<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 37-0602744
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 NE ADAMS STREET,
PEORIA, ILLINOIS 61629
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (309) 675-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock ($1.00 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
9 1/8% Notes due December 15, 1996 New York Stock Exchange
9 3/8% Notes due July 15, 2000 New York Stock Exchange
9 3/8% Notes due July 15, 2001 New York Stock Exchange
9% Debentures due April 15, 2006 New York Stock Exchange
9 3/8% Debentures due August 15, 2011 New York Stock Exchange
9 3/4% Sinking Fund Debentures due New York Stock Exchange
June 1, 2019
9 3/8% Debentures due March 15, 2021 New York Stock Exchange
8% Debentures due February 15, 2023 New York Stock Exchange
6% Debentures due May 1, 2007 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 31, 1994, there were 200,442,087 shares of common stock
of the Registrant outstanding, and the aggregate market value of the voting
stock held by non-affiliates of the Registrant (assuming only for purposes of
this computation that directors and officers may be affiliates) was
$10,995,126,605.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the document listed below have been incorporated by reference
into the indicated parts of this report, as specified in the responses to the
item numbers involved.
1995 Annual Meeting Proxy Statement (Parts I, II, III and IV)
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PART I
Item 1. Business.
Principal Business Segments
- ---------------------------
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 for Caterpillar dealers and customers
to help support their purchase and financing of Caterpillar
equipment.
Note 24 of the Notes to Consolidated Financial Statements on pages A-24
and A-25 of the Appendix to the Company's 1995 Annual Meeting Proxy
Statement contains additional information regarding the Company's business
segments and geographic segments and is incorporated herein by reference.
Company Operations
- ------------------
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.
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.
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Further information concerning the Company's operations in 1994 and its
outlook for 1995 appears under the caption "Management's Discussion and
Analysis" on pages A-28 through A-37 of the Appendix to the Company's 1995
Annual Meeting Proxy Statement, which pages are incorporated herein by
reference.
Patents and Trademarks
- ----------------------
The Company's products are sold primarily under the marks "Caterpillar,"
"Cat," "Solar," and "Barber-Greene." The Company owns a number of patents and
trademarks relating to the products manufactured by it, which have been
obtained over a period of years. These patents and trademarks have been of
value in the growth of the Company's business and may continue to be of value
in the future. The Company does not regard any segment of the Company's
business as being dependent upon any single patent or group of patents.
Research and Development
- ------------------------
The Company has always placed strong emphasis on product-oriented
research and engineering relating to the development of new or improved
machines, engines and major components. In 1994, 1993 and 1992, the Company
expended $435 million, $455 million and $446 million, respectively, on its
research and engineering program. Of these amounts, $311 million in 1994, $319
million in 1993 and $310 million in 1992 were attributable to new prime products
and major component development and major improvements to existing products.
The remainders were attributable to engineering costs incurred during the early
production phase as well as ongoing efforts to improve existing products.
During 1994 the Company announced several new products as well as improvements
to existing products. The Company expects to continue the development of new
products and improvements to existing products in the future.
Employment
- ----------
At December 31, 1994, the Company employed 53,986 persons of whom 14,237
were located outside the United States.
Sales
- -----
Sales outside the United States were 49% of consolidated sales in 1994,
compared with 49% in 1993 and 55% in 1992.
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.
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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 the Company's Statement of Financial Position
appearing on pages A-6 and A-7 of the Appendix to the 1995 Annual Meeting Proxy
Statement. 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.
3
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Item 1a. Executive Officers of the Registrant as of December 31, 1994.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Present Caterpillar Inc. Principal positions held during the
Name and Age position and date of past five years other than
initial election Caterpillar Inc. position currently held
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donald V. Fites (60) Chairman of the Board (1990) President
- ---------------------------------------------------------------------------------------------------------------
James W. Wogsland (63) Vice Chairman (1990) Executive Vice President
- ---------------------------------------------------------------------------------------------------------------
Glen A. Barton (55) Group President (1990) Executive Vice President
- ---------------------------------------------------------------------------------------------------------------
Gerald S. Flaherty (56) Group President (1990) Executive Vice President
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R. Rennie Atterbury III (57) Vice President, General Associate General Counsel
Counsel and Secretary (1991)
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James W. Baldwin (57) Vice President (1991) General Manager, Parts and Service Support;
Manager, Parts Distribution, General Office
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Vito H. Baumgartner (54) Vice President (1990) Chairman, Caterpillar Overseas S.A.;
President, Caterpillar Brasil S.A.
- ---------------------------------------------------------------------------------------------------------------
James S. Beard (53) Vice President (1990) President, Caterpillar Financial
Services Corporation
- ---------------------------------------------------------------------------------------------------------------
Richard A. Benson (51) Vice President (1989) President, Caterpillar Industrial Inc.
- ---------------------------------------------------------------------------------------------------------------
Ronald P. Bonati (55) Vice President (1990) Manager, Products Control, General Office
- ---------------------------------------------------------------------------------------------------------------
James E. Despain (57) Vice President (1990) Manager, East Peoria Plant
- ---------------------------------------------------------------------------------------------------------------
Robert C. Dryden (58) Vice President (1981)
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Roger E. Fischbach (53) Vice President (1989)
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Donald M. Ings (46) Vice President (1993) President, Solar Turbines Incorporated; Manager,
Precision Barstock Products, York Plant
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Keith G. Johnson (63) Vice President (1988) Chairman, Shin Caterpillar Mitsubishi Ltd.
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James W. Owens (48) Vice President (1990) President, Solar Turbines Incorporated;
Managing Director, P.T. Natra Raya
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Gerald Palmer (49) Vice President (1992) Director of Technical Services, Technical
Services Division; President, CONEK S.A. de C.V.
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Robert C. Petterson (56) Vice President (1991) President, Caterpillar Brasil S.A.;
Regional Manager, Caterpillar Overseas S.A.
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Siegfried R. Ramseyer (57) Vice President (1992) Managing Director, Caterpillar Overseas S.A.;
Manager, Construction Equipment and Dealer
Administration, Caterpillar Overseas S.A.
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Alan J. Rassi (54) Vice President (1992) General Manager, Aurora Plant;
Plant Manager, Aurora Plant
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Gary A. Stroup (45) Vice President (1992) Business Unit Manager, Component Products
Division; Assistant Director of
Manufacturing, General Office; Planning and
Tooling Manager, East Peoria Plant
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Richard L. Thompson (55) Vice President (1989) President, Solar Turbines Incorporated
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Wayne M. Zimmerman (59) Vice President (1989)
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Robert R. Gallagher (54) Controller (1990) Manager of Tax, General Office
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Rudolf W. Wuttke (56) Treasurer (1991) Secretary and Treasurer, Caterpillar Overseas S.A.
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</TABLE>
4
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ITEM 2. PROPERTIES.
The Company's operations are highly integrated. Although the majority of
the Company's plants are involved primarily in the production of either
machines or engines, several of the Company's plants are involved in the
manufacture of both machines and engines. In addition, several plants are
involved in the manufacture of components which are used in the assembly of
both machines and engines. The Company's distribution centers and regional
distribution centers are involved in the storage and distribution of parts for
machines and engines. Also, the research and development activities carried on
at the Technical Center involve both machines and engines.
The corporate headquarters for the Company are located in Peoria,
Illinois. Additional marketing headquarters are located both inside and outside
the United States.
All square footage and acreage provided herein is approximated as of
December 31, 1994.
Total Properties
- ----------------
Total properties owned or leased by the Company consist of 67,257,861
square feet of building area, of which 89.8% is owned in fee and 10.2% is
leased.
Owned Properties
- ----------------
Properties owned in fee by the Company consist of 60,395,936 square feet
of building area and 19,123 acres of land. Properties owned by the Company are
believed to be generally well maintained and adequate for the purposes for which
they are presently used. Through planned capital expenditures, the Company
expects these properties to remain adequate for future needs.
Consolidations / Closures / Sales
- ---------------------------------
Over the last five years, in the ordinary course of business, the
Company has consolidated operations and / or closed a number of its facilities.
The Company continues to own closed properties totaling 2,676,643 square feet of
building area and 6,611 acres of land which are no longer utilized in current
operations. These closed properties have been declared surplus and are for
sale.
In December, 1991, the Company announced the probable closure of its
manufacturing facility in York, Pennsylvania. The timing of the closure of the
York facility is still pending. In December, 1994, the Company's manufacturing
facility in Vernon, France was sold. The previously closed distribution
facility located in New Orleans was also sold in 1994.
Leased Properties
- -----------------
Properties leased by the Company consist of 6,861,925 square feet of
building area. These properties are covered by leases expiring over terms of
generally 1 to 10 years. The Company anticipates no difficulty in retaining
occupancy of any of its leased facilities, either by renewing leases prior to
expiration or by replacing them with equivalent leased facilities.
Manufacturing
- -------------
Manufacturing activities are conducted at 26 locations inside the United
States and 12 locations outside the United States. Remanufacturing and
Overhaul activities are conducted at 3 locations inside the United States and 3
locations outside the United States. These facilities have a total building
area of 43,294,650 square feet, of which 98.6% is used for manufacturing and
1.4% is used for remanufacturing and overhaul. These facilities are believed
to be suitable for their intended purposes with adequate capacities for current
and projected needs for existing Company products. A list of the Company's
manufacturing, remanufacturing and overhaul facilities follows with principal
use indicated:
5
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Plant Locations inside the U.S. Principal Use
------------------------------- -------------
Gardena, California.................................... Manufacturing
San Diego, California.................................. Manufacturing
Jacksonville, Florida.................................. Manufacturing
Aurora, Illinois....................................... Manufacturing
Decatur, Illinois...................................... Manufacturing
DeKalb, Illinois....................................... Manufacturing
Dixon, Illinois........................................ Manufacturing
East Peoria, Illinois.................................. Manufacturing
Joliet, Illinois....................................... Manufacturing
Mapleton, Illinois..................................... Manufacturing
Mossville, Illinois.................................... Manufacturing
Peoria, Illinois....................................... Manufacturing
Pontiac, Illinois...................................... Manufacturing
Lafayette, Indiana..................................... Manufacturing
Wamego, Kansas......................................... Manufacturing
Menominee, Michigan.................................... Manufacturing
Minneapolis, Minnesota................................. Manufacturing
New Ulm, Minnesota..................................... Manufacturing
Corinth, Mississippi................................... Remanufacturing
Boonville, Missouri.................................... Manufacturing
Clayton, North Carolina................................ Manufacturing
Leland, North Carolina................................. Manufacturing
Dallas, Oregon......................................... Manufacturing
York, Pennsylvania..................................... Manufacturing
Greenville, South Carolina............................. Manufacturing
Rockwood, Tennessee.................................... Manufacturing
DeSoto, Texas.......................................... Overhaul
Houston, Texas......................................... Manufacturing
Mabank, Texas.......................................... Overhaul
Plant Locations outside the U.S. Principal Use
-------------------------------- -------------
Melbourne, Australia................................... Manufacturing
Gosselies, Belgium..................................... Manufacturing
Piracicaba, Brazil..................................... Manufacturing
Edmonton, Canada....................................... Overhaul
Shanghai, China........................................ Manufacturing
Leicester, England..................................... Manufacturing
Grenoble, France....................................... Manufacturing
Rantigny, France....................................... Manufacturing
Godollo, Hungary....................................... Manufacturing
Jakarta, Indonesia..................................... Manufacturing
Bazzano, Italy......................................... Manufacturing
Monterrey, Mexico...................................... Manufacturing
Nuevo Laredo, Mexico................................... Remanufacturing
Tijuana, Mexico........................................ Overhaul
St. Petersburg, Russia................................. Manufacturing
6
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Financial Products
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A majority of the activity of the Financial Products Division is
conducted from its leased headquarters located in Nashville, Tennessee. The
Financial Products Division also leases 5 other office locations inside the
United States and 9 office locations outside the United States and shares other
office space with other Company entities.
Distribution
- ------------
The Company's distribution activities are conducted at 10 Distribution
Center locations (3 inside the United States and 7 outside the United States)
and 13 Regional Distribution Center locations (12 inside the United States and
1 outside the United States). These locations have a total building area of
9,230,277 square feet and are used for the distribution of Company products.
Caterpillar Logistics Services, Inc. distributes other companies' products
utilizing certain of the Company's distribution facilities as well as other
non-Company facilities located both inside and outside the United States. The
Company also owns or leases other storage facilities which support distribution
activities.
Technical Center, Training / Demonstration Areas and Proving Grounds
- ---------------------------------------------------------------------
The Company owns a Technical Center located in Mossville, Illinois and
various other training / demonstration areas and proving grounds located both
inside and outside the United States.
Capital Expenditures
- --------------------
During the five years ended December 31, 1994, changes in investment in
land, buildings, machinery and equipment of the Company were as follows (stated
in millions of dollars):
Expenditures Disposals Net Increase
-------------------- Provisions for and Other (Decrease)
Year U.S. Outside U.S. Depreciation Adjustments During Period
- -------------------------------------------------------------------------------
1990 $708 $331 $(513) $ (45) $ 481
- -------------------------------------------------------------------------------
1991 $610 $164 $(593) $(118) $ 63
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1992 $502 $138 $(644) $ (91) $ (95)
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1993 $508 $124 $(661) $ (98) $(127)
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1994 $508 $186 $(680) $ (65) $ (51)
- -------------------------------------------------------------------------------
At December 31, 1994, the net book value of properties located outside
the United States represented 25.9% of the net properties on the consolidated
financial position. Further information concerning the Company's investment in
land, buildings, machinery and equipment appears under Notes 1D and 11 of the
"Notes to Consolidated Financial Statements" on pages A-10 and A-16 and A-17
respectively, of the Appendix to the 1995 Annual Meeting Proxy Statement, which
Notes are incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to litigation matters and claims which are normal
in the course of its operations, and, while the results of such litigation and
claims cannot be predicted with certainty, management believes, based on the
advice of counsel, the final outcome of such matters will not have a materially
adverse effect on the consolidated financial position.
7
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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 Caterpillar Inc. and certain
overseas subsidiaries ("Company"). 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by Item 5 is incorporated by reference from
under the caption "Common Stock Price Range" and the first paragraph under the
caption "Number of Stockholders" appearing on page A-38 and under the caption
"Dividends" on page A-33 of the Appendix to the Company's 1995 Annual Meeting
Proxy Statement.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is incorporated by reference from
pages A-26 and A-27 of the Appendix to the Company's 1995 Annual Meeting Proxy
Statement under the caption "Eleven-year Financial Summary" but only for the
years 1990-1994, inclusive, and then only with respect to the information set
forth for each of such years under the following captions: "Sales and revenues,"
"Profit (loss) before effects of accounting changes/(1)/" (including the
footnote indicated), "Effects of accounting changes (note 2)" (including the
note indicated), "Profit (loss)/(1)/ (including the footnote indicated),"
"Profit (loss) per share of common stock: /(1)(2)/ Profit (loss) before effects
of accounting changes/(1)/" (including the footnote indicated), "Profit (loss)
per share of common stock:/(1)(2)/ Effects of accounting changes (note 2)"
(including the footnotes and note indicated), "Profit (loss) per share of common
stock:/(1)(2)/ Profit (loss)" (including the footnotes indicated), "Dividends
declared per share of common stock," "Total assets: Machinery and Engines,"
"Total assets:
8
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Financial Products," "Long-term debt due after one year: Machinery and Engines,"
and "Long-term debt due after one year: Financial Products."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is incorporated by reference from
under the caption "Management's Discussion and Analysis" on pages A-28 through
A-37 of the Appendix to the Company's 1995 Annual Meeting Proxy Statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is incorporated by reference from
the Report of Independent Accountants appearing on page A-3, and the Financial
Statements and Notes to Consolidated Financial Statements appearing on pages
A-4 through A-25 of the Appendix to the Company's 1995 Annual Meeting Proxy
Statement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 relating to identification of
directors is incorporated by reference from pages 3 through 7 of the Company's
1995 Annual Meeting Proxy Statement under the captions "Nominees for Election as
Directors for Terms Expiring in 1998," "Directors Continuing in Office in the
Class of 1996," and "Directors Continuing in Office in the Class of 1997."
Identification of executive officers appears herein under Item 1a. There are no
family relationships between the officers and directors of the Company. All
officers serve at the pleasure of the Board of Directors and are regularly
elected at a meeting of the Board of Directors in April of each year.
Information required under Item 405 of Regulation S-K is incorporated by
reference from under the caption "Filings Pursuant to Section 16 of the
Securities and Exchange Act of 1934" appearing on page 24 of the Company's 1995
Annual Meeting Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from
under the caption "Compensation of Directors" which appears on page 9, from
under the caption "Report of the Compensation Committee" on pages 11 through 15,
from under the caption "Performance Graph" on page 16, from under the caption
"Executive Compensation" and the tables thereunder which appear on pages 17
through 19, from under the caption "Pension Program" (including footnotes) and
the table thereunder which appear on pages 19 and 20, and from under the caption
"Compensation Committee Interlocks and Insider Participation" which appears on
page 16 of the Company's 1995 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference from
pages 10 and 11 of the Company's 1995 Annual Meeting Proxy Statement under the
caption "Equity Security Ownership of Management and Certain Other Beneficial
Owners (as of December 31, 1994)."
9
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference from
the Company's 1995 Annual Meeting Proxy Statement from under the caption
"Certain Relationships and Related Transactions" appearing on page 20 and from
under the caption "Compensation Committee Interlocks and Insider Participation"
on page 16.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Accountants (p. A-3)*
Statement 1 Consolidated Results of Operations for the
Years Ended December 31 (p. A-4)*
Statement 2 Changes in Consolidated Stockholders' Equity
for the Years Ended December 31 (p. A-5)*
Statement 3 Financial Position at December 31 (p. A-6
and p. A-7)*
Statement 4 Statement of Cash Flows for the Years Ended
December 31 (p. A-8 and p. A-9)*
Notes to Consolidated Financial Statements (pp. A-10
through A-25)*
2. Financial Statement Schedule:
Report of Independent Accountants on Financial Statement
Schedule
Schedule VIII Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto
incorporated by reference.
(b) One report on Form 8-K, dated December 14, 1994, was filed
during the last quarter of 1994. The Form 8-K reported information pursuant to
Item 5 "Other Events." No financial statements were filed as part of the report
on Form 8-K.
(c) Exhibits:
3 (a)(i) Restated Certificate of Incorporation.
3 (a)(ii) Certificate of Designation, Preferences and Rights
of the Terms of the Series A Junior Participating
Preferred Stock (incorporated by reference from
Exhibit 3(a) to Form 10-K for the year ended
December 31, 1991, Commission File No. 1-768).
(b) Bylaws (incorporated by reference from Exhibit 3(b)
to Form 10-K for the year ended December 31, 1990,
Commission File No. 1-768).
4 (a) Rights Agreement dated as of November 12, 1986,
between Caterpillar Inc., the Registrant hereunder,
and First Chicago Trust Company of New York
(formerly Morgan Shareholder Services Trust Company)
(incorporated by reference from Exhibit 10(a) to
Form 10-K for the year ended December 31, 1990,
Commission File No. 1-768) and First Amendment to
Rights Agreement dated December 9, 1992
(incorporated by reference from Exhibit 10(a) to
Form 10-K for the year ended December 31, 1992,
Commission File No. 1-768).
10 (a) 1977 Stock Option Plan as amended (incorporated by
reference from Exhibit 10(b) to Form 10-K for the
year ended December 31, 1984, Commission File
No. 1-768).**
10
<PAGE>
(b) 1987 Stock Option Plan as amended and Long Term
Incentive Supplement (incorporated by reference from
Exhibit 10(b) to Form 10-K for the year ended December
31, 1993, Commission File No. 1-768).**
(c) Supplemental Pension Benefit Plan, as amended and
restated (incorporated by reference from Exhibit 10(c)
to Form 10-K for the year ended December 31, 1993,
Commission File No. 1-768).**
(d) Supplemental Employees' Investment Plan (incorporated
by reference from Exhibit 10(e) to Form 10-K for the
year ended December 31, 1987, Commission File No.
1-768).**
(e) Caterpillar Inc. 1993 Corporate Incentive Compensation
Plan Management and Salaried Employees, as amended and
restated (incorporated by reference from Exhibit 10(e)
to Form 10-K for the year ended December 31, 1993,
Commission File No. 1-768).**
(f) Directors' Deferred Compensation Plan, as amended and
restated (incorporated by reference from Exhibit 10(f)
to Form 10-K for the year ended December 31, 1993,
Commission File No. 1-768).**
(g) Directors' Retirement Plan (incorporated by reference
from Exhibit 10(i) to Form 10-K for the year ended
December 31, 1991, Commission File No. 1-768).**
(h) Directors' Charitable Award Program (incorporated by
reference from Exhibit 10(h) to Form 10-K for the year
ended December 31, 1993, Commission File No. 1-768).**
11 Computations of Earnings Per Share
12 Statement Setting Forth Computation of Ratios of
Profit to Fixed Charges (The ratio of profit to fixed
charges for the year ended December 31, 1994 was 3.8.
Because of pretax losses for the year ended December
31, 1992, profit was not sufficient to cover fixed
charges. The coverage deficiency was approximately
$341 million.)
21 Subsidiaries and Affiliates of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
99 (a) Appendix to the Company's 1995 Annual Meeting Proxy
Statement (furnished for the information of the
Commission and not deemed to be filed except for those
portions expressly incorporated by reference herein).
________________________________________________________________________________
* Incorporated by reference from the indicated pages of the Appendix to
the 1995 Annual Meeting Proxy Statement.
** Compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of this Form 10-K.
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CATERPILLAR INC.
(Registrant)
By: R. R. ATTERBURY III
___________________________________
Date: February 23, 1995 R. R. Atterbury III, Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Chairman of the Board, Director
February 23, 1995 DONALD V. FITES and Chief Executive Officer
________________________
(Donald V. Fites)
February 23, 1995 JAMES W. WOGSLAND Vice Chairman and Director
________________________
(James W. Wogsland)
February 23, 1995 GLEN A. BARTON Group President
________________________
(Glen A. Barton)
February 23, 1995 GERALD S. FLAHERTY Group President
________________________
(Gerald S. Flaherty)
February 23, 1995 RICHARD L. THOMPSON Group President
________________________
(Richard L. Thompson)
February 23, 1995 JAMES W. OWENS Group President
________________________
(James W. Owens)
Vice President and
February 23, 1995 DOUGLAS R. OBERHELMAN Chief Financial Officer
________________________
(Douglas R. Oberhelman)
Controller and
February 23, 1995 ROBERT R. GALLAGHER Chief Accounting Officer
________________________
(Robert R. Gallagher)
February 23, 1995 LILYAN H. AFFINITO Director
________________________
(Lilyan H. Affinito)
12
<PAGE>
February 23, 1995 JOHN W. FONDAHL Director
-----------------------
(John W. Fondahl)
February 23, 1995 DAVID R. GOODE Director
------------------------
(David R. Goode)
February 23, 1995 JAMES P. GORTER Director
------------------------
(James P. Gorter)
February 23, 1995 WALTER H. HELMERICH, III Director
------------------------
(Walter H. Helmerich, III)
February 23, 1995 JERRY R. JUNKINS Director
------------------------
(Jerry R. Junkins)
February 23, 1995 PETER A. MAGOWAN Director
------------------------
(Peter A. Magowan)
February 23, 1995 GORDON R. PARKER Director
------------------------
(Gordon R. Parker)
February 23, 1995 GEORGE A. SCHAEFER Director
------------------------
(George A. Schaefer)
February 23, 1995 JOSHUA I. SMITH Director
------------------------
(Joshua I. Smith)
February 23, 1995 CLAYTON K. YEUTTER Director
------------------------
(Clayton K. Yeutter)
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Caterpillar Inc.:
Our audits of the consolidated financial statements of Caterpillar Inc. referred
to in our report dated January 19, 1995 appearing on page A-3 of the Appendix to
the 1995 Annual Meeting Proxy Statement (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Peoria, Illinois
January 19, 1995
<PAGE>
CATERPILLAR INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
(Millions of dollars)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Close of
Description of Year Additions Deductions Year
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1994
- ----
Reserves for plant closing and consolidation costs:
Included in current liabilities:
Accounts payable and accrued expenses $ 58 $ -- $ 2(2) $ 56
Accrued wages, salaries, and employee benefits 138 -- 16(2) 122
Deducted from assets:
Land, buildings, machinery, and equipment--net 150 -- 1 149
1993
- ----
Reserves for plant closing and consolidation costs:
Included in current liabilities:
Accounts payable and accrued expenses $ 80 $ -- $ 22(2) $ 58
Accrued wages, salaries, and employee benefits 150 -- 12(2) 138
Deducted from assets:
Land, buildings, machinery, and equipment--net 164 -- 14(3) 150
1992
- ----
Reserves for plant closing and consolidation costs:
Included in current liabilities:
Accounts payable and accrued expenses $ 87 $ 4(1) $ 11(2) $ 80
Accrued wages, salaries, and employee benefits 170 15(1) 35(2) 150
Deducted from assets:
Land, buildings, machinery, and equipment--net 161 7(1) 4(3) 164
</TABLE>
- ----------
(1) Additions related to the sale of assets to the lift truck joint venture
that were included in the net gain on the sale and not charged to Provision
for plant closing and consolidation costs.
(2) Expenditures made.
(3) Related to assets disposed of.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CATERPILLAR INC.
Caterpillar Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Caterpillar Inc. The date of
filing its original Certificate of Incorporation with the Secretary of State was
March 12, 1986.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full:
FIRST: The name of this corporation is Caterpillar Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, and the name of its registered agent at
that address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: (a) The corporation is authorized to issue two classes of
shares to be designated, respectively, "common stock" and "preferred stock." The
total number of such shares shall be four hundred fifty five million
(455,000,000), all of which shares shall have a par value of $1.00 per share.
The total number of shares of common stock authorized to be issued shall be four
hundred fifty million (450,000,000) and the total number of shares of preferred
stock authorized to be issued shall be five million (5,000,000).
(b) The shares of preferred stock may be issued from time to time in
one or more series. The Board of Directors is hereby authorized to establish
from time to time by resolution or resolutions the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof, including but not limited to the fixing or alteration
of the dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of shares of preferred stock, and the number of shares
constituting any such series and the designation thereof, or any or all of them;
and to increase or decrease the number of shares of any series subsequent to the
issue of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have power to make, alter, amend and
repeal the bylaws (except so far as the bylaws adopted by the stockholders shall
otherwise provide). Any bylaws made by the Board of Directors under the powers
conferred hereby may be altered, amended or repealed by the Board of Directors
or by the stockholders. Notwithstanding the foregoing and anything contained in
this Certificate of Incorporation to the contrary, Sections 1(b)(ii), 1(c) and
3(e) of Article II, and Section 1 of Article III of the bylaws shall not be
altered, amended or repealed, and no provisions inconsistent therewith shall
<PAGE>
be adopted, without the affirmative vote of the holders of not less than
seventy-five percent (75%) of the outstanding stock of the corporation entitled
to vote generally in the election of directors, voting together as a single
class (it being understood that for the purposes of this Article FIFTH, each
share shall have one vote except as otherwise provided in accordance with
Article FOURTH).
SIXTH: (a) The number of directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the bylaws of
the corporation, subject to the provisions of Article FIFTH herein and this
Article SIXTH.
(b) The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III, which shall be as nearly equal in number as
possible. Each director shall serve for a term ending on the date of the third
annual meeting of stockholders following the annual meeting at which the
director was elected, provided, however, that each initial director in Class I
shall hold office until the annual meeting of stockholders in 1987; each
initial director in Class II shall hold office until the annual meeting of
stockholders in 1988; and each initial director in Class III shall hold office
until the annual meeting of stockholders in 1989. Notwithstanding the
foregoing provisions of this Article, each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal.
(c) In the event of any increase or decrease in the authorized number
of directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(d) Newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the remaining directors then in office
(and not by stockholders), even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
(e) Any director may be removed from office without cause but only by
the affirmative vote of the holders of not less than seventy-five percent (75%)
of the outstanding stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class (it being understood
that for the purpose of this Article SIXTH, each share shall have one vote
except as otherwise provided in accordance with Article FOURTH).
(f) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock issued by this corporation having a preference
over the common stock as to dividends or upon liquidation, shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies,
terms of removal and other features of such directorships shall be governed by
the terms of Article FOURTH and the resolution or resolutions establishing such
class or series adopted pursuant thereto and such directors so elected shall not
be divided into classes pursuant to this Article SIXTH unless expressly provided
by such terms.
SEVENTH: (a) Any action required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders.
(b) Special meetings of the stockholders of this corporation for any
purpose or purposes may be called at any time by the Chairman of the Board or
the President, or by the Board of Directors pursuant to a resolution approved
by a majority of the entire Board of Directors, but such special meetings may
not be called by any other person or persons.
(c) Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the bylaws of this
corporation.
(d) Election of directors need not be by written ballot unless the
bylaws of this corporation shall so provide.
<PAGE>
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the affirmative
vote of not less than seventy-five percent (75%) of the total voting power of
all outstanding shares of stock in this corporation entitled to vote generally
in the election of directors voting together as a single class (it being
understood that for the purposes of this Article EIGHTH, each share shall have
one vote except as otherwise provided in accordance with Article FOURTH) shall
be required to alter, amend or repeal, or adopt any provisions inconsistent
with the provisions set forth in Articles FIFTH, SIXTH, SEVENTH, and this
Article EIGHTH.
NINTH: No director shall be personally liable to the corporation or any
stockholders for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the Delaware General
Corporation Law) or any amendment thereto or any successor provision thereto or
shall be liable by reason that, in addition to any and all other requirements
for such liability, such director (i) shall have breached the duty of loyalty
to the corporation of its stockholders, (ii) shall not have acted in good
faith, or, in failing to act, shall not have acted in good faith, (iii) shall
have acted in a manner involving intentional misconduct or a knowing violation
of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law, or (iv) shall have
derived an improper personal benefit. Neither the amendment nor repeal of this
Article NINTH, nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this Article NINTH, shall eliminate or reduce
the effect of this Article NINTH in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article NINTH would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
4. This Restated Certificate of Incorporation was duly adopted by
unanimous written consent of the stockholders in accordance with Section 245 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Caterpillar Inc. has caused this certificate to
be signed by Donald V. Fites, its Chairman of the Board of Directors, and
attested by R. Rennie Atterbury III, its Secretary, this 15th day of February,
1995.
CATERPILLAR INC.
By /s/ Donald V. Fites
----------------------
Donald V. Fites
Chairman of the Board
ATTEST:
By /s/ R. Rennie Atterbury III
-------------------------------
R. Rennie Atterbury III
Secretary
<PAGE>
EXHIBIT 11
CATERPILLAR INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
COMPUTATIONS OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
I. Net profit (loss) for year (millions of dollars):..................... $ 955 $ 652 $(2,435)
====== ====== =======
II. Determination of shares (millions):
Weighted average number of common shares outstanding.................. 203.0 202.7 201.9
Shares issuable on exercise of stock options, net of shares assumed
to be purchased out of proceeds at average market price............. 2.1 2.2 .2
------ ------ -------
Average common shares outstanding for fully diluted computation....... 205.1 204.9 202.1
====== ====== =======
III. Profit (loss) per share of common stock:
Assuming no dilution.................................................. $ 4.70 $ 3.21 $(12.06)
Assuming full dilution................................................ $ 4.65 $ 3.18 $(12.05)
</TABLE>
<PAGE>
EXHIBIT 12
CATERPILLAR INC.,
CONSOLIDATED SUBSIDIARY COMPANIES,
AND 50%-OWNED AFFILIATED COMPANIES
STATEMENT SETTING FORTH COMPUTATION
OF RATIOS OF PROFIT TO FIXED CHARGES
(Millions of dollars)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Profit (loss)............................................................. $ 955 $ 681 $(218)
Add:
Provision (credit) for income taxes................................... 397 43 (123)
------ ------ -----
Profit (loss) before taxes................................................ $1,352 $ 724 $(341)
Fixed charges:
Interest and other costs related to borrowed funds/1/................. $ 430 $ 464 $ 527
Rentals at computed interest factors/2/............................... 51 53 52
------ ------ -----
Total fixed charges....................................................... $ 481 $ 517 $ 579
------ ------ -----
Profit before provision (credit) for income taxes and fixed charges....... $1,833 $1,241 $ 238
====== ====== =====
Ratio of profit to fixed charges/3/....................................... 3.8 2.4 --
====== ====== =====
</TABLE>
- --------------------
/1/Interest expense as reported in the Consolidated Results of
Operations plus the Company's proportionate share of 50 percent-owned
affiliated companies' interest expense.
/2/Amounts represent those portions of rent expense that are reasonable
approximations of interest costs.
/3/Because of pretax losses for the year ended December 31, 1992,
profit was not sufficient to cover fixed charges. The coverage
deficiency was approximately $341 million.
<PAGE>
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Jurisdiction Owned Directly or
in which Indirectly at
Name of Company Organized December 31, 1994*
- --------------- --------- ------------------
<S> <C> <C>
Caterpillar Inc. (Registrant) Delaware (Parent Company)
Affiliates of the Registrant:
Advanced Filtration Systems Inc. Delaware 50
Cyclean, Inc. Delaware 9.74
DUECO, Inc. Delaware 5
Health Plan of Central Illinois Inc. Illinois 18.5
Novotruck Russia 33.33
Peoria Medical Research Corporation Illinois 14.29
Rapisarda Industries, Srl Italy 25.01
Unoc Equipment and Supply, L.L.C. Delaware 30
Subsidiary:
A/O UNOC Equipment and Supply Russia 100
Subsidiaries of the Registrant:
Advanced Fuels, L.L.C. Delaware 51
Advanced Technology Services, Inc. Illinois 91.29
Anchor Coupling Inc. Delaware 100
A/O Nevamash Russia 65
Balderson Inc. Kansas 100
Carter Machinery Company, Incorporated Delaware 100
Caterpillar Americas Co. Delaware 100
Caterpillar Asia Pacific Holding Inc. Delaware 100
Subsidiaries:
Caterpillar Shanghai Engine Company Ltd. China 55
Caterpillar Xuzhou Ltd. China 60
Caterpillar Asia Pte. Ltd. Singapore 100
Caterpillar of Australia Ltd. Australia 100
Affiliates:
Energy Power Systems Australia Pty Limited Australia 50
Subsidiary:
Energy Power Systems PNG Pty Limited New Guinea 100
Caterpillar Brasil S. A. Brazil 100
Subsidiary:
Caterpillar Administracao e Participacoes S/C Ltda. Brazil 100
Caterpillar of Canada Ltd. Canada 100
Caterpillar Capital Company, Inc. Delaware 100
Caterpillar Commercial A/O Russia 100
Caterpillar Commercial N.V. Belgium 100
Affiliate:
Hindustan Powerplus Limited India 37.74
Subsidiary:
Caterpillar Group Services N.V. Belgium 100
Caterpillar Commercial Services Ltd. Canada 100
Caterpillar of Delaware, Inc. Delaware 100
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Subsidiary:
Caterpillar Industrial Products, Inc. Delaware 100
Subsidiary:
Nexus International Inc. Delaware 100
Caterpillar Export Limited Virgin Islands 100
Caterpillar Financial Services Corporation Delaware 100
Affiliate:
Bio-energy Partners Illinois 50
Subsidiaries:
Caterpillar Finance France S.A. France 100
Caterpillar Financial Australia Limited Australia 100
Caterpillar Financial Leasing, S.A. Spain 100
Caterpillar Financial Corporacion Financiero S.A. Spain 100
Caterpillar Financial Nordic Services A.B. Sweden 100
Subsidiary:
Caterpillar Financial Services Norway AS Norway 100
Caterpillar Financial Receivables Inc. Delaware 100
Caterpillar Financial Services Holding GmbH Germany 100
Affiliates:
EDC European Excavator Design Center
GmbH & Co. KG Germany 40
EDC European Excavator Design Center
Verwaltungs GmbH Germany 40
Subsidiaries:
Caterpillar Leasing GmbH (Ismaning) Germany 100
Caterpillar Leasing GmbH (Leipzig) Germany 100
Caterpillar Financial Services Limited Canada 100
Caterpillar Financial Services (U.K.) Limited England 100
Caterpillar Financial Services N.V. Netherlands Antilles 100
Caterpillar Industrial Inc. Ohio 100
Affiliates:
Mitsubishi Caterpillar Forklift America Inc. Delaware 20
Affiliate:
Material Handling Associates, Inc. Delaware 50
Mitsubishi Caterpillar Forklift Asia Pte. Ltd. Singapore 20
Mistubishi Caterpillar Forklift Europe B.V. Netherlands 20
Rapidparts Inc. Michigan 50
Subsidiary:
Matchparts N.V. Belgium 50.5
Caterpillar Insurance Co. Ltd. Bermuda 100
Caterpillar Insurance Services Corporation Tennessee 100
Caterpillar Investment Management Ltd. Delaware 100
Caterpillar Logistics Services, Inc. Delaware 100
Subsidiary:
Caterpillar Logistics Services Belgium N.V. Belgium 100
Caterpillar Logistics Services Spain Spain 100
Caterpillar Overseas Credit Corporation S.A. Switzerland 100
Caterpillar Overseas S.A. Switzerland 100
Affiliates:
Caterpillar MHI Marketing Ltd. Japan 50
Shin Caterpillar Mitsubishi Ltd. Japan 50
Affiliates:
Aishin Co. Japan 40
D.O.M. Ltd. Japan 10
G. M. Kenki Lease Co. Japan 37.57
Hokken Service Co. Japan 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Itoh Tekkosho Co., Ltd. Japan 34
K-Lea Co., Ltd. Japan 9.8
Rentec Co. Japan 10
Sowa System Co. Japan 35
Tunnel Rental Co., Ltd. Japan 9.5
Subsidiaries:
Chubu Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
CMEC Co., Ltd. Japan 100
CM Human Services Co., Ltd. Japan 100
East Chugoku Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
East Kanto Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Affiliate:
Tone Lease Co. Japan 18.3
Hokkaido Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Subsidiary:
Shin Hokken Ltd. Japan 100
Hokuetsu Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Affiliates:
F. M. K. Co., Ltd. Japan 25
Hokuriku Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 51
Affiliate:
Dia Rental Hokuriku Co., Ltd. Japan 15
Kanagawa Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Kansai Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Kinki Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Affiliate:
Rental Sanwa Co., Ltd. Japan 30
Koshin Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
North Kanto Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Sagami GS Co., Ltd. Japan 100
SCM Operator Training Co., Ltd. Japan 100
SCM System Service Co., Ltd. Japan 100
Shizuoka Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 51
Tokyo Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
West Chugoku Caterpillar Mitsubishi Construction
Equipment Sales, Ltd. Japan 100
Affiliate:
Yeep Co. Japan 16.7
Tractor Engineers Limited India 50
Subsidiaries:
Caterpillar (Africa) (Proprietary) Limited South Africa 100
Caterpillar Belgium S. A. Belgium 100
Caterpillar Commercial APS Denmark 100
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Caterpillar Commercial S.A.R.L. France 100
Caterpillar Commerciale S.r.L. Italy 100
Caterpillar Far East Limited Hong Kong 100
Subsidiaries:
Caterpillar China Limited Hong Kong 100
Caterpillar Asia Limited Hong Kong 100
Caterpillar France S.A. France 100
Caterpillar Hungary Component Manufacturing
Company Ltd. Hungary 85.7
Caterpillar Logistics Services Limited England 100
Mec-Track S.r.L. Italy 100
Caterpillar (U.K.) Limited England 100
P.T. Natra Raya Indonesia 80
Solar Turbines Canada Ltd. Canada 100
Solar Turbines S.A. Belgium 100
Caterpillar Paving Products Inc. Oklahoma 100
Subsidiary:
Caterpillar Materiels Routiers S.A. France 100
Caterpillar Securities Inc. Delaware 100
Caterpillar Risk Management Services Ltd. Delaware 100
Caterpillar Services Limited Delaware 100
Caterpillar World Trading Corporation Delaware 100
Caterpillar Mexico S.A. de C.V. Mexico 100
Subsidiary:
Inmobiliaria Conek, S.A. Mexico 100
Engine Service Specialists, Inc. Delaware 100
Subsidiaries:
Road Ready Inc. Delaware 100
RR-1 Limited Partnership Illinois 68.35
Solar Turbines Incorporated Delaware 100
Subsidiaries:
Compsolven Corporation California 100
OTSG, Inc. Delaware 100
Affiliate:
Innovative Steam Technologies California 50
Solar Turbines International Company Delaware 100
Affiliate:
Turboservices SDN BHD Malaysia 26
Subsidiaries:
Energy Services International Denmark Denmark 100
Energy Services International Limited Bermuda 100
Servtech Limited Ireland 100
Turbinas Solar S.A. de C.V. Mexico 100
Turbinas Solar de Venezuela, C.A. Venezuela 100
Turbo Tecnologia de Reparaciones S.A. de C.V. Mexico 100
Tecnologia Modificada S.A. de C.V. Mexico 100
</TABLE>
____________________________
* Qualifying shares have been ignored in giving ownership percentage figures.
For further information see Notes to Consolidated Financial Statements
incorporated by reference from the 1995 Annual Meeting Proxy Statement.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 2-90123, as amended, 2-97450, as amended, 33-3718,
as amended, 33-8003, 33-14116, 33-37353, 33-39280 and 33-40598) of Caterpillar
Inc. of our report dated January 19, 1995 related to the financial statements of
Caterpillar Inc., appearing on page A-3 of the Appendix to the Company's 1995
Annual Meeting Proxy Statement which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule listed in Item 14(a) of such Annual Report on
Form 10-K.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-46194) of
Caterpillar Inc. of our report dated January 19, 1995 related to the financial
statements of Caterpillar Inc., appearing on page A-3 of the Appendix to the
Company's 1995 Annual Meeting Proxy Statement which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule listed in Item 14(a) of this Form
10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Peoria, Illinois
February 17, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 69
<SECURITIES> 350
<RECEIVABLES> 2,971<F1>
<ALLOWANCES> 0<F1><F2>
<INVENTORY> 1,835
<CURRENT-ASSETS> 7,409
<PP&E> 8,230
<DEPRECIATION> 4,454
<TOTAL-ASSETS> 16,250
<CURRENT-LIABILITIES> 5,498
<BONDS> 4,270
<COMMON> 200
0<F2>
0<F2>
<OTHER-SE> 2,711
<TOTAL-LIABILITY-AND-EQUITY> 16,250
<SALES> 13,863
<TOTAL-REVENUES> 14,328
<CGS> 10,834
<TOTAL-COSTS> 12,894
<OTHER-EXPENSES> (39)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 200
<INCOME-PRETAX> 1,273
<INCOME-TAX> 354
<INCOME-CONTINUING> 955
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 955
<EPS-PRIMARY> 4.70
<EPS-DILUTED> 4.65
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the Statement
of Financial Position or Results of Operations are reported as zero
herein.
</FN>
</TABLE>
<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 [ ]
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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
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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
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