,400
J. W. Wogsland, 1994 $550,000 $487,025 $-0- 30,000 $26,400
Vice Chairman 1993 490,000 246,928 -0- 23,400 23,520
1992 400,000 -0- -0- 62,000 17,333
G.A. Barton, 1994 $360,000 $289,800 $-0- 20,000 $15,600
Group President 1993 325,000 148,395 -0- 15,300 11,983
1992 285,000 -0- -0- 36,000 11,400
G.S. Flaherty, 1994 $360,000 $289,800 $-0- 20,000 $16,560
Group President 1993 325,000 148,395 -0- 15,300 13,000
1992 285,000 -0- -0- 36,000 11,400
V. H. Baumgartner,(4) 1994 $393,264 $325,171 $-0- 10,200 $15,731
Vice President 1993 335,762 87,968 -0- 9,000 -0-
1992 344,070 -0- -0- 20,000 -0-
</TABLE>
(1) Consists of matching Company contributions for the Employees' Investment
Plan (EIP) and Supplemental Employees' Investment Plan (SEIP). For 1994,
matching contributions for EIP and SEIP respectively were Messrs. Fites
($8,763 / $29,637), Wogsland ($8,750 / $17,650), Barton ($8,996 / $6,604),
and Flaherty ($8,875 / $7,685). Mr. Baumgartner received $15,731 in Company
contributions under a defined contribution plan established for employees of
a foreign subsidiary. Mr. Baumgartner does not participate in a plan
comparable to SEIP.
(2) Consists of cash payments made pursuant to the Corporate Incentive
Compensation Plan in 1995 with respect to 1994 performance and in 1994 with
respect to 1993 performance.
(3) Number of Options granted under the 1987 Stock Option Plan. Numbers for
1994, 1993, and 1992 have been adjusted to reflect a two-for-one stock split
effective after the 1994 grant.
(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, 1994 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. Although no outstanding
options have been repriced, an exercise price adjustment was made to such
options to reflect a two-for-one split in the Company's stock during 1994.
17
<PAGE>
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Individual Grants
--------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term(1)
Options Employees Price Expiration -------------------------------
Name Granted(2) In 1994(3) Per Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites 60,000 3.79 $53.5312 06/07/2004 $ 2,019,930 $ 5,118,895
J. W. Wogsland 30,000 1.90 53.5312 06/07/2004 1,009,965 2,559,448
G. A. Barton 20,000 1.26 53.5312 06/07/2004 673,310 1,706,298
G. S. Flaherty 20,000 1.26 53.5312 06/07/2004 673,310 1,706,298
V. H. Baumgartner 10,200 .64 53.5312 06/07/2004 343,388 870,212
Executive Group 331,600 20.97 53.5312 06/07/2004 11,163,481 28,290,428
All Stockholders(4) N/A N/A N/A N/A 6,847,518,474 17,352,940,933
Executive Group
Gain as % of all
Stockholder Gain N/A N/A N/A N/A .16% .16%
</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 $87.1967
and $138.8461, 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 and satisfy tax withholding requirements. Numbers have been
adjusted to reflect a two-for-one stock split effective after the date of
the grant.
(3) In 1994, options for 331,600 shares were granted to all executive officers,
as a group; options for 22,000 shares were granted to all directors who are
not executive officers, as a group; and options for 1,249,940 shares were
granted to all employees other than executive officers, as a group.
(4) For "All Stockholders" the potential realizable value is calculated from
$53.5312, the price of Common Stock on June 7, 1994, based on the
outstanding shares of Common Stock on that date.
AGGREGATED OPTION/SAR EXERCISES IN 1994,
AND 1994 YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/
1994 Year-End SARs at 1994 Year-End(2)
Shares Acquired Value -------------------------- --------------------------
Name On Exercise(1) Realized(2) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. V. Fites 12,000 $ 191,625 152,932 114,668 $3,674,675 $1,270,069
J. W. Wogsland 66,134 1,515,100 7,800 66,266 137,232 842,802
G. A. Barton 48,934 1,065,976 20,306 42,200 517,676 513,583
G. S. Flaherty 22,300 508,553 59,700 42,200 1,484,570 513,583
V. H. Baumgartner 10,066 220,576 9,668 22,866 220,732 289,719
</TABLE>
(1) Upon exercise, option holders may surrender shares to pay the option
exercise price and satisfy tax withholding requirements. The amounts
provided are gross amounts absent netting for shares surrendered. Numbers
have been adjusted to reflect a two-for-one stock split effective in 1994.
(2) 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.
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. Currently, there
are two Long-Term Incentive Supplement cycles in effect. A plan was established
in 1994 with a cycle ending in 1996 and payout, if at all, in 1997. As reported
in the Company's proxy statement for 1993, a plan also was established in 1993
with a cycle ending in 1995 and payout, if at all, in 1996. Prior to 1993, the
Long-Term Incentive Supplement did not exist.
LONG-TERM INCENTIVE
PLANS/AWARDS IN 1994 AND 1993
<TABLE>
<CAPTION>
Estimated future payouts under
Performance or non-stock price-based plans
Other Period Until ------------------------------
Name Maturation or Payout Threshold Target Maximum
- ---- -------------------- --------- -------- --------
<S> <C> <C> <C> <C>
D. V. Fites 1994-1996 $300,000 $600,000 $900,000
1993-1995 $300,000 $600,000 $900,000
J. W. Wogsland 1994-1996 $210,000 $420,000 $630,000
1993-1995 $210,000 $420,000 $630,000
G. A. Barton 1994-1996 $100,000 $200,000 $300,000
1993-1995 $100,000 $200,000 $300,000
G. S. Flaherty 1994-1996 $100,000 $200,000 $300,000
1993-1995 $100,000 $200,000 $300,000
V. H. Baumgartner 1994-1996 $ 70,800 $141,600 $212,400
1993-1995 $ 70,800 $141,600 $212,400
</TABLE>
Payout is based upon an executive's base salary at the end of the three-year
cycle, a predetermined percentage of that salary, and the Company's achievement
of specified levels of return on assets ("ROA") over the three year period. The
target amount will be earned if 100% of targeted ROA is achieved. The threshold
amount will be earned if 70% of targeted ROA is achieved, and the maximum award
amount will be earned at 130% of targeted ROA. Salary levels for 1994 were used
to calculate the estimated dollar value of future payments under both cycles.
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
$1,400,000 315,000 420,000 525,000 630,000 735,000
$1,600,000 360,000 480,000 600,000 720,000 840,000
$1,950,000 438,750 585,000 731,250 877,500 1,023,750
</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, 1994, 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 - 34 years; G. S.
Flaherty - 35 years*; and V. H. Baumgartner - 30 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 more than 35 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 AMENDMENTS TO THE 1987 STOCK OPTION PLAN TO PERMIT
RESTRICTED STOCK AWARDS TO OUTSIDE DIRECTORS
The Board recommends that stockholders approve amendments to the 1987 Stock
Option Plan ("Option Plan") permitting restricted stock awards to directors
that are not Company employees ("Outside Directors"). The Board believes these
amendments would further align the interests of its members with stockholders.
The Board also believes the amendments would promote retention of qualified
Board members and attraction of qualified Board candidates. According to
surveys commissioned by the Company, total compensation paid in retainer and
meeting fees to our Outside Directors is below average. Those surveys also
indicate that there is a growing trend to pay a portion of that total
compensation in Company stock. A significant percentage of surveyed companies
provide a portion of Outside Director compensation in common stock. The award
of restricted stock would be in lieu of an increase in the retainer fee for
Outside Directors. The amendments are described below, and such description is
qualified in its entirety by reference to the attached Exhibit A, which
includes the text of the Option Plan, as proposed to be amended.
Under the current Option Plan and Long-Term Incentive Supplement thereto,
officers and other key employees are eligible to receive restricted stock
awards, options, stock appreciation rights, and long-term incentive awards.
Pursuant to a formula, Outside Directors are eligible to receive nonqualified
options to purchase Common Stock. The current Option Plan specifically
precludes restricted stock awards to directors.
The proposed amendments would permit the Company to grant 200 shares of
restricted stock to each Outside Director on April 14, 1995, and each January 1
thereafter. Restricted stock awards would be made from shares of Company Common
Stock otherwise available for stock option grants under the Option Plan.
The stock would be subject to a restricted period of three years from the
date of grant. During that period, the recipient would not be entitled to
delivery of the stock certificate underlying the award. That certificate would
be held in escrow until expiration of the restricted period, at which time it
would be delivered to the recipient.
During the restricted period, the recipient would have a beneficial interest
in the restricted stock and all attendant privileges, including the right to
vote the stock and receive dividends. Transfer of such ownership and privileges
during the restricted period, other than by will or the laws of descent and
distribution, would be prohibited. If during the restricted period the
recipient ceased to serve as a director of the Company for reasons other than
death, disability or retirement, the award would be forfeited and the stock
certificate returned to the Company.
New Plan Benefits
1987 Stock Option Plan
Amendment to Permit Restricted Stock Awards to Outside Directors
Group 1/1/ Dollar Value ($)/2/ Number of Shares/3/
---------------------- ------------------- -------------------
Outside Directors (10) $103,000 2,000
/1/ None of the executive officers (including those named in the Summary
Compensation Table) or other officers or employees of the Company would
receive restricted stock awards pursuant to this amendment.
/2/ Based on the closing price per share of the Company's common stock of $51.50
on February 1, 1995.
/3/ The number of shares to be issued in the aggregate to all Outside Directors
in 1995.
For reasons discussed above, the Board of Directors believes these
amendments to the Option Plan would be in the best interest of the Company and
its stockholders and recommends a vote FOR the proposal.
PROPOSAL 3-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 LLP ("Price Waterhouse") as independent auditors of the Company for
the year 1995.
21
<PAGE>
Price Waterhouse have been the independent 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
1995 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 1995 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 12, 1995, 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 4-STOCKHOLDER PROPOSAL
Mr. Dana L. Wiggins, Fund Chairman for the Northern Nevada Carpenters
Pension Trust ("Fund"), advises that, on behalf of the Fund (owner of 1,600
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.
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.
22
<PAGE>
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 decided to divide the Board of Directors into
three approximately equal classes, with one class to be elected each year for a
three-year term. Stockholders affirmed that decision in 1993 and 1994 by
rejecting stockholder proposals to reverse it. Your Board of Directors believes
a classified structure is in the best interests of stockholders and notes that
stockholders at more than 50 percent of Fortune 500 companies agree. We also
note that leading institutional investors, including the Teachers Insurance and
Annuity Association - College Retirement Equities Fund, have concluded that a
classified Board is in full accordance with the principles of good corporate
governance, and have recognized and supported the right of a Board to organize
its functions and its business in a manner it deems most efficient.
A classified structure provides many advantages to the Company and its
stockholders. At a company like Caterpillar, in which careful and effective
long-term planning and product development are critical, a classified Board
provides continuity and stability to the Company's business strategies and
policies. The classified structure may also provide the Board with needed time
to evaluate any proposal to acquire the Company, study alternative proposals,
and help ensure the best price would be obtained in any transaction involving
the Company. As a result of recent Delaware case law, the value of other
mechanisms designed to protect stockholder interests in the event of a takeover
attempt has been questioned. With regard to the Stockholder Rights Plan
mentioned by the proponent as an "insurmountable takeover defense," the Company
notes that it is required to redeem plan rights if requested by two-thirds of
the Company's outstanding shares.
Contrary to the proponent's two-year old assertion, recent Company
performance indicates that the continuity and stability provided by the Board's
classified structure has paid off. As demonstrated by the Performance Graph on
page 16, cumulative total stockholder return for the Company over the past five
years exceeds that of the S&P 500 Composite Index and the Company's peer group,
the S&P Machinery (Diversified) Index. During fiscal year 1994, the value of
Company stock increased 24 percent, substantially outperforming the S&P 500
Composite Index and the S&P Machinery (Diversified) Index.
Last year the proponent designated a member of the International Union,
United Automobile, Aerospace and Agricultural Implement Workers of America
("UAW") to present the proposal. A majority of that presentation was dedicated
to that union's agenda. The Company invites the proponent to respect the
integrity of the stockholder proposal process this year by not permitting the
proposal to be used again as a sounding board for the UAW.
If approved, the proposal would constitute a non-binding recommendation to
the Board. It would not, in itself, establish elections proposed by the
proponent. To do so, would require an amendment to the Company's bylaws
approved by 75 percent of the shares entitled to vote at a subsequent meeting
of stockholders.
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 5,000 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. ("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.
23
<PAGE>
Supporting Statement of Proponent
Cumulative voting is one of the few ways stockholders can attempt to elect
members who they believe 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 many of the previous 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.
For example, Caterpillar has 13 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 dissident 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, Company stockholders decided to eliminate cumulative voting in the
election of directors, a position that was affirmed last year. A substantial
majority of public companies do not provide for cumulative voting in the
election of directors and leading institutional investors, such as the Teachers
Insurance and Annuity Association - College Retirement Equities Fund, oppose
proposals to institute it.
The Board of Directors believes it has a responsibility to act in the best
interests of all stockholders, not the interests of a particular group.
Cumulative voting promotes special interest representation on the Board by
permitting a relatively small group of stockholders to elect a director that
will promote their interests. Such a presence on the Board could result in
factionalism and contention among directors to the detriment of the Company and
its stockholders.
The cohesiveness and collective commitment of the current Board has served
the Company well. As demonstrated by the Performance Graph on page 16,
cumulative total stockholder return for the Company over the past five years
exceeds that of the S&P 500 Composite Index and the Company's peer group, the
S&P Machinery (Diversified) Index. During fiscal year 1994, the value of
Company stock increased 24 percent, substantially outperforming the S&P 500
Composite Index and the S&P Machinery (Diversified) Index. Based on this
performance, the proponent's assertion that "the current board has sat
passively by ... while the company has underperformed the market and its
industry group for many of the previous years" is incomprehensible.
Last year the proponent designated a member of the International Union,
United Automobile, Aerospace and Agricultural Implement Workers of America
("UAW") to present the proposal. A majority of that presentation was dedicated
to that union's agenda. The Company invites the proponent to respect the
integrity of the stockholder proposal process this year by not permitting the
proposal to be used again as a sounding board for the UAW.
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. Richard L. Thompson, filed a Form 4 report two days late. The
report relates to one transaction involving 419 shares occurring on July 26,
1994. A Form 4 was filed with respect to that transaction on August 12, 1994.
24
<PAGE>
STOCKHOLDER PROPOSALS FOR THE 1996 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 1996 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 27, 1995.
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 Hotel, 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 24, 1995
25
<PAGE>
EXHIBIT A
CATERPILLAR INC.
1987 STOCK OPTION PLAN, AS AMENDED
(Proposed changes are indicated by underscore (--------);
proposed deletions are underscored with asterisks (********)
1. Establishment of Plan
Caterpillar Inc. (hereafter referred to as the "Company") proposes to grant
to selected key employees of the Company and its subsidiaries restricted stock
awards, options to purchase common stock of the Company and stock appreciation
rights in conjunction therewith for the purposes of (i) furnishing to such
employees maximum incentive through ownership of Company shares to improve
operations and increase profits and (ii) encouraging such persons to accept or
continue employment with the Company and its subsidiaries. Such restricted
stock awards, options and stock appreciation rights will be granted pursuant to
the plan herein set forth, which shall be known as the Caterpillar Inc. 1987
Stock Option Plan (hereafter referred to as the "Plan").
The Company also proposes to grant to the members of the Company's Board of
Directors who are not officers or employees of the Company at the time of a
grant (hereinafter referred to as "Outside Directors") options to purchase
common stock of the Company pursuant to the Plan. The Company also proposes to
----------------------------
grant to Outside Directors restricted shares of Company common stock pursuant
- -----------------------------------------------------------------------------
to the Plan. The purpose of such option grants is to provide incentives for
- ------------ ******
highly qualified individuals to stand for election to the Board and to continue
service on the Board and to encourage increased stock ownership by Outside
Directors in order to promote long-term stockholder value. Stock appreciation
rights, restricted stock awards, and incentive stock options, as defined in
************************
Section 422A of the Internal Revenue Code, will not be granted to Outside
Directors under the Plan.
2. Stock Reserved for Options and Restricted Stock Awards
Subject to adjustment as provided in Section 3, the maximum number of shares
of the Company that may be issued upon the granting of restricted stock awards,
performance awards or the exercise of options and Stock Appreciation Rights
under the Plan or any Supplement hereto shall not exceed 7,500,000. The shares
so issued may be authorized but unissued shares, Treasury shares, or previously
issued shares purchased for purposes of the Plan. Any shares subject to options
or awards may thereafter be subject to new stock options or awards under the
Plan if there is a forfeiture of any such awards or lapse, expiration or
termination of any such option but not if there is a surrender of an option or
portion thereof pursuant to a stock appreciation right as provided hereafter in
Section 7.
3. Adjustment Provisions
If there is any change in the outstanding shares of common stock without any
consideration to the Company by stock dividend, stock split-up, change in par
or no par value, or other similar event, the number and kind of shares then
remaining available for issue under the Plan shall be correspondingly changed,
and a similar adjustment shall be made in the unexercised portion of all
options then outstanding without change in the aggregate purchase price to be
paid.
Options and stock appreciation rights may also contain provisions for the
continuation thereof, and for other equitable adjustments, after other changes
in the Company's shares, including changes resulting from recapitalization,
reorganization, sale, merger, consolidation, or other similar occurrence.
26
<PAGE>
4. Administration of the Plan
The authority to grant restricted stock awards, options and stock
appreciation rights to officers and employees under the Plan shall be vested in
the Stock Option and Officers' Compensation Committee (hereafter referred to as
the "Committee") consisting of not less than three members of the Board of
Directors appointed from time to time by the Board. No member of the Board
shall serve on the Committee at a time when such member is, or within one year
prior thereto has been, eligible to receive restricted stock awards, options,
or stock appreciation rights under the Plan, or restricted stock awards,
options, or stock appreciation rights under any other stock option or stock
bonus plan of the Company; provided, however, that Outside Directors who
receive options and restricted stock under this Plan may serve on the
--------------------
Committee. The Committee shall have no authority regarding the granting of
options and restricted stock to Outside Directors.
--------------------
Subject to the provisions of the Plan, the Committee from time to time shall
determine (except as to options and restricted stock granted to Outside
--------------------
Directors) the individuals to whom, and the time or times at which, restricted
stock awards, options, or stock appreciation rights shall be granted; the
number of shares to be subject to each restricted stock award, each option, and
each stock appreciation right; the option price per share; the extent to which
stock appreciation rights are exercisable for cash, or stock, or a combination
of cash and stock; whether restricted shares [shares of common stock issued
under restrictions which subject them to a "substantial risk of forfeiture" (as
defined in Section 83 of the Internal Revenue Code of 1986, as amended) until
the restrictions lapse] should be issued on the exercise of an option or stock
appreciation right and, if so, the nature of the restrictions; the duration of
each option; the specific restrictions applicable to restricted stock awards
and the other terms and provisions of each restricted stock award, option, and
stock appreciation right. In the case of officers to whom restricted stock
awards, options, or stock appreciation rights may be granted, the selection of
such officers and all of the foregoing determinations shall be made directly by
the Committee in its sole discretion. In the case of key employees other than
officers, the selection of such employees and all of the foregoing
determinations may be delegated by the Committee to an administrative group of
officers chosen by the Committee. Neither restricted stock awards, options, nor
stock appreciation rights granted to one employee need be identical to those
granted other employees.
Commencing with the 1988 annual meeting of stockholders, options with a term
of ten years and one day shall be granted to each Outside Director for 1,000
shares of the Company's common stock effective as of the close of each annual
meeting of the stockholders (i) at which such individual is elected a director
or (ii) following which such individual will continue to serve as a director as
a member of a continuing class of directors. Any option so granted shall be a
nonqualified stock option. In the event any change in the outstanding shares of
the Company's common stock occurs and an adjustment is made in the unexercised
portion of options outstanding, as provided in Section 3 above, a similar
adjustment shall be made in the number of shares to be granted to Outside
Directors thereafter under this paragraph.
On April 14, 1995, and each January 1 thereafter, 200 shares of restricted
- --------------------------------------------------------------------------
stock shall be granted to each Outside Director. The stock will be held in
- --------------------------------------------------------------------------
escrow for a period of three years from the award date. Stock issued as
- -----------------------------------------------------------------------
restricted stock shall be forfeited if the director ceases to serve as a
- ------------------------------------------------------------------------
director of the Company for any reason other than death, disability, or
- -----------------------------------------------------------------------
retirement under the Directors' Retirement Plan. In the event any change in the
- -------------------------------------------------------------------------------
outstanding shares of the Company's common stock occurs as provided in Section
- ------------------------------------------------------------------------------
3 above, a similar adjustment shall be made in the number of restricted shares
- ------------------------------------------------------------------------------
to be granted to Outside Directors thereafter under this paragraph.
- -------------------------------------------------------------------
Subject to the provisions of the Plan specifically governing options and
---
restricted stock granted or to be granted to Outside Directors, the Committee
- ----------------
may also interpret the Plan; prescribe, amend and rescind rules and regulations
relating to the Plan; and make all other determinations necessary or advisable
for the administration of the Plan. The determinations of the Committee shall
be made in accordance with its judgment as to the best interests of the Company
and its stockholders and in accordance with the purposes of the Plan. The
Committee's determinations shall in all cases be conclusive.
A majority of the members of the Committee shall constitute a quorum, and
all determinations of the Committee shall be made by a majority of its members.
Any determination of the Committee may be made, without notice or meeting, by
the written consent of a majority of the Committee members.
27
<PAGE>
5. Eligibility
Restricted stock awards, options, and stock appreciation rights may be
granted to officers and other key employees of the Company or of its present or
future subsidiaries. Options and restricted stock will be granted to Outside
--------------------
Directors as provided in Sections 4 and 14 hereof.
A director of the Company or a subsidiary who is not also an employee of the
Company or a subsidiary shall not be eligible to receive a restricted stock
****************
award, stock appreciation right or an alternative stock option. An employee or
******
officer who has been granted a restricted stock award, option, or stock
appreciation right under this or any other stock option plan may or may not be
granted additional restricted stock awards, options, and stock appreciation
rights at the direction of the Committee.
Options and Stock Appreciation Rights
6. Option Price
The per share option price shall not be less than 100% of the fair market
value of the common stock at the time the option is granted. The per share
option price of options granted to Outside Directors shall be 100% of the
market value of the common stock at the time an option is granted.
7. Stock Appreciation Rights
Stock appreciation rights will permit the holder to elect to surrender any
option or any portion thereof which is then exercisable and receive in exchange
therefor shares of common stock, cash, or a combination thereof. Such stock,
cash, or combination shall have an aggregate value equal to the excess of the
fair market value of one share of common stock over the purchase price
specified in such option multiplied by the number of shares of common stock
covered by such option or portion thereof which is so surrendered. The fair
market value of one share of common stock shall equal (a) in the case of such a
holder who is not a Company officer, the mean of the highest and lowest quoted
selling price of shares of the Company's common stock on the New York Stock
Exchange on the date of surrender and (b) in the case of such a holder who is a
Company officer, but subject to the provisions of the succeeding sentence, the
highest of the means of the highest and lowest quoted selling price of shares
of the Company's common stock on the New York Stock Exchange determined for
each day occurring during the window period during which such election to
surrender the option or portion thereof is made; and the window period is the
applicable period for making such an election (currently ten business days)
prescribed from time to time pursuant to Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. In the case of such a holder who is a Company
officer, the fair market value of one share of common stock with respect to the
surrender of an incentive stock option granted, shall equal the mean of the
highest and lowest quoted selling price of shares of the Company's common stock
on the New York Stock Exchange on the date of surrender unless it is
specifically provided in the option form, or any amendment thereto, that the
valuation described in item (b) above shall apply. In the case of any option
holder who at the time of an election is an officer of the Company, each
election to receive cash alone or in combination with stock shall be subject to
the approval of the Committee in its sole discretion.
Stock appreciation rights may be granted as part of a stock option or as a
separate right to any holder of any option theretofore or then being granted
under this Plan. A stock appreciation right shall be exercisable upon any
additional terms and conditions (including, without limitation, the issuance of
restricted shares and the imposition of restrictions upon the timing of
exercise) which may be determined as provided in Section 4 of the Plan.
In the event of the exercise of a stock appreciation right, the number of
shares reserved for issuance under the Plan shall be reduced by the number of
shares of common stock covered by such option or portion thereof which is
surrendered in connection with such exercise. No fractional shares shall be
issued on the exercise of a stock appreciation right.
28
<PAGE>
8. Exercise of Options and Stock Appreciation Rights
Options (other than options granted to Outside Directors) shall be
exercisable in such installments and during such periods as may be fixed by the
Committee at the time of granting. Options granted to Outside Directors shall
become exercisable as follows: one-third at the end of each of the three
successive one-year periods commencing on the date of each option grant.
Notwithstanding any other provision hereof, no option and no stock appreciation
right shall be exercisable after the expiration of ten years and one day from
the date such option or stock appreciation right is granted, provided that no
incentive stock option (or related stock appreciation right) shall be
exercisable after the expiration of ten years from the date such option is
granted.
Payment of the purchase price shall be made upon exercise of all or a
portion of any option. Such payment shall be made pursuant to rules adopted by
the Committee and the Company in cash or by the tendering (through one
transaction or in a series of consecutive transactions) of shares of common
stock of the Company having a fair market value equal to 100% of such purchase
price or by any combination thereof. The fair market value of a share of common
stock so tendered shall be the mean of the highest and lowest quoted selling
price of shares of the Company's common stock on the New York Stock Exchange on
date of exercise. In addition, on the exercise of an option, surrender of a
stock appreciation right, or upon the granting of any restricted stock award or
performance award, any applicable taxes which the Company is required to
withhold shall be paid to the Company and any information which the Company
deems necessary shall be provided to the Company. In fulfilling its withholding
obligation, the Company may withhold a portion of any shares to be issued to
satisfy such withholding obligation in accordance with rules promulgated by the
Committee, in its sole discretion.
9. Termination of Employment
Each option granted to an officer or employee shall, and each stock
appreciation right granted to an officer or employee may, in the Committee's
sole discretion require a period or periods of continued employment with the
Company and/or its subsidiaries before it may be exercised in whole or in part.
No such period shall be less than one year except that the Committee may permit
a shorter period in the event of termination of employment by reason of
retirement or death.
Termination of the employment with the Company and its subsidiaries of an
officer or employee who holds an option shall terminate any remaining rights
under options and stock appreciation rights then held by such holder except as
hereinafter provided.
Each option and stock appreciation right granted to an officer or employee
may provide that if employment of the holder with the Company and its
subsidiaries terminates after completion of a period of employment so
specified, the option or stock appreciation right may be exercised (to the
extent then exercisable) by the holder (or, in the event of the holder's death,
by whoever shall have received the holder's rights under the option or stock
appreciation right) during a specified period of time after such termination of
employment. Such a specified period of time may not exceed sixty months where
termination of employment is caused by retirement or death and sixty days where
it results from any other cause; provided that if death occurs after
termination of employment but during the period of time so specified, such
period may be extended to not more than sixty-six months after retirement, or
thirty-eight months after termination of employment for any other cause. In the
event that any such option or stock appreciation right granted under the Plan
has a specified period for exercise after retirement or death which is less
than the maximum period permitted under this section, the Committee may modify
such option or right to extend such specified period up to such maximum period.
Such options and stock appreciation rights shall not be affected by
authorized leaves of absence or by any change of employment so long as the
holder continues to be an employee of the Company or a subsidiary.
Nothing in the Plan or in any such option or stock appreciation right shall
interfere with or limit in any way the right of the Company or of any of its
subsidiaries to terminate any employee's employment at any time, nor confer
upon any employee any right to continue in the employ of the Company or any of
its subsidiaries. Notwithstanding the foregoing, the Committee may change the
post-termination period of exercisability of an option or stock appreciation
right provided that no such change shall extend the original maximum term of
the option or stock appreciation right.
29
<PAGE>
9A. Termination of Outside Directorship
No period of continued service as an Outside Director following the grant of
an option shall be required to render exercisable an option granted to an
Outside Director in the event an Outside Director holding an option which has
not become exercisable or has not been fully exercised shall cease to be an
Outside Director. In such event any such option may be exercised at any time
within sixty months of the date such Director ceased to be a Director. In the
event an Outside Director shall die holding an option which has not become
exercisable or has not been fully exercised, his executors, administrators,
heirs or distributees, as the case may be, may exercise such option at any time
within sixty months of the date of such death provided that if death occurs
after the date an Outside Director ceases to be a Director, such option shall
be exercisable within sixty-six months of such date. In no event, however,
shall an option which has expired by its terms be exercisable.
10. Incentive Stock Options
Notwithstanding anything contained herein to the contrary, there may be
granted under the Plan, other than to Outside Directors, incentive stock
options as defined in Section 422A of the Internal Revenue Code as it may be
amended from time to time. The Committee from time to time shall determine
whether any incentive stock options shall be granted. It shall also determine
in its full discretion the individuals to whom, and the time or times at which,
any such grants shall be made. Incentive stock options shall not by their terms
be transferable by the holder other than by will or the laws of descent and
distribution and shall be exercisable during the holder's lifetime only by the
holder. The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by the holder during any calendar year (under
all incentive stock option plans of the Company) shall not exceed $100,000;
provided, however, that all or any portion of an option which cannot be
exercised as an incentive stock option because of such limitation may be
converted by the Committee to an option other than an incentive stock option.
The Board of Directors of the Company may amend the Plan from time to time as
may be necessary (1) to comply with Section 422A of the Internal Revenue Code,
or other sections of the Code or other applicable laws or regulations, and (2)
to permit any options granted as, or converted to, incentive stock options to
have all of the features provided for incentive stock options in the applicable
laws and regulations.
11. Transferability of Options and Stock Appreciation Rights
Options and stock appreciation rights shall not be transferable otherwise
than by will or the laws of descent and distribution, and shall be exercisable,
during the holder's lifetime, only by the holder except in the case of holder's
incapacity or disability when such options and stock appreciation rights may be
exercised by the holder's duly appointed
A holder, however, may file with the Company a written designation of a
beneficiary or beneficiaries (subject to such limitations as to the classes and
number of beneficiaries and contingent beneficiaries and such other limitations
as the Committee from time to time may prescribe) to exercise, in the event of
the death of the optionee, an option or stock appreciation right, subject to
the provisions of the Plan. A holder may from time to time revoke or change any
such designation of beneficiary and any designation of beneficiary under the
Plan shall be controlling over any other disposition, testamentary or
otherwise; provided, however, that if the Committee shall be in doubt as to the
right of any such beneficiary to exercise any option or stock appreciation
right, the Committee may determine to recognize only an exercise by the legal
representative of the optionee, in which case the Company, the Committee and
the members thereof shall not be under any further liability to anyone.
Restricted Stock Awards to Company Employees
--------------------
12. Granting of Awards
The Committee from time to time may determine whether any restricted stock
awards shall be granted to other than an Outside Director either alone or in
combination with the granting of options under the Plan. The Committee will in
so granting establish the time, conditions and restrictions in connection with
the issuance or transfer of a restricted stock award, including the restriction
period which may differ with respect to each grantee.
30
<PAGE>
13. Shares and Restrictions
Restricted stock awards will be made from shares of Company common stock
otherwise available for stock option grants under the Plan. During the
restriction period the grantee shall have a beneficial interest in the
restricted stock and all rights and privileges of a stockholder with respect
thereto, including the right to vote and receive dividends, subject to the
restrictions imposed by the Committee at the time of grant.
The following restrictions will be imposed on shares of common stock issued
as a restricted stock award until the expiration of the restricted period:
(a) The grantee shall not be entitled to delivery of the stock
certificate which certificate shall be held in escrow by the
secretary of the Committee;
(b) None of the stock issued as a restricted stock award may be
transferred other than by will or by the laws of descent and
distribution; and
(c) Stock issued as a restricted stock award shall be forfeited and the
stock certificate shall be returned to the Company if the grantee
terminates employment with the Company and its subsidiaries except
for termination due to retirement after a specified age, disability,
death or other special circumstances approved by the Committee.
Shares awarded as a restricted stock award will be issued subject to a
restriction period set by the Committee of no less than two nor more than ten
years. The Committee except for the restrictions specified in the preceding
paragraphs shall have the discretion to remove any or all of the restrictions
on a restricted stock award whenever it may determine that such action is
appropriate. Upon the expiration of the restriction period with respect to any
shares of a restricted stock award, a stock certificate will be delivered out
of escrow, subject to satisfaction by the grantee of the applicable withholding
tax requirements, without charge to the grantee.
Restricted Stock Awards to Outside Directors
- --------------------------------------------
14. Terms of Grant and Restrictions
- -----------------------------------
On April 14, 1995, and each January 1 thereafter, 200 shares of restricted
--------------------------------------------------------------------------
stock shall be granted to each Outside Director who following such date
- -----------------------------------------------------------------------
continues to serve as a director. Restricted stock awards will be made from
- ---------------------------------------------------------------------------
shares of Company common stock otherwise available for stock option grants
- --------------------------------------------------------------------------
under the Plan.
- ---------------
The stock will be subject to a restriction period of three years from the
-------------------------------------------------------------------------
date of grant. During that restricted period, subject to the restrictions set
- -----------------------------------------------------------------------------
forth in the next paragraph, the grantee shall have a beneficial interest in
- ----------------------------------------------------------------------------
the restricted stock and all rights and privileges of a stockholder with
- ------------------------------------------------------------------------
respect thereto, including the right to vote and receive dividends.
- -------------------------------------------------------------------
The following restrictions will be imposed on shares of common stock issued
- ---------------------------------------------------------------------------
as a restricted stock award until the expiration of the restricted period:
- --------------------------------------------------------------------------
(a) The grantee shall not be entitled to delivery of the stock
--------------------------------------------------------------
certificate which certificate shall be held in escrow by the
------------------------------------------------------------
secretary of the Committee;
---------------------------
(b) None of the stock issued pursuant to a restricted stock award may be
------------------------------------------------------------------------
transferred other than by will or by the laws of descent
--------------------------------------------------------
distribution; and
-----------------
(c) Stock issued pursuant to a restricted stock award shall be forfeited
------------------------------------------------------------------------
and the stock certificate returned to the Company if the grantee
----------------------------------------------------------------
ceases to serve as a director of the Company, except for termination
--------------------------------------------------------------------
due to death, disability, or retirement under the Directors'
------------------------------------------------------------
Retirement Plan.
----------------
Upon expiration of the restricted period with respect to any shares of a
------------------------------------------------------------------------
restricted stock award, a stock certificate will be delivered out of escrow,
- ----------------------------------------------------------------------------
subject to satisfaction by the grantee of applicable tax withholding
- --------------------------------------------------------------------
requirements, without charge to the grantee.
- --------------------------------------------
31
<PAGE>
General Provisions
14. 15. Amendment and Termination
*** ---
The Plan may be terminated at any time by the Board of Directors except with
respect to any restricted stock awards, options, or stock appreciation rights
then outstanding. Also, the Board may, from time to time, amend the Plan as it
may deem proper and in the best interests of the Company or as may be necessary
to comply with any applicable laws or regulations, provided that no such
amendment shall (i) increase the total number of shares which may be issued
under the Plan, (ii) reduce the minimum purchase price or otherwise materially
increase the benefits under the Plan, (iii) change the basis for valuing stock
appreciation rights, (iv) impair any outstanding option, stock appreciation
right or restricted stock award without the consent of the holder, (v) alter
the class of employees eligible to receive options, stock appreciation rights
or restricted stock awards, or (vi) amend any provision of the Plan insofar as
it applies specifically to options and restricted stock granted or to be
--------------------
granted to Outside Directors, unless, in each case, such amendment is required
in order to assure the Plan's continued compliance with applicable securities
**********
laws, including Rule 16b-3 under the Securities Exchange Act of 1934.
Plan provisions applicable to Outside Director option and restricted stock
--------------------------------------------------------------------------
awards shall not be amended more than once every six months other than to
- -------------------------------------------------------------------------
comply with changes in the Internal Revenue Code, Employee Retirement Income
- ----------------------------------------------------------------------------
Security Act, or rules thereunder.
- ----------------------------------
16. Regulatory Compliance
- -------------------------
Notwithstanding any other provision of the Plan, the issuance or delivery of
----------------------------------------------------------------------------
any shares of common stock may be postponed for such period as may be required
- ------------------------------------------------------------------------------
to comply with any applicable requirements of any national securities exchange
- ------------------------------------------------------------------------------
or any requirements under any other law or regulation applicable to the
- -----------------------------------------------------------------------
issuance or delivery of such shares. The Company shall not be obligated to
- --------------------------------------------------------------------------
issue or deliver any shares if such issuance or delivery shall constitute a
- ---------------------------------------------------------------------------
violation of any provision of any law or regulation of any governmental
- -----------------------------------------------------------------------
authority or national securities exchange.
- ------------------------------------------
15. 17. Miscellaneous
*** ---
For purposes of this Plan:
(i) The term "subsidiary" means any corporation in which the Company owns,
directly or indirectly, at least 35% of the total combined voting power of all
classes of stock; except that for purposes of any option subject to the
provisions of Section 425 of the Internal Revenue Code, as amended, the term
"subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of an option, each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(ii) "Retirement" as used herein means retirement under any pension or
retirement plan of the Company or of a subsidiary, or termination of employment
with the Company or a subsidiary, by action of the employing company, because
of disability.
32
<PAGE>
CATERPILLAR INC.
LONG TERM INCENTIVE SUPPLEMENT
ARTICLE I -- PURPOSE
The provisions of this Long Term Incentive Supplement (the "Supplement")
shall supplement the provisions of the Caterpillar Inc. 1987 Stock Option Plan
(the "Plan") and, unless otherwise expressly qualified by the context of the
Supplement, the conditions contained in the Plan shall be applicable to the
Supplement and terms used in the Supplement shall have the meanings defined in
the Plan.
The purposes of the Supplement are to (i) strengthen the commonality of
interest between management and Caterpillar Inc.'s stockholders, (ii) link
effectively executive motivation and compensation with Caterpillar Inc.'s
performance, (iii) provide incentives and rewards for key executives to
accomplish Caterpillar Inc.'s goals and objectives over the long term, (iv)
offer a comprehensive and competitive total compensation program, and (v)
attract and retain executives of high caliber and ability.
ARTICLE II -- DEFINITIONS
For purposes of the Supplement:
2.1 "AWARD" shall mean the sum of the cash amount and/or restricted stock
awarded to a Participant following the conclusion of a Performance Period in
which Performance Measures were met or exceeded.
2.2 "DISABILITY" shall mean the total and permanent disability of a
Participant as defined by any Caterpillar Inc. long-term disability plan in
effect for such Participant.
2.3 "PARTICIPANT" shall mean any employee of Caterpillar Inc. or any
subsidiary of Caterpillar Inc. holding a position which the Committee has
determined is eligible to participate in the Supplement.
2.4 "PERFORMANCE MEASURES" shall mean the criteria established by the
Committee at the beginning of each Performance Period as the basis for making
Awards.
2.5 "PERFORMANCE PERIOD" shall mean any period of time determined by the
Committee for which the Performance Measures are established.
ARTICLE III -- TERM OF PLAN
This Supplement shall be effective from the 1st day of January, 1993, and
shall remain in effect until terminated by the Board of Directors of
Caterpillar Inc.
ARTICLE IV -- PAYMENT AND AMOUNT OF BENEFITS
4.1 Payment of Awards -- Awards shall be paid in cash, shares of restricted
stock, or a combination of cash and restricted stock as determined by the
Committee in its sole discretion. A check for any cash Award or a certificate
for shares of restricted stock awarded shall be delivered to each Participant
not later than 90 days following the end of the relevant Performance Period.
The number of Caterpillar Inc. shares of restricted stock awarded shall be
determined by dividing the portion of the Award payable in restricted stock by
the average of the high and low price of Caterpillar Inc. shares on the New
York Stock Exchange on the last business day of the Performance Period for
which payment is made. The terms of any such restricted stock shall be
determined by the Committee in its sole discretion subject to the restrictions
of Section 13 of the Plan. Federal, state and local taxes will be withheld as
appropriate.
4.2 Amount of Award -- Prior to the beginning of any Performance Period, the
Committee in its sole discretion will determine the target award for each
salary grade or position for all Participants. The Award amount will be
calculated by multiplying such target award by the percentage of the Award
payable based on attainment of the applicable Performance Measures.
33
<PAGE>
4.3 Required Employment -- An eligible Participant shall receive an Award
under this Supplement for a Performance Period provided he is actively employed
by Caterpillar Inc. on the last day of the Performance Period, except for a
Participant whose employment terminates during a Performance Period by reason
of death, disability, or retirement in which case a prorated Award shall be
paid for the time during the Performance Period that he was actively employed.
Participants who are employed on the last day of the Performance Period but
were not Participants for the entire Performance Period shall receive an Award
prorated for that part of the Performance Period for which they were
Participants.
ARTICLE V -- ADMINISTRATION
5.1 Authority -- The Supplement shall be administered by the Committee which
shall have full power and authority to administer and interpret the Supplement
within its terms. The Committee's authority shall include, but not be limited
to, (i) selecting participants, (ii) determining the timing, amounts and
composition of Awards, (iii) setting the duration of Performance Periods, (iv)
establishing performance goals for the Performance Periods, and (v) measuring
such performance at the end of each Performance Period. All decisions made by
the Committee shall be final and binding and shall be given the maximum
deference provided by law.
5.2 Adjustments of Company Performance Measures -- At any time during a
Performance Period, the Committee may, in its discretion, increase or decrease
previously set Performance Measures for such Performance Period to reflect
changes in tax laws, regulations or rulings; changes in accounting principles
or practices; mergers, acquisitions or divestitures; major technical
innovations; or extraordinary, nonrecurring or unusual items.
5.3 Suspension and Termination -- The Committee and/or the Board of
Directors of Caterpillar Inc. may suspend or terminate this Supplement at any
time. In such event, all Performance Periods then in effect shall be deemed to
have ended on the effective date of such suspension or termination, the
applicable Performance Measures shall be appropriately prorated and modified to
apply to the shortened Performance Periods, and Awards shall be appropriately
prorated and based upon results accomplished over the time intervals from the
start of each respective Performance Period through the effective date of
suspension or termination.
5.4 Rules and Regulations -- The Committee may adopt from time to time such
rules and regulations as it reasonably deems appropriate to assist in
administration of this Supplement.
ARTICLE VI -- MISCELLANEOUS
6.1 Other Benefit Plans -- No Award amount shall be taken into account under
the Retirement Income Plan, the Employees' Investment Plan, the Insurance
Benefits Plan, or any other employee benefit plan or payroll practice of
Caterpillar Inc. or its subsidiaries.
6.2 Beneficiaries -- If an Employee is deceased at the time any benefit is
payable to him, the amount of such benefit shall be payable to the same person
or persons and in the same proportionate amount as shall be payable to the
beneficiary or beneficiaries for his basic life insurance under the applicable
insurance plan of Caterpillar Inc. or its subsidiaries, or if no beneficiary is
so designated, to the executor of his estate.
6.3 Employment Rights -- Participation in the Supplement will not give any
Participant the right to be retained in the service of Caterpillar Inc., or its
subsidiaries, nor shall such participation provide any right or claim to any
benefit under the Supplement unless such right or claim has specifically
accrued under the terms of the Supplement.
6.4 Gender and Number -- Where the context permits, words in the masculine
gender shall include the feminine gender, the plural shall include the
singular, and the singular shall include the plural.
6.5 Governing Law -- The Supplement shall be construed in accordance with and
governed by the laws of the State of Illinois.
34
<PAGE>
APPENDIX
CATERPILLAR INC.
GENERAL AND FINANCIAL INFORMATION
1994
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 construction, mining, and
agricultural machinery -- track and wheel tractors, track and wheel loaders,
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 (1000 to 11 200 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 122 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 Services
Corporation.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Report of Management............................................. A-3
Report of Independent Accountants................................ A-3
Consolidated Financial Statements and Notes...................... A-4
Eleven-year Financial Summary.................................... A-26
Management's Discussion and Analysis (MD&A)
Results of Operations
-- 1994 Compared with 1993....................... A-28
-- 1993 Compared with 1992....................... A-32
Liquidity & Capital Resources............................ A-33
Employment............................................... A-33
Other Matters............................................ A-34
Labor Update............................................. A-37
1995 Economic and Industry Outlook....................... A-37
1995 Company Outlook..................................... A-37
Supplemental Stockholder Information............................. A-38
Directors and Officers........................................... A-39
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, 1994, 1993,
and 1992, 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 LLP,
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.
/s/ Donald V. Fites
-----------------------
Chairman of the Board
/s/ Douglas R. Oberhelman
-------------------------
Chief Financial Officer
January 19, 1995
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
[Logo of Price Waterhouse LLP]
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, 1994, 1993, and
1992, 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."
/s/ Price Waterhouse LLP
Peoria, Illinois
January 19, 1995
A-3
<PAGE>
STATEMENT 1
CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31
(Millions of dollars except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
MACHINERY AND ENGINES:
Sales (note 1B)............................................................ $13,863 $11,235 $ 9,840
------- ------- --------
Operating costs:
Cost of goods sold........................................................ 10,834 9,075 8,444
Selling, general, and administrative expenses............................. 1,348 1,262 1,263
Research and development expenses (note 4)................................ 311 319 310
Gain on sale of lift truck assets (note 6)................................ - - (53)
------- ------- --------
12,493 10,656 9,964
------- ------- --------
Operating profit (loss).................................................... 1,370 579 (124)
Interest expense........................................................... 200 268 324
------- ------- --------
1,170 311 (448)
Net interest income on U.S. tax settlement (note 8)........................ - 251 -
Other income (expense) (note 7)............................................ 43 92 75
------- ------- --------
Profit (loss) before taxes................................................. 1,213 654 (373)
------- ------- --------
FINANCIAL PRODUCTS:
Revenues (note 1B)......................................................... 465 380 354
------- ------- --------
Operating costs:
Selling, general, and administrative expenses............................. 191 161 146
Interest expense.......................................................... 210 172 173
------- ------- --------
401 333 319
------- ------- --------
Operating profit........................................................... 64 47 35
Other income (expense) (note 7)............................................ (4) 21 20
------- ------- --------
Profit before taxes........................................................ 60 68 55
------- ------- --------
CONSOLIDATED PROFIT (LOSS) BEFORE TAXES..................................... 1,273 722 (318)
Provision (credit) for income taxes (note 8)............................... 354 42 (114)
------- ------- --------
Profit (loss) of consolidated companies.................................... 919 680 (204)
Equity in profit (loss) of affiliated companies (notes 1A and 12).......... 36 1 (14)
------- ------- --------
PROFIT (LOSS) BEFORE EXTRAORDINARY LOSS AND
EFFECTS OF ACCOUNTING CHANGES............................................. 955 681 (218)
Extraordinary loss on early retirement of debt (note 15)................... - (29) -
Effects of accounting changes (note 2)..................................... - - (2,217)
------- ------- --------
PROFIT (LOSS).............................................................. $ 955 $ 652 $ (2,435)
------- ------- --------
PROFIT (LOSS) PER SHARE OF COMMON STOCK:
Profit (loss) before extraordinary loss and effects of accounting changes.. $4.70 $3.36 $ (1.08)
Extraordinary loss on early retirement of debt............................. - (.15) -
Effects of accounting changes.............................................. - - (10.98)
------- ------- --------
Profit (loss).............................................................. $4.70 $3.21 $ (12.06)
Dividends declared per share of common stock................................ $.63 $.30 $ .30
</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>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
COMMON STOCK (NOTE 19):
Balance at beginning of year........... $ 835 $ 799 $ 798
Common shares issued, including
treasury shares reissued:
1994 - 1,144,631; 1993 -
1,819,130; 1992 - 80,928............. 48 36 1
Treasury shares purchased:
1994 - 4,426,200..................... (240) -- --
Issuance of common stock to effect
2-for-1 stock split.................. 102 -- --
------ ------ -------
Balance at year-end.................... 745 835 799
------ ------ -------
PROFIT EMPLOYED IN THE BUSINESS:
Balance at beginning of year........... 1,234 643 3,138
Profit (loss).......................... 955 652 (2,435)
Dividends declared..................... (126) (61) (60)
Issuance of common stock
to effect 2-for-1 stock split........ (102) -- --
------ ------ -------
Balance at year-end.................... 1,961 1,234 643
------ ------ -------
MINIMUM PENSION LIABILITY ADJUSTMENT
(NOTE 5A).............................. -- (40) --
------ ------ -------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (NOTE 3):
Balance at beginning of year........... 170 133 108
Aggregate adjustment for year.......... 35 37 25
------ ------ -------
Balance at year-end.................... 205 170 133
------ ------ -------
STOCKHOLDERS' EQUITY AT YEAR-END......... $2,911 $2,199 $ 1,575
====== ====== =======
</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)
---------------------------------------
1994 1993 1992
---------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments............... $ 419 $ 83 $ 119
Receivables - trade and
other..................... 2,971 2,637 2,190
Receivables - finance
(note 9).................. 1,319 988 758
Refundable income taxes
(note 8).................. - - 86
Deferred income taxes
and prepaid expenses
(note 8).................. 865 838 709
Inventories (notes 1C
and 10)................... 1,835 1,525 1,675
---------------------------------
Total current assets......... 7,409 6,071 5,537
Land, buildings,
machinery, and equipment
- net (notes 1D and 11)..... 3,776 3,827 3,954
Long-term receivables -
trade and other............. 125 132 140
Long-term receivables -
finance (note 9)............ 2,669 2,152 1,767
Investments in affiliated
companies (notes 1A and
12)......................... 455 395 345
Investments in Financial
Products subsidiaries....... - - -
Deferred income taxes
(note 8).................... 1,243 1,321 1,254
Intangible assets (notes
1E and 5A).................. 237 353 357
Other assets (notes 5B
and 21)..................... 336 556 581
---------------------------------
TOTAL ASSETS.................. $16,250 $14,807 $13,935
=================================
LIABILITIES
Current liabilities:
Short-term borrowings
(note 14)................. $ 740 $ 822 $ 941
Accounts payable and
accrued expenses.......... 2,624 2,055 1,772
Accrued wages,
salaries, and employee
benefits.................. 1,047 957 828
Dividends payable.......... 50 15 15
Deferred and current
income taxes payable
(note 8).................. 144 111 59
Long-term debt due
within one year (note
15)....................... 893 711 612
---------------------------------
Total current liabilities.... 5,498 4,671 4,227
Long-term debt due after
one year (note 15).......... 4,270 3,895 4,119
Liability for
postemployment benefits
(note 5).................... 3,548 4,018 3,995
Deferred income taxes and
other liabilities (note
8).......................... 23 24 19
---------------------------------
TOTAL LIABILITIES............. 13,339 12,608 12,360
---------------------------------
CONTINGENCIES (NOTE 18)
STOCKHOLDERS' EQUITY
(STATEMENT 2)
Common stock of $1.00 par
value (note 19):
Authorized shares:
450,000,000
Issued shares (1994 -
203,723,656; 1993 -
203,723,656;
and 1992 - 202,907,852)
at paid-in amount......... 923 835 821
Profit employed in the
business.................... 1,961 1,234 643
Minimum pension liability
adjustment (note 5A)........ - (40) -
Foreign currency
translation adjustment
(note 3).................... 205 170 133
Treasury stock (1994 -
3,281,569 shares;
and 1992 - 1,003,326
shares) at cost........... (178) - (22)
---------------------------------
TOTAL STOCKHOLDERS' EQUITY.... 2,911 2,199 1,575
---------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY......... $16,250 $14,807 $13,935
=================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
A-6
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUPPLEMENTAL CONSOLIDATING DATA
----------------------------------------------------------
MACHINERY AND ENGINES
(Caterpillar Inc. with Financial
Products on the equity basis) FINANCIAL PRODUCTS
----------------------------------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 395 $ 62 $ 104 $ 24 $ 21 $ 15
2,919 2,612 2,201 96 63 56
- - - 1,319 988 758
- - 86 - - -
888 869 734 3 2 1
1,835 1,525 1,675 - - -
----------------------------------------------------------
6,037 5,068 4,800 1,442 1,074 830
3,343 3,456 3,673 433 371 281
125 132 140 - - -
- - - 2,669 2,152 1,767
455 395 345 - - -
548 457 375 - - -
1,254 1,334 1,269 - - -
237 353 357 - - -
143 398 437 193 158 144
----------------------------------------------------------
$12,142 $11,593 $11,396 $4,737 $3,755 $3,022
==========================================================
$ 17 $ 139 $ 398 $ 723 $ 683 $ 543
2,416 1,925 1,669 278 201 196
1,045 955 827 2 2 1
50 15 15 - - -
112 71 25 32 40 34
86 218 120 807 493 492
----------------------------------------------------------
3,726 3,323 3,054 1,842 1,419 1,266
1,934 2,030 2,753 2,336 1,865 1,366
3,548 4,018 3,995 - - -
23 23 19 11 14 15
----------------------------------------------------------
9,231 9,394 9,821 4,189 3,298 2,647
----------------------------------------------------------
923 835 821 303 258 238
1,961 1,234 643 245 206 141
- (40) - - - -
205 170 133 - (7) (4)
(178) - (22) - - -
----------------------------------------------------------
2,911 2,199 1,575 548 457 375
----------------------------------------------------------
$12,142 $11,593 $11,396 $4,737 $3,755 $3,022
==========================================================
</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)
-----------------------------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit (loss)........................ $ 955 $ 652 $(2,435)
Adjustments for noncash items:
Depreciation and amortization...... 683 668 654
Effects of accounting changes,
net of tax........................ - - 2,217
Gain on sale of lift truck assets.. - - (53)
Profit of Financial Products....... - - -
Other.............................. 166 (153) (4)
Changes in assets and liabilities:
Receivables - trade and other...... (308) (524) (251)
Inventories........................ (315) 154 188
Accounts payable and accrued
expenses.......................... 519 315 165
Other - net........................ 57 293 22
----------------------------------
Net cash provided by operating
activities........................... 1,757 1,405 503
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - excluding
equipment leased to others.......... (501) (417) (515)
Expenditures for equipment leased
to others........................... (193) (215) (125)
Proceeds from disposals of land,
buildings, machinery, and equipment. 88 90 57
Proceeds from sale of lift truck
assets.............................. - - 141
Additions to finance receivables..... (2,934) (2,024) (1,601)
Collections of finance receivables... 1,850 1,389 1,198
Proceeds from sale of finance
receivables......................... 241 - -
Other - net.......................... (63) (41) (78)
----------------------------------
Net cash used for investing
activities........................... (1,512) (1,218) (923)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid....................... (91) (61) (60)
Common stock issued, including
treasury shares reissued............ 12 36 1
Treasury shares purchased............ (240) - -
Proceeds from long-term debt issued.. 1,083 1,218 1,044
Payments on long-term debt........... (746) (936) (1,140)
Short-term borrowings - net.......... 74 (451) 585
----------------------------------
Net cash provided by financing
activities........................... 92 (194) 430
----------------------------------
Effect of exchange rate changes
on cash.............................. (1) (29) 5
----------------------------------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS............... 336 (36) 15
Cash and short-term investments at
the beginning of the period.......... 83 119 104
----------------------------------
Cash and short-term investments at
the end of the period................ $ 419 $ 83 $ 119
==================================
</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
----------------------------------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 955 $ 652 $(2,435) $ 39 $ 43 $ 39
588 598 591 95 70 63
- - 2,220 - - (3)
- - (53) - - -
(39) (43) (39) - - -
126 (201) (5) 40 48 1
(281) (488) (242) (33) (7) 3
(315) 154 188 - - -
471 322 183 47 (28) -
73 279 (26) (9) 5 22
----------------------------------------------------------
1,578 1,273 382 179 131 125
----------------------------------------------------------
(498) (415) (513) (3) (2) (2)
(9) (12) (6) (184) (203) (119)
15 57 26 73 33 31
- - 141 - - -
- - - (2,934) (2,024) (1,601)
- - - 1,850 1,389 1,198
- - - 241 - -
(81) (85) (118) (27) 15 41
----------------------------------------------------------
(573) (455) (470) (984) (792) (452)
----------------------------------------------------------
(91) (61) (60) - - (15)
12 36 1 45 30 10
(240) - - - - -
- 201 427 1,083 1,017 617
(240) (419) (572) (506) (517) (568)
(112) (620) 310 186 169 275
----------------------------------------------------------
(671) (863) 106 808 699 319
----------------------------------------------------------
(1) 3 7 - (32) (2)
----------------------------------------------------------
333 (42) 25 3 6 (10)
62 104 79 21 15 25
----------------------------------------------------------
$ 395 $ 62 $ 104 $ 24 $ 21 $ 15
==========================================================
</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 12.
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, 1994, 1993, and 1992.
If the FIFO (first-in, first-out) method had been in use, inventories would
have been $2,035, $1,818, and $1,950 higher than reported at December 31, 1994,
1993, and 1992, 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, 1994, averaged 25 years. Accumulated amortization was
$182, $178, and $172, at December 31, 1994, 1993, and 1992, respectively.
When a purchased intangible becomes fully amortized, its cost is eliminated
from the reported accumulated amortization.
F. Derivative Financial Instruments
Derivative financial instruments are principally used by the company in the
management of its interest rate, foreign currency and commodity exposures.
Except as described in Note 16, derivative instruments are not reflected in the
financial statements at fair market value. Amounts payable or receivable under
interest rate swap agreements are recognized as adjustments to interest expense
in the periods in which they accrue. Gains and losses on foreign currency
instruments that hedge anticipated cash flows during the next twelve months are
also recognized in the results of operations as they accrue. Gains and losses
related to effective hedges of identified firm foreign currency commitments are
deferred and recognized in the results of operations in the same period as the
hedged transaction. Net premiums paid for derivative financial instruments are
deferred and recognized ratably over the life of the instrument.
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) $(10.61)
Postemployment benefits, net of applicable
income taxes (note 5C).............................. (29) (.14)
Income taxes (note 8)................................ (47) (.23)
------- -------
$(2,217) $(10.98)
======= =======
</TABLE>
In addition to the transition effects, incremental expense for 1992
resulting from the accounting changes was $117 before tax, $28 after tax, and
$.14 per share.
In the first quarter of 1994, the company changed its method of computing
LIFO inventories from a single pool approach to a multiple pool approach for
substantially all of its inventories. The company believes that the multiple
pool method results in a better matching of revenues and expenses. The
cumulative effect of the change on prior years was not determinable. This
change did not have a material effect on 1994 results of operations or
financial position.
Effective January 1, 1994, the company adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan," as
A-10
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
amended by SFAS 118. The adoption of these standards did not have a material
effect on the company's financial position or results of operations.
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.
For 1992, 1993, and the first half of 1994, net foreign exchange gains
arising from operations in Brazil's highly inflationary economy were removed
from "Other income" in Statement 1 and included on the operating statement
lines where the related inflationary effects were reported. Consequently,
exchange gains and losses on local currency denominated debt and cash deposits,
where the interest rates reflect the rate of inflation, were offset against
interest expense and interest income, respectively. Similarly, exchange gains
on local currency liabilities subject to monetary correction were offset
against the related expense. Additionally, in the first half of 1994,
noninterest bearing trade receivables in Brazil were discounted to present
value with the implicit interest income reported as a component of interest
income. Exchange losses on these receivables were offset against interest
income. These reclassifications were no longer applicable in the second half of
1994 as inflation in Brazil dropped dramatically following the implementation
of a new economic reform package. Exchange gains and losses were reclassified
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest expense....................................... $ 10 $ 72 $102
Cost of goods sold..................................... 29 33 15
Provision for income taxes............................. 10 11 4
Interest Income........................................ (53) -- --
---- ---- ----
$ (4) $116 $121
==== ==== ====
</TABLE>
There were no net foreign exchange gains or losses included in profit of
consolidated companies for 1994. Profit of consolidated companies for 1993 and
1992 included net foreign exchange gains (losses) of $(25) and $(5),
respectively. The aftertax net gains (losses) for 1994, 1993, and 1992 were $1,
$(19), and $3, respectively. 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's operations are subject to foreign exchange risk through future
foreign currency cash flows as movement in currency exchange rates impact: (1)
the U.S. dollar value of its foreign currency denominated sales, and (2) the
U.S. dollar value of the foreign currency denominated costs of its
manufacturing facilities or purchases of material or services from suppliers.
The company enters into forward exchange contracts and certain foreign currency
option contracts to manage the risk that the eventual U.S. dollar net cash
flows related to its operations will be adversely affected by changes in
currency exchange rates. Other than the initial payment of a premium associated
with purchased foreign currency option contracts, gains or losses on this
hedging activity are realized in the form of cash receipts or payments at the
maturity of the contracts.
Realized and unrealized gains or losses on all financial instruments which
are designated as, and are effective as hedges of firmly committed future
foreign currency transactions are deferred and are recognized in the results of
operations when the operating revenues and/or expenses are recognized. The cash
flows from these transactions are classified consistent with the cash flows for
the transaction or event being hedged. Similar accounting treatment is applied
to gains and losses on purchased foreign currency option hedges of probable
anticipated transactions that expose the enterprise to foreign currency risk.
In those situations where these financial instruments are either terminated or
mature prior to the transaction or event being hedged, the gains or losses
continue to be deferred and are recognized in the results of operations when
the transaction or event being hedged is recognized. Conversely, deferred gains
and losses are recognized in the results of operations immediately when the
hedged firmly committed or anticipated transaction is no longer anticipated to
occur.
Gains or losses on financial instruments, other than certain purchased
foreign currency options used as hedges of anticipated but not firmly committed
foreign currency cash flow exposures, are reported in the results of operations
as exchange rates change and included with amounts reported in "Other income"
on Statement 1.
Realized gains or losses not yet recognized in the results of operations and
the offset for gains and losses recognized but not realized are included with
amounts reported as "Receivables trade and other" on Statement 3.
At December 31, 1994, the company had approximately $354 in forward exchange
and foreign currency option contracts to buy or sell foreign currency to hedge
anticipated, but not firmly committed, net foreign currency cash flow exposures
for the next twelve months. In conjunction with this hedging activity, losses
totaling $15 have been recognized in "Other income" (Statement 1) but have not
been realized. This amount is reflected as a reduction of assets in Statement
3. Additionally, at December 31, 1994, the company had approximately $649 in
forward exchange and foreign currency option contracts to sell foreign currency
to hedge firmly committed revenue (sale) transactions for the next twelve
months. Losses totaling $11, associated with hedges of future firmly committed
revenue transactions that had matured or been canceled prior to December 31,
1994, have been realized, and will be recognized when the underlying hedged
transactions occur. This amount is reflected as an asset in Statement 3. The
fair market value of all forward exchange and foreign currency option contracts
based on quoted market prices of comparable instruments was a liability of $97.
The value of the contracts upon ultimate settlement is dependent upon actual
currency exchange rates at the various maturity dates which range through 1995.
At December 31, 1993, and 1992, the company had approximately $1,345, and
$1,705, respectively, in forward exchange and foreign currency option 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.
A-11
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -----------------------------------------------------------------------------
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 1994, 1993, and
1992 was $81, $95, and $72, 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>
1994 1993 1992
--------------- ------------- ---------------
<S> <C> <C> <C>
Service cost -- benefits
earned during the period.. $108 $103 $ 96
Interest cost on projected
benefit obligation........ 393 387 366
Return on plan assets:(1)
Actual.................... $(124) $(674) $(553)
Deferred.................. (335) 248 138
----- ----- -----
Recognized.............. (459) (426) (415)
Amortization of:
Net asset existing at
adoption of SFAS 87...... (22) (22) (24)
Prior service cost(2)..... 60 51 47
Net actuarial (gain) loss. 1 2 2
---- ---- ----
Pension expense............ $ 81 $ 95 $ 72
==== ==== ====
</TABLE>
(1) Although the actual return on plan assets is shown, the expected long-term
rate of return on plan assets of 9.4%, 9.9%, and 9.9% was used in
determining consolidated pension expense for 1994, 1993, and 1992,
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.
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-13.
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 $209, $323, and $329 was recorded at
December 31, 1994, 1993, and 1992. 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 8.3%, 7.3%, and 7.9% for 1994, 1993,
and 1992, respectively. The projected benefit, for those plans with benefit
payments based upon earnings near retirement, includes an expected annual rate
of increase in future compensation of 4.6%, 4.1%, and 5.0% for 1994, 1993, and
1992, 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>
1994 1993 1992
-------------- ------------ -----------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period................ $ 83 $ 79 $ 98
Interest cost on accumulated
benefit obligation............... 223 227 260
Return on plan assets:(1)
Actual........................... $ 3 $ -- $ --
Deferred......................... (26) -- --
---- ____ ____
Recognized..................... (23) -- --
Amortization of:
Prior service cost(2)............ (190) (189) (104)
Net actuarial loss............... 2 1 --
___ ___ ___
Postretirement benefit expense.... $ 95 $118 $254
=== === ===
</TABLE>
(1) Although the actual return on plan assets is shown, the expected long-term
rate of return on plan assets of 9.5% was used in determining consolidated
postretirement benefit expense for 1994. 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 impacted by the plan
amendment.
A-12
<PAGE>
Caterpillar Inc.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TABLE I
- -------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------- --------------------------- ---------------------------
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....... $ (2,379) $ (1,823) $ (2,453) $ (2,047) $ (2,197) $ (1,838)
Nonvested benefit obligation.... (146) (402) (190) (476) (181) (482)
-------- -------- -------- -------- -------- --------
Accumulated benefit obligation.. $ (2,525) $ (2,225) $ (2,643) $ (2,523) $ (2,378) $ (2,320)
======== ======== ======== ======== ======== ========
Actuarial present value
of projected benefit
obligation.................... $ (2,829) $ (2,248) $ (2,928) $ (2,587) $ (2,699) $ (2,395)
Plan assets at market value..... 3,310 1,810 3,257 1,922 2,999 1,800
-------- -------- -------- -------- -------- --------
Funded status at plan year-end.. 481 (438) 329 (665) 300 (595)
Unrecognized net asset
existing at adoption of
SFAS 87....................... (114) (9) (160) 13 (192) 18
Unrecognized prior service
cost.......................... 158 279 115 351 125 402
Unrecognized net actuarial
(gain) loss................... (342) (45) (124) 63 (96) (37)
Adjustment required to
recognize minimum liability... -- (209) -- (387) -- (329)
-------- -------- -------- -------- -------- --------
Prepaid pension cost (pension
liability) at December 31..... $ 183 $ (422) $ 160 $ (625) $ 137 $ (541)
======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. Postretirement benefits
funded through VEBA contributions include life insurance for hourly and
salaried employees and medical expenses for employees not enrolled in health
maintenance organizations. The company currently funds plan obligations on a
pay-as-you-go basis. Balances in the VEBA trusts have accumulated over time
primarily from earnings on assets previously contributed to the trusts. Assets
in the trusts consist principally of mutual funds, common stocks, corporate
bonds, and government obligations. 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.
Earnings from trust assets of $34 were included in Statement 1 as a
component of "Other income" (note 7) for 1993. As of December 31, 1993, the
carrying value of trust assets was $220, and was a component of "Other assets"
in Statement 3.
Effective January 1, 1994, trust assets for retiree benefits were legally
segregated from those for active employees. As such, these assets have been
recorded as a reduction to the liability for postretirement benefits rather
than as a component of "Other assets." Beginning in 1994, return on plan assets
was a component of postretirement benefit expense rather than a component of
"Other income."
The components of the liability for postretirement benefits (other than
pensions) as of December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................... $(1,910) $(1,965) $(1,820)
Fully eligible active plan participants...... (242) (323) (370)
Other active plan participants............... (604) (722) (699)
------- ------- -------
(2,756) (3,010) (2,889)
Plan assets at market value.................... 239 -- --
Unrecognized prior service cost................ (669) (861) (1,029)
Unrecognized net actuarial (gain) loss......... (265) 132 161
------- ------- -------
Liability for postretirement benefits
(other than pensions)........................ $(3,451) $(3,739) $(3,757)
======= ======= =======
</TABLE>
The assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation at December 31, 1994, was 9.4% for 1995,
declining gradually to 5.0% in 2001. Postretirement benefit expense for 1994
and the accumulated postretirement benefit obligation at December 31, 1993,
were determined using a health care cost trend rate of 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 1992, 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, 1994, 1993, and 1992 approximately $202, $234, and $279,
respectively, and the aggregate of the service and interest cost components of
1994, 1993, and 1992 postretirement benefit expense by approximately $24, $25,
and $62, respectively. The
A-13
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
accumulated postretirement benefit obligation was determined using a weighted
average discount rate of 8.5%, 7.4%, and 8.0% for 1994, 1993, and 1992,
respectively.
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.
D. Summary of long-term liability
The components of the long-term liability for postemployment benefits at
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Pensions...................................... $ 209 $ 387 $ 329
Postretirement benefits other than pensions... 3,275 3,566 3,598
Other postemployment benefits................. 64 65 68
------ ------ ------
$3,548 $4,018 $3,995
====== ====== ======
</TABLE>
6. 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.
7. Other income
The components of other income were as follows for the years ended December
31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Foreign exchange gains (losses)............... $ -- $(25) $ (5)
Investment and interest income................ 48 97 78
License fees.................................. 23 28 32
Miscellaneous income (expense)................ (32) 13 (10)
---- ---- ----
$ 39 $113 $ 95
==== ==== ====
</TABLE>
8. Income taxes
Effective January 1, 1992, the company adopted SFAS 109, "Accounting for
Income Taxes." 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.
The provision (credit) for income taxes for the years ended December 31 was:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Machinery and Engines......................... $333 $ 19 $(131)
Financial Products............................ 21 23 17
---- ---- -----
Provision (credit) for income taxes........... $354 $ 42 $(114)
==== ==== =====
</TABLE>
The components of the provision (credit) for income taxes were as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Current tax provision (credit):
U.S. federal taxes.......................... $164 $ 63 $ (63)
Foreign taxes............................... 73 25 28
U.S. state taxes............................ 25 10 (2)
---- ---- -----
262 98 (37)
---- ---- -----
Deferred tax provision (credit):
U.S. federal taxes.......................... 87 (51) (61)
Foreign taxes............................... (8) (2) (1)
U.S. state taxes............................ 13 (3) (15)
---- ---- -----
92 (56) (77)
---- ---- -----
Total provision (credit) for income taxes..... $354 $ 42 $(114)
==== ==== =====
</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 1994, 1993, and 1992 totaled $199, $10, and
$(26), 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.
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:
A-14
<PAGE>
CATERPILLAR INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
U.S. federal, U.S. state, and foreign taxes:
Deferred tax assets:
Postemployment benefits other
than pensions............................ $1,331 $1,345 $1,316
Inventory valuation method................ 62 66 71
Unrealized profit excluded
from inventories......................... 156 193 209
Plant closing and consolidation costs..... 55 58 69
Net operating loss carryforwards.......... 166 253 239
Warranty reserves......................... 108 67 50
Accrued vacation.......................... 29 29 30
Qualified deficits........................ 33 54 40
Foreign tax credit carryforwards.......... -- 62 11
Minimum tax credit carryforwards.......... -- 18 30
Other..................................... 155 126 40
------ ------ ------
2,095 2,271 2,105
Deferred tax liabilities:
Capital assets............................ (84) (77) (68)
Pension................................... (36) (22) (49)
------ ------ ------
(120) (99) (117)
------ ------ ------
Valuation allowance for
deferred tax assets........................ (182) (284) (265)
------ ------ ------
Deferred taxes -- net......................... $1,793 $1,888 $1,723
====== ====== ======
</TABLE>
From December 31, 1993 to December 31, 1994, the valuation allowance for
deferred tax assets decreased by $102. This was the result of origination and
reversal of temporary differences, changes in exchange rates at certain foreign
locations where valuation allowances are recorded, and a change in the
conclusion regarding the need for a valuation allowance at one of the company's
foreign subsidiaries.
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. Deferred taxes appear in Statement 3, at December 31, on
the following lines:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Assets:
Deferred income taxes and
prepaid expenses........................... $ 575 $ 584 $ 491
Deferred income taxes....................... 1,243 1,321 1,254
------ ------ ------
1,818 1,905 1,745
------ ------ ------
Liabilities:
Deferred and current
income taxes payable....................... (6) (2) (3)
Deferred income taxes
and other liabilities...................... (19) (15) (19)
------ ------ ------
(25) (17) (22)
------ ------ ------
Deferred taxes -- net......................... $1,793 $1,888 $1,723
====== ====== ======
</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>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Taxes computed at U.S. statutory rates........ $445 $253 $(108)
Increases (decreases) in taxes
resulting from:
Subsidiaries' results subject to tax rates
other than U.S. statutory rates........... (9) 13 60
Net operating loss carryforwards........... (50) (19) --
Benefit of Foreign Sales Corporation....... (34) (21) (20)
Qualified deficits......................... 21 (12) (21)
IRS settlement............................. -- (144) --
Change in U.S. tax rate.................... -- (36) --
State income taxes -- net of federal taxes. 25 11 (11)
Valuation allowance adjustment............. (22) -- --
Research and experimentation credit........ -- (4) --
Other -- net............................... (22) 1 (14)
---- ----- -----
Provision (credit) for income taxes........... $354 $ 42 $(114)
==== ===== =====
</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, 1994, 1993, and 1992, included the
company's share of undistributed profits of subsidiaries and affiliated
companies, totaling $753, $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>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Domestic...................................... $ 779 $611 $(215)
Foreign....................................... 494 111 (103)
------ ---- -----
$1,273 $722 $(318)
====== ==== =====
</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 24B, 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, 1994. The amounts and expiration dates of these
carryforwards are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997................................ $ 22
1998................................ --
1999................................ 29
2000................................ 38
Unlimited........................... 305
----
Total............................. $394
====
</TABLE>
A-15
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
With the exception of one foreign taxing jurisdiction where there was
sufficient positive evidence to support recognition of net deferred tax assets,
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, qualified deficits of $94, 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.
There were no tax credit carryforwards available in the United States at
December 31, 1994.
9. 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, 1994 were:
<TABLE>
<CAPTION>
Installment Financing
Amounts Due In Contracts Leases Notes Total
- -------------- ----------- --------- ------ ------
<S> <C> <C> <C> <C>
1995................... $ 468 $ 493 $ 573 $1,534
1996................... 351 371 334 1,056
1997................... 220 256 364 840
1998................... 90 136 167 393
1999................... 21 55 106 182
Thereafter............. 2 77 78 157
------ ------ ------ ------
1,152 1,388 1,622 4,162
Residual value......... -- 292 -- 292
Less: Unearned Income.. (137) (265) (14) (416)
------ ------ ------ ------
Total.................. $1,015 $1,415 $1,608 $4,038
====== ====== ====== ======
</TABLE>
The average recorded investment in impaired loans and leases (those for
which management does not expect to collect all amounts due according to the
contractual terms of the agreement) during 1994 was $49. The total recorded
investment in impaired loans and leases at December 31, 1994 of $47 less the
fair value of the underlying collateral of $32 represent a $15 projected loss
on impaired loans and leases for which there is a related allowance for credit
losses. Recognition of income on finance receivables is suspended when
management determines that collection of future income is not probable. Accrual
is resumed if the receivables become contractually current and collection
doubts are removed; previously suspended income is recognized at that time.
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>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year........................... $ 41 $ 37 $ 31
Provision for credit losses............................ 23 20 20
Less: Receivables, net of
recoveries, written off.......................... (13) (19) (14)
Other -- net........................................... (1) 3 --
---- ---- ----
Balance at end of year................................. $ 50 $ 41 $ 37
==== ==== ====
</TABLE>
At December 31, 1994, 1993, and 1992, the fair value of finance receivables
(excluding finance type leases classified as finance receivables with net
carrying value of $391, $333, and $272, respectively) was $3,582, $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>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Total minimum lease payments receivable........... $1,387 $1,135 $ 982
Estimated residual value of leased assets:
Guaranteed...................................... 84 71 55
Unguaranteed.................................... 208 149 124
------ ------ ------
1,679 1,355 1,161
Less: Unearned income............................. 265 229 212
------ ------ ------
Net investment in financing leases................ $1,415 $1,126 $ 949
====== ====== ======
</TABLE>
10. Inventories
Inventories at December 31, by major classification, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Raw materials and work-in-process..................... $ 697 $ 545 $ 505
Finished goods........................................ 942 812 1,006
Supplies.............................................. 196 168 164
------ ------ ------
$1,835 $1,525 $1,675
====== ====== ======
</TABLE>
Reductions in individual LIFO inventory pools decreased cost of goods sold
for 1994, 1993, and 1992 by $28, $38, and $30, 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, 1994, 1993, and 1992, the amounts of
the contracts hedging future commodity purchases were immaterial.
11. Land, buildings, machinery, and equipment
Land, buildings, machinery, and equipment at December 31, by major
classification, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Land -- at original cost.............................. $ 105 $ 105 $ 109
Buildings............................................. 2,597 2,485 2,479
Machinery and equipment............................... 3,609 3,594 3,458
Patterns, dies, jigs, etc............................. 441 428 405
Furniture and fixtures................................ 637 613 589
Transportation equipment.............................. 44 28 27
Equipment leased to others............................ 633 536 429
Construction-in-process............................... 164 176 346
------ ------ ------
8,230 7,965 7,842
Accumulated depreciation.............................. (4,454) (4,138) (3,888)
------ ------ ------
Land, buildings, machinery, and
equipment -- net.................................... $3,776 $3,827 $3,954
====== ====== ======
</TABLE>
The company had commitments for the purchase or construction of capital
assets of approximately $195 at December 31, 1994. Capital expenditure plans
are subject to continuous monitoring, and changes in such plans could reduce
the amount committed.
Maintenance and repair expense for 1994, 1993, and 1992 was $461, $458, and
$451, respectively.
A-16
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
Equipment leased to others
Equipment leased to others, primarily of Caterpillar Financial Services
Corporation, consisted of the following components at December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Equipment leased to others -- at cost.................. $633 $536 $429
Less:
Accumulated depreciation............................. 189 150 134
---- ---- ----
Equipment leased to others -- net...................... $444 $386 $295
==== ==== ====
</TABLE>
Scheduled minimum rental payments to be received for equipment leased to
others during each of the years 1995 through 1999, and in total thereafter, are
$135, $104, $66, $41, $18, and $9, respectively.
12. Affiliated companies
The company's investments in affiliated companies consist principally of a
50% interest in Shin Caterpillar Mitsubishi Ltd., Japan ($423). 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,
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Results of Operations
Sales.......................................... $3,324 $2,776 $2,450
====== ====== ======
Profit (loss) before effect of
accounting change............................ $ 63 $ 1 $ (41)
====== ====== ======
Profit (loss)................................. $ 63 $ 1 $ (65)
====== ====== ======
</TABLE>
Profit for the year ended September 30, 1994, includes $19 representing
aftertax gain on the sale of surplus assets.
<TABLE>
<CAPTION>
September 30,
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Financial Position
Assets:
Current assets................................... $1,853 $1,691 $1,880
Land, buildings, machinery, and
equipment -- net................................ 781 750 712
Other assets..................................... 298 310 250
------ ------ ------
2,932 2,751 2,842
------ ------ ------
Liabilities:
Current liabilities.............................. 1,575 1,441 1,649
Long-term debt due after one year................ 332 449 396
Other liabilities................................ 150 90 85
------ ------ ------
2,057 1,980 2,130
------ ------ ------
Ownership.......................................... $ 875 $ 771 $ 712
====== ====== ======
</TABLE>
At December 31, 1994, the company's consolidated "Profit employed in the
business" included $113 representing its share of undistributed profit of the
affiliated companies. In 1994, 1993, and 1992, the company received $3, $3, and
$2, respectively, in dividends from affiliated companies.
13. 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 anticipated needs
vary and are not indicative of short-term borrowing capacity.
Unsecured, confirmed credit lines available from banks were $3,194 at
December 31, 1994 (in U.S. $1,897 and outside U.S. $1,297), of which $1,814 was
unused. For the purpose of computing unused credit lines, the total borrowings
under these lines and outstanding commercial paper supported by these lines was
considered to constitute utilization.
Machinery and Engines
At December 31, 1994, Machinery and Engines had $2,139 confirmed credit
lines (in U.S. $1,897 and outside U.S. $242), of which $17 was utilized as
backup for bank borrowings. In the United States, the company has a long-term,
contractually committed credit agreement, under which $1,200 is available from
various banks through October 1999, and another agreement under which $600 is
available through October 1995. The latter agreement may be extended on an
annual basis subject to mutual agreement. These two credit agreements may be
used at the company's option by either the company or up to 80% by Caterpillar
Financial Services Corporation, with a $250 sublimit for Caterpillar Financial
Australia Limited, a wholly owned subsidiary of Cat Financial.
Based on a previous long-term agreement, $425 of commercial paper
outstanding at December 31, 1992 was classified as long-term debt due after one
year. No commercial paper was classified as long-term at December 31, 1994 or
1993.
Financial Products
At December 31, 1994, Financial Products had $2,495 of confirmed lines (in
U.S. $1,440 and outside U.S. $1,055), including the $1,440 of the company's
credit agreements, of which $841 was utilized as backup for outstanding
commercial paper and $523 for bank borrowings.
Based on long-term credit agreements, $660, $455, and $370 of commercial
paper outstanding at December 31, 1994, 1993, and 1992, respectively, was
classified as long-term debt due after one year.
14. Short-term borrowings
Short-term borrowings at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Machinery and Engines:
Notes payable to banks............................... $ 17 $104 $184
Commercial paper..................................... -- 35 214
---- ---- ----
17 139 398
Financial Products:
Notes payable to banks............................... 532 336 195
Commercial paper..................................... 181 342 344
Other................................................ 10 5 4
---- ---- ----
723 683 543
---- ---- ----
$740 $822 $941
==== ==== ====
</TABLE>
Interest paid on short-term borrowings for 1994, 1993, and 1992 was $99,
$94, and $123, respectively (interest paid in 1994, 1993, and 1992 was $109,
$166, and $225, respectively, excluding the reclassification described in note
3).
At December 31, 1994, 1993, and 1992, the carrying value of short-term
borrowings approximated fair value.
A-17
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- ------------------------------------------------------------------------------
The weighted average interest rates on short-term borrowings at December 31
were as follows:
1994 1993 1992
----- ----- -----
Notes payable to banks........ 5.8% 6.6% 7.1%
Notes payable to others....... 5.3% 3.6% 3.8%
Commercial paper.............. 6.1% 3.6% 4.3%
The balances used to calculate the weighted average interest rates for notes
payable to banks exclude borrowings in high inflation countries (including
Brazil). The weighted average interest rates for these borrowings were not
considered meaningful because rates were impacted by the effect of significant
inflation. The balances used to calculate the weighted average interest rates
for commercial paper included $660, $455, and $370 of commercial paper
supported by revolving credit agreements which were classified as long-term
debt due after one year (note 13).
15. Long-term debt
Debt due after one year at December 31 consisted of the following:
1994 1993 1992
------ ------ -------
Machinery and Engines:
Commercial paper supported
by revolving
credit agreement (note 13)................ $ -- $ -- $ 425
Notes -- Zero coupon due 1994.............. -- -- 117
Notes -- 9 1/8% due 1996................... 150 150 150
Notes -- 8% extendable to 1997............. -- -- 3
Notes -- 9 3/8% due 2000................... 149 149 149
Notes -- 9 3/8% due 2001................... 183 183 199
Debentures -- 8% due through 2001.......... -- -- 92
Debentures -- 9% due 2006.................. 202 202 248
Debentures -- 6% due 2007.................. 127 124 121
Debentures -- 9 3/8% due 2011.............. 123 123 149
Debentures -- 9 3/4% due 2000-2019......... 199 200 300
Debentures -- 9 3/8% due 2021.............. 236 236 250
Debentures -- 8% due 2023.................. 199 199 -
Medium-term notes.......................... 300 379 451
Other...................................... 66 85 99
------ ------ ------
1,934 2,030 2,753
Financial Products:
Commercial paper supported by revolving
credit agreement (note 13).............. 660 455 370
Medium-term notes.......................... 1,616 1,366 988
Other...................................... 60 44 8
------ ------ -------
2,336 1,865 1,366
------ ------ -------
$4,270 $3,895 $4,119
====== ====== ======
The aggregate amounts of maturities and sinking fund requirements of
long-term debt during each of the years 1995 through 1999, including that due
within one year and classified as current are:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Machinery and Engines....... $ 86 $157 $119 $ 41 $ 62
Financial Products.......... 807 575 397 368 155
---- ---- ---- ---- ----
$893 $732 $516 $409 $217
==== ==== ==== ==== ====
Interest paid on total long-term borrowings, excluding the reclassification
described in note 3, for 1994, 1993, and 1992 was $307, $308, and $314,
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 8). 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 6) 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.
Other than the notes of the Financial Products subsidiaries, all outstanding
notes and debentures itemized above are unsecured direct obligations of the
parent company.
The 6% debentures were sold at significant original issue discounts. This
issue is carried net of the unamortized portion of its discount, which is
amortized as interest expense over the life of the issue.
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 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 were redeemed at their principal amount at the
company's option in 1994.
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, 1994, these notes had
a weighted average interest rate of 7.2% with about six months to nine years
remaining to maturity.
The notes of the Financial Products subsidiaries primarily represent
medium-term notes having a weighted average interest rate of 6.3% with
maturities up to 15 years at December 31, 1994.
At December 31, 1994, 1993, and 1992, the fair value of long-term debt,
including that due within one year, was approximately $2,127, $2,646 and
$3,125, respectively, for Machinery and Engines and $3,108, $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.
16. Interest Rate Derivative Contracts
The company utilizes a variety of interest rate derivative contracts,
particularly interest rate swap agreements, to manage its exposure to changes
in interest rates arising from imbalances between assets and liabilities, and
to lower the cost of borrowed funds. Interest rate swap agreements are settled
in cash at specified intervals based on the difference between the fixed-rate
and
A-18
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
TABLE II
- --------------------------------------------------------------------------------
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
Expected Maturity
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1994 1995 1996 1997 1998 1999 2000-04 Total
----- ----- ----- ----- ----- -------- -----
Machinery & Engines:
Fixed-to-Floating Swaps
Notional Amount............................. $ - $ - $150 $250 $200 $ - $600
Weighted Average:
Receive Rate............................... - - 6.2% 5.3% 5.6% - 5.7%
Pay Rate................................... - - 6.0% 6.0% 6.0% - 6.0%
Pay Rate Index:
Federal Reserve H-15 Commercial Paper
Financial Products:
Floating-to-Fixed Swaps
Notional Amount............................. $270 $367 $167 $107 $ 5 $ 35 $951
Weighted Average:
Receive Rate............................... 6.0% 5.7% 6.0% 6.0% 5.6% 5.9% 5.9%
Pay Rate................................... 6.2% 5.8% 6.1% 5.7% 5.1% 6.9% 6.0%
Receive Rate Index: LIBOR, Commercial Paper
Fixed-to-Floating Swaps
Notional Amount............................. $ 63 $176 $ 45 $ 20 $ - $ - $304
Weighted Average:
Receive Rate............................... 7.8% 4.6% (1) 6.2% 5.2% - - 5.5%
Pay Rate................................... 7.2% 5.8% 6.3% 5.7% - - 6.2%
Pay Rate Index: LIBOR
Floating-to-Floating Swaps
Notional Amount............................. $245 $ 37 $ 50 $100 $ 60 $ - $492
Weighted Average:
Receive Rate............................... 5.1% 3.5% (1) .1% (1) 6.9% 6.4% - 5.0%
Pay Rate................................... 5.8% 5.5% 5.7% 6.1% 5.5% - 5.8%
Receive/Pay Rate Indices: LIBOR
</TABLE>
(1) Low rate offset by low pay rate on related structured medium-term notes.
- -------------------------------------------------------------------------------
TABLE III
- -------------------------------------------------------------------------------
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
Machinery
& Engines Financial Products
---------- --------------------------------------------
Fixed-to Floating- Fixed-to Floating-
Floating to-Fixed Floating to-Floating Total
---------- ---------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.... $ 500 $ 851 $329 $ 867 $2,047
Additions................... 200 363 89 287 739
Maturities/Amortizations.... (100) (220) (96) (241) (557)
Terminations................ - (54) (18) (421) (493)
F/X Translation Adjustment.. - 11 - - 11
----- ----- ---- ----- ------
Balance, December 31, 1994.... $ 600 $ 951 $304 $ 492 $1,747
===== ===== ==== ===== ======
- ----------------------------------------------------------------------------------------
</TABLE>
floating-rate interest amounts calculated by reference to the contractual
notional amount.
Hedge accounting treatment is applied to interest rate derivative contracts
that are designated as hedges of specific debt positions. That is, interest
differentials currently payable or receivable under the derivative contract are
recognized each period as an adjustment to "Interest expense" in Statement 1.
Under hedge accounting treatment, current period income is not affected by the
increase or decrease in the fair market value of derivative instruments as
interest rates change. Premiums paid on forward rate agreements and/or
purchased interest rate caps are deferred and recognized ratably as adjustments
to "Interest expense" on Statement 1 over the lives of the agreement. Interest
accruals in a net payable position are recorded as accrued interest payable,
while those accruals in a net receivable position are recorded as other assets.
Early termination of a hedging instrument does not result in recognition of
immediate gain or loss except in those cases when the debt instrument to which
a contract is specifically linked is terminated.
The notional amounts of interest rate swap agreements outstanding as of
December 31, 1994, segregated by type of instrument and year of maturity are
presented in Table II on Page A-19. The weighted average receive and pay
interest rates and the primary index to which the floating interest rates are
linked are
A-19
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- --------------------------------------------------------------------------------
also presented. The notional amounts are not indicative of the company's
exposure to credit risk. The floating interest rates presented are based on the
interest rates in effect at the reporting date. These rates may change
substantially in the future due to open market factors.
The notional amount of Financial Products subsidiaries' outstanding forward
rate agreements, which are utilized to hedge interest rate exposure on
short-term borrowings, totaled $3 at December 31, 1994. These agreements
generally range up to six months.
As of December 31, 1994, Financial Products subsidiaries had three written
index-amortizing interest rate cap agreements outstanding. Two of these caps
have notional amounts of $100 with strike rates of 5.0% and 4.75% based on
three month LIBOR and maturity dates in 1997. One has a notional amount of
Canadian $50 (U.S. dollar equivalent $36) with a strike rate of 5.15% based on
three month Canadian Banker's Acceptance and a maturity date in 1997. The
maturity dates of all three interest rate cap agreements may be earlier based
on the notional amount index-amortizing feature of each agreement.
The company entered into these instruments, in return for a premium, in
order to reduce the overall cost of borrowing. Fair value or mark to market
accounting treatment is being applied to these instruments. Accordingly,
unrealized and realized gains and losses on these instruments are recorded as
"Other income" on Statement 1 and as "Accounts payable and accrued expenses" on
Statement 3. Increases in interest rates during 1994 have resulted in a
recognized but unrealized mark to market loss on these written options of $18
during the year. The company does not currently intend to liquidate these
instruments, but will evaluate alternatives as economic conditions change. In
the future, the use of interest rate contracts will be limited to those that
qualify for deferred accounting treatment, thereby minimizing fluctuations to
the earnings of the company created by mark to market accounting treatment.
The company's activity for 1994 for each type of interest rate swap
agreement is summarized in Table III on Page A-19.
The notional amounts of interest rate swaps, caps and forward rate
agreements outstanding at December 31, 1993, and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
------ -----
<S> <C> <C>
Machinery and Engines:
Interest rate swaps:
Fixed to floating rate........ $ 500 $ 250
====== =====
Financial Products:
Interest rate swaps and caps:
Floating to fixed rate........ $1,051 $ 527
Fixed to floating rate........ 629 338
Floating to floating rate..... 867 80
------ -----
$2,547 $ 945
====== =====
Forward rate agreements......... $ 246 $ 59
====== =====
</TABLE>
For Machinery and Engines, the carrying value and the fair value of interest
rate swaps and options in a net receivable position were approximately zero at
December 31, 1994. The carrying value of interest rate swaps and options in a
net receivable position was $1 at both December 31, 1993 and 1992,
respectively, and the fair value was $8 and $2 at December 31, 1993 and 1992,
respectively. At December 31, 1994, the carrying value of interest rate swaps
and options in a net payable position was $2, and the fair value was $50.
For Financial Products, at December 31, 1994, 1993, and 1992, the carrying
value of interest rate swaps and options in a
TABLE IV
________________________________________________________________________________
FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Asset (Liability) 1994 1993 1992
-------------------- ------------------- -------------------
At December 31 Carrying Fair Carrying Fair Carrying Fair Note
Amount Value Amount Value Amount Value Reference #
--------- --------- --------- -------- --------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Short-term Investments.......... $ 419 $ 419 $ 83 $ 83 $ 119 $ 119 Statement 3, Note 21
Long-term Investments.................... 172 172 362 362 353 353 Note 21
Foreign Currency Exchange Contracts...... (4) (97) (2) (16) 10 (70) Note 3
Finance Receivables - net
(excluding finance type leases and
currency swaps)........................ 3,603 3,582 2,807 2,822 2,253 2,275 Note 9
Short-term Borrowings.................... 740 740 822 822 941 941 Note 14
Long-term Debt
(including amounts due within one year)
Machinery and Engines................ (2,020) (2,127) (2,248) (2,646) (2,873) (3,125) Note 15
Financial Products................... (3,143) (3,108) (2,358) (2,397) (1,858) (1,890) Note 15
Interest Rate Swaps and Options
Machinery and Engines.................. - - 1 8 1 2 Note 16
Machinery and Engines.................. (2) (50) - - - - Note 16
Financial Products..................... 3 46 3 8 1 3 Note 16
Financial Products..................... (23) (62) (7) (24) (7) (22) Note 16
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-20
<PAGE>
Caterpillar Inc.
- --------------------------------------------------------------------------------
net receivable position was $3, $3, and $1, respectively, and the fair value was
$46, $8, and $3, respectively. The carrying value of interest rate swaps and
options in a net payable position was $23 at December 31, 1994 and was $7 at
both December 31, 1993 and 1992, and the fair value was $62, $24, and $22 at
December 31, 1994, 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. Fair values for related short-term borrowings and long-term debt are
presented in Table IV on page A-20.
17. Fair Values of Financial Instruments
The following methods and assumptions were used by the company in estimating
its fair value disclosures for financial instruments:
Cash and Short-term Investments: The carrying amount reported in the balance
sheet for cash and short-term investments approximated its fair value.
Long-term Investments: The fair value of long-term investments was based on
quoted market prices.
Foreign Currency Exchange Contracts: Fair value for foreign currency
exchange contracts was based on quoted market prices of comparable instruments.
Finance Receivables: Fair value of finance receivables 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.
Short-term Borrowings: The carrying amount of short-term borrowings
approximated fair value.
Long-term Debt: 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.
Interest Rate Swaps and Options: The fair values of interest rate swaps and
options represent the estimated amount that the company would receive or pay to
terminate the agreements taking into account current interest rates. Dealer
quotes are available for most of these agreements.
The carrying amounts and fair values of the company's financial instruments
are presented in Table IV on Page A-20.
18. Litigation
On September 6, 1994, the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America ("UAW"), UAW Local 974, and
Citizens for a Better Environment filed a complaint againt the company with the
Illinois Pollution Control Board ("Board"). The complaint generally alleges, in
seven counts, that the company has violated certain provisions of the Illinois
Environmental Protection Act and Board regulations with respect to a particular
property in East Peoria, Illinois. The complaint further alleges that the
maximum penalties for the alleged violations total $199. The company believes
the claims are without merit and will vigorously contest them. The company
further believes final resolution of this matter will not have a material
impact on the company's liquidity, capital resources, 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.
19. 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 2,000 shares each year of the company's common
stock. The 1987 plan provided an additional 6,000,000 shares for grants. In
1993 and 1991, the 1987 plan was amended to provide an additional 2,000,000 and
7,000,000 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 1,144,631; 1,819,130; and 80,928 in 1994,
1993, and 1992, respectively. No treasury stock was held at December 31, 1993.
Shares held as treasury stock at December 31, 1994 and 1992 were 3,281,569 and
1,003,326, respectively.
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 1994, 1993, or 1992. Of the shares
covered by options outstanding at December 31, 1994, 3% were the subject of
stock appreciation rights.
A-21
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
Changes in the status of common shares subject to issuance under options
were as follows:
<TABLE>
<CAPTION>
Shares
-----------------------------------
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Options outstanding at
beginning of year....................... 7,351,800 10,012,730 8,329,558
Granted to officers and key employees
in 1994, 1993, and 1992 at
$53.53, $37.53, and $29.94
per share, respectively................. 1,581,540 1,488,280 2,069,340
Granted to outside directors in
1994, 1993, and 1992 at $56.69,
$30.38, and $24.09
per share, respectively................. 22,000 16,000 20,000
Exercised................................. (2,344,369) (4,122,368) (246,990)
Lapsed.................................... (57,600) (42,842) (159,178)
--------- ---------- ----------
Options outstanding at year-end........... 6,553,371 7,351,800 10,012,730
========= ========== ==========
</TABLE>
Options outstanding at December 31, 1994, had exercise prices ranging from
$16.97 to $56.69 per share with an average exercise price of $37.09 per share
and had expiration dates ranging from June 9, 1995, to June 7, 2004. At
December 31, 1994, the number of shares exercisable totaled 3,388,433.
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
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
1977 stock option plan.................... 2,547,304 2,547,304 2,546,164
1987 stock option plan.................... 2,879,292 4,425,232 3,887,810
Employee investment and
other benefit plans..................... 11,400,178 11,400,178 11,400,178
---------- ---------- ----------
16,826,774 18,372,714 17,834,152
========== ========== ==========
</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. As a result of a two for one split of the company's common stock in
the form of a 100% dividend in 1994, such an adjustment was made whereby each
share of common stock now evidences one-half of a purchase right. 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 5 cents 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.
20. 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, $137, and $138 for 1994, 1993, and 1992,
respectively. Minimum payments for operating leases having initial or remaining
non-cancelable terms in excess of one year are:
Years ending December 31,
1995............................ $ 90
1996............................ 71
1997............................ 43
1998............................ 20
1999............................ 16
Thereafter...................... 53
----
Total lease commitments......... $293
====
21. 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. Additionally, to a lesser extent, the company is potentially
subject to credit risk associated with counterparties to derivative contracts.
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, 1994, 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-22
<PAGE>
CATERPILLAR INC.
- -------------------------------------------------------------------------------
a secured interest in the equipment financed. Receivables from customers in
construction-related industries made up approximately one-third of total finance
receivables at December 31, 1994, 1993, and 1992, respectively. No single
customer or region represents a significant concentration of credit risk. Fair
value information on finance receivables is included in note 9.
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, 1994, 1993, and 1992, the carrying value of
short-term investments approximated fair value. Long-term investments are held
by Caterpillar Insurance Co. Ltd. and are a component of "Other assets" on
Statement 3. VEBA trusts were a component of "Other assets" on Statement 3 at
December 31, 1993 and 1992. At December 31, 1994, VEBA trust assets were
recorded as a reduction to the liability for postretirement benefits (note 5B).
At December 31, 1994, 1993, and 1992, the carrying value of long-term
investments was $172, $362, and $353, respectively, which, based on quoted
market prices, approximated fair value.
At December 31, 1994, Caterpillar Financial Services Corporation was
contingently liable under guarantees of securities of certain Caterpillar
dealers totaling $258 of which $165 was outstanding. These guarantees are fully
secured by dealer inventories. No loss is anticipated from these guarantees.
At December 31, 1994, the company had outstanding derivative contracts with
notional amounts totaling $3,350 with terms generally ranging up to five years.
To minimize the risk of credit losses, the company deals only with major
financial institutions. The company does not anticipate nonperformance by any
of the counterparties. Collateral is not required of the counterparties or of
the company. The company's exposure to credit loss in the event of
nonperformance by the counterparties is limited to only the recognized but not
realized gains incurred on the derivative contracts. At December 31, 1994, the
company's exposure to credit loss was $3.
22. Environmental matters
Capital Expenditures and Expenses
The company is subject to extensive environmental regulation at the federal,
state, and local level. Research, engineering, depreciation, and administrative
expenses related to environmental regulation compliance totaled approximately
$125 in 1994. Capital expenditures for pollution abatement and control were
approximately $11 in 1994.
With respect to compliance with the 1990 amendments to the Clean Air Act in
particular, research, engineering, and operating expenses totaled $29 and
capital expenditures totaled $4 in 1994.
The 1990 Amendments to the Clean Air Act are scheduled to be implemented
throughout the 1990s and the first decade of the 21st century. Many regulations
necessary for implementation have not been promulgated. Accordingly, the
overall impact of the amendments on company capital expenditures and product
design is still uncertain.
Remediation Costs
As of December 31, 1994, the company, in conjunction with numerous other
parties, has been identified as a potentially responsible party (PRP) and is
actively participating in 17 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). The company is also involved in remediation activities
at other sites located on property either currently or formerly owned by the
company. Lawsuits and claims involving additional environmental matters are
likely to arise from time to time.
In assessing potential environmental liability, the company considers:
. whether it has been designated as a PRP under CERCLA;
. if the company has been so designated, the number of other PRPs
designated at a site;
. the relative volume contribution alleged for the company at a
particular site;
. documentation, if any, linking the company to a particular site;
. stage of the proceedings;
. available technology;
. studies conducted by independent environmental consultants;
. prior experience regarding environmental remediation; and
. experience of other companies and industries regarding
environmental remediation.
With respect to potential liability amounts that are probable and reasonably
estimable, the company has accrued and charged to income those amounts. For
specific sites where only a range of liability is probable and reasonably
estimable and no amount in the range is a better estimate than another, the
company has accrued, in accordance with appropriate accounting literature, the
low end of that range. While the company may have rights of contribution or
reimbursement under insurance policies, amounts that may be recoverable from
other entities by the company with respect to a particular site are not
considered in establishing the accrual. The amounts accrued in 1994 with
respect to potential liability are recorded as "Accounts payable and accrued
expenses" on Statement 3. This amount represents less than one percent of that
line item and accordingly is not material to the company's financial position.
The company also assesses reasonably possible environmental liability beyond
that which it has accrued. This liability is not probable, but is more likely
than remote. As of December 31, 1994, the amount of company environmental
liability that is reasonably possible is not expected to have a material impact
on the company's liquidity, capital resources, or results of operations.
Factors considered in assessing reasonably possible liability and its potential
impact on the company are those stated above. Amounts that may be recoverable
from other entities are not considered. As of December 31, 1994, potential
liability at four sites cannot be assessed because they are in very early
stages of investigation.
23. Plant Closing and Consolidation Costs
At December 31, 1994, the reserve for plant closing and consolidation costs
was $327. Of this balance, $176 related to costs associated with the probable
closure of the Component Products Division's York, Pennsylvania, facility.
Significant costs related to the York portion of the reserve are employee
severance benefits (pension, medical, and supplemental unemployment benefits),
rearrangement and start-up costs related to the relocation of production, and
write-down of buildings, machinery, and equipment.
A-23
<PAGE>
NOTES continued
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
The probable closing of the York facility was announced in December 1991.
The company determined that unless significant cost reductions were made, the
unit would be closed. The company has notified the United Auto Workers union
(UAW), 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 UAW is currently on strike at eight U.S.
facilities, including York, and no contract has been signed. Unless a
satisfactory contract is reached, the company plans to close the plant in the
1996 time frame.
Also included in the reserve for plant closing and consolidation costs at
December 31, 1994, was $119 for write-downs of buildings, machinery, and
equipment at previously closed facilities. The write-downs establish a new cost
basis for assets that have been permanently impaired. The remainder of the
reserve at December 31, 1994, related to severance benefits provided to former
employees at previously closed facilities. Such benefits are amortized over the
expected time period over which the benefits are provided. Currently
amortization periods are through 2003.
24. Segment information
A. Business segments
The company operates in three principal business segments: Machinery
(Construction, Mining, and Agricultural), 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 6) 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.
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>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
For the years ended December 31:
Sales:
Machinery.................................. $10,164 $ 8,132 $ 7,209
Engines.................................... 4,381 3,735 3,225
Elimination of intersegment engine sales..... (682) (632) (594)
------- ------- -------
Consolidated sales........................... 13,863 11,235 9,840
Financial Products revenues.................. 465 380 354
------- ------- -------
Sales and revenues........................... $14,328 $11,615 $10,194
======= ======= =======
Operating profit (loss):
Machinery.................................. $ 1,099 $ 436 $ (107)
Engines.................................... 348 226 79
Financial Products......................... 64 47 35
------- ------- -------
1,511 709 7
General corporate expenses................... (77) (83) (96)
------- ------- -------
Operating profit (loss)...................... $ 1,434 $ 626 $ (89)
======= ======= =======
Capital expenditures -- including
equipment leased to others:
Machinery.................................. $ 272 $ 243 $ 338
Engines.................................... 182 154 153
Financial Products......................... 187 205 121
General corporate.......................... 53 30 28
------- ------- -------
$ 694 $ 632 $ 640
======= ======= =======
Depreciation and amortization:
Machinery.................................. $ 394 $ 405 $ 410
Engines.................................... 168 163 155
Financial Products......................... 95 70 63
General corporate.......................... 26 30 26
------- ------- -------
$ 683 $ 668 $ 654
======= ======= =======
At December 31:
Identifiable assets:
Machinery.................................. $ 5,773 $ 5,393 $ 5,569
Engines.................................... 2,570 2,358 2,201
Financial Products......................... 4,668 3,676 2,956
------- ------- -------
13,011 11,427 10,726
General corporate assets..................... 2,784 2,986 2,864
Investments in affiliated companies.......... 455 394 345
------- ------- -------
Total assets................................. $16,250 $14,807 $13,935
======= ======= =======
</TABLE>
B. Geographic segments
Manufacturing activities of the Machinery and Engines segments are carried
on in 26 plants in the United States, two in France, and one each in Australia,
Belgium, Brazil, Indonesia, Italy, Mexico, 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.
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 6) 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.
A-24
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
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>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
For the years ended December 31:
Sales:
United States........................... $10,994 $ 9,159 $ 7,462
Europe.................................. 2,358 1,678 1,908
All other............................... 1,050 737 748
Elimination of intersegment sales from:
United States........................... (266) (154) (144)
Europe.................................. (141) (97) (61)
All other............................... (132) (88) (73)
------- ------- -------
Consolidated sales........................ 13,863 11,235 9,840
Revenues:
United States........................... 362 309 298
All other............................... 103 71 56
------- ------- -------
Sales and revenues........................ $14,328 $11,615 $10,194
======= ======= =======
Operating profit (loss):
Machinery and Engines:
United States........................... $ 1,108 $ 620 $ (3)
Europe.................................. 244 46 (3)
All other............................... 95 (4) (22)
------- ------- -------
1,447 662 (28)
------- ------- -------
Financial Products:
United States........................... 61 43 34
All other............................... 3 4 1
------- ------- -------
Total Financial Products................. 64 47 35
------- ------- -------
1,511 709 7
General corporate expenses................ (77) (83) (96)
------- ------- -------
Operating profit (loss)................... $ 1,434 $ 626 $ (89)
======= ======= =======
At December 31:
Identifiable assets:
Machinery and Engines:
United States........................... $ 6,445 $ 5,996 $ 5,820
Europe.................................. 1,160 1,101 1,211
All other............................... 738 654 739
------- ------- -------
8,343 7,751 7,770
------- ------- -------
Financial Products:
United States........................... 3,557 2,896 2,448
All other............................... 1,111 780 508
------- ------- -------
4,668 3,676 2,956
------- ------- -------
13,011 11,427 10,726
General corporate assets.................. 2,784 2,986 2,864
Investments in affiliated companies....... 455 394 345
------- ------- -------
Total assets.............................. $16,250 $14,807 $13,935
======= ======= =======
</TABLE>
C. Non-U.S. sales
Sales outside the United States were 49% of consolidated sales for 1994, 49%
for 1993, and 55% for 1992. Information on the company's sales outside the
United States, based on dealer location, was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
For the years ended December 31:
Sales of U.S. manufactured product:
Europe.................................. $ 821 $ 645 $ 608
Asia/Pacific............................ 1,338 1,172 938
Latin America........................... 763 570 628
Canada.................................. 806 625 417
Africa/Middle East...................... 522 577 606
------- ------- -------
4,250 3,589 3,197
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Sales of non-U.S. manufactured product:
Europe.................................. 1,257 933 1,177
Asia/Pacific............................ 626 440 371
Latin America........................... 388 279 280
Canada.................................. 103 59 108
Africa/Middle East...................... 231 225 286
------- ------- -------
2,605 1,936 2,222
------- ------- -------
Total sales outside the United States:
Europe.................................. 2,078 1,578 1,785
Asia/Pacific............................ 1,964 1,612 1,309
Latin America........................... 1,151 849 908
Canada.................................. 909 684 525
Africa/Middle East...................... 753 802 892
------- ------- -------
$6,855 $5,525 $5,419
======= ======= =======
</TABLE>
25. Selected quarterly financial results (unaudited)
Financial information for interim periods was as follows:
<TABLE>
<CAPTION>
1994 Quarter
-------------------------------------
1st 2nd 3rd 4th
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and revenues.................. $3,286 $3,605 $3,509 $3,928
Less: Revenues...................... 105 113 119 128
------ ------ ------ ------
Sales............................... 3,181 3,492 3,390 3,800
Cost of goods sold.................. 2,483 2,730 2,674 2,947
------ ------ ------ ------
Gross margin........................ 698 762 716 853
Profit.............................. 192 240 244 279
Profit per share of common stock.... $ .94 $ 1.18 $ 1.20 $ 1.38
</TABLE>
<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.. $ .17 $ .33 $ 2.13 $ .73
Profit............................ $ .17 $ .33 $ 2.13 $ .58
</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 8).
Fourth quarter 1993 results included an extraordinary loss on early retirement
of debt of $29, net of tax (note 15).
A-25
<PAGE>
ELEVEN-YEAR FINANCIAL SUMMARY
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992 1991
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31:
Sales and revenues......................................... $ 14,328 11,615 10,194 10,182
Sales.................................................... $ 13,863 11,235 9,840 9,838
Percent inside the United States....................... 51% 51% 45% 41%
Percent outside the United States...................... 49% 49% 55% 59%
Revenues................................................. $ 465 380 354 344
Profit (loss) before effects of accounting changes (1)..... $ 955 652 (218) (404)
Effects of accounting changes (note 2)..................... $ -- -- (2,217) --
Profit (loss)(1)........................................... $ 955 652 (2,435) (404)
Profit (loss) per share of common stock: (1)(2)
Profit (loss) before effects of accounting changes(1).... $ 4.70 3.21 (1.08) (2.00)
Effects of accounting changes (note 2)................... $ -- -- (10.98) --
Profit (loss)............................................ $ 4.70 3.21 (12.06) (2.00)
Dividends declared per share of common stock............... $ .63 .30 .30 .53
Return on average common stock equity...................... 37.4% 34.6% (86.7%) (9.4%)
Capital expenditures:
Land, buildings, machinery, and equipment................ $ 501 417 515 653
Equipment leased to others............................... $ 193 215 125 121
Depreciation and amortization.............................. $ 684 668 654 602
Research and engineering expenses.......................... $ 435 455 446 441
As a percent of sales and revenues....................... 3.0% 3.9% 4.4% 4.3%
Provision (credit) for income taxes(3)..................... $ 354 42 (114) (152)
Wages, salaries, and employee benefits..................... $ 3,146 3,038 2,795 3,051
Average number of employees................................ 52,778 50,443 52,340 55,950
AT DECEMBER 31:
Total receivables:
Trade and other.......................................... $ 3,096 2,769 2,330 2,133
Finance.................................................. $ 3,988 3,140 2,525 2,145
Inventories................................................ $ 1,835 1,525 1,675 1,921
Total assets:
Machinery and Engines.................................... $ 11,582 11,131 10,979 9,346
Financial Products....................................... $ 4,668 3,676 2,956 2,696
Long-term debt due after one year:
Machinery and Engines.................................... $ 1,934 2,030 2,753 2,676
Financial Products....................................... $ 2,336 1,865 1,366 1,216
Total debt:
Machinery and Engines.................................... $ 2,037 2,387 3,271 3,136
Financial Products....................................... $ 3,866 3,041 2,401 2,111
Ratios -- excluding Financial Products:
Ratio of current assets to current liabilities........... 1.62 to 1 1.53 to 1 1.57 to 1 1.74 to 1
Percent of total debt to total debt
and stockholders' equity................................ 41.2% 52.1% 67.5% 43.7%
</TABLE>
(1) 1993 profit was after extraordinary loss on early retirement of debt;
profit before extraordinary loss was $681, $3.36 per share of common
stock. 1987 profit was after extraordinary tax benefit; profit before
extraordinary tax benefit was $319, $1.60 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-26
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
11,436 11,126 10,435 8,294 7,380 6,760 6,597
11,103 10,882 10,255 8,180 7,321 6,725 6,576
45% 47% 50% 52% 54% 56% 58%
55% 53% 50% 48% 46% 44% 42%
333 244 180 114 59 35 21
210 497 616 350 76 198 (428)
-- -- -- -- -- -- --
210 497 616 350 76 198 (428)
1.04 2.45 3.04 1.76 .39 1.01 (2.24)
-- -- -- -- -- -- --
1.04 2.45 3.04 1.76 .39 1.01 (2.24)
.60 .60 .43 .28 .31 .25 .63
4.7% 11.6% 16.0% 10.4% 2.4% 6.7% (13.8%)
926 984 732 463 290 228 234
113 105 61 30 41 55 23
533 471 434 425 453 485 497
420 387 334 298 308 326 345
3.7% 3.5% 3.2% 3.6% 4.2% 4.8% 5.2%
78 162 262 118 21 25 (115)
3,032 2,888 2,643 2,284 2,184 2,173 2,426
59,662 60,784 57,954 53,770 54,024 55,815 61,189
2,361 2,353 2,349 2,044 1,755 1,305 1,135
1,891 1,498 1,222 795 466 108 64
2,105 2,120 1,986 1,323 1,211 1,139 1,246
9,626 9,100 8,226 6,647 6,134 5,951 6,084
2,325 1,826 1,460 984 627 235 169
2,101 1,797 1,428 900 963 1,177 1,384
789 491 525 387 171 87 4
2,873 2,561 2,116 1,484 1,582 1,404 1,861
1,848 1,433 1,144 712 370 130 26
1.67 to 1 1.78 to 1 1.76 to 1 1.55 to 1 1.50 to 1 1.69 to 1 1.43 to 1
38.8% 36.4% 34.0% 29.4% 33.4% 31.4% 39.5%
</TABLE>
A-27
<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
- --------------------
1994 COMPARED WITH 1993
Profit for 1994 was $955 million or $4.70 per share, an all-time record and
a significant improvement from 1993 profit of $345 million (excluding
nonrecurring tax-related items and extraordinary loss totalling $307 million).
1994 sales and revenues of $14.33 billion, also an all-time record, were 23%
higher than a year ago and were the most significant factor contributing to the
increase in profit.
At year-end, the United Auto Workers (UAW) union's strike, which began on
June 21, 1994, at eight U.S. facilities was ongoing. At the outset of the
strike, the company implemented plans designed to meet the needs of its
customers and quickly ramped up production schedules. These plans have been
immensely successful. The average production rate at the struck manufacturing
facilities was 14% higher during the last six months than during the first six
months of 1994. (See Labor Update and Outlook sections for additional
information.)
Machinery and Engines
Sales of Machinery and Engines were $13.86 billion for 1994, $2.63 billion
higher than last year. The improvement resulted from a 19% increase in physical
sales volume and a 4% improvement in price realization. Profit before tax was
$1.21 billion, up $810 million from last year (excluding net interest income of
$251 million on the nonrecurring U.S. tax settlement). Higher physical sales
volume was the primary reason for the significant improvement in profit.
Sales volume increased substantially both inside and outside the United
States, a result of strong worldwide demand. The improvement in price
realization reflects price increases taken over the past year.
Margin increased $869 million from 1993 primarily because of higher sales.
Margin as a percent of sales was 21.8%, up 2.6 percentage points from a year
ago. The margin rate improved because of higher sales volume and better price
realization. These favorable items were partially offset by proportionately
higher sales of lower margin products, inflation on costs, higher incentive
compensation expense (related to the higher profit), and a decrease in LIFO
(last-in, first-out) decrement benefits ($28 million in 1994 versus $38 million
in 1993).
The favorable impact on margin resulting from the absence of labor costs for
UAW-represented employees on strike for a portion of 1994 was offset by
strike-related costs. These include costs for temporary and contract personnel,
overtime, other incremental expenses related to the strike, and the inclusion
in cost of goods sold of labor costs for employees working in manufacturing
operations that are normally included in SG&A (selling, general, and
administrative) or R&D (research and development) expense.
SG&A expenses were $86 million higher than in 1993. The increase was a
result of additional volume-related parts distribution costs and higher
incentive compensation expense (related to the higher profit). The assignment
of labor costs for SG&A employees working in manufacturing areas to cost of
goods sold partially offset the increase. All other costs were about the same
despite inflation.
R&D expenses declined $8 million to $311 million. The decrease reflects the
assigning of labor costs for R&D employees working in manufacturing functions
to cost of goods sold, partially offset by increased activity for new product
introductions.
Interest expense declined $68 million as average debt outstanding was $768
million lower compared with 1993.
Other income/expense was income of $43 million in 1994, compared with income
of $92 million last year. The decline resulted principally from the
reclassification of investment income from the company's VEBA (Voluntary
Employees' Beneficiary Association) trusts to operating profit (as a reduction
of employee benefit expense). VEBA income included in operating profit in 1994
was $23 million. VEBA income included in other income/expense in 1993 was $34
million. In addition, the decline reflects a $17 million charge in 1994 for the
settlement of two class action complaints and the absence of a 1993 gain on the
sale of a closed facility at the company's Brazilian subsidiary. These
unfavorable items were partially offset by a favorable change in foreign
exchange gains and losses.
Brazilian operations for 1994 returned to a more normal level of profit in
line with sales volume. Results were significantly improved from a year ago but
had no material effect on 1994 consolidated results.
Financial Products
The before-tax profit for Financial Products was $60 million, $8 million
lower than 1993. The primary reason for the decrease in profit was unrealized
mark-to-market charges of $18 million for interest rate caps and swaptions
written by Cat Financial, partially offset by increased profit from Cat
Financial's larger portfolio of earning assets.
Revenues of $465 million were up $85 million from 1993, reflecting Cat
Financial's larger portfolio. Cat Financial financed new retail business of
$2.18 billion, a $267 million or 14% increase compared with 1993.
SG&A expenses increased $30 million from last year reflecting higher
depreciation of equipment on operating leases and
A-28
<PAGE>
Caterpillar Inc.
- ------------------------------------------------------------------------------
other volume-related expenses at Cat Financial. Interest expense of $210 million
was $38 million higher, a result of increased borrowings to support Cat
Financial's larger portfolio.
Other income/expense was expense of $4 million, compared with income of $21
million a year ago. The primary reason for the change was unrealized
mark-to-market charges for Cat Financial's written interest rate caps and
swaptions and a decrease in investment income at Cat Insurance.
Income Taxes
Tax expense was $354 million. 1993 income tax expense of $42 million
included $85 million of favorable nonrecurring items related to a tax
settlement with the U.S. Internal Revenue Service and restatement of net
deferred tax assets as a result of a change in the U.S. corporate tax rate.
Excluding these items, tax expense for 1993 was $127 million. The increase of
$227 million was a result of higher before-tax profit and an effective tax rate
of 28% for 1994, compared with a rate of 27% for 1993.
Affiliated Companies
The company's share of affiliated companies' results was a profit of $36
million, a $35 million improvement from a year ago. The increase was a result
of higher sales and cost-cutting measures at SCM (Shin Caterpillar Mitsubishi)
plus favorable nonrecurring items at SCM, primarily a gain on the sale of
surplus land.
FOURTH-QUARTER RESULTS
The company reported its fourth consecutive quarter of record profit. Profit
of $279 million and profit per share of $1.38 were records (after excluding
nonrecurring tax-related items from third quarter 1993). Profit improved $131
million or 65 cents per share from the $148 million or 73 cents per share
profit before an extraordinary loss ($29 million) in the fourth quarter of
1993. Sales and revenues of $3.93 billion were also the highest for any quarter
in the company's history and increased 24% from the same quarter a year ago.
The improvement in sales was the primary reason for the higher profit.
FOURTH QUARTER 1994
COMPARED WITH FOURTH QUARTER 1993
Machinery and Engines
Sales of Machinery and Engines were $3.80 billion, an improvement of $733
million from the fourth quarter of 1993. The increase was primarily due to 18%
higher physical sales volume, reflecting continued strong demand both inside
and outside the United States. Price realization increased 6%, a result of
price increases taken over the past year, the impact of stronger European
currencies as sales translated into more U.S. dollars and lower sales
discounts. Profit before tax of $354 million was up $159 million from a year
ago primarily because of the higher sales.
Margin (sales less cost of goods sold) of $853 million improved $167 million
primarily because of higher sales. As a percent of sales, the margin rate of
22.4% was the same as the fourth quarter of 1993. The benefit from higher sales
and improved price realization was offset by proportionately higher sales of
lower margin products, by the impact from stronger European currencies as costs
translated into more U.S. dollars and by inflation on costs. LIFO inventory
decrement benefits were $28 million in the fourth quarter of 1994 compared with
$23 million in the fourth quarter of 1993.
The favorable impact on margin resulting from the absence of labor costs for
UAW-represented employees on strike was offset by strike-related costs. These
include costs for temporary and contract personnel, overtime, other incremental
expenses related to the strike and the inclusion in cost of goods sold of labor
costs for employees working in manufacturing operations that are normally
included in SG&A or R&D expenses.
SG&A expenses were $374 million, compared with $359 million a year ago. The
increase reflects higher volume-related parts distribution costs and increased
incentive pay expense (related to the higher profit). The higher costs were
partially offset by the assigning of labor costs for SG&A employees working in
manufacturing areas to cost of goods sold. All other costs were about the same
despite inflation.
R&D expenses of $82 million decreased $8 million from the same quarter last
year. The decline was the result of assigning labor costs for R&D employees
working in manufacturing functions to cost of goods sold, partially offset by
activity for new product introductions.
Interest expense declined $11 million as average debt outstanding was $597
million lower compared with the fourth quarter of 1993.
Other income/expense was income of $7 million compared with income of $19
million in the fourth quarter last year. The change was primarily because of
the absence of investment income from the company's VEBA. In 1994, the company
modified its VEBA trusts to qualify as plan assets in accounting for employee
postretirement benefits other than pensions. Income from the trusts has been
reclassified as a component of employee benefit expense and reduces operating
costs, primarily cost of goods sold. VEBA income included in operating profit
in the fourth quarter of 1994 was $5 million. VEBA income included in other
income/expense in the fourth quarter of 1993 was $11 million.
Results of Brazilian operations continued to be profitable and improved
significantly from a year ago but had no material effect on fourth-quarter 1994
results.
Financial Products
Financial Products' profit before tax was $12 million, a decrease of $5
million from the fourth quarter of 1993. The lower profit resulted from a $4
million unrealized charge due to the mark-to-market valuation of interest rate
caps written by Caterpillar Financial Services Corporation and lower investment
income at Caterpillar Insurance Company, Ltd. These unfavorable items were
partially offset by increased profit from Cat Financial's larger portfolio of
earning assets.
Revenues of $128 million increased $27 million from the same quarter a year
ago, reflecting Cat Financial's larger portfolio. Cat Financial financed new
retail business of $705 million, a $49 million or 8% increase compared with the
fourth quarter of 1993.
SG&A expenses were up $10 million, reflecting higher depreciation of
equipment on operating leases and other volume-related expenses at Cat
Financial. Interest expense increased $15 million primarily due to higher
borrowings to support the larger portfolio.
A-29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- -------------------------------------------------------------------------------
Other income/expense was a $2 million expense compared with income of $5
million in the fourth quarter of 1993. The unfavorable change was a result of
the unrealized mark-to-market charge for interest rate caps and lower
investment income previously mentioned.
Income Taxes
Tax expense of $100 million reflects an effective tax rate of 28%. Tax
expense of $64 million for the fourth quarter of 1993 resulted from a 27%
effective tax rate and an unfavorable adjustment of $7 million as actual taxes
for the year were slightly higher than the estimated rate used for the first
nine months of 1993.
Affiliated Companies
The company's share of affiliated companies' results was $13 million,
compared with break-even a year ago. The improvement was primarily the result
of higher sales and cost-cutting measures at the company's 50%-owned affiliate
SCM in Japan.
FOURTH QUARTER 1994
COMPARED WITH THIRD QUARTER 1994
Fourth-quarter profit of $279 million or $1.38 per share improved $35
million from the $244 million or $1.20 per share profit reported in the third
quarter of this year. An increase in sales volume was the most significant
factor contributing to the higher profit.
Machinery and Engines
Profit before tax for Machinery and Engines was $354 million, compared with
$289 million last quarter. Sales of $3.80 billion increased $410 million,
primarily because of higher machine sales both inside and outside the United
States and higher turbine engine sales outside the United States.
Margin improved $137 million from the third quarter, largely a result of
higher sales. As a percent of sales, the margin rate of 22.4% was 1.3
percentage points higher than the third quarter. The increase reflects higher
sales volume and LIFO decrement benefits of $28 million recorded in the fourth
quarter versus none in the third quarter.
SG&A expenses increased $42 million, to $374 million. The increase was
primarily the result of timing of expenses, as the fourth quarter is generally
a higher cost quarter for these types of expenses. In addition, fewer SG&A
employees were working in manufacturing areas during the fourth quarter than in
the third quarter thus reducing labor costs being assigned to cost of goods
sold.
R&D expenses were $82 million, compared with $69 million in the third
quarter. The change reflects a decrease in labor costs assigned to cost of
goods sold as fewer R&D employees were working in manufacturing functions
during the fourth quarter and an increase in activity for new product
introduction programs.
Interest expense of $50 million was about the same as the third quarter.
Other Income/Expense was income of $7 million compared with income of $23
million last quarter. The change resulted from several relatively small
unfavorable nonrecurring items in the fourth quarter and the absence of several
relatively small favorable nonrecurring items recorded in the third quarter.
Financial Products
Before-tax profit for Financial Products was $12 million, a decrease of $11
million from the third quarter. The decrease occurred because of an increase in
the unrealized mark-to-market charge for written interest rate caps at Cat
Financial, the absence of a $3 million favorable adjustment to reserves at Cat
Insurance made in the third quarter, Cat Financial's higher cost of borrowed
funds, and increased provision for credit losses due to increased volume of new
retail financing.
Income Taxes
Tax expense of $100 million increased $25 million, reflecting higher profit
before tax and the absence of a favorable year-to-date adjustment of $12
million made in the third quarter.
Affiliated Companies
The company's share of affiliated companies' results improved $6 million, a
result of favorable year-end adjustments, cost-cutting measures at SCM, and a
gain on the sale of surplus land.
1994 SALES
<TABLE>
<CAPTION>
1994 1993 1992
------------------------
(Billions)
<S> <C> <C> <C>
Sales................................................ $13.86 $11.24 $ 9.84
- -------------------------------------------------------------------------------
</TABLE>
Caterpillar worldwide sales were a record $13.86 billion in 1994, a $2.62
billion or 23% increase over 1993. Total physical sales volume increased about
19% due primarily to higher industry demand around the world. An increased
share of industry sales and a reversal of 1993's dealer machine inventory
reduction outside the United States also contributed to the higher sales
volume. Sales increased in all regions of the world except the Middle East and
China with large gains registered in many areas.
Sales by Business Segment
<TABLE>
<CAPTION>
1994 1993 1992
------------------------
(Billions)
<S> <C> <C> <C>
Machinery........................................... $10.16 $ 8.14 $ 7.21
Engines............................................. 3.70 3.10 2.63
------ ------ ------
$13.86 $11.24 $ 9.84
====== ====== ======
- -------------------------------------------------------------------------------
</TABLE>
Worldwide sales for the Machinery segment increased 25% from 1993, setting
an all-time record. About one-half of the improvement was due to higher
industry demand, particularly in North and South America, Europe and Australia.
An increase in dealer inventories, higher price realization and an increased
share of industry sales also contributed to the gain.
Engine segment sales increased 19% over 1993 levels for a third consecutive
year of record sales. Sales volume increased significantly in the United States
and Canada due to higher industry demand and an increased share of industry
sales for both truck and commercial engines. Company diesel and gas engine
sales also rose considerably in Latin America and moderately in Asia. Company
sales of turbines rose moderately.
Caterpillar Sales Inside the United States
<TABLE>
<CAPTION>
1994 1993 1992
------------------------
(Billions)
<S> <C> <C> <C>
Machinery............................................ $ 5.16 $ 4.27 $ 3.23
Engines.............................................. 1.85 1.44 1.19
------ ------ ------
$ 7.01 $ 5.71 $ 4.42
====== ====== ======
- -------------------------------------------------------------------------------
</TABLE>
A-30
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
Caterpillar sales inside the United States were $7.01 billion, a $1.30
billion or 23% increase over 1993, resulting primarily from stronger industry
demand for both machines and engines. The increase also reflects an increased
share of industry sales and higher price realization. Sales inside the United
States represented 51% of the worldwide total, the same as 1993.
In 1994, industry growth for both machines and engines was fueled by
relatively low interest rates, strong growth in cash flow, favorable economic
prospects and better growth in the activities that use our equipment. By year
end, after two years of excellent growth, the machine and commercial engine
industries were near previous peaks reached in 1988-1989, and the diesel truck
engine industry had surpassed its 1988 peak.
As a result of the higher industry demand and improved share of industry
sales, dealer sales of Caterpillar machinery increased significantly in 1994
for the second consecutive year. Dealer machine sales into most construction
sectors increased substantially:
. Commercial, industrial and government building sector sales were higher
for the third year in a row after registering very rapid growth early in
the year. Private building construction trended up throughout the year
with very noticeable improvements in commercial and industrial
construction. Government building construction, however, trended down
through the year.
. Highway sales were moderately higher for the year due to increased
spending on highway construction.
. Sales to the housing sector were higher for the third consecutive year in
response to moderately higher housing starts.
Dealer machine sales into the commodity sectors were up slightly over 1993
levels, although results were mixed by sector:
. Sand and quarry mining sales increased moderately, reflecting higher mine
production in response to greater levels of construction.
. Sales into coal mining applications were moderately lower for the year
although sales have begun to trend up in response to an increase in coal
production.
. Metal mining-related sales increased significantly with an especially
sharp rise in the second half of the year. Metal mine production was flat
but prices increased noticeably in the second half leading to the higher
sales.
. Agricultural-related sales were up moderately as the farm economy
continued to improve.
. Sales to the forestry sector declined slightly in response to lower forest
production. Forestry prices rose slightly in contrast to the very large
increase registered in 1993.
. Petroleum sales were unchanged and in line with flat pipeline
construction.
Dealer machine sales into other sectors rose moderately. Sales to industrial
applications (primarily manufacturing and service industries) increased
significantly, while sales to solid waste applications were essentially
unchanged.
Engine segment sales rose 28% in 1994 reflecting strong growth in both diesel
and turbine engines. The increase in engine sales is attributable to moderately
higher industry demand, an increased share of industry sales for both truck and
commercial engines, higher price realization and an increase in dealer
inventories to keep pace with sales. In particular, sales to truck Original
Equipment Manufacturers (OEMs) and to marine and petroleum applications showed
good gains over 1993.
Caterpillar Sales Outside the United States
<TABLE>
<CAPTION>
1994 1993 1992
------------------------
(Billions)
<S> <C> <C> <C>
Machinery........................................... $ 5.00 $ 3.87 $ 3.98
Engines............................................. 1.85 1.66 1.44
------ ------ ------
$ 6.85 $ 5.53 $ 5.42
====== ====== ======
- -------------------------------------------------------------------------------
</TABLE>
Caterpillar sales outside the United States were $6.85 billion, a $1.32 billion
or 24% increase from 1993. These sales represented 49% of the worldwide total,
the same as 1993. Sales increased significantly in all regions except the Middle
East and China, where sales declined.
Machinery segment sales rose 29% reflecting higher industry demand, a reversal
of 1993's dealer inventory reduction, higher price realization and an increased
share of industry sales.
Engine segment sales rose 11% primarily due to higher industry demand. An
increased share of industry sales and improved price realization also
contributed to higher sales and more than offset slower growth in dealer
inventories. Diesel and gas engine sales rose noticeably in Latin America,
Canada and Asia with gains in marine, petroleum and power generation
applications as well as sales to truck OEMs. Company sales of turbines rose
moderately.
Europe/CIS
Sales increased about 32% as the economic recovery in Western Europe gained
momentum. Higher sales were registered in all countries except Italy,
Switzerland and Greece. Sales were up moderately in Germany and significantly in
most other countries including the United Kingdom, France and Spain. Company
sales increased more rapidly than dealer sales to users in this region as
dealers made the transition from inventory reduction in 1993 to inventory
accumulation in 1994 to keep pace with higher sales.
Sales to Central European countries were unchanged from 1993 levels and remain
limited due to balance of payments constraints.
Sales into the Commonwealth of Independent States (CIS) rose significantly as
a result of several large transactions to provide equipment for the natural
resource sector in Russia.
Asia/Pacific
Sales rose about 22%, similar to the increase registered in 1993. Sales were up
significantly in Australia as the economy registered excellent economic growth.
Sales of machines to end-users were up in most applications, including coal and
metal mining and commercial construction. Sales of diesel engines to end-users
were also up considerably.
Sales also rose in Japan as the economy began to recover from the deepest
recession since World War II. After three years of industry sales declines,
demand has begun to grow, Caterpillar's share of industry sales has increased,
and dealer inventories are being replenished in line with the higher sales
rates.
A-31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- ------------------------------------------------------------------------------
In China, sales fell significantly due to delays in major infrastructure
projects as the government tried to limit the increase in inflation.
In the rest of the Asia/Pacific region company sales rose moderately.
Excellent economic growth combined with numerous infrastructure projects led to
significant increases in machine end-user demand for the construction sectors
as well as forestry, sand and quarry mining and agriculture. Company sales rose
in all major countries except Hong Kong, India, Pakistan and the Philippines.
Sales of diesel and gas engines also registered good growth in this region in
1994.
Latin America
Sales rose about 36% after declining slightly in 1993. In Brazil, the second
year of economic recovery brought excellent economic growth and a significant
increase in sales. Machine sales to end-users were up sharply, especially in
agriculture and construction.
Outside Brazil, sales also rose significantly due to better economic growth
and improved investor confidence in the region. Machine sales to users
registered gains in virtually all applications. Sales were up considerably in
all major countries except Venezuela which remains mired in severe recession.
In Mexico, sales benefited from both economic recovery and the North American
Free Trade Agreement (NAFTA).
Canada
Sales rose 33% following 30% growth in 1993. The improvement reflects
significantly higher industry demand as well as an increased share of industry
sales.
The economy registered good growth and the investment climate continued to
improve despite uncertainties over the budget deficit and Quebec. Relatively
low interest rates, good cash flow, and a special public works program
contributed to significant machine growth in nearly all market applications.
Diesel and gas engine sales also rose considerably, primarily to truck
manufacturers and petroleum applications.
Africa/Middle East
Sales declined 6% for the region as a whole. In the Middle East sales
dropped significantly with particularly large declines in Iran, United Arab
Emirates and Saudi Arabia--all of which experienced budget or financial
difficulties.
In contrast, sales rose considerably in Africa as economic growth improved
and commodity prices strengthened. In South Africa, sales rose sharply as
economic recovery and democracy building got underway.
Dealer Inventories of New Machines and Engines
U.S. dealers' new machine inventories rose significantly in 1994, and at
year-end were slightly above normal relative to current selling rates. U.S.
dealer new engine inventories at year-end were significantly higher but about
normal relative to current selling rates.
Outside the United States, dealers' new machine inventories also rose
considerably, reversing a significant decline in 1993. By year end, dealer
inventories were still less than at the end of 1992 and slightly below normal
relative to current selling rates. Engine inventories were slightly above 1993
levels but about normal relative to current selling rates.
1993 COMPARED WITH 1992
Profit for 1993 was $681 million or $3.36 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>
- ----------------------------------------------------------------------
A-32
<PAGE>
Caterpillar Inc.
- ------------------------------------------------------------------------------
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 inventory decrement benefits ($38
million in 1993 vs. $30 million in 1992).
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.
Liquidity & Capital Resources
- -----------------------------
Consolidated operating cash flows totaled $1.76 billion in 1994, compared
with $1.41 billion in 1993.
Total debt at the end of 1994 was $5.90 billion, an increase of $475 million
from year-end 1993. Over this period, debt related to Machinery and Engines
decreased $350 million, to $2.04 billion, while debt related to Financial
Products increased $825 million, to $3.87 billion.
During 1994, the company purchased 4.4 million shares to be held as Treasury
Stock, which have been and will be used to satisfy the requirements of its
stock option plans. The company intends to continue repurchasing shares in the
market for this purpose.
Machinery and Engines
Operating cash flows totaled $1.58 billion in 1994, compared with $1.27
billion in 1993. The improvement in cash flow is primarily the result of
increased profitability, partially offset by higher receivables due to
increased sales.
Capital expenditures, excluding equipment leased to others, totaled $498
million in 1994, compared with $415 million a year ago.
During 1994, Machinery and Engines debt dropped $350 million. Long-term debt
totaling $238 million matured or was repurchased.
The percent of debt to debt plus stockholders equity improved to 41% at
December 31, 1994, from 52% a year ago.
Financial Products
Operating cash flows totaled $179 million in 1994, compared with $131
million in 1993. Cash used to purchase equipment leased to others totaled $183
million in 1994. In addition, at December 31, 1994, net finance receivables
increased $843 million from December 31, 1993 levels.
Financial Products' debt was $3.87 billion at December 31, 1994, an increase
of $825 million from a year ago. At the end of the year, finance receivables
past due over 30 days were 2.2%, compared with 1.9% at the end of the same
period one year ago. The ratio of debt to equity of Cat Financial was 7.7:1 at
December 31, 1994, compared with 7.3:1 at December 31, 1993.
Financial Products had outstanding credit lines totaling $2.50 billion at
year-end 1994, which included $1,440 million of the company's revolving credit
agreement. Credit lines of $1.53 billion were utilized for backup for
commercial paper, for bank borrowings, and as backup for a credit/liquidity
enhancement facility. The balance was available to support the issuance of
additional commercial paper or other borrowings.
Dividends
Quarterly dividends paid per share of common stock for the last three years
were as follows:
<TABLE>
<CAPTION>
Quarter 1994 1993 1992
- ---------------------------------------------------------
<S> <C> <C> <C>
First......................... $.07 $.07 $.07
Second........................ .08 .08 .08
Third......................... .15 .07 .07
Fourth........................ .15 .08 .08
---- ---- ----
$.45 $.30 $.30
==== ==== ====
</TABLE>
A-33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- ------------------------------------------------------------------------------
EMPLOYMENT
- ----------
At year-end, Caterpillar's worldwide employment, including UAW members on
strike, was 53,986, compared with 51,250 one year ago. Hourly employment
increased 2,569 to 32,027, while salaried and management employment increased
167 to 21,959.
<TABLE>
<CAPTION>
Year-End Employment 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inside United States 39,749 38,103
Outside United States
Europe 8,146 7,999
Latin America 4,500 3,735
Asia/Pacific 1,383 1,235
Canada 117 91
Other 91 87
______ ______
14,237 14,237 13,147 13,147
______ ______
Total Employment 53,986 51,250
====== ======
- ---------------------------------------------------------------------
</TABLE>
OTHER MATTERS
ENVIRONMENTAL MATTERS
Capital Expenditures and Expenses
The company is subject to extensive environmental regulation at the federal,
state, and local level. Research, engineering, depreciation, and administrative
expenses related to environmental regulation compliance totaled approximately
$125 million in 1994 and are expected to increase moderately in 1995. Capital
expenditures for pollution abatement and control were approximately $11 million
in 1994 and are expected to increase moderately in 1995. These expenses and
expenditures are expected to remain relatively constant through 1999 and are
not expected to have a material impact upon company capital expenditures,
earnings, or competitive position, subject to the evolving nature and
interpretation of the environmental laws by applicable authorities and future
technology.
With respect to compliance with the 1990 amendments to the Clean Air Act in
particular, research, engineering, and operating expenses totaled $29 million
and capital expenditures totaled $4 million in 1994. In 1995, expenses and
capital expenditures associated with Clean Air Act compliance are expected to
remain constant.
The 1990 Amendments to the Clean Air Act are scheduled to be implemented
throughout the 1990s and the first decade of the 21st century. Many regulations
necessary for implementation have not been promulgated. Accordingly, the
overall impact of the amendments on company capital expenditures and product
design is still uncertain.
Remediation Costs
As of December 31, 1994, the company, in conjunction with numerous other
parties, has been identified as a potentially responsible party (PRP) and is
actively participating in 17 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). The company is also involved in remediation activities
at other sites located on property either currently or formerly owned by the
company. Lawsuits and claims involving additional environmental matters are
likely to arise from time to time.
In assessing potential environmental liability, the company considers:
. whether it has been designated as a PRP under CERCLA;
. if the company has been so designated, the number of other PRPs
designated at a site;
. the relative volume contribution alleged for the company at a
particular site;
. documentation, if any, linking the company to a particular site;
. stage of the proceedings;
. available technology;
. studies conducted by independent environmental consultants;
. prior experience regarding environmental remediation; and
. experience of other companies and industries regarding environmental
remediation.
With respect to potential liability amounts that are probable and reasonably
estimable, the company has accrued and charged to income those amounts. For
specific sites where only a range of liability is probable and reasonably
estimable and no amount in the range is a better estimate than another, the
company has accrued, in accordance with appropriate accounting literature, the
low end of that range. While the company may have rights of contribution or
reimbursement under insurance policies, amounts that may be recoverable from
other entities by the company with respect to a particular site are not
considered in establishing the accrual. The amounts accrued in 1994 with
respect to potential liability are recorded as part of "Accounts payable and
accrued expenses" on Statement 3. This amount represents less than one percent
of that line item and accordingly is not material to the company's financial
position.
The company also assesses reasonably possible environmental liability beyond
that which it has accrued. This liability is not probable, but is more likely
than remote. As of December 31, 1994, the amount of company environmental
liability that is reasonably possible is not expected to have a material impact
on the company's liquidity, capital resources, or results of operations.
Factors considered in assessing reasonably possible liability and its potential
impact on the company are those stated above. Amounts that may be recoverable
from other entities are not considered. As of December 31, 1994, potential
liability at four sites cannot be assessed because they are in very early
stages of investigation.
LITIGATION
On September 6, 1994, the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America ("UAW"), UAW Local 974, and
Citizens for a Better Environment filed a complaint against the company with
the Illinois Pollution Control Board ("Board"). The complaint generally
alleges, in seven counts, that the company has violated certain provisions of
the Illinois Environmental Protection Act and Board regulations with respect to
a particular property in East Peoria, Illinois. The complaint further alleges
that the maximum penalties for the alleged violations total $199 million. The
company believes the claims are without merit and will vigorously contest them.
The company further believes final resolution of this matter will not have a
material impact on the company's liquidity, capital resources, or results of
operations.
On May 12, 1993, a Statement of Objections ("Statement") was filed by the
Commission of European Communities against
A-34
<PAGE>
Caterpillar Inc.
- -------------------------------------------------------------------------------
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.
ACCOUNTING CHANGES
In the first quarter of 1994, the company changed its method of computing
LIFO inventories from a single pool approach to a multiple pool approach for
substantially all of its inventories. The company believes that the multiple
pool method results in a better matching of revenues and expenses. The
cumulative effect of the change on prior years was not determinable. This
change did not have a material effect on 1994 results of operations or
financial position.
Effective January 1, 1994, the company adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS 118. The adoption of
these standards did not have a material effect on the company's financial
position or results of operations.
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>
<CAPTION>
Profit
(loss)
per share
Profit of common
(loss) stock
------------------------------
(Dollars in millions
except per share data)
<S> <C> <C>
Postretirement benefits other than
pensions, net of applicable
income taxes (SFAS 106)............... $(2,141) $(10.61)
Postemployment benefits, net
of applicable income taxes
(SFAS 112)............................ (29) (.14)
Income taxes (SFAS 109)................. (47) (.23)
------- -------
$(2,217) $(10.98)
======= =======
- ------------------------------------------------------------------------
</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.
The company's domestic operations recorded profit of $779 million for 1994
and $611 million for 1993, a significant turnaround from the $215 million loss
recorded by its domestic operations for 1992. When the three years are
combined, the company is in a cumulative profit position. 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 and qualified deficits. Accordingly, a valuation allowance is
not required for $1,588 million of U.S. deferred tax assets in excess of
deferred tax liabilities, of which $1,331 million is associated with future
deductible items related to other postretirement and postemployment benefits
under SFAS 106 and SFAS 112.
At the end of 1994, foreign net operating loss carryforwards of $394 million
were available in various tax jurisdictions. Of these carryforwards, $89
million are available for limited periods of time, expiring between 1997 and
2000 based on local tax law.
A-35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS continued
- -------------------------------------------------------------------------------
The balance of $305 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, with the exception of one foreign
subsidiary, there is not sufficient positive evidence as required by SFAS 109 to
substantiate recognition in the financial statements. Accordingly, a valuation
allowance of $182 million has been recorded for deferred tax assets at these
foreign subsidiaries to the extent the assets are not offset with deferred tax
liabilities in the same jurisdiction.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are principally used by the company in the
management of foreign currency, interest rate, and commodity price exposures.
Foreign Currency
The company's operations are subject to foreign exchange risk through future
foreign currency cash flows as movement in currency exchange rates impact: (1)
the U.S. dollar value of its foreign currency denominated sales, and (2) the
U.S. dollar value of the foreign currency denominated costs of its manufacturing
facilities or purchases of material or services from suppliers. Additionally,
the company faces foreign exchange risk from a competitive perspective as
movements in currency exchange rates increase or decrease the local currency
cash flow of foreign based competitors and may affect their profitability and
pricing strategies.
It is the company's policy to conduct currency transactions only to the extent
necessary to operate the business and protect the company's interests. The
company does not conduct currency transactions for speculative purposes. The
company buys and sells currencies in amounts large enough to cover requirements
for the business, and to protect its financial and competitive positions in
those currencies whose relative values may change in foreign exchange markets.
The company manages foreign exchange exposures that arise from cash inflows or
outflows denominated in currencies other than the U.S. dollar with the objective
to maximize consolidated aftertax U.S. dollar cash flows. The company's foreign
currency management involves the active management of: 1) anticipated foreign
currency cash flows for a future rolling twelve month period, including cash
flows related to firmly committed foreign currency transactions, 2) cash flows
related to firmly committed future foreign currency transactions for periods
beyond the next twelve months, and 3) outstanding hedging transactions. The
company normally does not manage or hedge specific asset or liability positions.
Some foreign exchange exposures are managed through hedging with forward
exchange contracts. Foreign currency option contracts (purchased option
contracts and/or combination option contracts) are also used to hedge some
foreign currency exposures, including firmly committed future transactions. To
the extent that foreign currency exposures are hedged using forward exchange
contracts, the company has neutralized the foreign exchange risk; i.e., the
company is protected from unfavorable exchange rate movement, but has given up
any potential benefit of favorable fluctuations in foreign currency exchange
rates. Purchased option contacts, on the other hand, protect from unfavorable
rate movement while still permitting the ability to benefit from the effect of
favorable exchange rate fluctuations. None of the forward exchange or foreign
currency option contracts used by the company are exchange traded. The company
does not use historic rate rollovers or leveraged options, nor does it sell
foreign currency options except in the case of combination option contracts
where the purchased to sell ratio is limited to one-to-one. The combination
option contracts used by the company are only those which limit the unfavorable
effect of exchange rate movement while allowing a limited potential benefit from
favorable exchange rate movement.
Monthly, financial officers of the company approve the company's outlook
relative to the expected currency exchange rate movement and company policy
concerning desired future cash flow exposure positions (long, short, balanced)
for those currencies in which the company has significant activity. Reports
which provide information on current and anticipated currency exchange rates,
cash flow exposures, and open hedging contracts for each major currency are
distributed to financial officers daily. Hedging positions and strategies are
continuously monitored. The company's foreign exchange management practices,
including the use of derivative financial products are periodically presented to
the Audit Committee of the company's Board of Directors.
The company's anticipated cash inflows and outflows for the next twelve
months, including cash flows related to firmly committed foreign currency
transactions, along with the contractual amounts of outstanding forward exchange
and foreign currency option contracts as of December 31, 1994, are summarized in
the following table:
<TABLE>
<CAPTION>
Exposures Hedges
------------------ -------------------
Buy Sell
Foreign Foreign
Inflows Outflows Currency Currency
------- -------- -------- --------
<S> <C> <C> <C> <C>
European Currencies.................. $2,355 $2,637 $-- $562
Japanese Yen......................... 166 591 1 17
Australian Dollar.................... 834 167 -- 402
Brazilian Real....................... 247 253 -- --
Canadian Dollar...................... 158 178 14 --
All Other Currencies................. 55 120 -- 7
</TABLE>
Except for changes in foreign currency cash flows which are related to changes
in business volume, the company's annual foreign currency cash flows for periods
beyond the next twelve months are not expected to be materially different than
those included in the above table.
Interest Rate
The company utilizes a variety of interest rate derivative contracts including
interest rate swap agreements, interest rate cap (option) agreements, and
forward rate agreements to manage its exposure to changes in interest rates and
to lower the cost of borrowed funds. Derivative contracts are linked to a
specific debt instrument at the time the contracts are entered. The company
enters into such agreements only with major financial institutions and does not
enter into them without an underlying operating need for the position created.
In connection with its match funding objectives, the company's Financial
Products subsidiaries use interest rate derivative contracts to modify debt
structures in order to match fund receivable portfolios. This match funding
reduces the risk of deteriorating margins between interest-bearing assets and
interest-bearing liabilities regardless of the direction
A-36
<PAGE>
of interest rate movement. The company, including Financial Products
subsidiaries, also uses these instruments to gain an economic and/or a
competitive advantage through a lower cost of borrowed funds by changing the
characteristics of existing debt instruments or entering into new agreements in
combination with the issuance of new debt.
Commodity Price
The company's operations are also subject to commodity price risk as the
price of materials purchased from various suppliers are subject to change based
upon movement of underlying commodity prices. The company has entered into some
commodity swap and option agreements to reduce this risk. However, the use of
these types of derivative financial instruments has not been material.
LABOR UPDATE
- ------------
Since June 21, 1994, approximately 9,000 members of the United Auto Workers
union have been on strike at eight of the company's U.S. facilities. Even so,
the average production rate at the struck facilities was 14% higher in the last
half of 1994 than in the first half. Caterpillar's traditional product quality
was maintained throughout this period of increased production. This substantial
accomplishment was due, in large part, to the dedication and teamwork of
thousands of hourly, salaried and management employees and temporary and
contract personnel. A few examples of the 1994 production and shipment
milestones include:
. The Mossville, Illinois, engine facility set an all-time shipment
record in 1994.
. During the fourth quarter, the Mapleton, Illinois, foundry set an
all-time record for tons of product shipped for any quarter from
the current foundry operation.
. The Aurora, Illinois, manufacturing facility built and shipped the
highest number of units in the last thirteen years.
. Production rates at the Decatur, Illinois, manufacturing facility
were 26% higher in the fourth quarter than those in the first half of
1994.
. At the Pontiac, Illinois, manufacturing facility unit injector
production was 60% higher in the fourth quarter than pre-strike
levels.
Work on critical product programs continued throughout the strike utilizing
employees who remained on their normal job assignments, as well as overtime.
During the fourth quarter more than half of the salaried and management
employees who were temporarily working in manufacturing assignments returned to
their regular jobs. As a result, activities that these employees normally work
on, such as research and development, new product introduction programs and
systems development, will return to more normal levels in 1995.
Caterpillar is prepared to continue meeting customer demand indefinitely,
with or without resolution of the strike.
1995 ECONOMIC AND INDUSTRY OUTLOOK
- ----------------------------------
World economic growth is forecast to improve as accelerating growth in
Europe, Japan, Africa and the Middle East is anticipated to more than offset
moderation in the United States and any slowing in Latin America. Good growth
is expected to continue in Canada and Australia with strong growth forecast to
continue in Asia. In this improving global economic environment, industry
demand is likely to increase moderately in all regions with the exception of
the United States where demand is expected to remain near 1994 levels.
The U.S. economy registered surprisingly good growth in 1994, especially in
the second half. In response to this momentum, the Federal Reserve is expected
to raise short-term interest rates further which, combined with the six rate
increases already taken, should slow the economy in 1995. Although corporate
cash flow and activities like mining and commercial construction are expected
to register good increases in 1995, higher interest rates, lower housing starts
and a slower pace of replacement demand are likely to result in a U.S. industry
near 1994 levels. In contrast, a stronger economy in Canada should lead to
another year of better industry demand.
In Western Europe, economic growth is forecast to accelerate as short-term
interest rates remain near 20-year lows. Long-term rates have risen but are
still below year-ago levels, and with inflation at the lowest levels since the
sixties, neither short- or long-term rates are expected to increase enough to
jeopardize faster growth in 1995. Leading indicators also suggest that the
economy now has enough momentum to accelerate despite tighter government
budgets. In 1995, moderate to excellent economic growth is forecast for all
Western European countries which should lead to another year of higher industry
demand.
Economic recovery is expected to continue in Japan leading to moderate
improvement in industry demand. In Australia, good economic growth is forecast
to continue despite somewhat higher interest rates, leading to moderately
higher demand.
An end to the severe economic decline in the CIS may be near but political
instability remains high and fewer sales to the natural resource sector are
expected in 1995. Reform is much further along in Central Europe where good
economic and industry growth is forecast for the year.
The economic and industry outlook for developing countries is generally
favorable with the possible exceptions of Latin America and China. Excellent
economic prospects for the Asia/Pacific region should lead to a higher
industry, although anti-inflation policies and a potential trade dispute with
the U.S. may limit sales in China. Stronger economies and a recovery in
industry demand are expected in the Africa/Middle East region in response to
higher commodity prices, greater export demand and economic restructuring. In
Latin America, economic growth had been expected to accelerate but the recent
drop in the Mexican peso will slow improvement in that country and the loss of
investor confidence could spill over into several other countries as well. At
this time, the Latin American industry is still expected to grow moderately but
it is too early to assess the full impact of the recent devaluation.
1995 COMPANY OUTLOOK
- --------------------
Worldwide, company sales of machines and engines are forecast to improve
moderately, primarily due to increases outside the United States. Profits are
also expected to be higher. The 1995 outlook remains the same regardless of the
duration of the current UAW strike as the company intends to continue meeting
the needs of its customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS [ ]
A-37
<PAGE>
SUPPLEMENTAL STOCKHOLDER INFORMATION
ANNUAL MEETING
On Wednesday, April 12, 1995, at 10:30 a.m., MST, the annual meeting of
stockholders will be held at the Loews Ventana Canyon Hotel, Tucson, Arizona.
Requests for proxies are being sent to stockholders with this report mailed on
or about February 24, 1995.
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 29,363, compared with 29,968 at
the end of 1993. Approximately 5% of the outstanding shares are held by about
29,000 individuals. The remaining shares are held by trustees, banks, and other
institutions for additional thousands of owners.
Employees' investment and profit-sharing plans acquired 5,984,298 shares of
Caterpillar stock in 1994, including 5,156,838 shares received through the
stock split in the form of a 100% stock dividend. Investment plans, for which
membership is voluntary, held 13,253,668 shares for employee accounts at 1994
year-end. Profit-sharing plans, in which membership is automatic for most U.S.
and Canadian employees in eligible categories, held 245,563 shares at 1994
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:
1994 1993
--------------- ---------------
Quarter High Low High Low
- ------- ------ ------ ------ ------
First....... 60 3/4 44 1/2 30 1/4 27
Second...... 60 5/8 50 39 1/8 28 7/8
Third....... 58 1/4 50 41 5/8 36 3/8
Fourth...... 59 7/8 50 5/8 46 1/2 39 1/2
Market prices have been adjusted to give retroactive effect to a 2 for 1
stock split in 1994.
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 1994 annual report on Securities and Exchange
Commission Form 10-K (without exhibits) will be provided without charge to
stockholders after March 31, 1995, 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:
James F. Masterson
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) 675-4619
A-38
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS
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
Peter A. Magowan(2,3) Chairman, Safeway, Inc.; President & Managing
General Partner, San Francisco Giants
Gordon R. Parker Former Chairman, Newmont Mining Corporation
and Newmont Gold Company
George A. Schaefer(1,3) Former Chairman and Chief Executive Officer,
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) Of Counsel to Hogan & Hartson, Washington, D.C.
(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
Duane H. Livingston Vice President(2)
Douglas R. Oberhelman Vice President(2)
James W. Owens Vice President(1)
Gerald Palmer Vice President
Robert C. Petterson Vice President
Siegfried R. Ramseyer Vice President
Alan J. Rassi Vice President
Gerald L. Shaheen Vice President(2)
Gary A. Stroup Vice President
Richard L. Thompson Vice President(1)
Sherril K. West Vice President(2)
Donald G. Western Vice President(2)
Wayne M. Zimmerman Vice President
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, 1994,
except as noted below.
(1) Group President effective January 1, 1995
(2) Effective January 1, 1995
A-39
<PAGE>
[Logo of Caterpillar Inc. appears here.]
<PAGE>
/x/ Please mark your votes as in this example. 1433
----
UNLESS OTHERWISE SPECIFIED, PROXIES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS LISTED, FOR PROPOSALS 2 AND 3, AND AGAINST PROPOSALS 4
AND 5.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND PROPOSALS
2 AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (See reverse) / / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendments to 1987 Stock Option Plan / / / / / /
3. Appointment of Independent Auditors / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSALS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
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 .
ANNUAL MEETING
OF
CATERPILLAR INC. STOCKHOLDERS
WEDNESDAY, APRIL 12, 1995
10:30 A.M.
LOEWS VENTANA CANYON HOTEL
7000 NORTH RESORT DRIVE
TUCSON, ARIZONA
================================================================================
AGENDA
------
* Election of Directors
* Approval of Amendments to the 1987 Stock Option Plan
* Ratification of the appointment of independent public accountants
* Act upon two stockholder proposals
* Transact such other business as may properly be brought before the meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY AND VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 12, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Annual Meeting of Stockholders of the Company on April 12, 1995, or at
any adjournment thereof, the undersigned hereby appoints (i) C.K. YEUTTER and
W.H. HELMERICH, III, and each of them, proxies with power of substitution to
vote the common stock of the undersigned and (ii) THE FIRST NATIONAL BANK OF
CHICAGO and THE NORTHERN TRUST COMPANY, as Trustee, to appoint C.K. YEUTTER and
W.H. HELMERICH, III, and each or either of them, with power of substitution,
proxies to vote 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 13, 1995, as directed
hereon on the following matters, and, in their discretion, on any other matters
that may come before the meeting.
Election of Directors. Nominees: J.R. Junkins, G.R. Parker, G.A. Schaefer
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. THIS CARD ALSO CONSTITUTES VOTING
INSTRUCTIONS FOR ANY SHARES HELD BY THE UNDERSIGNED IN ANY COMPANY EMPLOYEE
INVESTMENT PLANS.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY AND VOTING INSTRUCTION CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
SEE REVERSE
SIDE
[RECYCLED PAPER LOGO] Printed on recycled paper
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[Photo of Caterpillar equipment appears here.]
If you think helping build a dam or bridge is incredible, try tearing down a
wall.
[Photo of Berlin Wall appears here.]
The fall of the Berlin Wall was more than the demolition of a historic
concrete barrier. When Caterpillar equipment helped tear it down, it created new
opportunities for expanding markets in Eastern Europe and around the world. In
fact, a sizable chunk of the peace dividend is already flowing into the U.S.
economy.
The Commonwealth of Independent States--the former Soviet Union--purchased
nearly $200 million worth of Caterpillar equipment in 1993 alone.
With a worldwide reputation like ours, it's not surprising. Almost half of our
$11 billion in sales last year came from customers outside the United States.
But we manufactured nearly three-quarters of our products in the United
States.
Caterpillar is known for the things we help build. But one of the jobs we're
proudest of is something we helped tear down.
[CATERPILLAR LOGO]
<PAGE>
/x/ Please mark your votes as in this example 1433
----
UNLESS OTHERWISE SPECIFIED, PROXIES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS LISTED, FOR PROPOSALS 2 AND 3, AND AGAINST PROPOSALS 4
AND 5.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND PROPOSALS
2 AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) / / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendments to 1987 Stock Option Plan / / / / / /
3. Appointment of Independent Auditors / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSALS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
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 .
ANNUAL MEETING
OF
CATERPILLAR INC. STOCKHOLDERS
WEDNESDAY, APRIL 12, 1995
10:30 A.M.
LOEWS VENTANA CANYON HOTEL
7000 NORTH RESORT DRIVE
TUCSON, ARIZONA
================================================================================
AGENDA
------
* Election of Directors
* Approval of Amendments to the 1987 Stock Option Plan
* Ratification of the appointment of independent public accountants
* Act upon two stockholder proposals
* Transact such other business as may properly be brought before the meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 12, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Annual Meeting of Stockholders of the Company on April 12, 1995, or at
any adjournments thereof, the undersigned hereby appoints C.K. YEUTTER and W.H.
HELMERICH, III, and each of them, proxies with power of substitution to vote the
stock of the undersigned on the following matters, and, in their discretion, on
any other matters that may come before the meeting.
Election of Directors. Nominees: J.R. Junkins, G.R. Parker, G.A. Schaefer
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
[RECYCLED PAPER LOGO] Printed on recycled paper
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[Photo of Caterpillar equipment appears here.]
If you think helping build a dam or bridge is incredible, try tearing down a
wall.
[Photo of Berlin Wall appears here.]
The fall of the Berlin Wall was more than the demolition of a historic
concrete barrier. When Caterpillar equipment helped tear it down, it created new
opportunities for expanding markets in Eastern Europe and around the world. In
fact, a sizable chunk of the peace dividend is already flowing into the U.S.
economy.
The Commonwealth of Independent States--the former Soviet Union--purchased
nearly $200 million worth of Caterpillar equipment in 1993 alone.
With a worldwide reputation like ours, it's not surprising. Almost half of our
$11 billion in sales last year came from customers outside the United States.
But we manufactured nearly three-quarters of our products in the United
States.
Caterpillar is known for the things we help build. But one of the jobs we're
proudest of is something we helped tear down.
[CATERPILLAR LOGO]
<PAGE>
/x/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE 1433
----
UNLESS OTHERWISE SPECIFIED, PROXIES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS LISTED. FOR PROPOSALS 2 AND 3, AND AGAINST PROPOSALS 4
AND 5.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND PROPOSALS
2 AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) / / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendments to 1987 Stock Option Plan / / / / / /
FOR AGAINST ABSTAIN
3. Appointment of Independent Auditors / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSALS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
4. Stockholder proposal / / / / / /
FOR AGAINST ABSTAIN
5. Stockholder proposal / / / / / /
SIGNATURE(S)_________________________________________ DATE__________________
NOTE: Please sign excatly 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 .
ANNUAL MEETING
OF
CATERPILLAR INC. STOCKHOLDERS
WEDNESDAY, APRIL 12, 1995
10:30 A.M.
LOEWS VENTANA CANYON HOTEL
7000 NORTH RESORT DRIVE
TUCSON, ARIZONA
================================================================================
AGENDA
------
* Election of Directors
* Approval of Amendments to the 1987 Stock Option Plan
* Ratification of the appointment of independent public accountants
* Act upon two stockholder proposals
* Transact such other business as may properly be brought before the meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING - APRIL 12, 1995
THIS VOTING AUTHORIZATION IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Annual Meeting of Stockholders of the Company on April 12, 1995, or at
any adjournments thereof, the undersigned hereby authorizes THE FIRST NATIONAL
BANK OF CHICAGO and THE NORTHERN TRUST COMPANY, as Trustee, to appoint C.K.
YEUTTER and W.H. HELMERICH, III, and each or either of them, with power of
substitution, proxies to vote 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 13, 1995,
as directed hereon on the following matters, and, in their discretion, on any
other matters that may come before the meeting.
Election of Directors. Nominees: J.R. Junkins, G.R. Parker, G.A. Schaefer
THE TRUSTEE CANNOT VOTE YOUR SHARES UNLESS YOU DATE AND SIGN THIS CARD ON THE
REVERSE SIDE.
[RECYCLED PAPER LOGO] Printed on recycled paper
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[Photo of Caterpillar equipment appears here.]
If you think helping build a dam or bridge is incredible, try tearing down a
wall.
[Photo of Berlin Wall appears here.]
The fall of the Berlin Wall was more than the demolition of a historic
concrete barrier. When Caterpillar equipment helped tear it down, it created new
opportunities for expanding markets in Eastern Europe and around the world. In
fact, a sizable chunk of the peace dividend is already flowing into the U.S.
economy.
The Commonwealth of Independent States--the former Soviet Union--purchased
nearly $200 million worth of Caterpillar equipment in 1993 alone.
With a worldwide reputation like ours, it's not surprising. Almost half of our
$11 billion in sales last year came from customers outside the United States.
But we manufactured nearly three-quarters of our products in the United
States.
Caterpillar is known for the things we help build. But one of the jobs we're
proudest of is something we helped tear down.
[CATERPILLAR LOGO]
<PAGE>
/x/ Please mark your votes as in this example. 9050
----
UNLESS OTHERWISE SPECIFIED, PROXIES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS LISTED, FOR PROPOSALS 2 AND 3, AND AGAINST PROPOSALS 4
AND 5.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND PROPOSALS
2 AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) / / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendments to 1987 Stock Option Plan / / / / / /
3. Appointment of Independent Auditors / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSALS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
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 .
ANNUAL MEETING
OF
CATERPILLAR INC. STOCKHOLDERS
WEDNESDAY, APRIL 12, 1995
10:30 A.M.
LOEWS VENTANA CANYON HOTEL
7000 NORTH RESORT DRIVE
TUCSON, ARIZONA
================================================================================
AGENDA
------
* Election of Directors
* Approval of Amendments to the 1987 Stock Option Plan
* Ratification of the appointment of independent public accountants
* Act upon two stockholder proposals
* Transact such other business as may properly be brought before the meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
VOTING INSTRUCTION
CATERPILLAR INC.
ANNUAL MEETING - APRIL 12, 1995
THIS VOTING AUTHORIZATION IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Annual Meeting of Stockholders of the Company on April 12, 1995, or at
any adjournments thereof, the undersigned hereby authorizes THE NATIONAL TRUST
COMPANY LTD., TORONTO, as Trustee, to appoint C.K. YEUTTER and W.H. HELMERICH,
III, and each or either of them, with power of substitution, proxies to vote 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 13, 1995, 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: J.R. Junkins, G.R. Parker, G.A. Schaefer
THE TRUSTEE CANNOT VOTE YOUR SHARES UNLESS YOU DATE AND SIGN THIS CARD ON THE
REVERSE SIDE.
[RECYCLED PAPER LOGO] Printed on recycled paper
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[Photo of Caterpillar equipment appears here.]
If you think helping build a dam or bridge is incredible, try tearing down a
wall.
[Photo of Berlin Wall appears here.]
The fall of the Berlin Wall was more than the demolition of a historic
concrete barrier. When Caterpillar equipment helped tear it down, it created new
opportunities for expanding markets in Eastern Europe and around the world. In
fact, a sizable chunk of the peace dividend is already flowing into the U.S.
economy.
The Commonwealth of Independent States--the former Soviet Union--purchased
nearly $200 million worth of Caterpillar equipment in 1993 alone.
With a worldwide reputation like ours, it's not surprising. Almost half of our
$11 billion in sales last year came from customers outside the United States.
But we manufactured nearly three-quarters of our products in the United
States.
Caterpillar is known for the things we help build. But one of the jobs we're
proudest of is something we helped tear down.
[CATERPILLAR LOGO]
<PAGE>
SPECIMEN
/x/ Please mark your votes as in this example. 1433
----
UNLESS OTHERWISE SPECIFIED, PROXIES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS LISTED, FOR PROPOSALS 2 AND 3, AND AGAINST PROPOSALS 4
AND 5.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND PROPOSALS
2 AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) / / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendments to 1987 Stock Option Plan / / / / / /
3. Appointment of Independent Auditors / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSALS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
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 .
ANNUAL MEETING
OF
CATERPILLAR INC. STOCKHOLDERS
WEDNESDAY, APRIL 12, 1995
10:30 A.M.
LOEWS VENTANA CANYON HOTEL
7000 NORTH RESORT DRIVE
TUCSON, ARIZONA
================================================================================
AGENDA
------
* Election of Directors
* Approval of Amendments to the 1987 Stock Option Plan
* Ratification of the appointment of independent public accountants
* Act upon two stockholder proposals
* Transact such other business as may properly be brought before the meeting.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 12, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Annual Meeting of Stockholders of the Company on April 12, 1995, or at
any adjournments thereof, the undersigned hereby appoints C.K. YEUTTER and W.H.
HELMERICH, III, and each of them, proxies with power of substitution to vote the
stock of the undersigned on the following matters, and, in their discretion, on
any matters that may come before the meeting.
Election of Directors. Nominees: J.R. Junkins, G.R.Parker, G.A. Schaefer
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
[RECYCLED PAPER LOGO] Printed on recycled paper
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[Photo of Caterpillar equipment appears here.]
If you think helping build a dam or bridge is incredible, try tearing down a
wall.
[Photo of Berlin Wall appears here.]
The fall of the Berlin Wall was more than the demolition of a historic
concrete barrier. When Caterpillar equipment helped tear it down, it created new
opportunities for expanding markets in Eastern Europe and around the world. In
fact, a sizable chunk of the peace dividend is already flowing into the U.S.
economy.
The Commonwealth of Independent States--the former Soviet Union--purchased
nearly $200 million worth of Caterpillar equipment in 1993 alone.
With a worldwide reputation like ours, it's not surprising. Almost half of our
$11 billion in sales last year came from customers outside the United States.
But we manufactured nearly three-quarters of our products in the United
States.
Caterpillar is known for the things we help build. But one of the jobs we're
proudest of is something we helped tear down.
[CATERPILLAR LOGO]
<PAGE>
/x/ Please mark your votes as in this example. 1433
----
UNLESS OTHERWISE SPECIFIED, PROXIES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS LISTED, FOR PROPOSALS 2 AND 3, AND AGAINST PROPOSALS 4
AND 5.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF DIRECTORS AND PROPOSALS
2 AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (See reverse) / / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendments to 1987 Stock Option Plan / / / / / /
3. Appointment of Independent Auditors / / / / / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSALS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
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.
- --------------------------------------------------------------------------------
PROXY
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 12, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Annual Meeting of Stockholders of the Company on April 12, 1995, or at
any adjournments thereof, the undersigned hereby appoints C.K. YEUTTER and W.H.
HELMERICH, III, and each of them, proxies with power of substitution to vote the
stock of the undersigned on the following matters, and, in their discretion, on
any other matters that may come before the meeting.
Election of Directors. Nominees: J.R. Junkins, G.R. Parker, G.A. Schaefer
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
[RECYCLED PAPER LOGO] Printed on recycled paper
<PAGE>
ADMISSION TICKET
------------------------
Caterpillar Inc.
Annual Meeting of Stockholders
Wednesday, April 12, 1995
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
- --------------------------------------------------------------------------------
